---

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-K



| | þ | ANNUAL
                                                                                                                                                REPORT
                                                                                                                                                PURSUANT
                                                                                                                                                TO
                                                                                                                                                SECTION
                                                                                                                                                13
                                                                                                                                                OR
                                                                                                                                                15(d)
                                                                                                                                                OF
                                                                                                                                                THE
                                                                                                                                                SECURITIES
                                                                                                                                                EXCHANGE
                                                                                                                                                ACT
                                                                                                                                                OF
                                                                                                                                                1934
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the fiscal year ended June 30, 2013



| |  ̈ | TRANSITION
                                                                                                          REPORT PURSUANT TO SECTION
                                                                                                          13 OR 15(d) OF THE SECURITIES
                                                                                                          EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the transition period from ______________
to ______________



Commission File Number: 001-34250







SEVEN
ARTS ENTERTAINMENT INC.

(Formerly Seven Arts Pictures, PLC)

(Exact name of Registrant as specified
in its charter)



|Nevada                   |  | 45-3138068                          
|------------------------ |  | ------------------------------------
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)



|8439
                                                                                     Sunset Blvd., Suite 402
        Los Angeles, California |  | 90069     
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------
|(Address of principal executive offices)                                                                                                          |  | (Zip Code)



Registrant’s telephone number:
Phone: (323) 372-3080; Fax: (323) 389-0664



Securities registered pursuant to Section
12(b) of the Act:

None



Securities registered pursuant to Section
12(g) of the Act:



Common Stock; $0.01 Par Value

(Title of Class)



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.   Yes o No þ



Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes o
No þ



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.   Yes þ No o



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).   Yes þ    No
o



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ



Indicate by a check mark whether the Registrant is a large
filer, an accredited filer, non-accredited filer, or a smaller reporting company. See the definitions of “large accredited
filer”, “accredited filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



|Large accredited filer | o | Accredited filer          | o
|---------------------- | - | ------------------------- | -
|                       |   |                           |  
|Non-accredited filer   | o | Smaller reporting company | þ



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



The aggregate market value of common stock, par value $0.01
per share, held by non-affiliates of the registrant, based on the average bid and asked prices of the common stock on December
31, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $43,067,018.   For
purposes of this computation, all officers, directors and 10% beneficial owners of the registrant are deemed to be affiliates.
Such determination should not be deemed an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates
of the registrant.



Number of common shares outstanding as of October 15, 2013
was 219,276,228.



DOCUMENTS INCORPORATED BY REFERENCE



Listed below are documents incorporated herein by reference
and the part of this Report into which each such document is incorporated:



None



---

---











SEVEN ARTS ENTERTAINMENT, INC.

FORM 10-K

TABLE OF CONTENTS



|        |                                                                                                                  | Page
    No.
|------- | ---------------------------------------------------------------------------------------------------------------- | ------------
|        | PART 1                                                                                                           |             
|        |                                                                                                                  |             
|ITEM 1  | BUSINESS                                                                                                         | 4           
|ITEM 1A | RISK FACTORS                                                                                                     | 26          
|ITEM 1B | UNRESOLVED STAFF COMMENTS                                                                                        | 26          
|ITEM 2  | PROPERTIES                                                                                                       | 26          
|ITEM 3  | LEGAL PROCEEDINGS                                                                                                | 27          
|        |                                                                                                                  |             
|        | PART II                                                                                                          |             
|        |                                                                                                                  |             
|ITEM 5  | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITOES | 29          
|ITEM 6  | SELECTED FINANCIAL DATA                                                                                          | 37          
|ITEM 7  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
    AND RESULTS OF OPERATIONS                        | 37          
|ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                       | 49          
|ITEM 8  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                      | 49          
|ITEM 9  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE                         | 50          
|ITEM 9A | CONTROLS AND PROCEDURES                                                                                          | 50          
|ITEM 9B | OTHER INFORMATION                                                                                                | 51          
|        |                                                                                                                  |             
|        | PART III                                                                                                         |             
|        |                                                                                                                  |             
|ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                           | 52          
|ITEM 11 | EXECUTIVE COMPENSATION                                                                                           | 59          
|ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    AND RELATED STOCKHOLDER MATTERS               | 60          
|ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE                                    | 61          
|ITEM 14 | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                           | 64          
|        |                                                                                                                  |             
|        | PART IV                                                                                                          |             
|        |                                                                                                                  |             
|ITEM 15 | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                          | 65          



2







FORWARD-LOOKING STATEMENTS



This annual report on Form 10-K includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange
Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and
predictions about future results and events. These statements may use words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “predict,” “project” and similar expressions
as they relate to us or our management. When we make forward-looking statements, we are basing them on our management’s
beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties
and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that
can cause or contribute to these differences include those described under the headings “Risk Factors” and “Management
Discussion and Analysis and Plan of Operation.”



If one or more of these or other risks or uncertainties materialize,
or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking
statement you read in this annual report reflects our current views with respect to future events and is subject to these and
other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All
subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified
in their entirety by this paragraph. You are cautioned not to place undue reliance on forward-looking statements, which speak
only as of the date of this annual report. The Company expressly disclaims any obligation to release publicly any updates or revisions
to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that
such forward-looking statements will prove to be correct.



3







PART I



ITEM 1. BUSINESS



Corporate History and Current Corporate Structure



Nature of Activities, History and Organization:



Seven Arts Entertainment, Inc. (herein referred to as “the
Company”, “Seven Arts”, “SAE,” or “We”), a Nevada Corporation, is the continuation of
certain business of Seven Arts Pictures Plc. (“PLC”), which was founded in 2002 as an independent motion picture production
and distribution company engaged in the development, acquisition, financing, production, and licensing of theatrical motion pictures
for exhibition in domestic (i.e., the United States and Canada) and foreign theatrical markets, and for subsequent
worldwide release in other forms of media, including home video and pay and free television. The Company currently owns interests
in 39 completed motion pictures, subject in certain instances to the prior financial interests of other parties.



Seven Arts Music Inc. (“SAM”) became a wholly owned
subsidiary of the Company on February 23, 2012, although transaction costs had been incurred as early as September 2011. The first
of the DMX albums acquired from David Michery was released on September 11, 2012. The first of the Bones Thugs-N-Harmony albums
is fully delivered to the Company as of June 30, 2013 and scheduled for release in November, 2013. Several other new artists are
being considered by SAM.  The agreements under which SAM acquired its music assets were effective as of September 29,
2011 (Big Jake Music) and December 19, 2011 (Michery Assets) publicly announced and commenced business activities commenced on
those dates, but definitive agreements were not executed, nor control gained, until February 23, 2012.



On June 30, 2012 Seven Arts Filmed Entertainment Louisiana
LLC (“SAFELA”) was transferred to the Company. SAFELA, which is now 60% owned by the Company, has a 30 year lease
to operate a film production and post-production facility at 807 Esplanade in New Orleans, Louisiana. The post production facility
commenced operations on July 1, 2012.



On June 11, 2010, SAE, was formed and became a wholly owned
subsidiary of PLC. As of June 11, 2010, the Company entered into an Asset Transfer Agreement, as amended on January 27, 2011 and
again on August 31, 2011, to transfer assets (as now reflected on our balance sheet) from PLC to SAE, in exchange for assumption
by SAE of all booked indebtedness (now reflected on our balance sheet) and for one share of common stock of SAE for each ordinary
share of PLC which have been distributed to shareholders. Additionally, 571 shares (2,000,000 shares as adjusted for the 1:70
and 1:50 reverse stock splits discussed herein) of SAE were issued to PLC as additional consideration to PLC. This transfer was
approved by the PLC shareholders at an Extraordinary General Meeting on June 11, 2010. The purpose of this transfer was to eliminate
our status as a foreign private issuer and to assume compliance with all obligations of a domestic issuer under all applicable
state and Federal securities laws.



On August 31, 2011, NASDAQ approved the substitution of one
share of SAE, Inc. stock for the Company’s NASDAQ listing, effective at the opening of trading on September 1, 2011. On
that date, each of the Company’s ordinary shares were exchanged for one share of common stock of SAE, and commenced trading
on NASDAQ as the successor to the Company’s NASDAQ listing. This transaction was approved by the Company’s stockholders
at the Company’s Extraordinary General Meeting on June 11, 2010. On August 31, 2012, the Company announced a 1-for-70 reverse
stock split, which was effective immediately. All share references herein have been adjusted to reflect this split.



On November 8, 2011, the Company’s listing predecessor,
PLC, was placed into involuntary creditors’ liquidation under English law.  Certain indebtedness of PLC remained
with PLC and will be subject to administration or payment in those administration proceedings.



On January 1, 2012, Seven Arts Film Entertainment Limited (“SAFE”)
sold all of its film assets to SAE for assumption of indebtedness. SAFE ceased operations on May 31, 2013 on closing of its office
in London, England. The Company plans to file for creditors voluntary liquidation of SAFE in England. The asset transfer agreement
had no impact on the Company’s consolidated financial statements.



In connection with the acquisition of the music assets of Michery,
the Company issued 100 ,000 shares of our Series B convertible preferred stock, par value $100 convertible at approximately $1.10
per share) to Michery and his assigns.  50,000 of these shares of the Company’s Series B convertible preferred
stock were placed in escrow.



During the quarter ended December 31, 2012, Mr. Michery converted
and sold 38,000 of the 50,000 shares of Series B that he and his assigns hold. The Company and Mr. Michery have agreed the remaining
50,000 shares of Series B in escrow will be disposed of by release of 20,000 shares of the Series B convertible preferred stock
to Mr. Michery in full satisfaction of any claims he may have against the Company and the balance of the 30,000 shares of Series
B will be cancelled. The release of the 20,000 shares has been recognized as services in the accompanying financial statements.  As
of June 30, 2013, Mr. Michery or his assigns hold 32,000 shares of Series B convertible preferred stock.



4







In connection
with the acquisition of the stock of BJM, the Company issued 80,000 shares of the Company’s Series B convertible preferred
stock, stated value $100 convertible at approximately $1.10 per share) to Jake Shapiro and his assigns. 70,000 shares of our
Series B convertible preferred stock were placed in escrow. The Company entered into a settlement agreement with Mr. Shapiro on
February 27, 2013 and all shares of Series B preferred stock held in escrow for him and persons associated with him have been
cancelled, with Mr. Shapiro and his assigns still holding 10,000 shares of Series B convertible preferred stock as of June 30,
2013. The name and the website of Big Jake Music were also reassigned to Mr. Shapiro as part of the settlement agreement.



Seven Arts Pictures Louisiana LLC, (“SAPLA”),
entered into a Credit Agreement with Advantage Capital Community Development Fund LLC dated October 11, 2007, for the
acquisition and improvement of the production and post-production facility located at 807 Esplanade Avenue in New Orleans,
Louisiana (“807 Esplanade”) for aggregate principal advances of up to $3,700,000. This agreement was guaranteed
by the Company’s predecessor. Approximately $3,700,000 plus interest has been drawn under the terms of this Credit
Agreement, as of June 30, 2012. The Company has now assumed the liability for $1,000,000 of this amount plus a contingent sum
of $750,000 (contingent on receipt of at least $5,000,000 in cash proceeds from the tax credits to be earned by SAPLA) due to
an agreement with the now mortgagor Palm Finance. A construction loan of $1,850,000 previously guaranteed by the Company has
now also been assumed by the Company, through SAFELA.



On May 2, 2013 and August 31, 2012, the Company effected one-for-fifty
and one-for-seventy reverse stock splits, respectively, collectively referred to as the Stock Splits. Unless otherwise noted,
all impacted amounts included in the consolidated financial statements and notes thereto have been retroactively adjusted for
the Stock Splits. Unless otherwise noted, impacted amounts include shares of common stock authorized and outstanding, share issuances
and cancellations, shares underlying preferred stock, convertible notes, warrants and stock options, shares reserved, conversion
prices of convertible securities, exercise prices of warrants and options, and loss per share.



Subject to appropriate and required regulatory filings and
approvals, we declared a dividend of Warrants to those persons beneficially owning our common stock as of the close of the markets
on August 31, 2012.  For every ten pre-reverse split shares of common stock held as of such date and time, the holders
thereof will be entitled to receive one Warrant as a dividend.  Until its expiration date on December 31, 2014, each
Warrant, once distributed following such approvals, will be exercisable for the purchase of one share of the Company’s post-reverse
split common stock at a price to be determined at the time the related Form S-1 is deemed effective.  We do not expect
that a secondary market will develop for the Warrants.



Trading of our common stock on The NASDAQ Capital Market was
suspended at the opening of business on September 14, 2012, due to our not meeting the $1 minimum bid price stock listing requirement
of The NASDAQ Stock Market for ten trading days prior to September 20, 2012, the expiration date on the Company’s six-month
extension to meet this listing requirement.



On September 14, 2012 our common stock began being quoted on
the OTC Market Group Inc.’s OTCQB tier under our historical symbol “SAPX.”



5







Capital Structure:



SAE’s authorized capital is 250,000,000 shares of capital
stock. SAE has authorized the following classes of stock:



|● | 249,000,000 of common stock, $.01 par value per share. As of June 30,
    2013, there are 46,323,297 shares of common stock outstanding . Each outstanding share of common stock entitles the holder
    thereof to one vote per share on matters submitted to a vote of stockholders.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                       
|● | 125,125 shares of Series A Preferred Stock with a $10.00 stated value per share.  All
    of such authorized shares were issued to one shareholder in November 2011. These shares have a conversion price to common
    stock of $10.50 per share.                                    
|  |                                                                                                                                                                                                                                                                                       
|● | 200,000 shares Series B Preferred Stock with a $100.00 stated value per share.  As
    of June 30, 2013, there are 43,580 shares outstanding.  The per share conversion price for the Series B Preferred
    Stock is $1.10 per share.                                                



SAE became a United States issuer and
commenced regular quarterly reporting from the first quarter ended September 30, 2011.



Production Activities of Our Predecessors



No production activities were undertaken by us until January
1, 2005 and all the production activities prior to that date were engaged in by our predecessors, CineVisions, SAPLA and SAP.
All our production activities after January 1, 2005 were under our direction or that of PLC. All the films discussed below were
produced or co-produced by our predecessors and were distributed by our predecessors. The Hustle and A
Shot at Glory were only distributed by our predecessors and were not produced by our predecessors.



Films Produced and Distributed from 1994-1998



Between 1996 and 1998, our predecessor CineVisions produced
and licensed the distribution rights for Johnny Mnemonic, Never Talk To Strangers, 9 1⁄2
Weeks II, and Shattered Image, which were assigned to us by SAP. CineVisions assigned all rights to distribute
these films to SAP, which in turn all such rights to us. Subsequently, all rights to 9 1⁄2 Weeks II were
assigned by court order to a third-party in final judgment. We own the copyright to the other motion pictures either directly
or through grants of all rights in perpetuity, through an affiliate.



Films Produced and Acquired by SAPL
and Fireworks



In 1998, SAPL entered into a joint venture agreement for the
production and distribution of motion pictures with Fireworks. Fireworks is a subsidiary of CanWest Global Entertainment, Inc.,
a large diversified Canadian media company. Pursuant to that joint venture, Fireworks and SAPL produced, acquired and distributed
11 motion pictures (the “Fireworks Pictures”), one of which was returned to the owner and two of which are among the
motion pictures now owned by us, Shot at Glory and The Hustle. All SAP’s interest in the Fireworks
Pictures were assigned to us in 2004 by SAP, which is the subject of the copyright infringement litigation as discussed in Management’s
Discussion And Analysis of Financial Condition and Results of Operations – Legal Proceedings.



Through SAPL, Mr. Hoffman produced and acquired Fireworks Rules
of Engagement, Onegin, The Believer, Who Is Cletis Tout and American Rhapsody.
These motion pictures are the subject of copyright infringement and contract claims that we, together with SAP and SAFE, have
brought against Fireworks and Content Film. See Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Legal Proceeding. In particular, in these proceedings, we now claim based on assignment from SAP ownership
of the following:



|a). | All copyright and distribution rights to American Rhapsody and Who
    Is Cletis Tout.
|--- | --------------------------------------------------------------------------------------
|b). | All international distribution rights to Onegin and The Believer.                     
|c). | All distribution rights outside the United States and Canada to Rules of Engagement.  



Films Co-Financed by SAPL



SAPL co-financed three motion pictures in conjunction with
Fireworks and Paramount. Of these motion pictures, we claim that one of them, Rules of Engagement, was transferred
to us by SAP in 2004. As set out below, this motion picture is the subject of copyright infringement and contract claims that
we, together with SAP and SAFE, have brought against Fireworks and Content Film. See Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Legal Proceedings.



6







We have since January 1, 2005 produced the following motion
pictures:



|Title                    |  | Talent             |                     | Delivery
        Date |       | 1st
                                                      U.S.
        Release |                     | DateDistribution
        RightsTerminate
|------------------------ |  | ------------------ | ------------------- | --------------------- | ----- | ------------------------------------------------------------------------------ | ------------------- | ----------------------------------------
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|American Summer aka      |  | Director:          | J.B. Rogers         |                       | 06/08 |                                                                                | 9/11                |                                         
|The Pool Boys (CR)       |  | Cast:              | Matthew Lillard     |                       |       |                                                                                |                     |                                         
|(All Territories)        |  |                    | Effren Ramirez      |                       |       |                                                                                |                     |                                         
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|Autopsy (CR)             |  | Director:          | Adam Gierasch       |                       | 06/08 |                                                                                | 1/09                |                                         
|(All Territories)        |  | Cast:              | Robert Patrick      |                       |       |                                                                                |                     |                                         
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|Deal (CR)                |  | Writer:            | Gil Cates, Jr.      |                       | 03/07 |                                                                                | 04/08               |                                         
|(All Territories)        |  |                    | & Marc Weinstock    |                       |       |                                                                                |                     |                                         
|                         |  | Director:          | Gil Cates, Jr.      |                       |       |                                                                                |                     |                                         
|                         |  | Cast:              | Burt Reynolds       |                       |       |                                                                                |                     |                                         
|                         |  |                    | Bret Harrison       |                       |       |                                                                                |                     |                                         
|                         |  |                    | Shannon Elizabeth   |                       |       |                                                                                |                     |                                         
|                         |  |                    | Jennifer Tilly      |                       |       |                                                                                |                     |                                         
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|Knife Edge               |  | Director:          | Anthony Hickox      |                       | 06/08 |                                                                                | 03/10               |                                         
|                         |  | Cast:              | Joan Plowright      |                       |       |                                                                                |                     |                                         
|                         |  |                    | Natalie Press       |                       |       |                                                                                |                     |                                         
|(All Territories)        |  |                    |                     |                       |       |                                                                                |                     |                                         
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|Night of the Demons (CR) |  | Director:          | Adam Gierasch       |                       | 06/09 |                                                                                | 10/10               |                                         
|                         |  | Cast:              | Shannon Elizabeth   |                       |       |                                                                                |                     |                                         
|(All Territories)        |  |                    | Edward Furlong      |                       |       |                                                                                |                     |                                         
|                         |  |                    | Diora Baird         |                       |       |                                                                                |                     |                                         
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|Nine Miles Down (CR)     |  | Director:          | Anthony Waller      |                       | 06/09 |                                                                                | 02/13               |                                         
|                         |  | Cast:              | Adrian Paul         |                       |       |                                                                                |                     |                                         
|(All Territories)        |  |                    | Kate Nauta          |                       |       |                                                                                |                     |                                         
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|Noise aka                |  | Writer/Director:   | Henry Bean          |                       | 03/07 |                                                                                | 05/08               |                                         
|The Rectifier            |  | Cast:              | Tim Robbins         |                       |       |                                                                                |                     |                                         
|(CR)                     |  |                    | William Hurt        |                       |       |                                                                                |                     |                                         
|(All Territories)        |  |                    | Bridget Moynahan    |                       |       |                                                                                |                     |                                         
|                         |  |                    | William Baldwin     |                       |       |                                                                                |                     |                                         
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|Pool Hall Prophets aka   |  | Writer/Director:   | Keoni Waxman        |                       | 09/05 |                                                                                | 12/05               |                                         
|Shooting Gallery         |  |                    |                     |                       |       |                                                                                |                     |                                         
|(CR)                     |  | Cast:              | Freddie Prinze, Jr. |                       |       |                                                                                |                     |                                         
|(All Territories)        |  |                    | Ving Rhames         |                       |       |                                                                                |                     |                                         
|                         |  |                    |                     |                       |       |                                                                                |                     |                                         
|Schism (CR)              |  | Writer / Director: | Adam Gierasch       |                       | 10/13 |                                                                                | scheduled Fall 2013 |                                         
|                         |  | Cast:              | Callum Blue         |                       |       |                                                                                |                     |                                         
|                         |  |                    | Vinnie Jones        |                       |       |                                                                                |                     |                                         



(All Territories )

Films Acquired by Us



7







We have acquired certain distribution rights to the following
motion pictures since January 1, 2005



|Title                           |  | Talent           |                            | Delivery
        Date |       | 1st
                                                      U.S.
        Release |       | DateDistribution
        RightsTerminate
|------------------------------- |  | ---------------- | -------------------------- | --------------------- | ----- | ------------------------------------------------------------------------------ | ----- | ----------------------------------------
|                                |  |                  |                            |                       |       |                                                                                |       |                                         
|Back In The Day                 |  | Writer:          | Michael Raffanello         |                       | 03/05 |                                                                                | 05/05 |                                         
|(All International Territories) |  | Director:        | James Hunter               |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | Ving Rhames                |                       |       |                                                                                |       |                                         
|                                |  |                  | Ja Rule                    |                       |       |                                                                                |       |                                         
|                                |  |                  |                            |                       |       |                                                                                |       |                                         
|Boo (1)                         |  | Writer/Director: | Anthony C. Ferrante        |                       | 03/05 |                                                                                | 10/05 |                                         
|(All International Territories) |  | Cast:            | Trish Cohen                |                       |       |                                                                                |       |                                         
|                                |  |                  | Happy Mahaney              |                       |       |                                                                                |       |                                         
|                                |  |                  |                            |                       |       |                                                                                |       |                                         
|A Broken Life                   |  | Writers:         | Neil Coombs, Anna Lee      |                       | 06/08 |                                                                                | 09/08 |                                         
|(All International Territories) |  |                  | & Grace Kosaka             |                       |       |                                                                                |       |                                         
|                                |  | Directors:       | Neil Coombs                |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | Tom Sizemore               |                       |       |                                                                                |       |                                         
|                                |  |                  | Ving Rhames                |                       |       |                                                                                |       |                                         
|                                |  |                  | Grace Kosaka               |                       |       |                                                                                |       |                                         
|                                |  |                  | Saul Rubinek               |                       |       |                                                                                |       |                                         
|                                |  |                  |                            |                       |       |                                                                                |       |                                         
|Cemetery Gates (1)              |  | Writer:          | Brian Patrick O’Tolle      |                       | 03/05 |                                                                                | 05/06 |                                         
|(All International Territories) |  | Director:        | Roy Knyrim                 |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | Reggie Bannister           |                       |       |                                                                                |       |                                         
|                                |  |                  |                            |                       |       |                                                                                |       |                                         
|Drunkboat                       |  | Writer:          | Bob Meyer & Randy Buescher |                       | 12/08 |                                                                                | 07/12 |                                         
|(All Territories)               |  | Director:        | Bob Meyer                  |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | John Malkovich             |                       |       |                                                                                |       |                                         
|                                |  |                  | John Goodman               |                       |       |                                                                                |       |                                         
|                                |  |                  | Dana Delaney               |                       |       |                                                                                |       |                                         
|                                |  |                  |                            |                       |       |                                                                                |       |                                         
|Gettin’ It                      |  | Writer/Director: | Nick Gaitatjis             |                       | 12/06 |                                                                                | 08/07 |                                         
|(All Territories)               |  | Cast:            | Jessica Canseco            |                       |       |                                                                                |       |                                         
|                                |  |                  | Patrick Censoplano         |                       |       |                                                                                |       |                                         
|                                |  |                  | Cheryl Dent                |                       |       |                                                                                |       |                                         
|                                |  |                  | Sandra Staggs              |                       |       |                                                                                |       |                                         



8







|Hades aka                                                                                                                                                                                         |  | Director: | Gabriel Bologna     |  | 5/09              |  | 04/10             |  | 10/26/2027
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------------------- |  | ----------------- |  | ----------------- |  | ----------
|The Black Waters of Echo Pond                                                                                                                                                                     |  | Cast:     | Robert Patrick      |  |                   |  |                   |  |           
|(All International                                                                                                                                                                                |  |           | Danielle Harris     |  |                   |  |                   |  |           
|Territories)                                                                                                                                                                                      |  |           |                     |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           |                     |  |                   |  |                   |  |           
|Men Don’t Lie                                                                                                                                                                                     |  | Director: | Jane Spencer        |  | not yet scheduled |  | not yet scheduled |  |           
|(All Territories)                                                                                                                                                                                 |  | Cast:     | Michael Madsen      |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           | Elle Travis         |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           |                     |  |                   |  |                   |  |           
|+ Popstar                                                                                                                                                                                         |  | Writer:   | Timothy Barton      |  | 03/05             |  | 11/05             |  | 10/19/2014
|(All International Territories)                                                                                                                                                                   |  | Director: | Richard Gabai       |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  | Cast:     | Aaron Carter        |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           | Alana Austin        |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           |                     |  |                   |  |                   |  |           
|+ Red Riding Hood                                                                                                                                                                                 |  | Writer:   | Timothy Dolan       |  | 03/06             |  | 06/06             |  | 5/2/2015  
|(All International Territories, ex. Indonesia, Israel, Japan, Latin American Satellite TV,
    Mexico, Middle East, Pan Asian Satellite TV, Portugal, Russia, Slovenia/Croatia, Thailand, Turkey) |  | Director: | Randall Kleiser     |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  | Cast:     | Lainie Kazan        |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           | Morgan Thompson     |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           |                     |  |                   |  |                   |  |           
|+ Supercross                                                                                                                                                                                      |  | Writer:   | Ken Solarz          |  | 08/05             |  | 5/25/2019         |  |           
|(All International Territories)                                                                                                                                                                   |  | Director: | Steve Boyum         |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  | Cast:     | Sophia Bush         |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           | Steve Howey         |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           | Cameron Richardson  |  |                   |  |                   |  |           
|                                                                                                                                                                                                  |  |           |                     |  |                   |  |                   |  |           
|The Wedding Chest                                                                                                                                                                                 |  | Writer:   | Ekaterina Tirdatova |  | 3/08              |  | not yet scheduled |  | 10/4/2021 
|(All International                                                                                                                                                                                |  | Director: | Nurbek Egen         |  |                   |  |                   |  |           
|Territories excluding                                                                                                                                                                             |  | Cast:     | Natasha Regnier     |  |                   |  |                   |  |           
|Russia, Germany and France)                                                                                                                                                                       |  |           | Bolot Tentimyshov   |  |                   |  |                   |  |           



We have lost the right to manage twelve motion pictures (designated
“+” in the table above) as a result of the exercise by the Arrowhead Target Fund of its rights under the Arrowhead
Loan described above at “Risk Factors” in August 2009.   Arrowhead is now collecting all sums receivable
with respect to these motion pictures and all interest in and receivables from these motion pictures has been removed from our
financial statements effective June 30, 2009, but Arrowhead has not foreclosed on the copyright and distribution rights of our
affiliate in these twelve motion pictures.



In addition, Palm Finance has the right (which it has not exercised)
to require that all sums payable to us with respect to the motion pictures Autopsy, The Pool Boys and Nine Miles
Down be paid directly to it, and not to us.



9







Business Strategy



The Company’s current business strategy is:



|● | To finance, produce and distribute two to four motion pictures per year
    with budgets of between $2 million and $15 million each. As previously stated, these pictures will receive only a limited
    theatrical release.  There can be no assurance as to the number of theaters or “print & advertising”
    expenditures we will be able to arrange one any of these motion pictures.  The Company’s next motion picture
    to be released is expected to be Schism in March 2014.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|● | To acquire and distribute sound recordings throughout the world, both as singles .and albums
    of both established and new recording artists. We except to release 3 to 4 albums per calendar year, including albums by the
    established urban artists DMX, the next one early in 2014, and Bone Thugs-N-Harmony, in December 2013.                                                                                                                                                  



|● | To supplement our core strategy by producing an occasional higher cost
    motion picture (production budgets of $30 - $60 million). We will seek to license such projects to a major studio to guarantee
    a studio-wide release and obtain a commitment to cover a portion or all of P&A costs as well as other distribution expenses,
    although no such agreement has yet been completed.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● | To opportunistically acquire distribution rights to an additional two
    to five motion pictures produced by others, each year, for distribution in theatrical, video and television markets, as an
    agent, for a 15%-20% fee.   We have acquired three motion pictures in the twelve months pursuant to this strategy.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● | To maximize our current use of tax-preferred financing
    structures around the world to fund our motion picture productions.
|- | ------------------------------------------------------------------------------------------------------------------------------



|● | To enter into arrangements with
                           theatrical and video distributors, to gain more control over and increase our share of the revenues
                           from distribution of our motion pictures by decreasing distribution fees, approval over distribution
                           strategy and distribution costs, and shorter license terms.  We have entered into such arrangements
                           in the United States, United Kingdom and Spain in the last twelve months.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|● | To expand our library of completed motion pictures, sound recordings, and musical compositions.                                                                                                                                                                                                                                                                                                                                                                                                                                   



|● | To scale our business over time by modestly increasing the number of
    pictures we develop and produce in-house as well as by more aggressively seeking to acquire for distribution motion pictures
    produced by third parties.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the last year, we have engaged in substantial pre-production
and development activities on our motion picture projects Winter Queen and Neuromancer, which will have production
budgets of approximately $20 million and $60 million, respectively.  By reason of the production costs, underlying materials
and creative elements attached (director and actor), we believe these large budget motion pictures will obtain a substantial theatrical
release in the United States and the international territories such as United Kingdom, Germany, Japan, France, Spain and Australia.  We
have also developed three lower budget motion pictures and acquired two as part of our distribution strategy.



10







Competitive Strength



The Company’s competitive strengths include:



|● | The experience of our management and our relationships with independent
    motion picture distributors.
|- | --------------------------------------------------------------------------------------------------------



|● | Our relationships with “key talent” (e.g., writer, director,
    actor and producer) and with independent motion picture distributors around the world.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------



|● | Our experience in structuring tax-preferred financings.              
|- | ---------------------------------------------------------------------
|  |                                                                      
|● | Our exclusive recording agreements with DMX and Bone Thugs-N-Harmony.



Production



Since 1996, we and our predecessors have developed, financed,
produced, and licensed 16 motion pictures, primarily with budgets in range of $2 million to $15 million, for domestic and international
markets. Most of our pictures have either received only limited theatrical releases or were released directly to post-theatrical
markets, primarily DVD. We may produce the occasional higher cost motion picture (production budgets of $30 - $60 million), and
if we do so, we will most likely choose to co-produce any such project with a major studio if they guarantee a studio-wide release
and provide a commitment to cover a portion or all of P&A costs or with one or more other independent production companies.
The number of pictures that we are able to produce and the size of the budget of those films depend upon the funds available to
us.



We receive between 50 and 100 submissions of potential film
projects or completed films every year, which generally include a “package” of a screenplay and certain talent elements
(e.g., producer, director and cast). In certain limited cases, we will arrange for the creation of a screenplay
and the “packaging” of creative elements. We commission independent production budgets of certain projects to evaluate
the project’s suitability for production or distribution. The pictures we produce are selected according to several key
criteria formulated to maximize the profit potential of our films, including the potential to license the worldwide distribution
rights to the film for an amount greater than the projected production budget (e.g., a minimum profit margin of
at least 20%), the potential for the film to be widely accepted as a “quality” or “good” film, whether
the key creative talent, including directors and two most prominent cast members, are likely to be both responsible and artistically
gifted in creating the motion picture. There are no “rules” or specific strategic limitations on our choice of motion
pictures to produce. The decision to move forward with a project is our Chief Executive Officer’s decision based on highly
subjective factors. However, we believe that the vast experience of our management team is critical to this decision-making process.
We will, however, only consider a motion picture with a production cost in excess of $15,000,000 if we are able to manage the
risks of production through “pre-sales” or equity contribution to production of that picture.



In 2007 Seven Arts Pictures Louisiana LLC (“SAPLA”),
acquired real property in New Orleans, Louisiana, which has been completed as a production and post- production facility for motion
pictures in Louisiana. Over the past five years, Louisiana has become a popular destination for the production of motion pictures
due to very favorable tax incentives. Since 2005, we have produced five motion pictures under the Louisiana Motion Picture Incentive
Act (the “Louisiana Incentives”), which provides substantial transferable tax credits for film production activities
in Louisiana accredited to us whether we produce or acquire a motion picture. The Louisiana Incentives provide generally that
the producer will receive both a 25% (now 30%) transferable investment tax credit on all film expenditures on Louisiana vendors
and a 10% (now 5%) transferable labor tax credit on all expenditures for labor performed in Louisiana by Louisiana residents.
We generally obtain loans during production of a motion picture in Louisiana secured by these tax credits after a “pre-certification”
by the Louisiana Film Office that the applicable motion picture qualifies for the Louisiana Incentives. We are then able to transfer
these tax credits at a discount to third parties upon completion of the motion picture, audit by independent accountants of the
applicable expenditures and “certification” by the Louisiana Film Office of tax credits payable based on the audited
expenditures. We use the proceeds from the transfer of the tax credits to third parties to repay the loan secured by the tax credits,
at which time the lender releases its security interest in the tax credits.



11







We are able to obtain similar refundable (but not transferable)
tax credits arising from film production expenditures in the United Kingdom, Canada, Ireland, Italy and Hungary which offer refundable
tax credits for production expenditures in each of their territories.



Our post-production facility in Louisiana opened for business
in July, 2012. We intend that this facility will be leased to our motion picture productions in Louisiana and to other motion
picture productions produced by unrelated parties. SAPLA secured a credit facility in the aggregate principal amount of $3,700,000,
which has been used to acquire and begin the improvements on the property. This credit facility carries an annual interest rate
of 2% plus the Prime Rate as published in The Wall Street Journal. We have guaranteed the amounts that SAPLA borrows
under this facility and no additional consideration is provided for this guarantee beyond the existing agreement between SAPLA
and us.



We entered into a new financing agreement with Palm in November,
2010 to refinance the existing indebtedness secured by our production and post- production facility in New Orleans, Louisiana
under which Palm has acquired the existing credit facility of $3,700,000 plus accrued interest of our affiliate SAPLA for $1,000,000
and agreed to advance an additional $1, 850,000 to complete renovation and construction of this facility. Palm’s advance
and interest at the rate of 15% per annum are due and payable within five years and are secured by the property at 807 Esplanade
Avenue in New Orleans and Louisiana film infrastructure and historical rehabilitation credits, as well as Federal historical rehabilitation
credits associated with the property. See Our Business – Production.



We do not anticipate the use of any material amount of our
working capital to complete and operate this facility, and we expect to realize substantial film production, film infrastructure,
historic rehabilitation and other state and federal tax credits and other tax incentives from the acquisition, renovation, and
operation of this property as a post- production facility. In particular, SAPLA anticipates approximately $3,500,000 in Louisiana
film infrastructure tax credits; $2,000,000 in Louisiana state historic rehabilitation tax credits and $2,300,000 in Federal historic
preservation tax credits will be available from expenditures in connection with this facility. The Louisiana tax credits may be
subject to litigation. See Legal Proceedings.



Licensing of Distribution Rights



We license distribution rights in our motion pictures in the
United States and in most foreign territories prior to and during the production or upon the acquisition of rights to distribute
a picture. We share in the commissions generated by the sales of the pictures. Sale of a license to distribute a motion picture
prior to its delivery is termed a “pre-sale” and may occur at any time during the development and production process.
In a typical license agreement, we license a picture to a distributor before it is produced or completed for an advance from the
licensee, which advance is recoverable by the distributor from our share of the revenues generated by the distribution of the
picture in the licensee’s territory, after deduction of the distributor’s expenses and distributor fee. The advance
usually is in the form of a cash deposit plus a letter of credit or “bank letter” for the balance payable 10-20% on
execution (i.e., the cash deposit) and the balance on delivery (i.e., the letter of credit or “bank
letter”). The license grants the distributor the right to the post-theatrical release of the picture in all or certain media
in their territory for a predetermined time period. After this time, the distribution rights revert back to us and we are then
free to re-license the picture. The license specifies that the distributor is entitled to recoup its advance from the revenue
generated by the release of the picture in all markets in its territory, as well as its release costs and distribution fees. After
the distributor has recouped its advance, costs, and fees, any remaining revenue is shared with us according to a predetermined
formula. This is known as an “overage” and can be a significant source of revenue for us from successful films. However,
a film’s poor reception in one market does not preclude it from achieving success in another market and generating significant
additional revenue for us in the form of an “overage” in that territory. In all of our licensing arrangements, we
retain ownership of our films and maintain our control of each copyright. We intend to continue the practice of retaining underlying
rights to our film projects in order to continue to build our motion picture library to license or sell in the future.



12







Finance



We create a separate finance plan for each motion picture we
produce. Accordingly, the sources of the funds for production of each motion picture vary according to each finance plan. We utilize
financing based on state and foreign country tax credits (e.g., Louisiana, United Kingdom and Hungary) and direct
subsidies), “mezzanine” or “gap” funds, which are senior to our equity, and senior secured financing with
commercial banks or private lenders, together in certain cases with a limited investment from us, which is customarily less than
10% of the production budget. Since each finance plan is unique to each motion picture, we cannot generalize as to the amount
we will utilize any of these sources of funds for a particular motion picture. We generally obtain some advances or guarantees
prior to commitment to production of a motion picture project, but those amounts may not be substantial on smaller budgeted motion
picture (e.g., under $10,000,000), and in certain cases we have committed to production with an insubstantial amount
of advances and guarantees. Unless we can manage the risks of production through the use of these financing techniques, we will
not likely commit to production of larger budget motion pictures (e.g., over $15,000,000), and we have never in
the past committed to such productions, without substantial advances or guarantees from third-party distributors, or the equivalent
in “non-recourse” financings.



Motion Picture Library



In total we and our predecessors have produced or acquired
interests in the following motion pictures to date described below in the table. We own (directly or through grants of all rights
in perpetuity of at least theatrical, video, and television rights) either (a) the copyright to each picture designated as “CR”
in the table below, or (b) distribution rights in the markets in which we operate for territories outside the United States and
Canada (i.e., “International Territory”) or for the territories designated in the table, for no less
than 15 years. Historically, in any financial period a small number of motion pictures have accounted for the vast majority of
our revenues generated from our motion picture library.



We have lost the right to manage twelve motion pictures (designated
“+” in the table below) as a result of the exercise by the Arrowhead Target Fund of its rights under the Arrowhead
Loan described above at “Risk Factors”. As a result, Arrowhead is collecting all sums receivable with respect to these
motion pictures and all interest in and receivables from these motion pictures has been removed from our financial statements
effective June 30, 2009, but Arrowhead has not foreclosed on the copyright and distribution rights of our affiliate in these twelve
motion pictures.



For purposes of this table, “Delivery Date” refers
to the date the applicable motion pictures is completed and available for delivery to distributors. The “1st US release”
is the date on which the film is first released in any medium (e.g., theatrical, video, television) in the United
States.



13







|Title                           |  | Talent           |                       | Delivery
        Date |       | 1st
                                                      U.S.
        Release |       | DateDistribution
        RightsTerminate
|------------------------------- |  | ---------------- | --------------------- | --------------------- | ----- | ------------------------------------------------------------------------------ | ----- | ----------------------------------------
|                                |  |                  |                       |                       |       |                                                                                |       |                                         
|American Summer aka             |  | Director:        | J.B. Rogers           |                       | 06/08 |                                                                                | 9/11  |                                         
|The Pool Boys (CR)              |  | Cast:            | Matthew Lillard       |                       |       |                                                                                |       |                                         
|(All Territories)               |  |                  | Effren Ramirez        |                       |       |                                                                                |       |                                         
|                                |  |                  |                       |                       |       |                                                                                |       |                                         
|+Asylum (CR)                    |  | Writer:          | Patrick Marber        |                       | 05/04 |                                                                                | 08/05 |                                         
|(All Territories)               |  | Director:        | David MacKenzie       |                       |       |                                                                                |       |                                         
|                                |  |                  | Ian McKellan          |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | Natasha Richardson    |                       |       |                                                                                |       |                                         
|                                |  |                  |                       |                       |       |                                                                                |       |                                         
|Autopsy (CR)                    |  | Director:        | Adam Gierasch         |                       | 06/08 |                                                                                | 1/09  |                                         
|(All Territories)               |  | Cast:            | Robert Patrick        |                       |       |                                                                                |       |                                         
|                                |  |                  |                       |                       |       |                                                                                |       |                                         
|Back In The Day                 |  | Writer:          | Michael Raffanello    |                       | 03/05 |                                                                                | 05/05 |                                         
|(All International Territories) |  | Director:        | James Hunter          |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | Ving Rhames           |                       |       |                                                                                |       |                                         
|                                |  |                  | Ja Rule               |                       |       |                                                                                |       |                                         
|                                |  |                  |                       |                       |       |                                                                                |       |                                         
|Boo (1)                         |  | Writer/Director: | Anthony C. Ferrante   |                       | 03/05 |                                                                                | 10/05 |                                         
|(All International Territories) |  | Cast:            | Trish Cohen           |                       |       |                                                                                |       |                                         
|                                |  |                  | Happy Mahaney         |                       |       |                                                                                |       |                                         
|                                |  |                  |                       |                       |       |                                                                                |       |                                         
|A Broken Life                   |  | Writers:         | Neil Coombs, Anna Lee |                       | 06/08 |                                                                                | 09/08 |                                         
|(All International Territories) |  |                  | & Grace Kosaka        |                       |       |                                                                                |       |                                         
|                                |  | Directors:       | Neil Coombs           |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | Tom Sizemore          |                       |       |                                                                                |       |                                         
|                                |  |                  | Ving Rhames           |                       |       |                                                                                |       |                                         
|                                |  |                  | Grace Kosaka          |                       |       |                                                                                |       |                                         
|                                |  |                  | Saul Rubinek          |                       |       |                                                                                |       |                                         
|                                |  |                  |                       |                       |       |                                                                                |       |                                         
|Captivity                       |  | Writer:          | Larry Cohen           |                       | 03/06 |                                                                                | 07/07 |                                         
|(All International Territories) |  | Director:        | Roland Joffe          |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | Elisha Cuthbert       |                       |       |                                                                                |       |                                         
|                                |  |                  |                       |                       |       |                                                                                |       |                                         
|Cemetery Gates (1)              |  | Writer:          | Brian Patrick O’Tolle |                       | 03/05 |                                                                                | 05/06 |                                         
|(All International Territories) |  | Director:        | Roy Knyrim            |                       |       |                                                                                |       |                                         
|                                |  | Cast:            | Reggie Bannister      |                       |       |                                                                                |       |                                         



14







|Deal (CR)                                   |  | Writer:          | Gil Cates, Jr.             |  | 03/07 |  | 04/08 |  | n/a       
|------------------------------------------- |  | ---------------- | -------------------------- |  | ----- |  | ----- |  | ----------
|(All Territories)                           |  |                  | & Marc Weinstock           |  |       |  |       |  |           
|                                            |  | Director:        | Gil Cates, Jr.             |  |       |  |       |  |           
|                                            |  | Cast:            | Burt Reynolds              |  |       |  |       |  |           
|                                            |  |                  | Bret Harrison              |  |       |  |       |  |           
|                                            |  |                  | Shannon Elizabeth          |  |       |  |       |  |           
|                                            |  |                  | Jennifer Tilly             |  |       |  |       |  |           
|                                            |  |                  |                            |  |       |  |       |  |           
|Drunkboat                                   |  | Writer:          | Bob Meyer & Randy Buescher |  | 12/08 |  | 7/12  |  | 4/28/2016 
|(All Territories)                           |  | Director:        | Bob Meyer                  |  |       |  |       |  |           
|                                            |  | Cast:            | John Malkovich             |  |       |  |       |  |           
|                                            |  |                  | John Goodman               |  |       |  |       |  |           
|                                            |  |                  | Dana Delaney               |  |       |  |       |  |           
|                                            |  |                  |                            |  |       |  |       |  |           
|Gettin’ It                                  |  | Writer/Director: | Nick Gaitatjis             |  | 12/06 |  | 08/07 |  | 4/4/2017  
|(All Territories)                           |  | Cast:            | Jessica Canseco            |  |       |  |       |  |           
|                                            |  |                  | Patrick Censoplano         |  |       |  |       |  |           
|                                            |  |                  | Cheryl Dent                |  |       |  |       |  |           
|                                            |  |                  | Sandra Staggs              |  |       |  |       |  |           
|                                            |  |                  |                            |  |       |  |       |  |           
|Hades aka                                   |  | Director:        | Gabriel Bologna            |  | 5/09  |  | 04/10 |  | 10/26/2027
|The Black Waters of Echo Pond               |  | Cast:            | Robert Patrick             |  |       |  |       |  |           
|(All International Territories)             |  |                  | Danielle Harris            |  |       |  |       |  |           
|                                            |  |                  |                            |  |       |  |       |  |           
|+ The Hustle                                |  | Writers:         | David Howard               |  | 10/02 |  | 12/02 |  | n/a       
|(CR)                                        |  |                  | & Michael Capellupo        |  |       |  |       |  |           
|(All Territories except Germany and Canada) |  | Director:        | Stuart Cooper              |  |       |  |       |  |           
|                                            |  | Cast:            | Bobbie Phillips            |  |       |  |       |  |           
|                                            |  |                  | Robert Wagner              |  |       |  |       |  |           
|                                            |  |                  |                            |  |       |  |       |  |           
|+ I’ll Sleep When                           |  | Writer:          | Trevor Preston             |  | 06/04 |  | 06/04 |  | n/a       
|I’m Dead (CR) (1)                           |  | Director:        | Mike Hodges                |  |       |  |       |  |           
|(All International Territories)             |  | Cast:            | Clive Owen                 |  |       |  |       |  |           
|                                            |  |                  | Malcolm McDowell           |  |       |  |       |  |           
|                                            |  |                  | Jonathan Rhys Meyers       |  |       |  |       |  |           
|                                            |  |                  |                            |  |       |  |       |  |           
|+ Johnny Mnemonic                           |  | Writer:          | William Gibson             |  | 12/94 |  | 05/95 |  | n/a       
|(CR)                                        |  | Director:        | Robert Longo               |  |       |  |       |  |           
|(All Territories)                           |  | Cast:            | Keanu Reeves               |  |       |  |       |  |           
|                                            |  |                  | Dolph Lundgren             |  |       |  |       |  |           



15







|Title                     |  | Talent                  |                                         | Delivery
        Date |                   | 1st
                                                      U.S.
        Release |                   | DateDistribution
        RightsTerminate
|------------------------- |  | ----------------------- | --------------------------------------- | --------------------- | ----------------- | ------------------------------------------------------------------------------ | ----------------- | ----------------------------------------
|                          |  |                         |                                         |                       |                   |                                                                                |                   |                                         
|Knife Edge                |  | Director:               | Anthony Hickox                          |                       | 06/08             |                                                                                | 03/10             |                                         
|                          |  | Cast:                   | Joan Plowright                          |                       |                   |                                                                                |                   |                                         
|(All Territories)         |  |                         | Natalie Press                           |                       |                   |                                                                                |                   |                                         
|                          |  |                         |                                         |                       |                   |                                                                                |                   |                                         
|Men Don’t Lie             |  | Director:               | Jane Spencer                            |                       | not yet scheduled |                                                                                | not yet scheduled |                                         
|(All Territories)         |  | Cast:                   | Michael Madsen                          |                       |                   |                                                                                |                   |                                         
|                          |  |                         | Elle Travis                             |                       |                   |                                                                                |                   |                                         
|                          |  |                         |                                         |                       |                   |                                                                                |                   |                                         
|+ Never Talk To Strangers |  | Writers:                | Lewis A. Green                          |                       | 09/95             |                                                                                | 10/95             |                                         
|(CR) (1)                  |  |                         | & Jordan Rush                           |                       |                   |                                                                                |                   |                                         
|(All Territories)         |  | Director:               | Peter Hall                              |                       |                   |                                                                                |                   |                                         
|                          |  | Cast:                   | Antonio Banderas                        |                       |                   |                                                                                |                   |                                         
|                          |  |                         | Rebecca DeMornay                        |                       |                   |                                                                                |                   |                                         
|                          |  |                         |                                         |                       |                   |                                                                                |                   |                                         
|Night of the Demons (CR)  |  | Director:
        Cast: | Adam Gierasch
        Shannon Elizabeth |                       | 06/09             |                                                                                | 10/10             |                                         
|(All Territories)         |  |                         | Edward Furlong                          |                       |                   |                                                                                |                   |                                         
|                          |  |                         | Diora Baird                             |                       |                   |                                                                                |                   |                                         
|                          |  |                         |                                         |                       |                   |                                                                                |                   |                                         
|Nine Miles Down (CR)      |  | Director:
        Cast: | Anthony Waller
        Adrian Paul      |                       | 06/09             |                                                                                | 2/13              |                                         
|(All Territories)         |  |                         | Kate Nauta                              |                       |                   |                                                                                |                   |                                         
|                          |  |                         |                                         |                       |                   |                                                                                |                   |                                         
|Noise aka                 |  | Writer/Director:        | Henry Bean                              |                       | 03/07             |                                                                                | 05/08             |                                         
|The Rectifier             |  | Cast:                   | Tim Robbins                             |                       |                   |                                                                                |                   |                                         
|(CR)                      |  |                         | William Hurt                            |                       |                   |                                                                                |                   |                                         
|(All Territories)         |  |                         | Bridget Moynahan                        |                       |                   |                                                                                |                   |                                         
|                          |  |                         | William Baldwin                         |                       |                   |                                                                                |                   |                                         
|                          |  |                         |                                         |                       |                   |                                                                                |                   |                                         
|+ No Good Deed (CR)       |  | Writer:                 | Christopher Canaan                      |                       | 05/02             |                                                                                | 09/03             |                                         
|(All Territories)         |  |                         | & Steve Barancik                        |                       |                   |                                                                                |                   |                                         
|                          |  | Director:               | Bob Rafelson                            |                       |                   |                                                                                |                   |                                         
|                          |  | Cast:                   | Samuel L. Jackson                       |                       |                   |                                                                                |                   |                                         
|                          |  |                         | Milla Jovovich                          |                       |                   |                                                                                |                   |                                         



16







|Title                                                                                                                                                                                             |  | Talent           |                                                        | Delivery
        Date |       | 1st
                                                      U.S.
        Release |                       | DateDistribution
        RightsTerminate
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------------------------------------------------------ | --------------------- | ----- | ------------------------------------------------------------------------------ | --------------------- | ----------------------------------------
|                                                                                                                                                                                                  |  |                  |                                                        |                       |       |                                                                                |                       |                                         
|Pool Hall Prophets aka                                                                                                                                                                            |  | Writer/Director: | Keoni Waxman                                           |                       | 09/05 |                                                                                | 12/05                 |                                         
|Shooting Gallery                                                                                                                                                                                  |  |                  |                                                        |                       |       |                                                                                |                       |                                         
|(CR)                                                                                                                                                                                              |  | Cast:            | Freddie Prinze, Jr.                                    |                       |       |                                                                                |                       |                                         
|(All Territories)                                                                                                                                                                                 |  |                  | Ving Rhames                                            |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  |                                                        |                       |       |                                                                                |                       |                                         
|+ Popstar                                                                                                                                                                                         |  | Writer:          | Timothy Barton                                         |                       | 03/05 |                                                                                | 11/05                 |                                         
|(All International Territories)                                                                                                                                                                   |  | Director:        | Richard Gabai                                          |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  | Cast:            | Aaron Carter                                           |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  | Alana Austin                                           |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  |                                                        |                       |       |                                                                                |                       |                                         
|+ Red Riding Hood                                                                                                                                                                                 |  | Writer:          | Timothy Dolan                                          |                       | 03/06 |                                                                                | 06/06                 |                                         
|(All International Territories excl Indonesia, Israel, Japan, Latin American Satellite TV,
    Mexico, Middle East, Pan Asian Satellite TV, Portugal, Russia, Slovenia/Croatia, Thailand, Turkey) |  | Director:        | Randall Kleiser                                        |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  | Cast:            | Lainie Kazan                                           |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  |                                                        |                       |       |                                                                                |                       |                                         
|Schism
        (RR)
        (All territories)                                                                                                                                                     |  | Writer/ Director | Adam Gierasch
        Callum Blue
        Vinnie Jones |                       | 10/13 |                                                                                | Scheduled Winter 2014 |                                         
|                                                                                                                                                                                                  |  |                  |                                                        |                       |       |                                                                                |                       |                                         
|+ Shattered Image                                                                                                                                                                                 |  | Writer:          | Duane Poole                                            |                       | 06/98 |                                                                                | 12/98                 |                                         
|(CR) (1)                                                                                                                                                                                          |  | Director:        | Raul Ruiz                                              |                       |       |                                                                                |                       |                                         
|(All Territories)                                                                                                                                                                                 |  | Cast:            | William Baldwin                                        |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  | Anne Parillaud                                         |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  |                                                        |                       |       |                                                                                |                       |                                         
|+ A Shot At Glory                                                                                                                                                                                 |  | Writer:          | Denis O’Neill                                          |                       | 01/02 |                                                                                | 05/02                 |                                         
|(All International Territories)                                                                                                                                                                   |  | Director:        | Michael Corrente                                       |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  | Cast:            | Robert Duvall                                          |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  | Michael Keaton                                         |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  |                                                        |                       |       |                                                                                |                       |                                         
|+ Stander (CR)                                                                                                                                                                                    |  | Writer:          | Bima Stagg                                             |                       | 10/03 |                                                                                | 08/04                 |                                         
|(All Territories)                                                                                                                                                                                 |  | Director:        | Bronwen Hughes                                         |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  | Cast:            | Thomas Jane                                            |                       |       |                                                                                |                       |                                         
|                                                                                                                                                                                                  |  |                  | Deborah Unger                                          |                       |       |                                                                                |                       |                                         



17







|Title                           |  | Talent    |                     | Delivery
        Date |       | 1st
                                                      U.S.
        Release |                   | DateDistribution
        Rights
        Terminate
|------------------------------- |  | --------- | ------------------- | --------------------- | ----- | ------------------------------------------------------------------------------ | ----------------- | -------------------------------------------------
|+ Supercross                    |  | Writer:   | Ken Solarz          |                       | 08/05 |                                                                                | 5/25/2019         |                                                  
|(All International Territories) |  | Director: | Steve Boyum         |                       |       |                                                                                |                   |                                                  
|                                |  | Cast:     | Sophia Bush         |                       |       |                                                                                |                   |                                                  
|                                |  |           | Steve Howey         |                       |       |                                                                                |                   |                                                  
|                                |  |           | Cameron Richardson  |                       |       |                                                                                |                   |                                                  
|                                |  |           |                     |                       |       |                                                                                |                   |                                                  
|The Wedding Chest               |  | Writer:   | Ekaterina Tirdatova |                       | 3/08  |                                                                                | not yet scheduled |                                                  
|(All International              |  | Director: | Nurbek Egen         |                       |       |                                                                                |                   |                                                  
|Territories excluding           |  | Cast:     | Natasha Regnier     |                       |       |                                                                                |                   |                                                  
|Russia, Germany and France)     |  |           | Bolot Tentimyshov   |                       |       |                                                                                |                   |                                                  



| | (1) | Indicates a motion picture for which we do not own the distribution
                                                                 rights in the United States and Canada.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | We have lost the right to manage twelve motion pictures (designated
                                                                 “+” in the table above) as a result of the exercise
                                                                 by the Arrowhead Target Fund of its rights under the Arrowhead
                                                                 Loan described above at “Risk Factors” in February
                                                                 2009.   Arrowhead is now collecting all sums receivable
                                                                 with respect to these motion pictures and all interest in and
                                                                 receivables from these motion pictures has been removed from
                                                                 our financial statements effective June 30, 2009, but Arrowhead
                                                                 has not foreclosed on the copyright and distribution rights of
                                                                 our affiliate in these twelve motion pictures.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, Palm Finance has the right (which it
has not exercised) to require that all sums payable to us with respect to the motion pictures Autopsy, The Pool Boysand Nine Miles Down be paid directly to it, and not to us.



| | (3) | The above table includes the 12 Arrowhead films and other
                                                                 pictures for which our license term has expired We continue to
                                                                 collect sums due under licenses entered into prior to expiration
                                                                 of our rights and have rights to acquire the expired distribution
                                                                 rights on a “first refusal” basis.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18







Recorded Music Business



The Company entered the business of production, acquisition,
marketing and sale of pre-recorded music in February 2012 by acquisition of music assets of Mr. Michery and 100% of the stock
of BJM.   SAM’s pre-recorded music products will include releases of the new musical performances of recording
artists, as well as compilations featuring various artists or repackaged releases of previously recorded music from our master
music catalogue and derived from licenses of music masters from third-parties.   Seven Arts Music Inc. (“SAM”)
became a wholly owned subsidiary of the Company on February 23, 2012, although start-up costs had been incurred as early as September
2011. The delivery of the first of the DMX albums acquired from David Michery has been released on September 11, 2012.  The
first album from Bone Thugs-N-Harmony (“BTH”) was delivered to us in February, 2013. Several other new artists are
being considered by SAM.  The agreements under which SAM acquired its music assets were effective as of September 29,
2011 (Big Jake Music) and December 19, 2011 (Michery Assets) publicly announced and business activities commenced on those dates,
but definitive agreements and change of control were not executed until February 23, 2012.



We currently own a music catalogue with 52 DMX masters and
18 BTH masters.  We intend to add to the music catalogue through strategic and complementary acquisitions, licensing
agreements, and by executing recording agreements with artists, production companies and other record labels with new recordings.
  No such arrangements have been completed.



In the future, as a general business practice, we intend to
enter into rights acquisition, licensing, distribution and recording agreements (“Recording Agreements”) with artists,
third-party record labels and production companies (“Artists”) to provide master recordings that have not been previously
released for sale to consumers (“New Masters”) as albums (“Albums”). Through each Recording Agreement,
if concluded, we will acquire the worldwide copyright and exclusive right to distribute and license music products derived from
the New Masters that will be recorded and produced by the Artists, during the term of the Recording Agreement or any extension
thereof. We will also acquire the exclusive right to record and market all New Masters of the recording artist(s) featured on
any and all New Masters recorded by the Artists during the term of the Recording Agreements. We will also have the right to extend
the term of the Recording Agreement through the exercise of multiple options pursuant to the terms of the Recording Agreements.
We currently have recording agreements with the established urban artist DMX (two albums) and Bone Thugs-N-Harmony (five albums).  We
have no other firm commitments for Recording Agreements.



Our rights to distribute masters now owned by us or pursuant
to our recording agreements with DMX and BTH are subject to no conditions except the payment of artist royalties and mechanical
royalties, require the artists’ exclusive services as recording artists during a designated period (usually a year) subject
to extension for an additional contract year at our sole option and permit us to produce and exploit music videos embodying the
artists’ performance at our sole discretion and cost. We expect new Recording Agreements will have such terms. All advances
made by us to produce master recording are and will be recoupable from artists’ royalties.



19







Most Recording Agreements (if entered into) will have an initial
term and will usually have up separate, consecutive, irrevocable options, to renew the term for additional periods, at our sole
discretion. As a condition of the initial term, and prior to exercising each option, we will be required to pay recoupable advances
to the label. Depending upon the initial success of any single, we will advance to the artist the costs to film and produce a
music video featuring the single song selected by us. Pursuant to the terms of the Recording Agreement, we have the right to supervise
and approve all elements of the music video. Once an acceptable music video is completed, we will use our efforts and pay third-party
promoters to secure airplay of the music video on regional and national music video shows, as part of our marketing of the particular
Album.



The marketing expenses we spend on any Album are variable,
because the actual amount of expenditures for each Album will depend upon our management’s business judgment and discretion,
about the commercial success (or lack thereof) of any Album, or the effectiveness of any Album’s marketing. At any point,
we can elect to continue to or discontinue spending money to market any individual Album. If the Album realizes commercial success
in the United States and Canada, the Album will be released in foreign territories.



Depending upon the terms of each Recording Agreement (if entered
into), we will pay each artist royalties from the net profits we actually receive from the sale of music products delivered during
the term of the Recording Agreement. According to the terms of each Recording Agreement, we will only be required to pay royalties
to a label after we recoup all advances (we make to or on behalf of the label) from artist’s percentage of net sales of
all music products derived from the New Master(s) delivered by the subject label.



Distribution Agreement



On February 23, 2012, we entered into an Exclusive Manufacturing
and Distribution Agreement (“Domestic Distribution Agreement”) with Fontana Records, a division of In Grooves, Inc.
(“Fontana”). Pursuant to this Agreement, Fontana will sell our music products, including compact discs, cassettes,
and digital versatile discs (DVD) to consumers mainly through retailers and wholesalers in the United States and Canada. During
the term of the Domestic Distribution Agreement, Fontana will be our exclusive manufacturer and distributor, through every distribution
channel of recorded music in the United States and Canada. Fontana will also exclusively handle all of our on-line sales during
the term of the Domestic Distribution Agreement.



In addition to distributing and selling our products, Fontana
will supervise and advance the costs of all of our manufacturing, and will warehouse all of our inventory. The Domestic Distribution
Agreement became effective February 23, 2012 and will continue until February 23, 2015. Fontana has the right to extend the term
of the Domestic Distribution Agreement for an additional two years, until February 23, 2017.



For each separate title of music products released, our management,
along with Fontana shall determine the applicable wholesale price per unit.



20







Under the Distribution Agreement, we are responsible for all
recording costs and rights acquisition costs in securing all intellectual property rights and licenses necessary to allow us to
sell records. We will be responsible for paying all marketing and promotion costs for each Album title that it releases commercially,
and will be responsible to pay artist royalties and royalties related to all licenses related to the exploitation of the Album
and its content.



Foreign License Agreement



We have entered into an international all-rights distribution
agreement with Fontana in all territories except Germany, Austria and Switzerland for distribution of DMX’s album “Undisputed,” where
we have entered into a distribution deal with [inGrooves].  We have entered into an agreement with another distributor for
distribution of “Undisputed” in the territories of Germany, Austria and Switzerland.



Sales of Compact Discs



Our rights to new master recordings will be embodied in Recording
Agreement with recording artists and production companies. In each Recording Agreement, we acquire the exclusive worldwide copyright
and right to manufacture, distribute and license products derived from the new master’s recordings created by those recording
artists.



As consideration for the rights granted to us, upon execution
of most Recording Agreements, we will pay advances to the recording artists and production companies that produce the music master
recordings that will be marketed and distributed by us. Each advance and a substantial proportion of our marketing expenditures
will be recouped from the portion of net sales attributed to the recording artists and production companies. We will not be obligated
to pay any royalties from those sales until the recording artists or the film production’s account is fully recouped.



Concurrent with a recording artist delivering a finished master,
we will submit the property to Fontana for manufacturing and distribution, and we initiate our marketing efforts, directed initially
at the North American (United States and Canadian) commercial release of the subject consumer entertainment product. Foreign sales
of the products will lag behind domestic sales, by up to a year.



Manufacturing, Distribution, Marketing and Sales



For each separate title of music products released our management,
along with Fontana, will determine the applicable wholesale price per unit for each product. For retail products selling between
$12.99 and $22.98, the wholesale prices per unit range between $7.79 and $13.79.



For digital consumer sales in the United States and Canada,
Fontana shall be entitled to a licensing fee equal to fifteen-percent (15%) of Seven Arts’ Net Licensing Billings. According
to the Domestic Distribution Agreement, Net Licensing Billings mean royalties or flat payments received by Fontana, on Seven Arts’
behalf, attributed to sales, other than sales through normal retail channels.



21







For each product that we elect to release commercially, we
will be responsible for marketing and advertising the product. Prior to the artist’s or production company’s final
deliver of its master, Seven Arts’ management will prepare a marketing plan each product.



Our management will determine the actual amount of money spent
marketing any new product. Our typical marketing budget per product will be approximately $300,000 (additional marketing costs
referred to as co-op, will be advanced by Fontana), the co-op marketing budget will be advanced by Fontana (in the form of co-op
advertising, free goods, artwork and point of purchase displays for retail promotion), and Fontana will deduct those costs from
Seven Arts’ net sales.



Our actual total marketing expenditures for any product is
within management’s business judgment and discretion. Depending on management’s judgment about the commercial success
(or lack thereof) of any of its product or the effectiveness of its marketing effort, will determine whether Seven Arts will continue
or discontinue marketing the product.



If the Album realizes commercial success in the United States
and Canada, approximately one (1) year after its initial release in the United States and Canada, the Album will be released in
major foreign territories, such as the United Kingdom, Japan, Australia, Germany, and France.



Competition



In both recorded music and music publishing we compete based
on price (to retailers in recorded music and to various end users in music publishing), on marketing and promotion (including
both how we allocate our marketing and promotion resources as well as how much we spend on a dollar basis) and on artist signings.
We believe we currently compete favorably in these areas.



Our recorded music business is also dependent on technological
development, including access to, selection and viability of new technologies, and is subject to potential pressure from competitors
as a result of their technological developments. Due to the growth in piracy, we are forced to compete with illegal channels such
as unauthorized, online, peer-to-peer file-sharing and CD-R activity. See “Recorded Music Industry – Piracy.”
Additionally, we compete, to a lesser extent, with alternative forms of entertainment and leisure activities, such as cable and
satellite television, pre-recorded films on videocassettes and DVD, the Internet, computers and videogames for disposable consumer
income.



The recorded music industry is highly competitive based on
consumer preferences, and is rapidly changing. The recorded music business relies on the exploitation of artistic talent. As such,
competitive strength is predicated upon the ability to continually develop and market new artists whose work gains commercial
acceptance. According to Music and Copyright, in 2008, the four largest major record companies were Universal, Sony Music Entertainment
(“Sony”), EMI Music (“EMI”) and WMG, which collectively accounted for approximately 74% of worldwide recorded
music sales. There are many mid-sized and smaller players in the industry that accounted for the remaining 26%, including independent
music companies. Universal was the market leader with a 29% worldwide market share in 2008, followed by Sony with a 21% share.
WMG and EMI held a 15% and 10% share of worldwide recorded music sales, respectively. While market shares change moderately year-to-year,
market shares have not historically changed significantly from year-to-year.



22







The music publishing business is also highly competitive. The
top four music publishers collectively account for approximately 68% of the market. Based on Music & Copyright’s most
recent estimates in May 2009, Universal Music Publishing Group, having acquired BMG Music Publishing Group in 2007, was the market
leader in music publishing in 2008, holding a 23% global share. EMI Music Publishing was the second largest music publisher with
an 18% share, followed by WMG (Warner/Chappell) at 15% and Sony/ATV Music Publishing LLC (“Sony/ATV”) at 12%. Independent
music publishers represent the balance of the market, as well as many individual songwriters who publish their own works.



Copyrights



Our business, like that of other companies involved in music
publishing and recorded music, rests on our ability to maintain rights in musical works and recordings through copyright protection.
In the U.S., copyright protection for works created as “works made for hire” (e.g., works of employees
or specially commissioned works) after January 1, 1978 lasts for 95 years from first publication or 120 years from creation, whichever
expires first. The period of copyright protection for musical compositions and sound recordings that are not “works made
for hire” lasts for the life of the author plus 70 years for works created on or after January 1, 1978. U.S. works created
prior to January 1, 1978 generally enjoy a total copyright life of 95 years, subject to compliance with certain statutory provisions
including notice and renewal. In the U.S., sound recordings created prior to February 15, 1972 are not subject to federal copyright
protection but are protected by common law rights or state statutes, where applicable. The term of copyright in the European Union
(“E.U.”) for musical compositions in all member states lasts for the life of the author plus 70 years. In the E.U.,
the term of copyright for sound recordings currently lasts for 50 years from the date of release. We are largely dependent on
legislation in each territory to protect our rights against unauthorized reproduction, distribution, public performance or rental.
In all territories where we operate, our products receive some degree of copyright protection, although the period of protection
varies widely. In a number of developing countries, the protection of copyright remains inadequate. The U.S. enacted the Digital
Millennium Copyright Act of 1998, creating a powerful framework for the protection of copyrights covering musical compositions
and recordings in the digital world. The potential growth of new delivery technologies, such as digital broadcasting, the Internet
and entertainment-on-demand has focused attention on the need for new legislation that will adequately protect the rights of producers.
We actively lobby in favor of industry efforts to increase copyright protection and support the efforts of organizations such
as the World Intellectual Property Organization (“WIPO”).



In December 1996, two global copyright treaties, the WIPO Copyright
Treaty and the WIPO Performances and Phonograms Treaty, were signed, securing the basic legal framework for the international
music industry to trade and invest in online music businesses. The WIPO treaties were ratified by the requisite number of countries,
including the U.S. The E.U. has implemented these treaties through the European Copyright Directive, which was adopted by the
E.U. in 2001. Legislation implementing the European Copyright Directive in each of the member states is underway. The European
Copyright Directive harmonizes copyright laws across Europe and extends substantial protection for copyrighted works online. The
E.U. has also put forward legislation aimed at assuring cross border coordination of the enforcement of laws related to counterfeit
goods, including musical recordings.



International Distribution



According to IFPI, the top five territories (the U.S., Japan,
the U.K., Germany and France) accounted for 74% of the related sales in the recorded music market in calendar year 2008. The U.S.,
which is the most significant exporter of music, is also the largest territory for recorded music sales, constituting 31% of total
calendar year 2008 recorded music sales on a retail basis. In addition, the U.S. and Japan are largely local music markets, with
93% and 80% of their calendar year 2008 physical music sales consisting of domestic repertoire, respectively. In contrast, the
U.K., Germany and France have a higher percentage of international sales, with domestic repertoire constituting only 36%, 52%
and 57% of these markets, respectively. There has been a major shift in distribution of recorded music from specialty shops towards
mass-market and online retailers.



Physical Sales vs. On-Line Sales



According to RIAA, record stores’ share of U.S. music
sales has declined from 45% in calendar year 1999 to 30% in calendar year 2008. Over the course of the last decade, U.S. mass-market
and other stores’ share grew from 38% in calendar 1999 to 54% in calendar year 2004, and with the subsequent growth of sales
via online channels since that time, their share contracted to 28% in calendar year 2008. In recent years, online sales of physical
product as well as digital downloads have grown to represent an increasing share of U.S. sales and combined they accounted for
28% of music sales in calendar year 2008. In terms of genre, rock remains the most popular style of music, representing 32% of
2008 U.S. unit sales, although genres such as rap/hip-hop, R&B, country and Latin music are also popular.



23







According to RIAA, from calendar years 1990 to 1999, the U.S.
recorded music industry grew at a compound annual growth rate of 7.6%, twice the rate of total entertainment spending. This growth,
largely paralleled around the world, was driven by demand for music, the replacement of vinyl LPs and cassettes with CDs, price
increases and strong economic growth. The industry began experiencing negative growth rates in calendar year 1999, on a global
basis, primarily driven by an increase in digital piracy. Other drivers of this decline were and are the overall recessionary
economic environment, bankruptcies of record retailers and wholesalers, growing competition for consumer discretionary spending
and retail shelf space and the maturation of the CD format, which has slowed the historical growth pattern of recorded music sales.
Since that time, annual dollar sales of physical music product in the U.S. are estimated to have declined at a compound annual
growth rate of 10%, although there was a 2.5% year-over-year increase recorded in 2004. In calendar year 2008, the physical business
experienced a 28% year-over-year decline on a value basis. Notwithstanding these factors, we believe that music industry results
could improve based on the continued mobilization of the industry as a whole against piracy and the development of legitimate
digital distribution channels.



Piracy



One of the industry’s biggest challenges is combating
piracy. Music piracy exists in two primary forms: digital (which includes illegal downloading and CD-R piracy) and industrial:



Digital piracy has grown dramatically, enabled by the increasing
penetration of broadband Internet access and the ubiquity of powerful microprocessors, fast optical drives (particularly with
writable media, such as CD-R) and large inexpensive disk storage in personal computers. The combination of these technologies
has allowed consumers to easily, flawlessly and almost instantaneously make high- quality copies of music using a home computer
by “ripping” or converting musical content from CDs into digital files, stored on local disks. These digital files
can then be distributed for free over the Internet through anonymous peer-to-peer file sharing networks such as BitTorrent, Frostwire,
and Limewire (“illegal downloading”).  Alternatively, these files can be burned onto multiple CDs for physical
distribution (“CD-R piracy”).  IFPI estimates that 40 billion songs were illegally downloaded in 2008.



Industrial piracy (also called counterfeiting or physical piracy)
involves mass production of illegal CDs and cassettes in factories. This form of piracy is largely concentrated in developing
regions, and has existed for more than two decades. The sale of legitimate recorded music in these developing territories is limited
by the dominance of pirated products, which are sold at substantially lower prices than legitimate products. The International
Intellectual Property Alliance (IIPA) estimates that trade losses due to physical piracy of records and music in 47 key countries/territories
around the world with copyright protection and/or enforcement deficiencies totalled $2 billion in 2008. The IIPA also believes
that piracy of records and music is most prevalent in territories such as, Indonesia, Lebanon, Mexico, and the People’s
Republic of China, Peru, the Philippines and Vietnam, where privacy levels are in excess of 70%.



In 2003, the industry launched an intensive campaign to limit
piracy that focused on four key initiatives:



• Technological: The technological measures against piracy
are geared towards degrading the illegal file- sharing process and tracking providers and consumers of pirated music. These measures
include spoofing, watermarking, copy protection, the use of automated webcrawlers and access restrictions.



• Educational: Led by RIAA and IFPI, the industry has
launched an aggressive campaign of consumer education designed to spread awareness of the illegality of various forms of piracy
through aggressive print and television advertisements. Data collected by RIAA in the first quarter of 2009 reflect that over
40% of the U.S. music-consuming population age 13 and older are aware of the recording industry’s efforts to educate consumers
about obtaining music legally, and of those, about three-fourths (72%) believe that these efforts have been effective in helping
them understand what is permissible in terms of obtaining music. The data also show that only a small minority of the U.S. music-consuming
population age 13 and older currently believes that there is legal justification for engaging in file- sharing activities—one-third
or less say that it is legal to make their music collections available for others to download or copy and/or to download or copy
music from someone else’s collection.



24







• Legal: In conjunction with its educational efforts,
the industry has taken aggressive legal action against file-sharers and is continuing to fight industrial pirates. These actions
include civil lawsuits in the U.S. and E.U. against individual pirates, arrests of pirates in Japan and raids against file-sharing
services in Australia. U.S. lawsuits have largely targeted individuals who illegally share large quantities of music content.
A number of court decisions, including the decisions in the cases involving Grokster and KaZaA, have held that one who distributes
a device, such as P2P software, with the object of promoting its use to infringe copyright can be liable for the resulting acts
of infringement by third parties using the device regardless of the lawful uses of the device.



• Development of online and mobile alternatives: We believe
that the development and success of legitimate digital music channels will be an important driver of recorded music sales and
monetization going forward, as they represent both an incremental revenue stream and a potential inhibitor of piracy. The music
industry has been encouraged by the proliferation and early success of legitimate digital music distribution options. We believe
that these legitimate online distribution channels offer several advantages to illegal peer-to-peer networks, including greater
ease of use, higher quality and more consistent music product, faster downloading and streaming, better search and discovery capabilities
and seamless integration with portable digital music players. Legitimate online download stores and subscription music services
began to be established between early 2002 and April 2003 beginning with the launch of Rhapsody in late 2001 and continuing through
the launch of Apple’s iTunes music store in April 2003. Since then, many others (both large and small) have launched download,
subscription, and ad-supported music services, offering a variety of models, including per-track pricing, per-album pricing and
monthly subscriptions. According to IFPI in their “Digital Music Report 2008” publication, there are more than 500
legal online music sites providing alternatives to illegal file-sharing in markets around the world. The mobile music business
has also grown rapidly, with mobile music revenues rising to nearly $1.6 billion in trade value in 2008, according to IFPI data.
While revenues from ringtones initially drove the mobile music business, new mobile phones equipped with new capabilities are
increasingly offering the capability for full-track downloads and streaming audio and video. These categories are accounting for
a greater share of mobile music revenues while further expanding legitimate options.



These efforts are incremental to the long-standing push by
organizations such as RIAA and IFPI to curb industrial piracy around the world. In addition to these actions, the music industry
is increasingly coordinating with other similarly impacted industries (such as software and filmed entertainment) to combat piracy.
We believe these actions have had a positive effect. A survey conducted by The NPD Group, a market research firm, in December
2007 showed that 27% of U.S. Internet users aged 13 or older who downloaded music from a file-sharing service at any point in
the past two years stopped or decreased their usage of such file- sharing services in the year covered by the survey. Internationally,
several recent governmental initiatives should also be helpful to the music industry. France recently enacted “graduated
response” legislation pursuant to which repeat copyright infringers could have their Internet connections revoked and be
subject to criminal penalties. South Korea and Taiwan have also passed graduated response laws. In addition, the U.K. has confirmed
its intention to introduce the Digital Economy Bill pursuant to which the proposed legislation would require ISPs to send notifications
to infringing subscribers. They may also utilize technical measures to deal with repeat infringers (including suspension of subscriber
accounts), and maintain identifying information on serious repeat infringers and hand it over to the rights holders, if required
for commencing court proceedings. In April 2009, Sweden implemented the Intellectual Property Rights Enforcement Directive, which
was intended to ensure, among other things, the ability to effectively enforce copyright and other civil remedies. There is evidence
to suggest that this is having a positive effect in reducing unlawful file sharing on the Internet in Sweden.



25







We believe these actions, as well as other actions also currently
being taken in many countries around the world, represent a positive trend internationally and a recognition by governments around
the world that urgent action is required to reduce online piracy and in particular unlawful file sharing because of the harm caused
to the creative industries. While these government actions have not come without some controversy abroad, we continue to lobby
for legislative change through music industry bodies and trade associations in jurisdictions where enforcement of copyright in
the context of online piracy remains problematic due to existing local laws or prior court decisions. In the U.S., the legislature
recently passed the PRO-IP Act of 2008, a law that protects copyrights both domestically and internationally. Echoing similar
efforts across Europe and Australia, the PRO-IP Act toughens U.S. criminal laws against piracy and counterfeiting, and adds accountability
in the law’s implementation. In addition, the Higher Education Act, which sets out provisions designed to ameliorate the
peer-to-peer problem on college campuses was also recently enacted. The Act requires colleges to consistently disseminate information
to better educate students about the policies, disciplinary actions, risks and penalties of peer-to-peer activities. Furthermore,
for educational institutions to have continuing eligibility to federally funded assistance programs, they have to develop plans
to effectively combat unauthorized content distribution on campus. We believe all of these actions further the efforts of the
music industry to reduce the level of illegal file-sharing on the Internet.



ITEM 1A. RISK FACTORS.



RISK FACTORS



Not applicable



ITEM 1B. UNRESOLVED STAFF COMMENTS.



Not applicable.



ITEM 2. PROPERTIES



Executive Offices



The Company maintains executive offices in West Hollywood,
California, of approximately 1360 sq.ft. at $3.5 per rentable sq.ft  per month, plus utility services.



26







Production/Post Production Facility



The Company’s subsidiary, Seven Arts Filmed Entertainment
Louisiana LLC (“SAFELA”) leases the real property located at 807 Esplanade Avenue, New Orleans, Louisiana of approximately
10,617  sq. ft. and uses this property as a production and post-production facility as described above in Item 1 –
Business – Production. SAFELA pays rent of approximately $9,166 per month to SAPLA to cover direct out of pocket costs.



ITEM 3. LEGAL PROCEEDINGS



Litigation



Fireworks Litigation

The Company obtained summary judgment on February 10, 2011
in an action in Ontario Superior Court, Canada, against CanWest Entertainment and two of its affiliates (“CanWest”)
confirming the Company’s ownership of five motion pictures Rules of Engagement, An American Rhapsody, Who
Is Cletis Tout, Onegin, and The Believer, (the “Copyrights”). CineVisions v. Fireworks International,No. 03-CV-247553 CM2.   The Company has filed on September 7, 2011, an action in the High Court of England and Wales
on September 7, 2011 against Content Media Corporation (“Content”) and Paramount Picture Corp. (“Paramount”)
to recover the Copyrights and substantial damages for the use of the copyrighted works after their purported acquisition from
CanWest. Seven Arts Filmed Entertainment v. Content Media Corp.No. HC11CO3046.  The Company may incur up to $200,000
in legal expenses to pursue this claim but expects to recover those fees from Content.  The Company’s motion for
summary judgment against Content in the United Kingdom was denied demurred on March 18, 2013, but the dismissal did not consider
the merits of the Company’s claims, only that Content was not bound by the Canadian judgment.  The Company has also
filed on May 27, 2011 an action in United States District Court in Los Angeles, California against Paramount Pictures for infringement
of the Copyrights.  Seven Arts Filmed Entertainment v. Paramount Pictures Corp. No. CV 11-04603. This action was dismissed on October 3, 2012 by the District Court based on a claimed application of the
statute of limitation and we have appealed to the Ninth Circuit No, 11-56759, the argument on which was heard on August 28, 2013.



Jonesfilm



Seven Arts Pictures plc (“PLC”), the Company’s listing predecessor, its then-subsidiary
Seven Arts Filmed Entertainment Limited (“SAFE”) and Seven Arts Pictures Inc. (“SAP”), were the subject
of an arbitration award of attorney fees totaling approximately $ 246,000, with interest and charges, both of which were reduced
to judgment in favor of Jonesfilm (“JF ”) in a judgment dated June 19, 2007 entered by United States District Court
in Los Angeles, California (“Judgment”). This amount is included in Accrued Liabilities on the accompanying financial
statements. JF asserts that the Company is liable as the “successor in interest” to PLC, which the Company denies.
JF has sought to enforce the Judgment against SAFE, Mr. Hoffman and SAP in proceedings filed on July 28, 2009 in United States
District Court in New Orleans, Louisiana, in Case Nos. 09-4814/4815. Thereafter, Jonesfilm filed claims purportedly against the
separate property of Mr. Hoffman’s wife in Case Nos. 11-1994 and 12-0535. Mrs. Hoffman filed action against Jonesfilm to
seek relief (from Jonesfilm’s actions against her and her separate property). All proceedings are still pending. Mr. Hoffman
and SAFE have appealed to the Fifth Circuit (No. 11-311 24) an order of garnishment against Leeway and penalties and legal fees
awarded in connection with that order of garnishment, which appeal was denied. The Company does not believe it owes any amounts
over the amount already accrued above.



Arrowhead Target Fund



Seven Arts Future Flow I (“SFF”), a limited liability
company owned by SAP Inc., a company previously controlled by Mr. Hoffman, obtained financing from the Arrowhead Target Fund,
Ltd. (“Arrowhead”) of approximately $8,300,000 (the “Arrowhead Loan”).  SFF secured the Arrowhead
Loan with liens on 12 motion pictures. The Company’s only liability is to repay the Arrowhead Loan from the proceeds of
the film assets pledged against the Arrowhead Loan. The Company is not required to repay the Arrowhead Loan from any of its other
assets or revenues. SAE’s subsidiary, SAFE, Ltd. was the collateral agent of the film assets.



27







The Arrowhead Loan became due in February 2009 and SFF has
not paid the outstanding principle and interest due thereon. Arrowhead has the right to foreclose on the pledged film assets,
but has not done so at the present time. SFF has received a default notice to this effect and as a result Arrowhead is now collecting
directly all sums receivable by the Company with respect to these motion pictures, and has appointed a new servicing agent for
these motion pictures with the result that the Company no longer controls the licensing of these motion pictures. Failure to repay
or refinance the Arrowhead Loan could result in a material disposition of assets through the loss of the Company’s rights
to the twelve motion pictures and related loss of revenues in amounts that are difficult to predict.



Arrowhead filed an action on September 22, 2010 in New York
Supreme Court, New York, New York, Arrowhead Target Fund v. HoffmanNo. 657481/2010, which seeks recovery from the Company
of the monies which the Company has retained under its interpretation of the relevant agreements with Arrowhead. In addition,
Arrowhead makes substantial additional claims against the Company, Mr. Hoffman and SAP Inc. regarding claimed breaches of the
terms of the operative agreements, including failure to properly account, failure to turn over materials, failure to remit monies
collected, and similar matters. The claims against the Company for these breaches of warranties for damages are $8,300,000 although
Arrowhead states no basis for this amount.



The Company had moved to dismiss the action against all defendants
other than Seven Arts Future Flows I LLC, which is not part of the Company. On August 9, 2011, the New York Supreme Court granted
the Company’s motion and dismissed all defendants except Seven Arts Filmed Entertainment Limited in its capacity as a collateral
agent, which is not a material element of Arrowhead claim. The Company continues to believe that Arrowhead’s claims against
the Company are without substantial merit.



Arrowhead has purported to amend its claim against the Company and the other defendants. The Company has
moved for dismissal of these claims on the same grounds. A former counsel for SAFE and Mr. Hoffman failed to appear at a hearing
and the Court orally entered default against SAFE and Mr. Hoffman on October 7, 2013, both of whom will move to vacate the order
for the motion to dismiss based on lack of personal jurisdiction on the merits The Company continues to believe that Arrowhead’s
claims against the Company are without substantial merit and will vigorously defend. The Company has accrued $744,000 as a loss
contingency on this matter.



Arrowhead Capital Partners – ACG Loan



PLC, SAP and SAFE, and several
special purpose companies formed by SAP were named as defendants in an action by Arrowhead Capital Partners Ltd filed in the Supreme
Court of New York County of New York State served on May 24, 2010, seeking to collect $1,000,000 plus interest (the “ACG
Loan”) due to Arrowhead Consulting Group LLC (“ACG”) as well as foreclosure on the collateral granted as part
of the Cheyne Loan described above in Note 13 under “Production Loans”. Arrowhead Capital Finance v. Seven Arts
Pictures, No. 601199/10.  The ACG Loan is fully subordinated to repayment of the Cheyne Loan, which has not been repaid,
and a subsidiary of the Company has been assigned all Cheyne’s rights under the subordination provision of the Cheyne Loan.
  ACG and the Company filed our motion for summary judgment which resulted in summary judgment in favor of ACG against
SAFE, SAP and the special purpose companies.  That summary judgment is on appeal to the New York Court of Appeals. 
As of June 30, 2013, and the date of this filing, there has been no decision in the appeal. The
Company plans to vigorously defend this matter and cannot yet determine the probability of the outcome.  The Company has
not accrued a loss contingency on this matter and it is not a defendant in this action.  Any claim against SAFE will be subject
to the customary liquidation proceedings of SAFE under the law of the United Kingdom.



Investigation into Claim for Tax Credits (SAPLA)/ Possible
Litigation Re: Tax Credits



The US Attorney in New Orleans is investigating claims for
Louisiana film infrastructure tax credits including such tax credits to be claimed by Seven Arts Pictures Louisiana LLC (“SAPLA”)
and has issued subpoenas for discovery of documents in the possession of the Company related to these tax credits.  The
Company has complied with that subpoena on March 15, 2012.



This investigation appears to include investigation as to whether
certain expenses claimed by this affiliate were improper or fraudulent. All such claimed expenses were audited by independent
auditors in Louisiana and reviewed by counsel. Management believes that this investigation will have no material adverse effect
on the Company’s operations or the total tax credits to be received by the Company’s affiliates, but could result
in charges against current or former employees of this affiliate based on prior audits, including Mr. Hoffman.



28







SAPLA, controlled by Mr. Hoffman’s wife, filed legal
action in the 19th District Court in Baton Rouge, Louisiana in August, 2013 to require the Louisiana Department of
Economic Development and State Historic Preservation Office to certify the tax credits due SAPL A, the proceeds of which have
been assigned to the Company.



Parallel Action



On June 28, 2011, Seven Arts Pictures Plc. (“PLC”)
filed an action in the High Court of England against Parallel Media LLC (“Parallel”) to collect sums due to PLC with
respect to acquisition of distribution rights in Russia to four motion pictures and to confirm Parallel’s obligations under
both a signed and unsigned investment agreement with respect to the motion picture project Winter Queen. On the same day Parallel
filed a petition to wind up and liquidate PLC in the Companies Courts of England based on its claim of repayment of $1,000,000
of investment made by Parallel in Winter Queen. PLC is no longer part of the Company.





On September 19, 2011, Parallel filed
a new action against PLC and SAE in the Superior Court of California in Los Angeles, asserting the same claims as in the winding
up petition and seeking to enjoin the proposed administration proceedings in England. Parallel Media v. Seven Arts Entertainment,
No. SC114182. A request for a preliminary injunction was denied by the Superior Court.   Parallel was permitted to pursue
a claim in the Los Angeles Superior Court for alleging that the Asset Transfer Agreement dated July 1, 2011 between PLC and the
Company (“ATA”) was not for fair consideration.  Parallel’s motion for summary judgment has been denied.
The Company believes that a favorable decision by the liquidator as discussed above will resolve this action in the Company’s
favor. The Company has not accrued for a loss contingency in this matter. The potential loss to the Company could be between $million
and $1.75 million.



The liquidator has been advised in a letter
from its counsel dated October 10, 2013, that the Company may be obligated to reimburse the liquidator for additional shares of
the Company’s common stock by reason of the reduction in the value of the Company’s common stock issued to PLC pursuant
to the ATA, from July 1, 2010 to August 31, 2011. The Company had previously offered to the liquidator to make such an adjustment
in the consideration paid pursuant to the ATA. The Company intends to negotiate an amicable resolution of this issue with the liquidator
which counsel believes should resolve any claims by Parallel.



HMRC Investigation



On July 19, 2011 Officers of Her Majesty’s Revenue &
Customs (“HMRC”) attended the offices of Seven Arts Pictures Plc. (the “Company”) in London. Documents
were retained appertaining to arrangements involving the subscription for shares in a number of companies which had lost value,
resulting in subscribers making claims to tax relief.



The Company’s participation in these transactions was
limited to the Company’s predecessor’s transfer of rights to certain motion pictures to the investors in return for
their investments in the production and release costs of those pictures and making available the provision of loans to fund a
portion of those investments. The Company received no tax benefits from the transactions, which were made on arms-length terms.
The Company believes that it is not a subject of the HMRC investigation.

In connection with the transactions, the Company did not make
any representations or warranties to any party, including the investors, regarding any potential tax benefits related to the transactions.
Prior to the closing of the transactions the investors obtained and made available to the Company, an opinion of prominent Queen’s
counsel, specializing in United Kingdom tax laws, that the transactions were permitted and acceptable under the terms of the applicable
United Kingdom revenue laws. The Company remains confident that the transactions were permitted and acceptable under the terms
of the applicable United Kingdom revenue laws.



HMRC has requested interviews with three officers of PLC to
discuss whether those officers were involved in the arrangements for subscription of shares in the relevant companies, the first
of which with Ms. Elaine New, CFO, occurred in April 2012 and a second in May 2012. PLC is fully cooperating with the investigation.
PLC believes there is no basis for any claim of responsibility of any of its officers or employees. Based on facts currently known
by PLC, there is no need for it to record a contingent liability in its financial statements in connection with the investigation
or the related transactions.



PART II



ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Our common stock was traded on The NASDAQ under the symbol
SAPX until September 14, 2012 when it commenced trading on the OTC QB still under the symbol SAPX.



Our ordinary shares have traded in the past five years on several
different markets. Starting in February of 2009, our common stock has been listed on The NASDAQ Capital Market under the symbol
“SAPX”. Starting in March of 2008 and continuing until February 12, 2009, our shares were quoted on the OTC Bulletin
Board under the symbol “SAPxf”. Our ordinary shares traded on the Alternative Investment Market in London, England
from September 2004 until February 2007 under the symbol “SAPP”. Our ordinary shares were listed on the PLUS Market
in London, England starting in April 2007 under the symbol “SAPP”. We notified our shareholders of our decision to
de-list our ordinary shares on the PLUS Market on February 25, 2009 and this de-listing was approved by the shareholders at an
extraordinary general meeting on March 16, 2009 and the de-listing was effective on March 24, 2009.



29







The following tables set out the high, low and closing sales
prices on the AIM, on the PLUS Market, on the OTC Bulletin Board and on The NASDAQ Capital Market for the periods indicated in
those tables.



The NASDAQ Capital Market



From February of 2009 through September 14, 2012, our common
stock was listed on The NASDAQ Capital Market; thereafter, it has been quoted on the OTC Bulletin Board and the OTC Market Group
Inc.’s OTCQB tier, in each case under the symbol “SAPX”.



The following tables set out the high, low and closing sales
prices on the OTC Bulletin Board/OTC Market Group Inc.’s OTCQB tier and on The NASDAQ Capital Market for the periods indicated
in the table.



The NASDAQ Capital Market and OTC Bulletin
Board prior to September 14, 2012 and OTC Markets Group Inc. from September 14, 2012 until present.



|                          |  | Bid  |     
|------------------------- |  | ---- | ----
|                          |  | High |     
|Year ended June 30, 2013  |  |      |     
|First Quarter OTC         |  | $    | 1.61
|Second Quarter OTC        |  |      | 0.07
|Third Quarter OTC         |  |      | .40 
|Fourth Quarter OTC        |  |      | .03 
|                          |  |      |     
|Year ended June 30, 2012: |  | $    | 2.59
|First Quarter NASDAQ      |  |      | 2.59
|Second Quarter NASDAQ     |  |      | 0.68
|Third Quarter NASDAQ      |  |      | 0.32
|Fourth Quarter NASDAQ     |  |      | 0.13
|                          |  |      |     
|Year ended June 30, 2011: |  | $    | 5.35
|First Quarter NASDAQ      |  |      | 4.60
|Second Quarter NASDAQ     |  |      | 5.35
|Third Quarter NASDAQ      |  |      | 4.00
|Fourth Quarter NASDAQ     |  |      | 2.82



As of June 30, 2013 there were approximately 505 holders of
record of our common stock.



30







DESCRIPTION OF SECURITIES



General



The authorized capital of Seven Arts consists of 250,000,000
shares, consisting of 249,000,000 shares of common stock, 125,125 shares of Series A Cumulative Convertible Preferred Stock, 200,000
shares of Series B Cumulative Convertible Preferred Stock, and the balance as undesignated shares.



As of the date of this annual report, there were
46,323,297 shares of common stock, 125,125 shares of Series A convertible preferred stock, and 43,850 shares of Series B
convertible preferred stock issued and outstanding.



Description of Common Stock



The following is a description of our common stock, including
their material terms and provisions and as such terms and provisions are applied to our Articles of Incorporation, as amended.



All of our shares of common stock are of the same class and,
once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of shares of common stock are entitled
to one vote for each share held of record on all matters to be acted upon by the stockholders. Holders of shares of common stock
are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out
of funds legally available therefor.



31







Upon our liquidation, dissolution or winding up, holders of
shares of common stock are entitled to receive pro rata our assets, if any, remaining after payments of all debts and liabilities
and the satisfaction of preferred stockholders, if any. No shares have been issued subject to call or assessment. There are no
pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase
funds.



There are no limitations upon the rights to own securities.



There are no provisions that would have the effect of delaying,
deferring, or preventing a change in control of our company.



Description of Warrants



Each Warrant to be issued to shareholders of record on August
31, 2012 (1 warrant for each 10 shares of pre-split Common Stock) will be distributed on the effectiveness of this Prospectus
and may be exercised by holder when distributed to that holder in writing on the effectiveness of this Prospectus.  Upon
exercise the holder may acquire one share of Common Stock at a price to be determined at the time the related Form S-1 is deemed
effective .  The Warrants will expire on December 31, 2014. Fractional shares shall not be issued and any fractional
shares shall be rounded up or down to the nearest number of shares.



Description of Series A Cumulative Convertible, $10.00 Stated
Value, Preferred Stock (“Series A”)



The following is a description of our Series A stock, including
their material terms and provisions and as such terms and provisions are applied to our Articles, as amended.



The number of shares constituting the Series A stock is 125,125
shares.



The holders of Series A stock have the following voting rights:



|a) | The holders and the holders of common
                           stock shall vote together and not as separate classes
|-- | ----------------------------------------------------------------------------------------------------------------------
|b) | There shall be no series voting                                                                                       



|c) | The consent of holders of at least a majority of Series A stock voting
    separately as a separate class is necessary to:
|-- | --------------------------------------------------------------------------------------------------------------------------



|a. | Amend, alter or repeal any provisions of the Articles, including the
    Certificate of Rights and Preferences, or Bylaws of the Company so as to change any of the voting powers, designations, preferences,
    limitations, restrictions and relative rights of the Holders
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                               
|b. | Authorize or issue or sell or obligate itself to authorize, issue or sell, any shares or
    senior securities or parity securities                                                                                                                                           
|   |                                                                                                                                                                                                                                                                               
|c. | Permit any subsidiary of the Company to issue or sell, or obligate itself to issue or sell,
    except to the Company or any wholly owned subsidiary, any security of such subsidiaries                                                                                       



|d. | Increase or decrease (other than on conversion pursuant to the Certificate)
    the total number of authorized shares of Common Stock or amend any provisions of any Common Stock so as to make such common
    stock redeemable by the Company                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                       
|e. | Enter into any transaction ,including any employment, ,compensatory, production, distribution,
    licensing, financing, acquisition, disposition or other transaction, between the Company or any of its subsidiaries, on the
    one hand and any director ,officer or affiliate of the Company or any of its subsidiaries or their respective affiliates or
    family members on the other hand or



32







|f. | Enter into or amend any agreement or understanding with respect to any
    of the foregoing
|-- | -------------------------------------------------------------------------------------------



|d) | Except for the above, the holders of the Series A stock shall be entitled
    to vote on all matters submitted for a vote to the holders of common stock as if they held a number of shares of common stock
    equal to the Conversion Stock Amount of common stock. Holders of Series A stock shall be entitled to notice of any stockholders’
    meeting in accordance with the Bylaws of the Corporation.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Shares of Series A stock are convertible at the option of the
holder thereof at any time, from time to time, in whole or in part. These shares shall have the following conversion rights:



|Tranche 1 |  | $ | 455,000   |  |  | $ | 0.15 | 
|--------- |  | - | --------- |  |  | - | ---- | 
|Tranche 2 |  | $ | 455,000   |  |  | $ | 0.15 | 
|Tranche 3 |  | $ | 341,250   |  |  | $ | 0.15 | 
|          |  | $ | 1,251,250 |  |  |   |      | 



Description of Series B Cumulative Convertible, $100.00
Stated Value, Preferred Stock (“Series B”)



The following is a description of our Series B stock, including
their material terms and provisions and as such terms and provisions are applied to our Articles, as amended.



The number of shares constituting the Series B stock is 200,000.



Shares of Series B stock are convertible into shares of common
stock at $1.10 per share at the option of the holder thereof at any time, from time to time, in whole or in part on or after September
30, 2012.



The holders shall have the following voting rights with respect
to the Series B stock:



(A) Voting By All Classes.
Except as otherwise expressly provided herein or as required by law, the holders of Series B stock and the holders of common stock
shall vote together and not as separate classes.



(B) No Series Voting. Other
than as provided herein or required by law, there shall be no series voting.



(C) Series B Class Voting Rights.
Each share of Series B stock shall entitle the holder thereof to the voting rights specified in (D), (E) and (F), below, and no
other voting rights except as required by law.



(D) Voting For Directors. The
Board of Directors shall consist of nine members. So long as there remains outstanding and are not converted or redeemed at least
one hundred thousand (100,000) shares of Series B stock, the holders of Series B stock, voting separately as a single class with
one vote per share, in person or by proxy, shall be entitled to elect two members of the Company’s Board of Directors at
each meeting or pursuant to each consent of the Company’s stockholders for the election of directors, one of whom shall
be “independent” as defined by the regulations of the Company’s principal listing exchange. Any additional members
of the Company’s Board of Directors shall be elected by the holders of common stock and Series B stock (on an as-if-converted
basis), voting together as a single class. If a vacancy on the Board of Directors is to be filled by the Board of Directors, only
directors elected by the same class, classes or series of stockholders as those who would be entitled to vote to fill such vacancy
shall vote to fill such vacancy. Directors may only be removed by the vote or consent of the class, classes or series of stock
entitled to fill the vacancy created by such removal.



33







(E) Voting For Changes In Series
B Preferred Stock. The consent of holders of at least a majority of the Series B stock, voting separately as a single class
with 100 votes per share, in person or by proxy, either in writing without a meeting or at an annual or a special meeting of holders
called for the purpose, shall be necessary to:



(i) amend, alter or repeal, by way of
merger or otherwise, any of the provisions of the Articles, including the Certificate of Rights and Preferences, or Bylaws of
the Company so as to change any of the rights, preferences or privileges of the holders. Without limiting the generality of the
preceding sentence, such change includes any action that would:



A. make dividends non-cumulative, or defer
the date from which dividends will accrue, or cancel accrued and unpaid dividends, or change the relative seniority rights of
holders of Series B stock as to the payment of dividends in relation to the holders of any other capital stock of the Company



B. reduce the amount payable to holders of
the Series B stock upon the voluntary or involuntary liquidation, dissolution, or winding up of the Company, or change the relative
seniority of the liquidation preferences of holders of the Series B stock or the rights upon liquidation of the holders of any
other capital stock of the Company; or



C. make the Series B stock redeemable at
the option of the Company.



(ii) issue or sell or obligate itself
to issue or sell any shares of Series B stock; or



(iii) enter into or amend any agreement
or understanding with respect to any of the foregoing.



(F) Right To Vote With Common Stock.
Except as to matters with respect to which holders of the Series B stock are entitled to vote separately as a class pursuant to
this Section 5, the holders of the Series B stock shall be entitled to vote on all matters submitted for a vote to the holders
of common stock as if they held a number of shares of common stock equal to the Conversion Stock Amount in common shares. Holders
of Series B stock shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Company.
Fractional votes shall not be permitted and any fractional voting rights resulting from the above formula (after aggregating all
shares into which shares of Series B stock held by each holder could be converted) shall be disregarded.



Annual Meeting



An Annual General Meeting shall be held once every calendar
year at such time (not being more than 15 months after holding the last preceding Annual Meeting) and place as may be determined
by the Directors. The Directors may, as they see fit, convene an extraordinary general meeting.



Transfer Agent



Interwest Transfer Company, Inc., 1981 Murray Holladay Road,
Suite 100 Salt Lake City, UT 84117 is the registrar and transfer agent for the shares of common stock.



Recent Issuances of Unregistered Securities



In our fiscal year ended June 30, 2012, we issued an aggregate
of 1,702,141 common shares, comprised of the following.  All shares were issued pursuant to Section 3(a)(9) of the Securities
Act of 1933, except where noted with an *,are unregistered for which shares were issued under Regulation D of Section 506 of the
Securities Exchange Act of 1934 :



First quarter issuances:



| |  | 92,805 shares were issued in satisfaction of $3,188,028 of outstanding
    loans payable and accrued interest, consisting of $225,000 of convertible notes payable and $2,963,028 of film and production
    loans.  The conversions were done at contractual share prices ranging from $14.00 to $140.00 per share.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34











Second quarter issuances:



| | c) | 66,272 shares were issued in satisfaction of $612,336 of convertible
                                                               debt at an average conversion price of $9.10 per share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | 40,734 shares were issued on the conversion of two convertible
                                                               notes totaling $427,706 at an average conversion price of $10.50/
                                                               share.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | 49,863 shares were issued in satisfaction of $906,000 of corporate
                                                               loans at an average conversion price of $18.20 per share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f) | 5,714 shares were issued for cash to two third-party investors
                                                               for aggregate consideration of $400,000 at $70.00 per share
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Third quarter issuances:



| | g) | 96,425 shares were issued in satisfaction of $943,580 converted
                                                                 film debt at an average conversion price of approximately $9.80
                                                                 per share.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h) | 65,237 shares were issued in satisfaction of $929,596 of
                                                                 indebtedness at an average conversion price of $14.00 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i) | 49,889 shares were issued on conversion of certain promissory
                                                                 notes aggregating $516,568 at an average conversion price of
                                                                 $10.50 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | j) | 43,928 shares were issued to a third party in satisfaction
                                                                 of $698,736 of film loans at an average conversion price of $16.10
                                                                 per share.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | m) | 17,143 shares were issued for cash to a third-party investor
                                                                 for approximately $8,600, or at $0.50 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Fourth quarter issuances:



| | n) | 111,143 shares were issued to a third party in partial payment
                                                               of $430,000 of debt at an average conversion price of $3.87 per
                                                               share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o) | 174,240 shares were issued to a third party in satisfaction
                                                               of $980,000 of debt at an average conversion price of $5.62 per
                                                               share.*
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | p) | 160,556 shares were issued to a third party in satisfaction
                                                               of $725,000 of debt at an average conversion price of $4.52 per
                                                               share.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35







| | q) | 40,118 shares were issued to a third party in satisfaction
                                                               of a $100,000 film tax-credit loan at an average conversion price
                                                               of $2.49 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | r) | 16,071 shares were issued to a third party for approximately
                                                               $100,000, or at $6.22 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | s) | 156,158 shares were issued to a third party in satisfaction
                                                               of $494,152 of loans at an average conversion price of $3.16 per
                                                               share*.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | t) | 357,143 shares were issued to Peter Hoffman in satisfaction
                                                               of $877,824 of our indebtedness to him at $2.46 per share. *
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | u) | 55,006 shares were issued in connection with $200,000 of construction
                                                               fees related to 807 Esplanade, or at $3.64 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In our fiscal year ended June 30, 2013, we issued an aggregate
of xxxxx common shares, comprised of the following.  All shares were issued pursuant to Section 3(a)(9) of the Securities
Act of 1933, except where noted with an *, are unregistered for which shares were issued under Regulation D of Section 506 of
the Securities Exchange Act of 1934 :



First quarter issuances:



| | v) | 1,316,099 shares were issued to third parties in satisfaction
                                                               of an aggregate of $ 779,874 of film debt at an average conversion
                                                               price of $0.59 share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | w) | 482,697 shares were issued to third parties in satisfaction
                                                               of an aggregate of $586,114 of various convertible loans at an
                                                               average conversion price of $1.21 share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | x) | 379,580 shares were issued to third parties in satisfaction
                                                               of an aggregate of $591,231 of  expense debt at an average
                                                               conversion price of $1.56  per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | y) | 80,586 shares were issued to in connection with $150,000 of
                                                               indebtedness related to 807 Esplanade, or at $1.86 per share.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | z) | 161,429 shares were issued to third parties in satisfaction
                                                               of an aggregate of $339,000 of fee debt at an average price of
                                                               $2.10 per share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | aa) | 8,571 shares were issued to a third party for the purchase
                                                                price of $300,000, or $35 per share.*
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



Second quarter issuances:



| | ab) | 9,188,857 shares were issued to third parties in satisfaction
                                                                of an aggregate of $431,934 of film debt at a conversion price
                                                                of $0.05 per share.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ac) | 3,454,545 shares were issued upon conversion of 38,000 Series
                                                                B preferred shares.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | ad) | 7,000,000 shares were issued to our CEO, in satisfaction of
                                                                $1,190,000 of our indebtedness to him at $0.17 per share*.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | af) | 1,772,812 shares were issued in connection with $42,723 of
                                                                indebtedness related to 807 Esplanade, or at $0.02 per share
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ag) | 3,028,206 shares were issued to third parties in satisfaction
                                                                of an aggregate of $133,537 of various convertible loans at an
                                                                average conversion price of $0.04 share.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ah) | 1,703,772 shares were issued to a third parties in satisfaction
                                                                of an aggregate of $107,350 of expense debt at an average
                                                                conversion price of $0.06 per share.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Third quarter
issuances:



| | 2,450,293 |  |  | common shares were issued in satisfaction of film and production debt totaling $844,707
    converted at an average conversion price of $0.34 per share.                 
| | --------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 612,350   |  |  | common shares were issued in satisfaction of various expenses  totaling $173,075  converted
    at an average conversion price of $0.28 per share.                       
| | 20,000    |  |  | common shares were issued at $0.25 per share upon conversion of $5,000 in partial settlement
    of a music contract                                                     
| | 324,292   |  |  | shares were issued as collateral in settlement of an outstanding judgment  related
    to Nine Miles Down UK Ltd at $0.85 per share in satisfaction of a debt of $275,246



Fourth quarter issuances:



| | 30,024,844 |  |  | common shares were issued upon conversion of convertible debt totaling $ 427,230,
    converted at an average conversion price of $0.01 per share.
| | ---------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------
| | 8,155,790  |  |  | common shares were issued in satisfaction of various expenses  totaling $ 77,619 converted
    at an average conversion price of $0.01 per share. 



36







ITEM 6.   SELECTED FINANCIAL DATA



Not required for a smaller reporting company.



ITEM 7.   MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



MANAGEMENT’S DISCUSSION AND ANALYSIS
OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion should be read in conjunction with
the preceding financial statements and footnotes thereto contained in this report. This discussion contains forward-looking statements,
which are based on our assumptions about the future of our business. Our actual results may differ materially from those contained
in the forward-looking statements.



Company Overview:



The following discussion should be read in conjunction with
the preceding financial statements and footnotes thereto contained in this report. This discussion contains forward-looking statements,
which are based on our assumptions about the future of our business. Our actual results may differ materially from those contained
in the forward-looking statements.



We are an independent motion picture production company engaged
in developing, financing, producing and licensing theatrical motion pictures with budgets in the range of $2 million to $15 million
for exhibition in domestic (i.e. the United States and Canada) and foreign theatrical markets and for subsequent
post-theatrical worldwide release in other forms of media, including DVD, home video, pay-per-view, and free television. Our pictures
have in the last few years received only a limited theatrical release (50-300 theaters in the United States), or may even
be released directly to post-theatrical markets, primarily DVD. Our pictures that receive limited theatrical release or post-theatrical
release typically benefit from lower prints and advertising (“P & A”) cost and, in turn, improved gross profit
margins.



We determine the size of a theatrical release in the United
States based on distributor and our estimates of the commercial prospects of theatrical box office and our own evaluation of the
level of expected theatrical release costs as opposed to our estimation of potential theatrical box office in the United States.



No one picture had a principal or controlling share of gross
revenues or operating profits in these periods.



We also are now in the business of producing and distributing
recorded music and, as of July 1 2012, our post-production facility at 807 Esplanade in New Orleans commenced operations.



Film Company



We license distribution rights in our motion pictures in the
United States and in most foreign territories prior to and during the production or upon the acquisition of rights to distribute
a picture. We share in the commissions generated by the sales of the pictures. Sale of a license to distribute a motion picture
prior to its delivery is termed a “pre-sale” and may occur at any time during the development and production process.
In a typical license agreement, we license a picture to a distributor before it is produced or completed for an advance from the
licensee, which advance is recoverable by the distributor from our share of the revenues generated by the distribution of the
picture in the licensee’s territory, after deduction of the distributor’s expenses and distributor fee. The advance
usually is in the form of a cash deposit plus a letter of credit or “bank letter” for the balance payable 10-20% on
execution (i.e., the cash deposit) and the balance on delivery (i.e., the letter of credit or “bank
letter”). The license grants the distributor the right to the post-theatrical release of the picture in all or certain media
in their territory for a predetermined time period. After this time, the distribution rights revert back to us and we are then
free to re-license the picture. The license specifies that the distributor is entitled to recoup its advance from the revenue
generated by the release of the picture in all markets in its territory, as well as its release costs and distribution fees.



After the distributor has recouped its advance, costs, and
fees, any remaining revenue is shared with us according to a predetermined formula. This is known as an “overage”
and can be a significant source of revenue for us from successful films. However, a film’s poor reception in one market
does not preclude it from achieving success in another market and generating significant additional revenue for us in the form
of an “overage” in that territory. In all of our licensing arrangements, we retain ownership of our films and maintain
our control of each copyright. We intend to continue the practice of retaining underlying rights to our film projects in order
to continue to build our motion picture library to license or sell in the future.



37







We create a separate finance plan for each motion picture we
produce. Accordingly, the sources of the funds for production of each motion picture vary according to each finance plan. We utilize
financing based on state and foreign country tax credits (e.g., Louisiana, United Kingdom and Hungary) and direct
subsidies, “mezzanine” or “gap” funds, which are senior to our equity, and senior secured financing with
commercial banks or private lenders, together in certain cases with a limited investment from us, which is customarily less than
10% of the production budget. Since each finance plan is unique to each motion picture, we cannot generalize as to the amount
we will utilize any of these sources of funds for a particular motion picture. We generally obtain some advances or guarantees
prior to commitment to production of a motion picture project, but those amounts may not be substantial on smaller budgeted motion
picture (e.g., under $10,000,000), and in certain cases we have committed to production with an insubstantial amount
of advances and guarantees. Unless we can manage the risks of production through the use of these financing techniques, we will
not likely commit to production of larger budget motion pictures (e.g., over $15,000,000), and we have never in
the past committed to such productions, without substantial advances or guarantees from third-party distributors, or the equivalent
in “non-recourse” financings.



Music Company



Seven Arts Music Inc. (“SAM”) became a wholly owned
subsidiary of the Company on February 23, 2012, although start -up costs had been incurred as early as September 2011. The delivery
of the first of the DMX albums acquired from David Michery was released on September 11, 2012 and initial costs in creating the
first album for Bone Thugs-N-Harmony are being incurred for delivery in February, 2013. Several other new artists are being considered
by SAM.  The agreements under which SAM acquired its music assets were effective as of September 29, 2011 (Big Jake
Music) and December 19, 2011 (Michery Assets) publicly announced and business activities commenced on those dates, but definitive
agreements were not executed until February 23, 2012.



Post-Production Facility



As of June 30, 2012, SAFELA was transferred to the Company.
SAFELA, which is 60% owned by the Company, has a 30 year lease to run a production and post-production facility at 807 Esplanade
Avenue in New Orleans. The facility commenced operations on July 1, 2012.



Company Outlook



The principal factors that affected our results of operations
have been:



| | 1. | the number of motion
                                                                                 pictures and recorded music delivered in a fiscal
                                                                                 period,
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | the distribution
                                                                                 rights of motion pictures and recorded music  produced
                                                                                 by others acquired in a fiscal period,
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | the choice of motion
                                                                                 pictures and recorded music produced or acquired
                                                                                 by us,
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | management’s
                                                                                 and talents’ execution of the screenplay
                                                                                 and production plan for each picture and recorded
                                                                                 music the distribution and market reactions to
                                                                                 the motion pictures and recorded music once completed,
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | management’s
                                                                                 ability to obtain financing and to re-negotiate
                                                                                 financing on beneficial terms,
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | the performance
                                                                                 of our third-party distributors and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------

| | 7. | our ability to take
                                                                                 advantage of tax-incentivized financing.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------



These factors will continue to be, in our opinion, the principal
factors affecting future results of operation and our future financial condition. No particular factor has had a primary or principal
effect on our operations and financial condition in the periods discussed below.



Our revenues principally consist of amounts we earned from
third-party distributors of our motion pictures and recorded music. We recognize revenue from license fees as and when a motion
picture is delivered to the territory to which the license relates if we have a contractual commitment and the term of license
has begun or upon receipt of a royalty statement or other reliable information from a distributor of the amounts due to us from
distribution of that picture. A motion picture is “delivered” when we have completed all aspects of production and
may make playable copies of the motion picture for exhibition in a medium of exhibition such as theatrical, video, or television
distribution.



38







We also recognize revenue beyond an initial license fee from
our share of gross receipts on motion pictures which we recognize as revenue when we are notified of the amounts that are due
to us. In some fiscal periods, a significant portion of our revenue is derived from sources other than motion picture distribution,
including the cancellation of debt and interest income on a financing transaction.



We have also benefited significantly from our ability to raise
third party film equity investments such as in tax advantaged transactions under which we transfer to third party investor’s
tax benefits for motion picture production and distribution. These types of investments have enabled us to substantially reduce
the cost basis of our motion pictures and even to record significant fee-related revenues.



RESULTS OF OPERATIONS

for the Year Ended June 30, 2013 Compared To Year Ended
June 30, 2012



As noted in the accompanying financial statements in Note 15,
the Company has restated the years ended June 30, 2012 and 2011, to correct certain errors. The errors included reclassifications
of certain amounts that had previously been categorized as “one time change in estimate” to properly be included in
cost of revenues, timing differences between years, and corrections in the application of GAAP on certain complex transactions.
Please see the detailed discussion and schedule in Note 16. All restated amounts are reflected in the discussion of Results of
Operations below.



Revenue



Our total revenues decreased from $4,058,006(Restated) for the
fiscal year ended June 30, 2012 to $1,522,808 in the fiscal year ended June 30, 2013. Film revenues were basically the same in
each year and the Music revenue of $574,434, as well as the $106,417 in Post Production revenue, is new to the Company in 2013.
However, the 2012 revenue figure included net fee income of $3,235,000(Restated) earned from SAPLA related to the post-production
facility located at 807 Esplanade in New Orleans, Louisiana. The Fee Income from related party in 2012 represented services provided
in connection with direction of the rehabilitation of the post production facility as well as consulting in process of obtaining
certain Federal and State tax credits. See Note 4 in the accompanying financial statements for a more detailed discussion of the
revenue earned.



Revenues derived from the licensing
and distribution of motion pictures increased marginally from $823,006 in the previous fiscal year to $841,956 in this fiscal
year. The majority of 2013 revenue consisted of the US and Brazilian release of “Nine Miles Down” and “Drunkboat”
and a spread of film royalties relating to our film library and $183,000 from settlement of litigation with MGM over “Deal”
and Sony with “Johnny Mnemonic”.



The majority of 2012 sales included international sales royalties
from movies such as “The Pool Boys,”, “Deal,” “Autopsy,”, “Nine Miles Down” and
“Night of the Demons.”



In the 2013 year the music division recorded gross revenues
of $1,027,645, reduced by a provision for returns of $470,811, from the release of the first DMX album.





39







Costs of Revenue



Costs of revenue decreased from $14,389,888 (Restated) in the
fiscal year ended June 30 2012 to $12,421,711 in the fiscal year ended June 30, 2013. Costs of Revenues in both years consist predominately
of amortization and impairment of film and music costs .



The amortization charge represents the amortization of the
film assets calculated as the portion of the current year revenue compared to management’s estimate of the ultimate future
revenue from the films. The amortization of unamortized Film costs in 2013 related to revenue recognized on the films, “Nine
Miles Down”and “Deal”. For 2012 the amortization related to revenue recognized on the films “Pool Boys”,”Nine
Miles Down” and “Night of the Demons”.



In accordance with our policies, management reviewed the future
ultimates on the films in release or production, and adjusted them for actual sales and feedback and orders from the various film
markets the Company attends. These adjusted ultimate estimations are then used in determining if any impairments are necessary
to recognize. This evaluation resulted in Impairment costs recognized of $2,054,171 in fiscal year 2013 made and $6,459,298 (restated)
in fiscal year 2012.



A write down of $2,837,545 was taken against development costs
in fiscal year 2013 upon review of the capitalized development costs, in accordance with ASC 926 and our accounting policy, to
ensure all “abandoned” costs which management has determined no longer apply to viable development projects.



Consequently, the Group recorded a gross loss of $10,898,903
in the year-ended June 30, 2013 compared to a gross loss of $10,331,882 (Restated) in the year-ended June 30, 2012



General &Administrative expenses



General and administrative expenses increased to $7,289,919,
in the fiscal year ended June 30 2013 from $2,558,620 in the previous year.



$3,582,919 of the G&A expenses in 2013 is bad debt expense,
which includes a $1,180,000 reserve recognized for the Fee Income receivables due from related party, due to some delays in SAPLA
receiving their State tax credit (please see more detailed discussion in Note 4 in accompanying financial statements), and $1,868,547determined to no longer be collectible due from SAP, Inc., a related party, due to its’ current parent company, PLC,
being in liquidation.



In 2013, the full operation of the music division has added
$356,061 to the general and administration expenses and the new post production operation has increased these costs by $197,430,
plus building improvement amortization of $164,526.



| | · | Legal and professional costs were increased substantially in the current year to $1,504,763 from $879,503 in the prior year.
This consists of increased attorney fees related to our ongoing and new litigation discussed in detail previously in the Litigation
section. Additional legal fees were also incurred in connection with increased volume of conversions and share activity requiring
legal opinions.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | There has been an accrual of $350,000 for a judgment for the Company to pay legal fees on JonesFilm (see Litigation section
above)
| | - | ----------------------------------------------------------------------------------------------------------------------------------

| | · | Rent and office costs increased by almost $190,000 in the year due to the music division and the post production facility.
Management have taken action and closed down the UK office and merged the music division into the original US office to bring overhead
back in line
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Wages and salaries have reduced by approximately $182,000 during the year as the London office was closed and the US office
was downsized plus the music team were reduced substantially and the few that are left are now consultants not employees which
accounts for the increase in consultancy charges year on year (Approximately $102,000).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Approximately $528,000 less overhead was capitalized to movies in the 2013 fiscal year than the comparable period in 2012
| | - | -------------------------------------------------------------------------------------------------------------------------





40







Net interest expense increased from $2,752,681 to $4,227,472,
resulting from increased loan balances and some penalties in negotiating extended terms. The 2013 interest expense also includes
amounts related to SAFELA for the mortgage and construction loan not included in 2012..



Other income in 2012 includes forgiveness of debt income previously
charged in 2011 in error. See Note 16 on restatement of accounts.



We recorded no tax provision in the fiscal year ended June 30,
2012, because we had no taxable income.



As result of the aforementioned results, we recorded a net
loss of$ 22,062,539in the fiscal year ended June 30, 2013
compared to a net loss of $11,153,463 for the fiscal year ended June 30, 2012.



RESULTS OF OPERATIONS



for the Year Ended June 30, 2012 (Restated) Compared To Year
Ended June 30, 2011



Our total revenues increased from $3,328,388 for the fiscal
year ended June 30, 2011 to $4,058,006 in the fiscal year ended June 30, 2012. This increase principally relates to the fee income
earned from SAPLA related to the production/post-production facility located at 807 Esplanade in New Orleans, Louisiana, offset
by reduced film revenue.  The Fee income – related party revenue of $3,235,000 represents services provided in
connection with direction of the rehabilitation of the post production facility as well as consulting in process of obtaining certain
Federal and State tax credits. See Note 4 in the accompanying financial statements for a more detailed discussion of the revenue
earned.



Revenues derived from the licensing and distribution of motion
pictures decreased from $2,758,359 in the previous fiscal year to $823,006 in this fiscal year, due to a decrease in sales on
the motion pictures Deal and American Summer. The digital release of Pool Boys (American Summer) in the Autumn of 2011 was less
than management expectation.



Fee-related revenues in the fiscal year ended June 30, 2011
derived from:



| | a) | Producer’s fees of $70,029 resulting from excess tax credits received on Night of the Demons.
| | -- | ---------------------------------------------------------------------------------------------



| | b) | $500,000 of production fees related to the production and preproduction of three films in Louisiana.
| | -- | ----------------------------------------------------------------------------------------------------





41







There are no such revenues in the fiscal year ended to June
30, 2012.



Costs of revenue increased from $3,447,996 to $14,389,888(Restated)
including certain distribution costs, producers’ costs and other third party payments, and amortization of film costs of
$3,996,576 and Film cost impairment of $6,459,248 and Music cost impairment of $3,035,000.  The amortization charge represents
the amortization of the film assets calculated as the portion of the current year revenue compared to management’s estimate
of the ultimate future revenue from the films. The Impairment is a result of our evaluation of the ultimate future revenue on the
films in release or production, and adjusted them for actual sales and feedback and orders from the various film markets the Company
attends. These adjusted ultimate estimations are then used in determining if an impairments are necessary to recognize.



Consequently, the Group recorded a gross loss of $10,331,882
in the year-ended June 30, 2012 compared to a gross loss of ($119,608) in the year-ended June 30, 2011



General and administrative expenses increased to $2,251,139,
from $1,852,303.  External legal and professional fees were significantly increased by approximately $400,000, as a result
of investigations carried out in the year by government authorities, as well as a significant increase in NASDAQ compliance matters.  The
acquisition of the music assets has increased general and administrative expense although a substantial proportion of such expenses
was capitalized into music assets, with the development of the DMX album and videos.



Management’s reserve for doubtful accounts increased to
$307,481 compared to $234,429 due to the continued consolidation in the international film business.



We recorded $4,458,621(Restated) in other income for the fiscal
year ended June 30, 2012 reflecting forgiveness of debt mainly from a Workout Agreement reached with Palm Finance Inc. and Arrowhead
Consulting Group.



Net interest expense increased from $758,197 to $2,752,681,
reflecting settlement agreements with senior lenders Blue Rider, Cold Fusion and 120db, and accrual of a full year’s interest
charge on the Pool Boys, Autopsy and Nine Miles Down production loans.  Interest of these production
loans was forgiven in the prior fiscal year ended June 30, 2011.   The Company disputes $957,696 of the interest
expense charged to the Pool Boys/AutopsyandNine Miles Down loans as it has a different interpretation of the contract
to that of Palm. Management believes this dispute will be resolved in the near future.



We recorded no tax provision in the fiscal years ended June
30, 2012 and 2011, because we had no taxable income.



As result of the aforementioned results, we recorded a net loss
of $11,153,463 in the fiscal year ended June 30, 2012 compared to a net profit of $1,461,554 for the fiscal year ended June 30,
2011.



42











Foreign Currency Transactions and Comprehensive Income



The Company’s functional currency, as well as the Company’s
subsidiaries, is the US Dollar. The functional currency of PLC, was the Pound Sterling (“GBP”), and some transactions
which are generated in the United Kingdom are denominated in GBP.



Assets and liabilities generated in a currency other than the
functional currency are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average
rates in effect for the periods presented. The cumulative translation adjustment is included in the accumulated other comprehensive
gain (loss) within shareholders’ equity (deficit). Foreign currency transaction gains and losses arising from exchange rate
fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results
of operations.



Where possible, the Company seeks to match GBP income with
GBP expenditures. To date, the Company has not hedged any transactional currency exposure but will keep such exposures under review
and where appropriate may enter into such transactions in future.







Segment Reporting



The Company now operates in three business segments as a motion
picture producer and distributor and as a music label managing the assets acquired from Mr Michery. The Company believes that
its businesses should be reported as two business segments.



In accordance with ASC 280 Segment Reporting, operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance.
Our chief decision maker, as defined under the FASB’s guidance, is a combination of the Chief Executive Officer and the
Chief Financial Officer.





The table below presents the financial information for the
two reportable segments for the year ended June 30, 2012.



The tables below present the financial information for the reportable segments for the years ended June
30, 2013 and 2012:





|                     |  |      |             |   |       |   |            | Year ended June 30, 2013 |  |   |          |  
|-------------------- |  | ---- | ----------- | - | ----- | - | ---------- | ------------------------ |  | - | -------- | -
|                     |  | Film |             |   | Music |   |            | Production facility      |  |   | Total    |  
|Revenue              |  | $    | 841,956     |   |       | $ | 574,434    |                          |  | $ | 106,417  |  
|Cost of Revenue      |  |      | (7,004,141  | ) |       |   | (5,395,410 | )                        |  |   | (22,160  | )
|Gross profit/(loss)  |  |      | (6,162,185  | ) |       |   | (4,820,975 | )                        |  |   | (84,257  | )
|Operating expenses   |  |      | (6,447,117  | ) |       |   | (480,620   | )                        |  |   | (361,955 | )
|                     |  |      |             |   |       |   |            |                          |  |   |          |  
|Loss from operations |  | $    | (12,609,302 | ) |       |   | (5,301,595 | )                        |  |   | (277,698 | )









|                     |  | Year ended              |            
|-------------------- |  | ----------------------- | -----------
|                     |  | June 30, 2012(Restated) |            
|                     |  | Film                    |            
|Revenue              |  | $                       | 4,052,029  
|Cost of revenue      |  |                         | 14,350,858 
|Gross profit/(loss)  |  | $                       | (10,364,937
|Operating expenses   |  |                         | 2,467,111  
|Loss from operations |  | $                       | (12,765,944















Assets





|                       |  | June 30,2013 |           |  | June 30,2012(Restated) |  
|---------------------- |  | ------------ | --------- |  | ---------------------- | -
|                       |  |              |           |  |                        |  
|Film assets            |  | $            | 8,368,686 |  |                        | $
|Music assets           |  |              | 296,795   |  |                        |  
|Post-production assets |  |              | 4,102,525 |  |                        |  











LIQUIDITY AND CAPITAL RESOURCES



Management assesses the Company’s liquidity in terms of its ability to generate cash to fund its
operating, investing and financing activities and whether it will be sufficient to allow it to continue investing in existing businesses,
consummating strategic acquisitions, paying interest and servicing debt and managing its capital structure on a short and long-term
basis.



43









Short Term Liquidity



The Company has an accumulated deficit of $38,154,995 and negative
working capital of $19,844,307 as of June 30, 2013. Management believes that, based on historical revenues generated from the licensing
of the distribution rights on our motion pictures and the new revenues generated from the release of two albums in the music division
in our 2014 fiscal year, as well as expanding business at the post-production facility, we will have sufficient working capital
to operate for the next twelve months. Included in the revenue expected in our film division will be the release of a new film,
Schism, in March 2014, which will see revenues generated during the next year. In addition, the Company has scaled back on administrative
expenses through the closing of our UK office. The Company also will continue to raise capital, or pay off existing debt, through
the issuance of convertible debentures.



We currently borrow funds for the financing of each of our motion
pictures from several production lenders. There can be no assurances given that the Group will be able to borrow funds to finance
our motion pictures in the future



Long Term Liquidity



The long term liquidity needs of the Company, are projected
to be met primarily through the cash flow provided by operations, with any additional funds necessary raised by the sale of
debt or equity.



Cash Flows



Operating Activities: Net cash used in operating activities
in the year ended June 30, 2032 was $2,436,484.   This is mainly attributable to a mixture of cash received on revenue
and receivables compared to $1,051,378of cash used in additions to film costs, payment on accounts payable and other operating
expenses of the Company. While the accounts payable increased by a net $1,546,377, the overall increase also reflects payments
on balances owing, as well as exchanges of existing accounts payable balances to notes payable.



Investing Activities: Net cash used in investing activities
in the year ended June 30, 2013 was $306,066 which is attributable to additions to building improvements for the post-production
facility.



Financing Activities: Net cash provided by financing activities
during the year ended June 30, 2013 was $2,014,644, mainly due to the proceeds from additional debt of $1,872,772 and the
issuance of common stock for cash of $300,000.



Capital Resources



As of June 30, 2013, the Company did not have any outstanding
capital commitments.    As of the date of this filing the Company had no other commitments than disclosed in
the Company’s financial statements and notes to the financial statements.



Negative working capital at June 30, 2013 was $19,844,307, versus
negative working capital at June 30, 2012 (Restated) of $13,561,333. The change is mainly a decrease in current assets from the
year ended June 30, 2012 to June 30, 2013, while current liabilities stayed fairly consistent. The decrease in assets is constituted
by:



| | a) | An approximately $1,190,000 reserve recognized for the Fee Income receivables due from related party , due to some delays in
SAPLA receiving their State tax credit (please see more detailed discussion in Note 4 in accompanying financial statements.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Impairments recognized on Film costs in the amount of $2,054,171 and Music Assets in the amount of $4,718,205.
| | -- | --------------------------------------------------------------------------------------------------------------

| | c) | The Film and Music asset balances were also reduced by the standard amortization for the year of $2,452,477.
| | -- | ------------------------------------------------------------------------------------------------------------



Working capital is negative due to the fact that all the loans
are classified as current, while some of them have longer-term workout agreements.     Additionally, the mortgage
and construction loans on 807 Esplanade are current liabilities with corresponding Building improvements being recorded as non-current
assets.



The majority of the other loans are convertible to stock so
will have little or no cash impact.



Shareholders’ Deficit contributed to Seven Arts Entertainment,
Inc. at June 30, 2013 was $6,715,314 which is a decrease of $16,573,154 from the restated June 30, 2012 Shareholders’ equity.    The
change was primarily due to the loss in the current year, offset by increases in common stock and the related additional paid in
capital.







44









The Company had approximately $15,632,000 in debt as of June
30, 2013, comprised of Convertible debentures of approximately $4,074,000, Mortgage and construction loans of approximately $3,744,000
and Film and Production loans of approximately $7,814,000. Please refer to Note 9 in the accompanying financial statements to see
a detailed list of the indebtedness and expanded disclosures.





CRITICAL ACCOUNTING POLICIES



Our management selects accounting principles generally accepted
in the United States of America and adopts methods for their application. The application of accounting principles requires the
estimating, matching and timing of revenue and expense. It is also necessary for management to determine measure and allocate
resources and obligations within the financial process according to those principles. The accounting policies used conform to
generally accepted accounting principles which have been consistently applied in the preparation of our financial statements.



The financial statements and notes are representations of our
management, which is responsible for their integrity and objectivity. Management further acknowledges that it is solely responsible
for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and
detecting fraud. Our system of internal accounting control is designed to assure, among other items, that (i) recorded transactions
are valid; (ii) valid transactions are recorded; and (iii) transactions are recorded in the proper period in a timely manner to
produce financial statements that present fairly the financial condition, results of operations and cash flows of our Company
for the respective periods being presented.



Use of Estimates



The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts
and disclosures. The most significant estimates made by management in the preparation of the financial statements relate to ultimate
revenue and costs of its films which are used in the amortization and impairment of film costs, estimates for allowances and income
taxes. Accordingly, actual results could differ from those estimates.



Revenue Recognition



FILM



The Company recognizes revenue from the sale (minimum guarantee
or non-refundable advances) or licensing arrangement (royalty agreements) of a film in accordance with ASC 605-15 “Revenue
Recognition”. Revenue will be recognized only when all of the following criteria have been met:



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

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



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

| | d) | The arrangement fee is fixed or determinable.
| | -- | ---------------------------------------------



| | e) | Collection of the arrangement fee is reasonably assured.
| | -- | --------------------------------------------------------



45







A written agreement with clients (purchase order, letter, contract,
etc.), indicating the film name, territory and period is required for the recognition of revenue. Revenue is recognized when the
performance criteria in the contracts have been met. The customer generally confirms agreement by their signature on the contract.



Minimum guarantee revenue (i.e., non-refundable advances) is
recognized as and when the film is available for delivery to the respective territories. Cash deposits received on the signing
of the contracts are recorded as deferred revenue until the film is available for delivery (as described above) at which point
the deferred revenue is recognized.



Royalty revenue, which equates to an agreed share of gross
receipts of films, is recognized as income as and when the Company is notified of the amounts by the customers through their royalty
reports. Revenue is recorded net any of sales or value added taxes charged to customers.



MUSIC



Revenue, which equates to an agreed share of gross receipts,
is recognized as income as and when the Company is notified of the amounts by the distribution agent through their distribution
reports.



Revenue is recorded:



| | a) | net of any sales or value added taxes charged to customers
| | -- | ----------------------------------------------------------



| | b) | net of discounts agreed with customers
| | -- | --------------------------------------



| | c) | net of returns provision agreed with the distributor and
| | -- | --------------------------------------------------------



| | d) | grossed up for the distribution fee charged by the distribution
                                                                agent.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------



Revenue from digital distribution will be reported by the various
digital platforms such as iTunes in their periodic reports and posted as received.



Fee-related revenues



Many countries make tax credits available to encourage film
production in the territory. Seven Arts benefits from tax credits in:



| | a) | The UK and several other European territories for their European
                                                                productions
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Canada for their Canadian productions
| | -- | -------------------------------------



| | c) | Louisiana for their US productions
| | -- | ----------------------------------



| | d) | Tax preferred financing deals
| | -- | -----------------------------



These tax credits may be treated as a reduction in the capitalized
costs of the film assets they are financing or as producer fees to us if the tax credits are earned and owned by a company in
the Group and paid to us as overhead or producer fees.



46







SAPLA Revenue  – sharing fees



Revenue in the form of fee-income is due to the Company from
the related company SAPLA (owned by the wife of Peter Hoffman, the Company’s CEO) by virtue of an agreement between SAPLA
and the Company guaranteeing that all net revenue’s earned by SAPLA are the property of the Company.  The agreement
was established as the Company guaranteed the loans SAPLA took on to restore and rebuild the property 807 Esplanade,  New
Orleans as a post-production facility.



Income Taxes



The Company has adopted ASC 740-10 “Income Taxes”,
which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes
payable.



Cash and Cash Equivalents



Cash and cash equivalents includes cash in banks with original
maturities of three months or less and are stated at cost which approximates market value, which in the opinion of management,
are subject to an insignificant risk of loss in value. The cash and cash equivalents of the Company consisted of cash balances
held on deposit with banks, including various accounts denominated in US Dollars, Pounds Sterling and Euros.



Accounts Receivable



Accounts Receivable are carried at their face amount, less an allowance for doubtful accounts. On a periodic
basis, the Company evaluates accounts receivable and establishes an allowance for doubtful accounts based on a combination of specific
customer circumstances and credit conditions, and on a history of write offs and collections. The Company’s policy is generally
not to charge interest on trade receivables after the invoice becomes past due. A receivable is considered past due if payments
have not been received within agreed upon invoice terms. Write offs are recorded at a time when a customer receivable is deemed
uncollectible. The Company’s allowance for doubtful accounts was $131,062and $171,062 at June 30, 2013 and June 30, 2012,
respectively.





Due to/Due from Related Parties



In September 2004, the Company entered into an agreement with
SAP under which SAP provided the services of Peter Hoffman for the amount of his contracted salary and the Los Angeles office
and staff of SAP Inc. to us at cost.  Pursuant to two inter Company agreements, SAP also from time-to-time owned limited
liability companies in the United States which distributed the Company’s motion pictures for a fee, with all profits ensuing
to the benefit of the Company.   These companies also provided other services to the Company at no fee other than
Mr. Hoffman’s salary and the direct third-party costs of SAP’s Los Angeles office, all of which were reflected in
the Company’s financial statements.



These other services may include accounting services, audits
of distribution statements, collection of accounts receivable, supervision of production of motion pictures and similar day-to-day
aspects of the Company’s business.



SAP assigned to the Company any proceeds arising from services
performed by SAP on its behalf. SAP was granted the power and authority to enter into agreements on the Company’s behalf.   These
agreements have terminated as of December 31, 2011.



SAP, Inc. directly or through related various Louisiana limited
liability companies, have from time-to-time made non-interest bearing advances to the Company or its subsidiaries or have received
advances back from the Company or paid expenses on each other’s behalf.



Peter Hoffman has contributed cash to the Company, as well
as had salary accrued but unpaid on occasion over the last several years.   These amounts are reflected as Due
To Related Parties.



47







Fee Income Receivable from Related Party



Revenue in the form of fee income is due to the Company from
a related party, SAPLA (owned by the wife of Peter Hoffman, the Company’s former CEO) for developer, advisory and financial
services provided by the Company as concerns infrastructure and historic rehabilitation tax credits earned by SAPLA. In accordance
with an intercompany agreement between SAE and SAPLA, the cash proceeds from the disposition of the tax credits earned by
SAPLA are due to SAE. The Company has recognized the fair value of the services as revenue with any excess received as a capital
contribution by the related party.



Film Costs



Film costs include the unamortized costs of completed films
which have been produced by the Company or for which the Company has acquired distribution rights, libraries acquired as part
of acquisitions of companies and films in progress and in development. For films produced by the Company, capitalized costs include
all direct production and financing costs, capitalized interest and production overhead.



Costs of acquiring and producing films are amortized using
the individual-film-forecast method, whereby these costs are amortized and participations and residuals costs are accrued in the
proportion that current year’s revenue bears to management’s estimate of ultimate revenue at the beginning of the
current year expected to be recognized from the exploitation, exhibition or sale of the films. The majority of a film's costs
(approximately 80% or more) are generally amortized within three years of the picture's initial release.



Ultimate revenue includes estimates over a period not to exceed
ten years following the date of initial release. Film costs are stated at the lower of amortized cost or estimated fair value.
Individual film costs are reviewed on a title-by-title basis, when an event or change in circumstances indicates that the fair
value of a film is less than its unamortized cost. The fair value of the film is determined using management’s future revenue
and cost estimates and a discounted cash flow approach.   Impairment is recorded in the amount by which the unamortized
costs exceed the estimated fair value of the film.  Estimates of future revenue involve measurement uncertainty, and
it is therefore possible that reductions in the carrying value of investment in films may be required as a consequence of changes
in management’s future revenue estimates.  Films are included in the general “library” category when
initial release dates are at least three years prior to the acquisition date.



Films in progress include the accumulated costs of productions
which have not yet been completed.    Films in development include costs of acquiring film rights to books,
stage plays or original screenplays and costs to adapt such projects. Such costs are capitalized and, upon commencement of production,
are transferred to production costs.  Projects in development are written off at the earlier of the date they are determined
not to be recoverable or when abandoned.



Music Costs/Assets



The initial material assets that were acquired comprise 52
completed sound recordings including two completed albums with DMX, up to two additional albums from DMX and up to five albums
from Bone Thugs-N-Harmony.



Music assets include the unamortized costs of completed albums,
singles and videos which have been produced by the Company or for which the Company has acquired distribution rights, libraries
acquired as part of acquisitions and albums in progress and in development. For albums produced by the Company, capitalized costs
include all direct production and financing costs, capitalized interest and production overhead.



Costs of

acquiring and producing music assets will be amortized
using the individual-album-forecast method, whereby these costs are amortized in the proportion that current year’s revenue
bears to management’s estimate of ultimate revenue at the beginning of the current year expected to be recognized from the
exploitation or sale of the music.





Building Improvements



On June 30, 2012, the Company acquired SAFELA, which was previously a related party company.  SAFELA
owns, in its capacity, a 30 year lease on 807 Esplanade, New Orleans, Louisiana, which was constructed as a production and post-production
facility for the Company’s use.   The Company has since assumed the liability for $1,000,000
of these loans plus a contingent sum of $750,000 (contingent on receipt of the tax credit revenue of at least $5,000,000 in cash
proceeds from the tax credits to be earned by SAPLA) due to an agreement with the now mortgagor Palm Finance. Additionally, a construction
loan of $1,850,000 previously guaranteed by the Company has now been assumed by the Company for the property at 807 Esplanade.The Company did not receive any consideration or benefit when they assumed the mortgage and construction loans, and have looked
to the authoritative guidance on guarantees as a analogy.  As the guidance on financial guarantees does not address  which
account would be set up as an offsetting entry when the liability is recognized at the inception of the guarantee, the Company
has determined to call this asset balance created upon assumption of the debt “Building Improvements related to indebtedness” 
The Building Improvements will be amortized in a manner similar to leasehold improvements, over the life of the lease (30 years).





The post production facility commenced operations on July 1, 2012.





Emerging
Growth Company Critical Accounting Policy Disclosure:



The JOBS Act contains provisions that relax certain requirements
for "emerging growth companies" for which we qualify. For as long as we are an emerging growth company, which may be
for up to five years after the first sale of our common equity securities pursuant to an effective registration statement under
the Securities Act., unlike other public companies, we will not be required to: (i) comply with any new or revised financial
accounting standards applicable to public companies until such standards are also applicable to private companies under Section 102(b)(1)
of the JOBS Act; (ii) provide an auditor's attestation report on management's assessment of the effectiveness of our system
of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; (iii) comply with any
new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor's report in which
the auditor would be required to provide additional information about the audit and the financial statements of the issuer; or
(iv) comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise.



Under the JOBS
Act, emerging growth companies can delay adopting new or revised accounting standards that have different effective dates for
public and private companies until such time as those standards apply to private companies. We currently intend to take advantage
of such extended transition period. Since we are not required to comply with new or revised accounting standards on the relevant
dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable
to the financial statements of companies that comply with public company effective dates.



Off-Balance Sheet Arrangements



Not applicable.



48







ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK



Not applicable.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Included in this Form 10-K are the audited financial statements
for the Companyfor the years ended June 30, 2013 and 2012.  The financial statements as June 30, 2013,  and
2012  of the Company included in this Form 10-K have been audited by the Hall Group, CPAs, independent registered public
accountants, as set forth in their report.



Financial Statements



Report of Independent Registered Public Accounting Firm



Consolidated Balance Sheets as of June 30, 2013 and  2012



Consolidated Statements of Operations for the Years Ended June
30, 2013 and 2013



Consolidated Statement of Changes in Stockholders’ Equity
for Years Ended June 30, 2013 and  2012 .



Consolidated Statements of Cash Flows for the Years Ended June
30, 2013 and 2012



Notes to the Consolidated Financial Statements for the Years
Ended June 30, 2013, and 2012



49







ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and
Procedures



Under the supervision and participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness
of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that as of June 30, 2013, our disclosure controls and procedures were ineffective due to a material
weakness existing in our internal controls over financial reporting (described below), which has not been fully remediated as
of June 30, 2013.



A
material weakness is a deficiency, or a combination of deficiencies, in Internal Control over Financial Reporting (“ICFR”),
such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements
will not be prevented or detected on a timely basis. A material weakness would permit information required to be disclosed by
the Company in the reports that it files or submits to not be recorded, processed, summarized and reported, within the time periods
specified in the SEC rules and forms.Based upon an evaluation conducted for the period ended June 30, 2013, our Chief
Executive and Chief Financial Officer have concluded that as of the end of the period covered by this report, we have identified
the following material weaknesses of our internal control:



| | · | Lack
                                                                                                          of sufficient accounting
                                                                                                          staff which results
                                                                                                          in a lack of segregation
                                                                                                          of duties necessary
                                                                                                          for a good system of
                                                                                                          internal control and
                                                                                                          financial statement
                                                                                                          presentation, as well
                                                                                                          as information not being
                                                                                                          recognized into the
                                                                                                          accounting records in
                                                                                                          a timely manner.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The
                                                                                                          accounting staff, which
                                                                                                          was located in the UK,
                                                                                                          was also not proficient
                                                                                                          in US GAAP as concerns
                                                                                                          complex accounting transactions,
                                                                                                          which resulted in restatements
                                                                                                          of our prior years financial
                                                                                                          statements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company plans to remediate the material weaknesses by employing
sufficient qualified accounting staff knowledgeable in US GAAP. It is believed that if all accounting staff is located in one
office in the US there will be better communication and oversight of the accounting functions.



Changes in Internal Control over Financial
Reporting



We have made significant changes in our
internal control over financial reporting: We have engaged a new CFO who is proficient in US GAAP and SEC reporting. We have closed
our London accounting office as of May 31, 2013 and all accounting staff are now located in our West Hollywood headquarters.



50







Management’s Annual Report on Internal
Control Over Financial Reporting



Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting
principles in the United States of America. Our internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with accounting principles generally accepted in the United States of America, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the Company’s assets that could have a material effect on the financial statements.



Because of inherent limitations, a system of internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



Our management conducted an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, our management concluded that
our internal controls over financial reporting were not operating effectively as of June 30, 2013.



This annual report does not include an attestation
report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to the attestation by the Company’s registered public accounting firm pursuant to rules of the SEC
that permit the Company to provide only management’s report in this annual report.



ITEM 9B. OTHER INFORMATION



None.



51







PART III



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The following sets forth the name and position of each of our
directors:



|Name            |  | Position           |  | Age  |  | Date FirstElectedor Appointed |  | Date ofExpirationof CurrentTerm (1) | 
|--------------- |  | ------------------ |  | ---- |  | ----------------------------- |  | ----------------------------------- | 
|Hubert Gibbs    |  | Chairman, Director |  | 52   |  | April 9, 2010                 |  | June 30, 2015                       | 
|Peter Hoffman   |  | CEO, Director      |  | 63   |  | September 2, 2004             |  | June 30, 2015                       | 
|Katrin  Hoffman |  | COO, Director      |  | [34] |  | February 26, 2008             |  | June 30,2015                        | 
|Anthony Hickox  |  | Director           |  | [44] |  | October 15, 2007              |  | June 30, 2013                       | 
|Elaine New (2)  |  | Director           |  | 52   |  | January 11, 2007              |  | June 30, 2014                       | 
|                |  |                    |  |      |  |                               |  |                                     | 
|Candace Wernick |  | CFO                |  | 55   |  | July 15, 2013                 |  |                                     | 
|                |  |                    |  |      |  |                               |  |                                     | 
|David Furth     |  | Director           |  | 44   |  | October 15, 2012              |  | Next AGM                            | 








(1) Directors serve for three years.



(2) Ms. New resigned her position as CFO on July 15, 2013



(3) Ms. Wernick was appointed as CFO on July 15, 2013



The Directors served in their respective capacities since their
election and/or appointment and will serve until the next Annual General Meeting or until a successor is duly elected, unless
the office is vacated in accordance with the Articles of Association.



The senior management serves at the pleasure of the Board of
Directors.



No director and/or senior management had been the subject of
any order, judgment, or decree of any governmental agency or administrator or of any court or competent jurisdiction, revoking
or suspending for cause any license, permit or other authority of such person or of any corporation of which he is a director
and/or senior management, to engage in the securities business or in the sale of a particular security or temporarily or permanently
restraining or enjoining any such person or any corporation of which he is an officer or director from engaging in or continuing
any conduct/practice/employment in connection with the purchase or sale of securities, or convicting such person of any felony
or misdemeanor involving a security or any aspect of the securities business or of theft or of any felony.



52







The experience and qualifications of the directors and senior
management for at a minimum the last five years are as follows:



The Honorable Hubert Gibbs has been our Chairman
and one of our directors since April 9, 2010. After graduating from Oxford University in 1981, Mr. Gibbs started his career as
an editor, reader and translator at Quartet Books UK. Subsequently he worked as a stock market analyst with Banque Bruxelles Lambert
and then as an independent communications entrepreneur responsible for starting up various companies including Instlang.com which
was sold to market leader SDL in 1999. Most recently Mr. Gibbs has been involved in financing and producing independent films,
including As Good as Dead and The Killing Jar. Mr. Gibbs managed the family estate, Tyntesfield until
it was taken over by the National Trust in 2002.



Peter Hoffman has been our Chief Executive Officer
and one of our directors since September 2004 and is also our founder. Mr. Hoffman took over as Chairman on December 31, 2009
following the death of previous chairman Anthony Bryan but resigned that position on election of Hubert Gibbs as Chairman. Under
Mr. Hoffman’s direction, we and our predecessors have produced and or distributed over thirty features since our inception
including: Johnny Mnemonic, Never Talk To Strangers, 9 1⁄2 Weeks II and Shattered
Image. As our CEO, his responsibilities include, among others, the selection and production of motion pictures, strategic
planning, business development, operations, financial administration, accounting, and reporting to the Board of Directors. Mr.
Hoffman was previously President and CEO of Carolco Pictures. He was directly involved at Carolco in the production of a large
slate of independent motion pictures, including Terminator 2, Basic Instinct, Total Recall,
and Rambo III. Mr. Hoffman is a graduate of the Yale Law School and has participated as a lawyer and executive in
numerous financial and tax-preferred financings for more than twenty-five years.   Mr. Hoffman is the father of
Katrin Hoffman, our Chief Operating Officer and our Executive Director.



Katrin Hoffman has been our Chief Operating Officer
and a director since February 2008. As our COO, her responsibilities include supervising the production of motion pictures and
licensing and delivering our motion pictures to third parties. She began her career at the age of 17 as an intern for Hollywood
casting directors, Mary Vernieu and Risa Gramon-Garcia. Ms. Hoffman then worked for film agent Mort Viner at International Creative
Management until his retirement when she joined our predecessors in 1998.   She has managed the development, production
and delivery of films including The Believer, No Good Deed, Stander, and Asylum.
In addition to her production responsibilities, Ms. Hoffman is responsible for international distribution, acquisitions and film
financing. Ms. Hoffman is the daughter of Peter Hoffman, our Chief Executive Officer and a Director.



Anthony Hickox has been a director since October
2007. He is a film director, writer and producer. Mr. Hickox wrote and directed his first film, Waxworks at the age of
21. Mr. Hickox was involved in the production of or direction of Sundown, Warlock: Armageddon; Children
of the Corn, Turn of the Screw; Carnival of Souls, and Hellraiser 3: Hell on Earth.



Elaine New has been
an executive director since January 2007 and was our Chief Financial Officer from January 2007 until July 31, 2009 and from August
1, 2010 until July 15, 2013and remains an executive director. She is Cambridge University educated and is a Price Waterhouse
(London) qualified Chartered Accountant. Ms. New was also in the media industry for the ten years previous to her employment at
the Company as Finance Director of Metrodome Group Plc., a UK film distributor.  Ms. New was previously engaged as Financial
Controller of Harrods International, helping to establish an airport retailing arm, and as Commercial Director of Outfit, a new
division of Sears Womenswear Ltd that she helped to create in the latter part of the 1990s.   Ms. New was on the
Executive Committee of The Quoted Companies Alliance for almost three years helping represent small to mid-cap companies listed
both on AIM and the main list of The London Stock Exchange.



53







Candace Wernick, CPA, was in public accounting
for 19 years with Stonefield Josephson, Inc., which merged with Marcum LLP. Ms. Wernick was an audit partner for 10 years, specializing
in media and entertainment, technology, and manufacturing of both SEC reporting and private companies. Ms. Wernick provided technical
research and consulting services in the firm and ended hertenure
in the firm’s Assurance Quality Control department. Since October
2011 Ms. Wernick has been providing consulting services to various SEC reporting companies, or companies in the process of becoming
reporting companies, regarding US GAAP or SEC Reporting technical issues.  Ms. Wernick has also been providing engagement
quality review services and technical support to several audit firms.



David Furth is the managing director of Gi2 LLC,
where he has managed hedge fund and private equity investments focusing on rapidly growing international companies in retail software,
technology, and health care since July 2008. Prior to his tenure at Gi2, commencing January 2005 Mr Furth was Senior Vice President
and Portfolio Manager at Provident Investment Counsel, where he managed a $450 million growth stock portfolio. Mr. Furth attended
Stanford University for his undergraduate degree and then the Kellogg School of Management at Northwestern University for his
MBA.



Compensation

Since February 15, 2009, our compensation policies with respect
to our directors and executive officers are established, administered, and the subject of periodic review by our Independent Directors
in accordance with the NASDAQ Marketplace Rules. Total compensation accrued and/or paid (directly and/or indirectly) to the Directors
and senior management during the fiscal year ended June 30, 2012 was $1,079,386. We have a Compensation Committee, consisting
of Mr. Gibbs and Mr. Reardon, both are Independent Directors that review and approve all employee compensation and bonuses.



|                        |  |      |  |        |         |     |       |  |   |        |  |  | Non-Equity     |  |  |              |   |  |       | 
|----------------------- |  | ---- |  | ------ | ------- | --- | ----- |  | - | ------ |  |  | -------------- |  |  | ------------ | - |  | ----- | 
|                        |  |      |  |        |         |     |       |  |   | Stock  |  |  | Incentive Plan |  |  | All Other    |   |  |       | 
|Name and Principal      |  |      |  | Salary |         |     | Bonus |  |   | Awards |  |  | Compensation   |  |  | Compensation |   |  | Total | 
|Position                |  | Year |  | ($)    |         |     | ($)   |  |   | ($)    |  |  | ($)            |  |  | ($)          |   |  | ($)   | 
|Peter Hoffman           |  | 2013 |  |        | 500,000 | (1) |       |  | - |        |  |  | -              |  |  |              | - |  |       | 
|Chief Executive Officer |  | 2012 |  |        | 500,000 |     |       |  | - |        |  |  | -              |  |  |              | - |  |       | 
|                        |  | 2011 |  |        | 500,000 |     |       |  | - |        |  |  | -              |  |  |              | - |  |       | 
|Elaine New              |  | 2013 |  |        | 219,500 | (2) |       |  | - |        |  |  | -              |  |  |              | - |  |       | 
|Chief Financial Officer |  | 2012 |  |        | 240,000 |     |       |  | - |        |  |  | -              |  |  |              | - |  |       | 
|                        |  | 2011 |  |        | 269,800 |     |       |  | - |        |  |  | -              |  |  |              | - |  |       | 
|Kate Hoffman            |  | 2013 |  |        | 135,300 | (3) |       |  | - |        |  |  | -              |  |  |              | - |  |       | 
|Chief Operating Officer |  | 2012 |  |        | 79,000  |     |       |  | - |        |  |  | -              |  |  |              | - |  |       | 
|                        |  | 2011 |  |        | 92,200  |     |       |  | - |        |  |  | -              |  |  |              | - |  |       | 





(1) Peter Hoffman has taken a leave of absence as
of June 19, 2013 without pay as disclosed in our 8-K dated June 20, 2013. Per the employment contract, Mr. Hoffman is entitled
to vacation days and has utilized his unused vacation days to cover the absent period from June 19, 2013 to June 30, 2013. During
Mr. Hoffman’s absence, our COO, Kate Hoffman will act as an interim CEO.



(2) Elaine New’s salary of $219,500 is 11 months
of salary at £150,000 per year and £7,000 per month on the last month of the year translated to USD using average
exchange rate of $1.55 per £1.00 for the fiscal year ended June 30, 2013.



(3) Kate Hoffman salary of $135,300 represents salary
increase from £50,000 to £100,000 effective October 1, 2012. Ms. Hoffman’s salary of £87,500 is translated
using average exchange rate of $1.55 per £1.00 for the fiscal year ended June 30, 2013.



54







Stock Options



Outstanding Equity Awards at 2013
Fiscal Year-End



The
following table provides information on all restricted stock, stock options and SAR awards (if any) held by our named executive
officers (“NEOs”) as of June 30, 2013.





|               |  |           |         |  |            |  |     |                |  |   |            |  |                 |            | Mkt. Value    |           
|-------------- |  | --------- | ------- |  | ---------- |  | --- | -------------- |  | - | ---------- |  | --------------- | ---------- | ------------- | ----------
|               |  |           |         |  | % Of Total |  |     |                |  |   |            |  |                 |            | of Securities |           
|               |  | Number of |         |  | Options    |  |     |                |  |   |            |  |                 |            | Underlying    |           
|               |  | Options   |         |  | Granted on |  |     | Exercise Price |  |   |            |  |                 |            | Options on    |           
|Name           |  | Granted   |         |  | Grant Date |  |     | per Share      |  |   | Grant Date |  | Expiration Date |            | Date of Grant |           
|Peter Hoffman  |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.44       |  |                 | 14/10/2011 |               | 13/10/2016
|Elaine New     |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.44       |  |                 | 14/10/2011 |               | 13/10/2016
|Katrin Hoffman |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.44       |  |                 | 14/10/2011 |               | 13/10/2016
|Robert Kaiser  |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.44       |  |                 | 14/10/2011 |               | 13/10/2016
|Dan Reardon    |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.44       |  |                 | 14/10/2011 |               | 13/10/2016
|Hubert Gibb    |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.44       |  |                 | 14/10/2011 |               | 13/10/2016
|Anthony Hickox |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.44       |  |                 | 14/10/2011 |               | 13/10/2016
|Peter Hoffman  |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.39       |  |                 | 06/12/2011 |               | 05/12/2016
|Elaine New     |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.39       |  |                 | 06/12/2011 |               | 05/12/2016
|Katrin Hoffman |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.39       |  |                 | 06/12/2011 |               | 05/12/2016
|Robert Kaiser  |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.39       |  |                 | 06/12/2011 |               | 05/12/2016
|Dan Reardon    |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.39       |  |                 | 06/12/2011 |               | 05/12/2016
|Hubert Gibb    |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.39       |  |                 | 06/12/2011 |               | 05/12/2016
|Anthony Hickox |  |           | 50,000  |  |            |  | 100 | %              |  | $ | 0.39       |  |                 | 06/12/2011 |               | 05/12/2016
|Robert Kaiser  |  |           | 50,000  |  |            |  |     |                |  | $ | 0.39       |  |                 | 01/09/2011 |               | 31/08/2016
|Total Granted  |  |           | 750,000 |  |            |  |     |                |  |   |            |  |                 |            |               |           



1) 50% of the options vest on December 31, 2011

2) 50% of the options vest on December 31, 2012



55







Change of Control Compensation



We have now and have had in all periods described no plans
or arrangements in respect of compensation received, or that may be received, by our executive officers to compensate such officers
in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities
following a change of control, where the value of such compensation exceeds $60,000 per senior manager other than those set out
in Peter Hoffman’s Employment Agreement. Pursuant to the Employment Agreement, if we terminate Peter Hoffman without cause,
we shall be entitled to pay SAP a lump sum of approximately $1,500,000.



Other Compensation



No senior management director received “other compensation”
in excess of the lesser of $25,000 or 10% of such officer’s cash compensation, and senior management and Directors as a
group did not receive other compensation which exceeded $25,000 times the number of persons in the group or 10% of the compensation.



Bonus/Profit Sharing/Non-Cash Compensation



Except for the stock options discussed above, we have no material
bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to some of our directors or senior
management, except that our Board has adopted a bonus plan substantially in the following form:



| | 1. | Compensation Committee
                                                                               will recommend amount of bonus pool each year,
                                                                               which will be 10% of pre-tax profits for the prior
                                                                               fiscal year. The CEO and the Compensation Committee
                                                                               will decide recipients of project-related awards
                                                                               and amounts.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | In future years, comparisons will be made to peer groups in the
                                                           motion picture industry.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------





| | 3. | There will be two types of annual bonuses:
| | -- | ------------------------------------------



| | (a) | Those related to the overall management of our company
| | --- | ------------------------------------------------------

| | (b) | Those related to performance on specific projects
| | --- | -------------------------------------------------



| | 4. | Managers in bonus pool:
| | -- | -----------------------



| | (a) | Peter Hoffman (Chairman/CEO)
| | --- | ----------------------------

| | (b) | Katrin Hoffman (COO)
| | --- | --------------------



| | 5. | Management bonuses as follows:
| | -- | ------------------------------



|                      |  | CEO |    |   | Management |  |    | Project Related | 
|--------------------- |  | --- | -- | - | ---------- |  | -- | --------------- | 
|Company Results       |  |     | 40 | % |            |  | 25 | %               | 
|Individual Objectives |  |     | 10 | % |            |  | 30 | %               | 
|Subjective            |  |     | 20 | % |            |  | 20 | %               | 
|Share Performance     |  |     | 30 | % |            |  | 25 | %               | 



| | 6. | Individual objects for management will be agreed by the Board.
| | -- | --------------------------------------------------------------



| | 7. | Criteria include individual contributions to our overall profits.
| | -- | -----------------------------------------------------------------



56







Pension/Retirement Benefits



No funds were set aside or accrued by us during fiscal years
2009, 2010, 2011 or 2012 to provide pension, retirement or similar benefits for directors or senior management.



Executive Employment Agreements



Executive Officer Employment
Agreements



We
have an employment agreement with Peter Hoffman pursuant to which he will act as our CEO until December 31, 2018. He has taken
a leave of absence until December 31, 2013, and has waived his salary in that period. In connection with that employment agreement,
we have granted Mr. Hoffman:



| | • | the right to sole responsibility for creative and business
                                                                     decisions regarding motion pictures we develop and produce,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a right
                                                                                       of first refusal to produce remakes, sequels
                                                                                       or prequels of motion pictures produced
                                                                                       by Mr. Hoffman and acquired by us or any
                                                                                       motion picture produced by us during his
                                                                                       employment,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an annual
                                                                                       salary of $500,000 per year plus bonuses,
                                                                                       expenses and a signing option and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a right upon termination without cause to a lump sum
                                                                     payment of approximately $1,500,000, an assignment of all
                                                                     projects in development during the term of his employment
                                                                     and any amounts due upon such compensation as an excise tax.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
have an employment agreement with Kate Hoffmanfor a term ending on April 30, 2018,pursuant to which she will act as our COO at a salary of £100,000 per year plus bonuses and expenses. Ms. Hoffman’s
contract contains a ‘‘non-compete’’ clause pursuant to which she will be excluded from competing against
us for 6 months following the date of her termination.



We
have a consultant agreement with Candace Wernick pursuant to which she will act as chief financial officer for compensation of
$167,000 per year and expenses as well as additional compensation for special projects.The
contract automatically renews each July 15, unless advance notice is given.



Mr. Hoffman’s employment agreement grants us a right
to injunctive relief if Mr. Hoffman breaches the agreement. With the exception of Ms. Hoffman’s and Ms. New’s agreements,
the employment agreements do not contain “non-compete” clauses.



Director Compensation



Anthony Hickox will receive approximately $1,500 per meeting
attended.



Board of Directors Committees



We have an Audit Committee, which recommends to the
Board of Directors the engagement of our independent auditors and reviews with the independent auditors the scope and results
of our audits, our internal accounting controls, and the professional services furnished by our independent auditors.
The current members of the Audit Committee are Mr. Gibbs (Chair), Mr. Furth and Mr. Hickox. The Audit Committee did not meet
separately in the fiscal year ended June 30, 2012, but have met during the current fiscal year and will meet with the
Group’s Auditors to review the year-end financial statements and the audit process.



57







Our Compensation Committee (Mr. Gibbs) and Nominations Committee
(Mr. Gibbs and Mr. Hickox) are made up of three of our independent directors.



All Committees of the Board are organized pursuant to our Board
of Directors Memorandum and resolutions of the Board of Directors. The terms of reference of each committee are based on the subject
matter jurisdiction of each Committee. The Compensation Committee reviews and approves all employee compensation and bonuses.
The Nomination Committee proposes candidates for election to our Board of Directors.



All meetings of each Committee are on an ad hoc basis, decisions
are made by majority vote and all decisions are reported to the full Board of Directors for approval.



Employees



As of the June 30, 2013, Seven Arts had 8 employees and independent
contractors, providing full-time services. Our affiliates employ many part time employees for production of our motion pictures,
but we do not engage temporary employees on any regular or material basis. We are not signatory to any labor union collective
bargaining agreements, but our affiliates in the United States are signatory to the current Writer’s Guild of America, Directors
Guild of America and IATSE Low Budget Agreements and have in the past been signatory to the Screen Actors Guild Agreement. Our
employees have ranged from a low of six to a high of twenty one over the last three fiscal years.



58







ITEM 11. EXECUTIVE COMPENSATION



Compensation



Since February 15, 2009, our compensation policies with respect
to our directors and executive officers are established, administered, and the subject of periodic review by our Independent Directors
in accordance with the NASDAQ Marketplace Rules.   Total compensation accrued and/or paid (directly and/or indirectly)
to the Directors and senior management during the fiscal years ended June 30, 2013 and 2012 was  $854,800 and $1,079,387,
respectively.



We have a Compensation Committee, consisting of Mr. Gibbs and
Mr. Reardon, both  Independent Directors, that reviews and approves all employee compensation and bonuses.



Year Ended

June 30, 2013



|                           |  |                     |         |  | Long-Term Compensation |  |   |                          | 
|-------------------------- |  | ------------------- | ------- |  | ---------------------- |  | - | ------------------------ | 
|                           |  | Annual Compensation |         |  | Awards                 |  |   |                          | 
|                           |  |                     |         |  |                        |  |   |                          | 
|                           |  |                     |         |  |                        |  |   |                          | 
|                           |  |                     |         |  |                        |  |   | Other                    | 
|                           |  |                     |         |  |                        |  |   | Annual                   | 
|Name                       |  | Salary
    ($)      |         |  | Bonus
    ($)          |  |   | Compensation
        ($) | 
|                           |  |                     |         |  |                        |  |   |                          | 
|Peter Hoffman              |  |                     | 500,000 |  |                        |  | - |                          | 
|                           |  |                     |         |  |                        |  |   |                          | 
|Elaine New                 |  |                     | 219,500 |  |                        |  |   |                          | 
|                           |  |                     |         |  |                        |  |   |                          | 
|Kate Hoffman               |  |                     | 135,300 |  |                        |  | - |                          | 
|                           |  |                     |         |  |                        |  |   |                          | 
|Other Directors as a Group |  |                     |         |  |                        |  | - |                          | 



59







ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following table sets forth information regarding the ownership
of our common stock as of December 5, 2012 by (i) each person known by the Company to own beneficially more than five per cent
(5%) of our common stock; (ii) each director and nominee for director of the Company; (iii) each executive officer named in the
Summary Compensation Table (see “Executive Compensation”); and (iv) all directors and executive officers of the Company
as a group.



|Name of Beneficial Owner(1)                         |  | Address of Beneficial Owner                              |  | Shares Owned(2) |         |  | Class | 
|--------------------------------------------------- |  | -------------------------------------------------------- |  | --------------- | ------- |  | ----- | 
|SERIES A PREFERRED                                  |  |                                                          |  |                 |         |  |       | 
|Palm
    Finance issued and certificated(9)         |  | 233 Wilshire Blvd, Suite
    200, Santa Monica, CA 90401 |  |                 | 125,125 |  |       | 
|                                                    |  |                                                          |  |                 |         |  |       | 
|SERIES B PREFERRED                                  |  |                                                          |  |                 |         |  |       | 
|David Michery(10)                                   |  | 415 Stunt Road, Calabasas, CA 91302                      |  |                 | 20,000  |  |       | 
|HRM Records                                         |  | 415 Stunt Road, Calabasas, CA 91302                      |  |                 | 1,250   |  |       | 
|Peter Karroll                                       |  | 415 Stunt Road, Calabasas, CA 91302                      |  |                 | 2,500   |  |       | 
|Riley Karroll                                       |  | 415 Stunt Road, Calabasas, CA 91302                      |  |                 | 1,250   |  |       | 
|Nicole Sonia Michery                                |  | 415 Stunt Road, Calabasas, CA 91302                      |  |                 | 5,000   |  |       | 
|Alain Salem                                         |  | 8439 Sunset Boulevard, West Hollywood,
    CA  90069     |  |                 | 2,500   |  |       | 
|John Holt Smith                                     |  | 415 Stunt Road, Calabasas, CA 91302                      |  |                 | 4,000   |  |       | 
|                                                    |  |                                                          |  |                 |         |  |       | 
|COMMON STOCK                                        |  |                                                          |  |                 |         |  |       | 
|Peter Hoffman(3)                                    |  | 8439 Sunset Boulevard, West Hollywood,
    CA 90069      |  |                 | 147,144 |  |       | 
|Kate Hoffman(4)                                     |  | 136-144 New Kings Road, London SW6
    4LZ               |  |                 | 0       |  |       | 
|Elaine New(5)                                       |  | 136-144 New Kings Road, London SW6
    4LZ               |  |                 | 0       |  |       | 
|Hubert Gibbs(6)                                     |  | 136-144 New Kings Road, London SW6
    4LZ               |  |                 | 0       |  |       | 
|Dan Reardon(7)                                      |  | 8439 Sunset Boulevard, West Hollywood,
    CA 90069      |  |                 | 0       |  |       | 
|Tony Hickox(8)                                      |  | 8439 Sunset Boulevard, West Hollywood,
    CA 90069      |  |                 | 0       |  |       | 
|David Furth                                         |  | 8440 Sunset Boulevard, West Hollywood,
    CA 90069      |  |                 | 6,000   |  |       | 
|                                                    |  |                                                          |  |                 |         |  |       | 
|All executive officers
    and directors as a group |  |                                                          |  |                 | 153,145 |  |       | 



(1) Beneficial ownership is determined in accordance
with the Rule 13d-3(a) of the Exchange Act and generally includes voting or investment power with respect to securities and includes
shares underlying convertible debentures, warrants and options that have been issued, granted and have vested and not been exercised
and shares underlying options that will vest within the next 60 days only in respect to any person listed in the table. Except
as subject to community property laws, where applicable, the person named above has sole voting and investment power with respect
to all common stock shown as beneficially owned by him/her.



(2) As July 23, 2013, there were 101,000,932 shares
of common stock were issued and outstanding. All share information presented on this table is adjusted for 70:1 reverse-split
on September 4, 2012 and 50:1 reverse-split on May 20, 2013.



(3) Represents less than 1 share equivalent of underlying
options that are exercisable within 60 days of this proxy statement and less than 1 shares of common stock issued to New Moon,
a company controlled by Peter Hoffman and pledged to Armadillo Ltd. Also includes 7,143 shares that are pledged to JMJ Financial
and 140,000 pledged to Tonaquint Inc. in connection with Mr. Hoffman’s full recourse personal guarantees of the Company’s
obligations to JMJ Financial and Tonaquint Inc., respectively.



(4) Represents less than 1 share of common stock
underlying options that are exercisable within 60 days of this proxy statement.



(5) Represents less than 1 share of common stock
underlying options that are exercisable within 60 days of this proxy statement.



(6) Represents less than 1 share of common stock
underlying options that are exercisable within 60 days of this proxy statement.



(7) Represents less than 1 share of common stock
underlying options that are exercisable within 60 days of this proxy statement.



(8) Represents less than 1 share of common stock
underlying options that are exercisable within 60 days of this proxy statement.



(9) The per-share conversion price for the Series
A Preferred Stock is $10.50.



(10) The per-share conversion price for the Series
B Preferred Stock was confirmed at $1.10.  The holders retain all of the voting rights in respect of such shares.



60







ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE



CERTAIN RELATED TRANSACTIONS



As of June 30, 2013:





|              |  | SAE, Inc. |            |   | SAFE |  |          | SAFELA |  |  | Consolidated  Balance | 
|------------- |  | --------- | ---------- | - | ---- |  | -------- | ------ |  |  | --------------------- | 
|Due from:     |  |           |            |   |      |  |          |        |  |  |                       | 
|              |  |           |            |   |      |  |          |        |  |  |                       | 
|SAMT          |  |           | 13,000     |   |      |  |          |        |  |  |                       | 
|SAPLA         |  |           | 173,006    |   |      |  |          |        |  |  |                       | 
|              |  |           |            |   |      |  |          |        |  |  |                       | 
|Peter Hoffman |  |           |            |   |      |  |          |        |  |  | 19,781                | 
|              |  |           |            |   |      |  |          |        |  |  |                       | 
|Total         |  |           | 186,006    |   |      |  |          |        |  |  |                       | 
|              |  |           |            |   |      |  |          |        |  |  |                       | 
|Peter Hoffman |  |           | (1,272,112 | ) |      |  | (393,650 | )      |  |  |                       | 
|SAFE (UK)     |  |           | (2,383     | ) |      |  | (13.556  | )      |  |  |                       | 
|              |  |           | (1,274,495 | ) |      |  | (407,206 | )      |  |  |                       | 







61







| | ● | Together with SAP, our predecessor entered into a settlement
                                                                agreement, dated September 30, 2006, with ApolloMedia GmbH &
                                                                Co. Filmproduktion KG (“ApolloMedia”) related to a
                                                                dispute regarding amounts ultimately payable to ApolloMedia from
                                                                distribution of the motion picture Stander and one of our
                                                                subsidiaries’ assumption of indebtedness of approximately
                                                                $2,000,000 related to Stander upon acquisition of control
                                                                of our Group by SAP. The Settlement Agreement fully releases us
                                                                and our subsidiaries from any liability to ApolloMedia in exchange
                                                                for a payment of $1,800,000 to be made by SAP (of which $175,000
                                                                has been paid). In connection with the SAP’s payment obligation
                                                                of the settlement amount to ApolloMedia, we issued 140,000 ordinary
                                                                shares to SAP which SAP immediately pledged to ApolloMedia to
                                                                secure SAP’s obligations under the settlement agreement.
                                                                SAP has agreed that it will (1) return to us all ordinary shares
                                                                in excess of 400,000 not necessary to satisfy SAP’s obligations
                                                                to ApolloMedia and (2) deliver to us from SAP’s ordinary
                                                                shares, any ordinary shares in excess of 80,000 in fact sold by
                                                                SAP to satisfy the indebtedness to ApolloMedia under the settlement
                                                                agreement. The shares pledged to ApolloMedia will be sold by it
                                                                as necessary for ApolloMedia to derive net proceeds of $1,625,000,
                                                                and any pledged shares remaining after such sale will be returned
                                                                to us.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have entered into several agreements and arrangements with
Seven Arts Pictures Louisiana LLC (“SAPLA), controlled by Mr. Hoffman’s wife. These transactions include:



| | ● | A guarantee that we provided to SAPLA to cover its indebtedness
                                                                under a Credit Agreement that SAPLA entered into with Advantage
                                                                Capital Community Development Fund, L.L.C. (“Ad Cap”),
                                                                dated October 11, 2007, for the acquisition and improvement of
                                                                a production and post- production facility located at 807 Esplanade
                                                                Avenue in New Orleans, Louisiana. The aggregate borrowing amount
                                                                under this facility was $3,700,000, all of which was drawn down
                                                                as of April 30, 2010. In November 2010 Palm acquired this mortgage
                                                                secured on the facility for $1,000,000 and agreed to extend a
                                                                construction facility of $1,850,000 to complete the facility.
                                                                We guaranteed the indebtedness to Palm and have since June 30,
                                                                2012 now included it in our total indebtedness. We do not anticipate
                                                                the use of any material amount of our working capital to complete
                                                                and operate this facility, and we expect to realize substantial
                                                                film production, film infrastructure, historic rehabilitation
                                                                and other state and federal tax credits and other tax incentives
                                                                from the acquisition, renovation, and operation of this property
                                                                as a post- production facility. In particular SAPLA has submitted
                                                                audited expense reports which would generate approximately $3,500,000
                                                                in Louisiana Film Infrastructure tax credits $2,500,000 in Louisiana
                                                                State Rehabilitation tax credits and $2,500,000 in Federal Historic
                                                                Preservation tax credits, all of which are payable to us.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



SAPLA has brought actions against Louisiana Department of Economic Development (‘LED’) and
Louisiana State Historic Preservation Office (‘SHPO’) for the failure to certify the film infrastructure and state
historic rehabilitation tax credits which are expected to be resolved within 30 days. In oppositions filed by LED and SHPO, neither
state agency challenged the amount or support for any of the claimed qualifying expenditures. SHPO is reviewing the specifics of
the historic rehabilitation of the property which has already been approved by the US Department of the Interior and management
expects that SHPO will certify the rehabilitation meets its standards. LED claims that it cannot complete its review due to the
lack of business license and proper zoning for the property’s use as a post production facility. Management has obtained
a business license for such use and a letter from the appropriate zoning authority that SAPLA’s use of the property does
not give rise to any enforcement actions. LED did not raise this issue as a defense to SAPLA’s action against it but rather
relied on technical issues of jurisdiction which management believes are without merit and general references to LED’s discretion.



62







SAP and Louisiana Companies:



The Company’s Chief Executive Officer, Peter Hoffman,
controls several companies, including (prior to September 10, 2011) Seven Arts Pictures, Inc. (“SAP ”) that are not
part of the Company but from which it obtains or transfers distribution rights or other assets related to the business and which
control production of the motion pictures. The agreements with Mr. Hoffman, and the companies controlled by him, provide that
all revenues related to the Company’s business payable to Mr. Hoffman or any of these related party companies is due to
the Company, except Mr. Hoffman’s salary, bonus and stock ownership. None of these affiliates are variable interest or special
purpose entities.



Pursuant to a related party agreement, SAP holds ownership
of limited liability corporations in the United States, with all distribution rights and profits thereof being due to SAFE. In
addition, they have also provided other services for Seven Arts Pictures Plc (“PLC”) and SAFE and SAE at no fee other
than Mr. Hoffman’s salary and the direct third party costs of the Los Angeles office, all of which are reflected in the
financial statements of SAFE. These other services include any reasonable requests of the management of the Company including
accounting services, audits of distribution statements, collection of accounts receivable, supervision of production of motion
pictures and similar day-to-day aspects of the Company’s business. Effective January 1, 2012, no further such transactions
are intended.



Peter Hoffman:



In September
2004, the Company’s predecessor entered into an agreement with SAP under which SAP provided the services of Mr. Peter Hoffman
for the amount of his contracted salary and the Los Angeles office and staff of SAP Inc. to the Company’s predecessor at
cost. Pursuant to two inter - company agreements, SAP also from time-to-time owned limited liability companies in the United States
which distributed the Company’s motion pictures for a fee, with all profits enuring to the benefit of the Company. These
companies also provided other services to the Company at no fee other than Mr. Hoffman’s salary and the direct third-party
costs of SAP’s Los Angeles office, all of which were reflected in the Company’s financial statements.  Portions
of Mr. Hoffman’s salary have not been paid to him and have been reflected as Due To Related Party. As of June 30, 2013,
$ 1,566,588was owed to Mr. Hoffman for unpaid salary and unreimbursed expenses, as well as
repayment of cash he advanced the Company or its predecessors.  During the year ended June
30, 2013, 7,143 (25,000,000 pre-split) and 140,000 (7,000,000 pre-split) shares were issued in exchange for $914,786, and
$1,190,000, respectively, of the Due to related party balance.  The 7,143 shares have been pledged to JMJ Financial
in connection with a $500,000 convertible debenture, as collateral against repayment of the note. The 140,000 shares have been
pledged to Tonaquint Inc, in connection with a total of $590,000 in convertible debentures, under the terms of an amendment dated
October 5, 2012, as collateral against repayment of the note. (Note 9) In the event of a default on either of the notes the holder
may transfer and sell the pledged shares and apply the proceeds against the outstanding amounts on the notes. Per agreements between
the Company and Mr. Hoffman in respect to the pledged shares, if the pledged shares are sold and applied to the note balance,
or if the shares are not utilized by the pledges and returned to the Company, Mr. Hoffman’s Due to related party balance
as of the date of the agreements, will be reinstated. Due to the future obligation to in substance repurchase the shares and reinstate
the Due to related party balance, the shares have been treated as if issued for no consideration, and a liability for $2,104,786
was recognized included in the Due to related party balance for the obligation to reinstate the Due to balance.



SAPLA Guarantee:



Seven Arts Pictures Louisiana LLC, (“SAPLA”) a
related party of the Company, entered into a Credit Agreement with Advantage Capital Community Development Fund LLC dated October
11, 2007, for the acquisition and improvement of the production and post-production facility located at 807 Esplanade Avenue in
New Orleans, Louisiana for aggregate principal advances of up to $3,700,000.   This agreement was guaranteed by
the Company’s predecessor.   Approximately $3,700,000 plus interest has been drawn under the terms of this
Credit Agreement, as of June 30, 2012. The Company has since assumed the liability for $1,000,000 of this amount plus a contingent
sum of $750,000 due to Advantage Capital (contingent on receipt of the tax credit revenue of at least $5,000,000 in cash proceeds
from the tax credits to be earned by SAPLA) due to an agreement with the now mortgagor Palm Finance.



A construction loan of $1,850,000 previously guaranteed by
the Company has now been assumed by the Company for the property at 807 Esplanade.



The Company did not receive any consideration or benefit when they assumed the mortgage and construction
loans, and have looked to the authoritative guidance on guarantees as a analogy.  As the guidance on financial guarantees
does not address  which account would be set up as an offsetting entry when the liability is recognized at the inception of
the guarantee, the Company has determined to call this asset balance created upon assumption of the debt "Building Improvements
related to indebtedness"  The Building Improvements will be amortized in a manner similar to leasehold improvements,
over the life of the lease (30 years).



SAPLA Advances:



On February 28, 2012, the Company took out a convertible
loan of $200,000 which was in turn loaned  to SAPLA to cover outstanding interest payments which were due on the construction
loan  on 807 Esplanade  previously guaranteed by the Company.  Three additional convertible loans
were taken out totalling $600,000 during the year ended June 30, 2012 and then loaned to SAPLA to pay down the construction loan
on the property at 807 Esplanade, as to not further delay the construction and opening of the facility.. As of June 30, 2013,
the convertible loan balance, after conversions, on the Company’s financial statements is approximately $325,000.



63







ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES



The Hall Group, CPAs serves as our
independent registered public accounting firm for the fiscal year ending June 30, 2013, and acted in such capacity for the fiscal
years for our listing predecessor Seven Arts Pictures Plc for the fiscal years ended June 30, 2012, June 30, 2011 and 2010. Aggregate
fees for professional services rendered for the Company (and its listing predecessor, Seven Arts Pictures Plc) for the fiscal
years ended June 30, 2012 and 2011 were as follows:



|                    |  | Fiscal YearEndedJune 30, 2012 |         |  | Fiscal YearEndedJune 30, 2011 |  
|------------------- |  | ----------------------------- | ------- |  | ----------------------------- | -
|Adjusted Audit Fees |  | $                             | 254,000 |  |                               | $
|Audit-Realted Fees  |  |                               | -       |  |                               |  
|Tax Fee             |  |                               | -       |  |                               |  
|All Other Fees      |  |                               | -       |  |                               |  
|                    |  |                               |         |  |                               |  
|Total               |  | $                             | 254,000 |  |                               | $



| | (1) | Audit Fees
| | --- | ----------



The aggregate
fees billed for professional services rendered by our auditors, for the audit of the registrant’s annual financial statements
and review of the financial statements included in the registrant’s Form 10-K and Form 10-Q filings, or services that are
normally provided by the principal accountant in connection with statutory and regulatory filings or engagements for fiscal years
2012 and 2011 was $254,000 and $105,000, respectively.



| | (2) | Audit-Related Fees
| | --- | ------------------



There were
no fees incurred related to assurance and related services provided by the principal accountant that are reasonably related to
the performance of the audit or review of the financial statement, but are not reported in Audit fees above, for the fiscal years
ended June 30, 2012 and 2011.



(3) Tax Fees



None.



(4) All Other Fees



None.



(5) Audit Committee Policies and Procedures



Our audit committee has certain policies
and procedures in place requiring the pre-approval of audit and non-audit services to be performed by our independent registered
public accounting firm. Such pre-approval can be given as part of the audit committee’s approval of the scope of the engagement
of the independent registered public accounting firm or on an individual basis. The approved non-audit services must be disclosed
in our periodic reports filed with the SEC. Our independent registered public accounting firm cannot be retained to perform specified
non-audit functions, including (i) bookkeeping, financial information systems designe and implementation; (ii) appraisal or valuation
services, fairness opinions, or contribution-in-kind reports; (iii) actuarial services; and (iv) internal audit outsourcing services.
All work performed by The Hall Group, CPAs for 2010 and 2011 was pre-approved by our audit committee as was the work carried out
by our previous independent registered public accounting firms.



(6) If greater than 50 percent, disclose the percentage of
hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most
recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent
employees.



Not Applicable



64







PART IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



a.1 Financial Statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of June 30, 2013 and  2012

Consolidated Statements of Operations for the Years Ended June
30, 2013 and 2012

Consolidated Statement of Changes in Stockholders’ Equity
for Years Ended June 30, 2013 and 2012

Consolidated Statements of Cash Flows for the Years Ended June
30, 2013 and  2012

Notes to the Consolidated Financial Statements for the Years
Ended June 30, 2013, and 2012



a.2 Form 8-K - update



During the year ended June 30, 2013, and subsequent to the
year-end through October 14, 2013, the Company filed the following Form 8-K’s and other filings:





| | · | July
                                                                                                              18, 2013
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | · | June
                                                                                                              20, 2013
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | · | May
                                                                                                              17, 2013
| | - | --------------------------------------------------------------------------------------------------------------------------

| | · | April
                                                                                                              18, 2013
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | · | February
                                                                                                              24, 2013
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | · | November
                                                                                                              26, 2012
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | · | October
                                                                                                              19, 2012
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | · | September
                                                                                                              28, 2012
| | - | --------------------------------------------------------------------------------------------------------------------------------

| | · | September
                                                                                                              14, 2012
| | - | --------------------------------------------------------------------------------------------------------------------------------

| | · | September
                                                                                                              7, 2012
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | · | August
                                                                                                              30, 2012
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | · | August
                                                                                                              20, 2012
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | · | August
                                                                                                              6, 2012
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | · | July
                                                                                                              24, 2012
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | · | July
                                                                                                              11, 2012
| | - | ---------------------------------------------------------------------------------------------------------------------------





65







a.3 Exhibits



Exhibit Number



| | 31.1 | Certification of Chief Executive Officer, pursuant to Rule 13a-14(a)
                                                            of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley
                                                            Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.2 | Certification of Chief Financial Officer, pursuant to Rule 13a-14(a)
                                                            of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley
                                                            Act of 2002.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.1 | Certification of Chief Executive Officer and Chief Financial Officer,
                                                            pursuant to 18 United States Code Section 1350, as enacted by Section
                                                            906 of the Sarbanes-Oxley Act of 2002.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



b. Financial Statement Schedules



None.



66







SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



| | Seven Arts Entertainment Inc. |    
| | ----------------------------- | ---
| |                               |    
| | By:                           | /s/
| |                               |    
| | By:                           |    



Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.



|Signature |  | Title |  | Date
|--------- |  | ----- |  | ----
|          |  |       |  |     



67







CONSOLIDATED FINANCIAL
STATEMENTS



JUNE 30, 2013 and
2012



TABLE OF CONTENTS



|Report of Independent Registered Public Accounting
    Firm                                              |  |             | F-2 | 
|-------------------------------------------------------------------------------------------------------- |  | ----------- | --- | 
|                                                                                                         |  |             |     | 
|Consolidated Balance Sheets as of June 30, 2013 and 2012                                                 |  |             | F-3 | 
|                                                                                                         |  |             |     | 
|Consolidated Statements of Operations for the Years Ended June
    30, 2013 and 2012                     |  |             | F-4 | 
|                                                                                                         |  |             |     | 
|Consolidated Statements of Cash Flows for the Years Ended June
    30, 2013 and 2012                     |  |             | F-6 | 
|                                                                                                         |  |             |     | 
|Consolidated Statement of Changes in Stockholders’ Equity
    for the Years Ended June 30, 2013 and 2012 |  |             | F-5 | 
|                                                                                                         |  |             |     | 
|Notes to the Consolidated Financial Statements                                                           |  | F-7 to F-44 |    



F-1







REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM





To the Board of Directors and Management
of

Seven Arts Entertainment, Inc. (formerly
Seven Arts Pictures, Plc.)



We have audited the accompanying consolidated
balance sheets of Seven Arts Entertainment, Inc. (formerly Seven Arts Pictures, Plc.) as of June 30, 2013 and 2012, and the related
consolidated statements of operations and comprehensive income, cash flows and stockholders’ equity for the years then ended.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.



We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



We were not engaged to examine management’s
assertion about the effectiveness of Seven Arts Entertainment, Inc.’s internal control over financial reporting as of June
30, 2013 and 2012 and, accordingly, we do not express an opinion thereon.



The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered
recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as
a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to
this matter.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Seven Arts Entertainment, Inc.
(formerly Seven Arts Pictures, Plc.) as of June 30, 2013 and 2012, and the results of its operations, comprehensive income and
cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.



/s/ The Hall Group, CPAs

The Hall Group, CPAs

Dallas, Texas

October 15, 2013





F-2









Seven
Arts Entertainment, Inc.

(Formerly
Seven Arts Pictures, Plc)

Consolidated
Balance Sheets





|                                                                                                                             |  | June
    30, 2013 |             |   | June
    30, 2012 |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|                                                                                                                             |  |                   |             |   | (Restated)        |  
|                                                                                                                             |  |                   |             |   |                   |  
|ASSETS                                                                                                                       |  |                   |             |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|CURRENT ASSETS:                                                                                                              |  |                   |             |   |                   |  
|Cash and cash equivalents                                                                                                    |  | $                 | 4,884       |   |                   | $
|Accounts receivable, net of allowance for doubtful
    accounts of $40,000 and $171,062                                      |  |                   | 110,043     |   |                   |  
|Due from related parties                                                                                                     |  |                   | 205,787     |   |                   |  
|Fee income receivable from related parties, net of
    allowance for doubtful accounts of $1,190,000                         |  |                   | 2,055,000   |   |                   |  
|Other receivables and
    prepayments                                                                                        |  |                   | 455,019     |   |                   |  
|Total Current Assets                                                                                                         |  |                   | 2,830,732   |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|Film costs, less accumulated amortization of $13,877,172
    and $11,832,900                                                 |  |                   | 8,368,686   |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|Music assets, less amortization of $408,205 and $0                                                                           |  |                   | 296,795     |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|Building Improvements, less amortization of $165,526
    and $0                                                              |  |                   | 4,102,525   |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|Property and equipment, net of accumulated depreciation
    of $119,940 and $111,232                                         |  |                   | 7,458       |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|TOTAL ASSETS                                                                                                                 |  | $                 | 15,606,196  |   |                   | $
|                                                                                                                             |  |                   |             |   |                   |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                         |  |                   |             |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|CURRENT LIABILITIES:                                                                                                         |  |                   |             |   |                   |  
|Accounts payable                                                                                                             |  |                   | 1,824,141   |   |                   |  
|Accrued liabilities                                                                                                          |  |                   | 2,486,514   |   |                   |  
|Due to related parties                                                                                                       |  |                   | 1,681,701   |   |                   |  
|Shares to be issued                                                                                                          |  |                   | -           |   |                   |  
|Participation and residuals                                                                                                  |  |                   | 96,819      |   |                   |  
|Convertible debt                                                                                                             |  |                   | 4,073,901   |   |                   |  
|Mortgage and construction loans                                                                                              |  |                   | 3,743,286   |   |                   |  
|Film & production loans                                                                                                      |  |                   | 7,814,412   |   |                   |  
|Deferred income                                                                                                              |  |                   | 954,265     |   |                   |  
|Total Current Liabilities                                                                                                    |  |                   | 22,675,039  |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|Provision for earn-out                                                                                                       |  |                   | -           |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|TOTAL LIABILITIES                                                                                                            |  | $                 | 22,675,039  |   |                   | $
|                                                                                                                             |  |                   |             |   |                   |  
|STOCKHOLDERS' EQUITY                                                                                                         |  |                   |             |   |                   |  
|                                                                                                                             |  |                   |             |   |                   |  
|Convertible redeemable Series A preferred stock at
    $10 stated value, 125,125 and 125,125 authorized and outstanding      |  | $                 | 1,251,250   |   |                   | $
|Convertible redeemable Series B preferred stock at
    $100 stated value, 200,000 authorized, 43,850 and 181,850 outstanding |  |                   | 5,525,458   |   |                   |  
|Convertible redeemable Series B shares held in escrow                                                                        |  |                   | -           |   |                   |  
|Common stock; $0.01 par value; 249,000,000 authorized,
    46,323,297 and 34,798 issued and outstanding                      |  |                   | 2,578,521   |   |                   |  
|Additional paid in capital                                                                                                   |  |                   | 22,072,882  |   |                   |  
|Shares held as collateral                                                                                                    |  |                   | (455,246    | ) |                   |  
|Other Comprehensive income                                                                                                   |  |                   | (13,555     | ) |                   |  
|Accumulated deficit                                                                                                          |  |                   | (38,154,995 | ) |                   |  
|Warrants to be distributed                                                                                                   |  |                   | 480,371     |   |                   |  
|Total Seven Arts Entertainment
    Inc. equity(deficit)                                                                      |  |                   | (6,715,314  | ) |                   |  
|Non-controlling
    interest                                                                                                 |  |                   | 353,530     |   |                   |  
|Total Shareholders' equity(deficit)                                                                                          |  |                   | (7,068,843  | ) |                   |  
|TOTAL LIABILITIES AND
    SHAREHOLDERS' EQUITY                                                                               |  | $                 | 15,606,196  |   |                   | $





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



F-3







Seven
Arts Entertainment, Inc.

(Formerly
Seven Arts Pictures, Plc)

Consolidated
Statements of Operations and Comprehensive Loss



|                                                                       |  | Year
    Ended |            
|---------------------------------------------------------------------- |  | -------------- | -----------
|                                                                       |  | June
    30,   |            
|                                                                       |  | 2013           |            
|                                                                       |  |                |            
|                                                                       |  |                |            
|Revenue:                                                               |  |                |            
|Film revenue                                                           |  | $              | 841,956    
|Music revenue                                                          |  |                | 574,435    
|Fee Income Revenue - related
    party                                 |  |                | -          
|Post
    production revenue                                            |  |                | 106,417    
|Total
    revenue                                                      |  |                | 1,522,808  
|                                                                       |  |                |            
|Cost of revenue:                                                       |  |                |            
|Amortization of film costs
    and music assets                        |  |                | 2,452,477  
|Impairment of film costs
    and music assets                          |  |                | 6,772,376  
|Other
                                               cost of revenue   |  |                | 359,313    
|Development
    Costs abandoned                                        |  |                | 2,837,545  
|Cost of revenue                                                        |  |                | 12,421,711 
|Gross
    loss                                                         |  |                | (10,898,903
|                                                                       |  |                |            
|Operating expenses:                                                    |  |                |            
|General and administrative
    expenses                                |  |                | 3,706,774  
|Bad
    debt expense                                                   |  |                | 3,582,919  
|Total
    operating expenses                                           |  |                | 7,289,693  
|Loss
    from operations                                               |  |                | (18,188,596
|                                                                       |  |                |            
|Non-operating income(expense)                                          |  |                |            
|Other income                                                           |  |                | -          
|Interest
expense                                                       |  |                | (4,227,472 
|Total
    non-operating income (expense)                               |  |                | (4,227,472 
|Loss before taxes                                                      |  |                | (22,416,068
|                                                                       |  |                |            
|Provision
    for income tax                                           |  |                | -          
|Net
    loss                                                           |  |                | (22,416,068
|                                                                       |  |                |            
|Less:
    Net loss attributable to non-controlling interests           |  |                | (353,530   
|                                                                       |  |                |            
|Net
    loss attributable to Seven Arts Entertainment, Inc.            |  | $              | (22,062,538
|                                                                       |  |                |            
|Comprehensive
    loss:                                                |  |                |            
|Net loss                                                               |  |                | (22,416,068
|Other
    Comprehensive income/loss                                    |  |                | -          
|Comprehensive loss                                                     |  |                | (22,416,068
|                                                                       |  |                |            
|Less:
    Comprehensive loss attributable to non-controlling interests |  |                | (353,530   
|                                                                       |  |                |            
|Comprehensive
    loss attributable to Seven Arts Entertainment, Inc.  |  | $              | (22,062,538
|                                                                       |  |                |            
|Weighted average shares
    of common stock outstanding:               |  |                |            
|Basic                                                                  |  |                | 3,387,041  
|Diluted                                                                |  |                | 3,387,041  
|                                                                       |  |                |            
|Basic
    profit/ (loss) per share                                     |  | $              | (6.51      
|Diluted
    profit/ (loss) per share                                   |  | $              | (6.51      



The
accompanying notes are an integral part of these consolidated financial statements



F-4











Seven
Arts Entertainment, Inc.

Statement
of Stockholders' Equity





|                                                                                                       |  | Preferred
    Stock Class A |         |  | Preferred
    Stock Class B |   |           | Preferred
    Stock ClassB In Escrow |  |  | Common
    Stock |   |  | Deferred
    Stock 2 |            |   | Deferred
    Stock 1 |  |          | Additional |  |  | Non
    Redeemable
    Convertible Loans |   |  | Shares held
    as
    Collateral |            |   | Warrants
    to be |   |            | Retained
    Earnings/ 
    Accumulated |  |  | Other
     Comprehensive |   |  | Non-
    Controlling |            |   | Stockholders'
    Equity | 
|------------------------------------------------------------------------------------------------------ |  | --------------------------- | ------- |  | --------------------------- | - | --------- | ------------------------------------ |  |  | ---------------- | - |  | -------------------- | ---------- | - | -------------------- |  | -------- | ---------- |  |  | ---------------------------------------- | - |  | --------------------------------- | ---------- | - | ------------------ | - | ---------- | --------------------------------------- |  |  | ------------------------ | - |  | -------------------- | ---------- | - | ------------------------ | 
|                                                                                                       |  | Shares                      |         |  | Amount                      |   |           | Shares                               |  |  | Amount           |   |  |                      |            |   |                      |  |          | Shares     |  |  | Amount                                   |   |  | Shares                            |            |   | Amount             |   |            | Shares                                  |  |  | Amount                   |   |  | Paid-In Capital      |            |   | Shares                   | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Balance
    at 30 June 2011                                                                            |  |                             | -       |  |                             | $ | -         |                                      |  |  | -                |   |  | $                    | -          |   |                      |  |          |            |  |  |                                          |   |  |                                   | 2,643,131  |   |                    | $ | 1,121,208  |                                         |  |  | 2,268,120                |   |  | $                    | 3,876,745  |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Impact of Asset Transfer
    Agreement                                                                 |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | (2,643,131 | ) |                    |   | (1,121,208 | )                                       |  |  | (2,268,120               | ) |  |                      | (3,876,745 | ) |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|One for one share issue on
    transfer of assets from Seven Arts Pictures Plc                         |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 1,850      |   |                    |   | 925        |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Transfer of Seven Arts Pictures
    Plc (PLC) assets and liabilities to Seven Arts Entertainment, Inc. |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Shares issued to Seven Arts
    Pictures Plc to cover remaining liabilities                            |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 571        |   |                    |   | 286        |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common stock issued for cash                                                                           |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 436        |   |                    |   | 218        |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common stock issued for consultancy
    fees                                                           |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 1,503      |   |                    |   | 751        |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common stock issued in exchange
    for debt                                                           |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 25,372     |   |                    |   | 12,686     |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common stock issued on convertible
    notes                                                           |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 5,066      |   |                    |   | 2,533      |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Issued Series A preference
    stock at $10 par value                                                  |  |                             | 125,125 |  |                             |   | 1,251,250 |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Issued Series B preference
    stock at $100 par value                                                 |  |                             |         |  |                             |   |           |                                      |  |  | 181,850          |   |  |                      | 4,762,952  |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Series B preference shares
    held in escrow                                                          |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  | (120,000 | )          |  |  | (3,163,636                               | ) |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Options issued for wages
    and benefits                                                              |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Foreign currency translation
    adjustments                                                           |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Net
    loss                                                                                           |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Balance
    at 30 June 2012                                                                            |  |                             | 125,125 |  |                             |   | 1,251,250 |                                      |  |  | 181,850          |   |  |                      | 4,762,952  |   |                      |  | (120,000 | )          |  |  | (3,163,636                               | ) |  |                                   | 34,798     |   |                    |   | 17,399     |                                         |  |  | -                        |   |  |                      | -          |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Restatement for PS Series
    B revaluation (Note 15)                                                  |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      | 4,400,684  |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Restatement for impairment
    of music assets (Note 15)                                               |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Restatement for reversal
    of Relatd Party fee income (Note 15)                                      |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Restatement for adjusted
    Related Party fee income recognized (Note 15)                             |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Adjustment
    for 25 million shares pledged in relation to debt - Note 15                             |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|As
    restated (Note 15)                                                                              |  |                             | 125,125 |  |                             |   | 1,251,250 |                                      |  |  | 181,850          |   |  |                      | 9,163,636  |   |                      |  | (120,000 | )          |  |  | (3,163,636                               | ) |  |                                   | 34,798     |   |                    |   | 17,399     |                                         |  |  | -                        |   |  |                      | -          |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common shares
    issued in connection with debt agreement                                             |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 1,714      |   |                    |   | 857        |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common Stock Issued to CEO
    in connection with debt agreement                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 140,000    |   |                    |   | 70,000     |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Sales of Common Stock for
    Cash                                                                     |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 171        |   |                    |   | 86         |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Stock warrant dividend declared                                                                        |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Preferred stock converted
    to Common Stock                                                          |  |                             |         |  |                             |   |           |                                      |  |  | (38,000          | ) |  |                      | (1,001,819 | ) |                      |  |          |            |  |  |                                          |   |  |                                   | 69,091     |   |                    |   | 34,545     |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Preferred stock cancelled
    in connection with settlements                                           |  |                             |         |  |                             |   |           |                                      |  |  | (100,000         | ) |  |                      | (2,636,363 | ) |                      |  | 100,000  |            |  |  | 2,636,363                                |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Escrowed Series B PS released                                                                          |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  | 20,000   |            |  |  | 527,273                                  |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common Stock Issued upon
    conversion of convertible debt                                            |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 40,462,793 |   |                    |   | 2,122,541  |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common Stock Issued for Services                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 5,290,438  |   |                    |   | 170,947    |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Common Stock held as collatoral
    for legal settlement                                               |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   | 324,292    |   |                    |   | 162,146    |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|Net
    loss                                                                                           |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             |         |  |                             |   |           |                                      |  |  |                  |   |  |                      |            |   |                      |  |          |            |  |  |                                          |   |  |                                   |            |   |                    |   |            |                                         |  |  |                          |   |  |                      |            |   |                          | 
|                                                                                                       |  |                             | 125,125 |  |                             | $ | 1,251,250 |                                      |  |  | 43,850           |   |  | $                    | 5,525,454  |   |                      |  | -        |            |  |  | (0                                       | ) |  |                                   | 46,323,297 |   |                    | $ | 2,578,521  |                                         |  |  | -                        |   |  |                      | -          |   |                          | 





The
accompanying notes are an integral part of these consolidated financial statements



F-5









Seven Arts Entertainment Inc.

(Formerly Seven Arts Pictures, Plc.)

Consolidated Statements of Cash Flows





|                                                                                          |  | June 30, 2013 |             |   | June 30, 2012 |  
|----------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | -
|                                                                                          |  |               |             |   | (Restated)    |  
|                                                                                          |  |               |             |   |               |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |  |               |             |   |               |  
|                                                                                          |  |               |             |   |               |  
|Net Loss                                                                                  |  | $             | (22,416,067 | ) |               | $
|                                                                                          |  |               |             |   |               |  
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |               |             |   |               |  
|Depreciation                                                                              |  |               | 8,679       |   |               |  
|Amortization of Film Costs and Music Assets                                               |  |               | 2,452,477   |   |               |  
|Impairment of Film Costs                                                                  |  |               | 2,054,171   |   |               |  
|Impairment of Music costs                                                                 |  |               | 4,718,205   |   |               |  
|Amortization of Leasehold improvements                                                    |  |               | 164,811     |   |               |  
|Common Stock Issued for Services                                                          |  |               | 1,288,974   |   |               |  
|Stock Option Expense                                                                      |  |               | -           |   |               |  
|Bad debt                                                                                  |  |               | 3,538,580   |   |               |  
|Development costs abandoned                                                               |  |               | 3,196,858   |   |               |  
|Forgiveness of Debt and Interest                                                          |  |               | -           |   |               |  
|                                                                                          |  |               |             |   |               |  
|Changes in assets and liabilities:                                                        |  |               |             |   |               |  
|(Increase) Decrease in Accounts Receivable                                                |  |               | 359         |   |               |  
|Decrease in Due from Related Parties                                                      |  |               | 42,204      |   |               |  
|Increase in Fee Income Receivable from Related Party                                      |  |               | -           |   |               |  
|(Increase)Decrease in Other Receivables and Prepayments                                   |  |               | (13,573     | ) |               |  
|(Increase) in Film Costs                                                                  |  |               | (1,051,378  | ) |               |  
|(Increase) in Music Assets                                                                |  |               | (606,770    | ) |               |  
|Increase (Decrease) in Accounts Payable                                                   |  |               | 1,546,377   |   |               |  
|Increase(Decrease) in Accrued Liabilities                                                 |  |               | 460.274     |   |               |  
|Increase in Due to Related Parties                                                        |  |               | (30,433     | ) |               |  
|Increase in Accrued Interest included in notes payable                                    |  |               | 4,043,129   |   |               |  
|Increase in Deferred Income                                                               |  |               | 105,185     |   |               |  
|(Decrease) in VAT Payable                                                                 |  |               | -           |   |               |  
|Increase (Decrease) in Provision for Earn Out                                             |  |               | (50,000     | ) |               |  
|                                                                                          |  |               |             |   |               |  
|Net Cash Used in Operating Activities                                                     |  |               | (547,939    | ) |               |  
|                                                                                          |  |               |             |   |               |  
|CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES :                                  |  |               |             |   |               |  
|                                                                                          |  |               |             |   |               |  
|Building Improvements                                                                     |  |               | (466,066    | ) |               |  
|                                                                                          |  |               |             |   |               |  
|Net Cash Used in Investing Activities                                                     |  |               | (466,066    | ) |               |  
|                                                                                          |  |               |             |   |               |  
|CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:                                   |  |               |             |   |               |  
|Proceeds from Borrowings                                                                  |  |               | 1,838,163   |   |               |  
|Cash Payments on Debt                                                                     |  |               | (1,239,931  | ) |               |  
|Issuance of Preferred Stock for Cash                                                      |  |               | -           |   |               |  
|Issuance of Common Stock for Cash                                                         |  |               | 300,000     |   |               |  
|Warrant dividend declared                                                                 |  |               | -           |   |               |  
|                                                                                          |  |               |             |   |               |  
|Net Increase in Equity From Asset Transfer                                                |  |               | -           |   |               |  
|Shares as collateral for legal settlement                                                 |  |               |             |   |               |  
|                                                                                          |  |               |             |   |               |  
|Net Cash Provided by (Used for) Financing Activities                                      |  |               | 898,232     |   |               |  
|                                                                                          |  |               |             |   |               |  
|NET INCREASE (DECREASE) IN CASH                                                           |  |               | (115,774    | ) |               |  
|CASH AT BEGINNING OF PERIOD                                                               |  |               | 120,658     |   |               |  
|CASH AT END OF PERIOD                                                                     |  | $             | 4,884       |   |               | $
|                                                                                          |  |               |             |   |               |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                       |  |               |             |   |               |  
|Assumption of Debt                                                                        |  |               | -           |   |               |  
|Shares of common stock issued for services                                                |  |               | 1,288,945   |   |               |  
|Shares of common stock issued in exchange for accounts payable                            |  |               | 875,214     |   |               |  
|Shares of common stock issued as collateral                                               |  |               | 455,246     |   |               |  
|Shares of common stock pledged in connection with debt                                    |  |               | 70,000      |   |               |  
|Shares of common stock issued in payment of debt and interest                             |  |               | 3,373,134   |   |               |  
|Conversion of Preferred Shares Series B to common stock                                   |  |               | 1,001,819   |   |               |  





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



F-6







Seven Arts
Entertainment, Inc.

(Formerly
Seven Arts Pictures, Plc.)

Notes to
Consolidated Financial Statements

June 30,
2013 and 2012



NOTE 1 – NATURE OF ACTIVITIES
AND SIGNIFICANT ACCOUNTING POLICIES



Nature of Activities, History
and Organization:



Seven Arts Entertainment, Inc. (herein
referred to as “the Company”, “Seven Arts” or “SAE,”), a Nevada Corporation, is the continuation
of the business of Seven Arts Pictures Plc. (“PLC”), which was founded in 2002 as an independent motion picture production
and distribution company engaged in the development, acquisition, financing, production, and licensing of theatrical motion pictures
for exhibition in domestic (i.e., the United States and Canada) and foreign theatrical markets, and for subsequent worldwide release
in other forms of media, including home video and pay and free television. The Company currently owns interests in 33 completed
motion pictures, subject in certain instances to the prior financial interests of other parties.  As discussed herein,
in late February 2012, the Company formed Seven Arts Music, Inc. (“SAM”) and acquired 52 completed sound recordings
of the recording artist DMX from David Michery (“Michery”) with the rights to additional albums and acquired 100%
of the stock of Big Jake Music (“BJM”).  As a result, the Company is also in the business of producing and
distributing recorded music.  On June 30, 2012 Seven Arts Filmed Entertainment LLC (“SAFELA”) was transferred
to the Company.  SAFELA, which is now 60% owned by the Company, has a 30 year lease to operate a film production and
post-production facility at 807 Esplanade in New Orleans, Louisiana.  The post production facility commenced operations
on August 12, 2012. On Aug 14, 2012 Seven Arts Filmed Entertainment Louisiana LLC ("SAFELA"), commenced operation
of Seven Arts Post at the Company’s production facility located at 807 Esplanade Ave., New Orleans, Louisiana.



On
June 11, 2010, SAE, was formed and became a wholly owned subsidiary of PLC.    As of June 11, 2010, the Company
entered into an Asset Transfer Agreement, as amended on January 27, 2011 and again on August 31, 2011, to transfer certain
assets with a cost basis from PLC to SAE, in exchange for assumption by SAE of certain indebtedness and for one share of common
stock of SAE for each ordinary share of PLC which have been distributed to shareholders. Additionally,571
shares (2,000,000 shares as adjusted for the 1:70 and 1:50 reverse stock splits discussed herein) of SAE were issued to PLC in order to satisfy any remaining obligations. This transfer was approved by the PLC shareholders at
an Extraordinary General Meeting on June 11, 2010. The purpose of this transfer was to eliminate our status as a foreign private
issuer and to assume compliance with all obligations of a domestic issuer under all applicable state and Federal securities laws.
Our intention in executing this transaction was to redomicile our business with no change in the economic interests of our shareholders.
Subsequent to the transfer SAE became is a United States issuer and commenced regular quarterly reporting from the first quarter
ended September 30, 2011.



On August 31, 2011, NASDAQ approved
the substitution of one share of SAE, Inc. stock for the Company's NASDAQ listing, effective at the opening of trading on September
1, 2011. On that date, each of the Company's ordinary shares were exchanged for one share of common stock of SAE, and commenced
trading on NASDAQ as the successor to the Company's NASDAQ listing. This transaction was approved by the Company’s shareholders
at the Company’s Extraordinary General Meeting on June 11, 2010.     On August 31, 2012, the Company
announced a 1:70 reverse stock split, which was effective immediately.   All share references herein have been
adjusted to reflect this split.



F-7







On November 8, 2011, the Company's
listing predecessor, PLC, was placed into involuntary creditors’ liquidation under English law (See Note 13 – Commitments
and Contingencies). Certain indebtedness of PLC remained with PLC and will be subject to administration or payment in those administration
proceedings.   In accordance with the asset transfer agreement, PLC has been issued 571 shares of common stock
of SAE in order to satisfy these obligations.



On
February 23, 2012, the Company formed Seven Arts Music, Inc. (“SAM”) and acquired 52 completed sound recordings of
the recording artist DMX from David Michery (“Mr. Michery”) with the rights to additional albums and acquired 100%
of the stock of Big Jake Music (“BJM”). As a result, the Company is also in the business of producing and distributing
recorded music.



In connection with the acquisition
of the music assets of Michery, the Company issued 100 ,000 shares of our Series B convertible preferred stock, par value $100
convertible at approximately $1.10 per share) to Michery and his assigns . 50,000 shares of the Company’s Series B convertible
preferred stock were held in escrow and to be released to Michery and his assigns only if two DMX albums and two Bone Thugs-N-Harmony
albums generate an aggregate of net earnings before interest and taxes of $5,000,000 during the next five fiscal years



During
the quarter ended December 31, 2012, Mr. Michery converted and sold 38,000 of the 50,000 shares of Series B that he and his assigns
held. The Company and Mr. Michery have agreed the remaining 50,000 shares of Series B in escrow will be disposed of by release
of 20,000 shares of the Series B convertible preferred stock to Mr. Michery in full satisfaction of any claims he may have against
the Company and the balance of the 30,000 shares of Series B will be cancelled. The release of the 20,000 shares has been recognized
as services in the accompanying financial statements.  As of June 30, 2013, Mr. Michery or his assigns hold 32,000 shares
of Series B convertible preferred stock.



In connection with the acquisition
of the stock of BJM, the Company issued 80 ,000 shares of the Company’s Series B convertible preferred stock, par value
$100 convertible at approximately $1.10 per share) to Jake Shapiro and his assigns with 70,000 of these shares held in escrow
to be released to Shapiro and his assigns only if certain specific terms are met : 40,000 shares were subject to proving valuation
and usage of  certain advertising credits and 30,000 shares were subject to an earnout over a two year period.



The
Company entered into a settlement agreement with Mr. Shapiro on February 27, 2013 and all shares of Series B preferred stock held
in escrow for him and persons associated with him have been cancelled, with Mr. Shapiro and his assigns still holding 10,000 shares
of Series B convertible preferred stock as of March 31, 2013. The name and the website of Big Jake Music were also reassigned
to Mr. Shapiro as part of the settlement agreement.



Seven Arts Pictures Louisiana LLC, (“SAPLA”), a related party of the Company, entered into
a Credit Agreement with Advantage Capital Community Development Fund LLC dated October 11, 2007, for the acquisition and improvement
of the production and post-production facility located at 807 Esplanade Avenue in New Orleans, Louisiana (“807 Esplanade”)
for aggregate principal advances of up to $3,700,000.   This agreement was guaranteed by the Company’s predecessor.
Approximately $3,700,000 plus interest has been drawn under the terms of this Credit Agreement, as of June 30, 2012. The Company
has now assumed the liability for $1,000,000 of this amount plus a contingent sum of $750,000 (contingent on receipt of at least
$5,000,000 in cash proceeds from the tax credits to be earned by SAPLA) due to an agreement with the now mortgagor Palm Finance.
A construction loan of $1,850,000 previously guaranteed by the Company has now also been assumed by the Company. ,The Company through
SAFELA, has a 30 year lease on the property 807 Esplanade to operate a film production and post-production facility.





On January 1, 2012, Seven Arts Film
Entertainment Limited (“SAFE”) sold all of its film assets to SAE for assumption of indebtedness. SAFE ceased operations
on May 31, 2013 on closing of its office in London, England. The Company plans to file for creditors voluntary liquidation of
SAFE in England. The asset transfer agreement had no impact on the Company’s consolidated financial statements.



F-8







Capital Structure:



SAE’s authorized capital is
250,000,000 shares of capital stock. SAE has authorized the following classes of stock:







| | · | 249,000,000
                                                                                                                                            of
                                                                                                                                            common
                                                                                                                                            stock,
                                                                                                                                            $.01
                                                                                                                                            par
                                                                                                                                            value
                                                                                                                                            per
                                                                                                                                            share.
                                                                                                                                            As
                                                                                                                                            of
                                                                                                                                            June
                                                                                                                                            30,
                                                                                                                                            2013,
                                                                                                                                            there
                                                                                                                                            are 46,323,297
                                                                                                                                            shares
                                                                                                                                            of
                                                                                                                                            common
                                                                                                                                            stock
                                                                                                                                            outstanding
                                                                                                                                            .
                                                                                                                                            Each
                                                                                                                                            outstanding
                                                                                                                                            share
                                                                                                                                            of
                                                                                                                                            common
                                                                                                                                            stock
                                                                                                                                            entitles
                                                                                                                                            the
                                                                                                                                            holder
                                                                                                                                            thereof
                                                                                                                                            to
                                                                                                                                            one
                                                                                                                                            vote
                                                                                                                                            per
                                                                                                                                            share
                                                                                                                                            on
                                                                                                                                            matters
                                                                                                                                            submitted
                                                                                                                                            to
                                                                                                                                            a
                                                                                                                                            vote
                                                                                                                                            of
                                                                                                                                            stockholders.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 125,125
                                                                                                                                            shares
                                                                                                                                            of
                                                                                                                                            Series
                                                                                                                                            A
                                                                                                                                            Preferred
                                                                                                                                            Stock
                                                                                                                                            with
                                                                                                                                            a
                                                                                                                                            $10.00
                                                                                                                                            stated
                                                                                                                                            value
                                                                                                                                            per
                                                                                                                                            share.  All
                                                                                                                                            of
                                                                                                                                            such
                                                                                                                                            authorized
                                                                                                                                            shares
                                                                                                                                            were
                                                                                                                                            issued
                                                                                                                                            to
                                                                                                                                            one
                                                                                                                                            shareholder
                                                                                                                                            in
                                                                                                                                            November
                                                                                                                                            2011.
                                                                                                                                            These
                                                                                                                                            shares
                                                                                                                                            have
                                                                                                                                            a
                                                                                                                                            conversion
                                                                                                                                            price
                                                                                                                                            to
                                                                                                                                            common
                                                                                                                                            stock
                                                                                                                                            of
                                                                                                                                            $10.50
                                                                                                                                            per
                                                                                                                                            share.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 200,000
                                                                                                                                            shares
                                                                                                                                            Series
                                                                                                                                            B
                                                                                                                                            Preferred
                                                                                                                                            Stock
                                                                                                                                            with
                                                                                                                                            a
                                                                                                                                            $100.00
                                                                                                                                            stated
                                                                                                                                            value
                                                                                                                                            per
                                                                                                                                            share.  As
                                                                                                                                            of
                                                                                                                                            June
                                                                                                                                            30,
                                                                                                                                            2013,
                                                                                                                                            there
                                                                                                                                            are
                                                                                                                                            43,580
                                                                                                                                            shares
                                                                                                                                            outstanding.
                                                                                                                                            The
                                                                                                                                            per
                                                                                                                                            share
                                                                                                                                            conversion
                                                                                                                                            price
                                                                                                                                            for
                                                                                                                                            the
                                                                                                                                            Series
                                                                                                                                            B
                                                                                                                                            Preferred
                                                                                                                                            Stock
                                                                                                                                            is
                                                                                                                                            $1.10
                                                                                                                                            per
                                                                                                                                            share.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





On September 14, 2012 the Company’s  common
stock began trading on the OTC Market’s OTCQB marketplace.  The Company’s common shares  trade
under the Company’s  symbol “SAPX.”  The Company is applying to trade on the highest OTC
marketplace, OTCQX, but is trading on the OTCQB tier until the Company is eligible to trade on the OTCQX.



Trading of the Company’s common
stock on The NASDAQ Capital Market was suspended at the opening of business on September 14, 2012, due to the fact that the Company
did not meet the $1 minimum bid price stock listing requirement of NASDAQ for ten trading days prior to September 20, 2012, the
expiration date on the Company’s six-month extension  to meet this listing requirement.



On
September 14, 2012, the Company’s common stock began trading on the OTC Market’s OTCQB marketplace. The Company’s
common stock is quoted under the symbol “SAPX.” The Company is applying to trade on the highest OTC marketplace,
OTCQX, but is quoted on the OTCQB tier until the Company is eligible to be quoted on the OTCQX.



On
January 28, 2013, at a shareholders’ meeting, an increase in the number of authorized shares of the Company’s shares
to 250,000,000 was approved, with 1,000,000 designated for preferred shares, and 249,000,000 as common shares.



The
Board of Directors was also authorized to increase the number of shares of the Company’s common stock issuable in the Company’s
2012 Stock Incentive Plan from 71,429 to 15,000,000.



Seven Arts also, subject to appropriate
and required regulatory filings and approvals, declared a warrant dividend to those persons beneficially owning its common stock
as of the close of the markets on August 31, 2012. For every ten pre-reverse split shares of common stock held as of such date
and time, the holders thereof are entitled to receive one warrant as a dividend. Until its expiration date, each warrant, once
distributed following such approvals, will be exercisable for the purchase of one share of the Company's post-reverse split common
stock at a price equivalent to today's post-reverse split closing bid price. The warrants will expire on the earlier of (i) the
date that the holder disposes of the common stock in respect of which the warrant dividend was declared, if such disposition occurs
on or before the close of the markets on October 31, 2012, or (ii) 5:00 p.m., PST, on June 30, 2014. Seven Arts does not expect
that a secondary market will develop for such warrants.



Reverse Stock-Splits:



On May 2, 2013 and August 31,
2012, the Company effected one-for-fifty and one-for-seventy reverse stock splits, respectively, collectively referred to as the
Stock Splits. Unless otherwise noted, all impacted amounts included in the consolidated financial statements and notes thereto
have been retroactively adjusted for the Stock Splits. Unless otherwise noted, impacted amounts include shares of common stock
authorized and outstanding, share issuances and cancellations, shares underlying preferred stock, convertible notes, warrants
and stock options, shares reserved, conversion prices of convertible securities, exercise prices of warrants and options, and
loss per share.



F-9







Audited Financial Statements:



The accompanying audited consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission. These financial statements are audited and, in the
opinion of management, include all adjustments necessary to present fairly the balance sheet, statement of operations, statement
of stockholders’ equity and statement of cash flows for the periods presented in accordance with accounting principles generally
accepted in the United States.



Basis of Presentation:



The accompanying consolidated financial
statements include the accounts of Seven Arts Entertainment, Inc. (“SAE”), and its subsidiaries:





| | · | Seven
                                                                                                                                               Arts
                                                                                                                                               Filmed
                                                                                                                                               Entertainment,
                                                                                                                                               Limited
                                                                                                                                               (“SAFE,
                                                                                                                                               Ltd.”)
                                                                                                                                               (100%
                                                                                                                                               owned)
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Seven
                                                                                                                                               Arts
                                                                                                                                               Music,
                                                                                                                                               Inc.
                                                                                                                                               (“SAM”)
                                                                                                                                               (100%
                                                                                                                                               owned)
                                                                                                                                               and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Big
                                                                                                                                               Jake
                                                                                                                                               Music,
                                                                                                                                               Inc.
                                                                                                                                               (“BJM”)
                                                                                                                                               (100%
                                                                                                                                               owned)
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Seven
                                                                                                                                               Arts
                                                                                                                                               Filmed
                                                                                                                                               Entertainment
                                                                                                                                               Louisiana
                                                                                                                                               LLC
                                                                                                                                               (“SAFELA”)
                                                                                                                                               (As
                                                                                                                                               of
                                                                                                                                               June
                                                                                                                                               30,
                                                                                                                                               2012)  (60%
                                                                                                                                               owned
                                                                                                                                               by
                                                                                                                                               SAE,
                                                                                                                                               40%
                                                                                                                                               owned
                                                                                                                                               by
                                                                                                                                               Palm
                                                                                                                                               Finance)
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





The Company consolidates its subsidiaries
in accordance with Accounting Standards Codification (“ASC”) 810, “Business Combinations”, and
specifically ASC 810-10-15-8 which states, "The usual condition for a controlling financial interest is ownership of a majority
voting interest, and, therefore, as a general rule, ownership by one reporting entity, directly or indirectly, or over 50%
of the outstanding voting shares of another entity is a condition pointing toward consolidation." The Company does not have
any variable interest or special purpose entities. The Company presents Palm Finance’s 40% share of SAFELA’s
profit or loss as a noncontrolling interest.



The Company prepares its financial
statements on the accrual basis of accounting and in accordance with Generally Accepted Accounting Principles of the United States
of America (“US GAAP”). All material intercompany balances and transactions are eliminated.  Management
believes that all adjustments necessary for a fair presentation of the results of the years ended June 30, 2032 and 2012 have
been made.



F-10







Going
Concern



The accompanying consolidated financial statements are prepared under a going concern basis in accordance
with US generally accepted accounting principles (“GAAP”) which contemplates the realization of assets and discharge
of liabilities and commitments in the normal course of business. For the year ended June 30, 2013, the Company recorded a loss
from operations of $18,232,123 and utilized cash in operations of $2,436,484.  As of June 30, 2013, the Company had a working
capital deficit of approximately $19,844,000.



These factors,
among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability
to continue as a going concern is dependent upon its ability to return to profitability or to develop additional sources of financing
or capital. The Company’s financial statements do not include any adjustments that might result from the outcome of these
uncertainties.



Historically, the Company’s main source of cash was through the exploitation of its films, sales
of equity and debt financing.  However, the Company has not released or distributed a new film since July 2012. The Company’s
next film, Schism, is expected to be released in March, 2014, and the Company also intends to release the next DMX album in early
2014 and the Thugs Bones N Harmony album in December 2013. Additionally, management has begun to implement cost reductions including
reducing the size of its’ staff and size of its UK office and expects to be able to continue to obtain additional financing.
No assurance can be given that the financing will be available or, if available, that it will be on terms that are satisfactory
to the Company.



Use of Estimates:



The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. The most significant estimates made by management in the preparation of the financial
statements relate to ultimate revenue and costs of its films which are used in the amortization and impairment of film costs,
estimates for allowances and income taxes. Accordingly, actual results could differ from those estimates.



Emerging
Growth Company Critical Accounting Policy Disclosure:



The
JOBS Act contains provisions that relax certain requirements for "emerging growth companies" for which we qualify. For
as long as we are an emerging growth company,which may be for up to five years after the first sale of our common equity
securities pursuant to an effective registration statement under the Securities Act.,
unlike other public companies, we will not be required to: (i) comply with any new or revised financial accounting standards
applicable to public companies until such standards are also applicable to private companies under Section 102(b)(1) of the
JOBS Act; (ii) provide an auditor's attestation report on management's assessment of the effectiveness of our system of internal
control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; (iii) comply with any new requirements
adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would
be required to provide additional information about the audit and the financial statements of the issuer; or (iv) comply
with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise.



Under
the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards that have different effective dates
for public and private companies until such time as those standards apply to private companies. We currently intend to take advantage
of such extended transition period. Since we are not required to comply with new or revised accounting standards on the relevant
dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable
to the financial statements of companies that comply with public company effective dates.



F-11







Significant Accounting Policies:



The Company’s management selects
accounting principles generally accepted in the United States of America and adopts methods for their application. The application
of accounting principles requires the estimating, matching and timing of revenue and expense. It is also necessary for management
to determine, measure and allocate resources and obligations within the financial process according to those principles. The accounting
policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these
financial statements.



Revenue Recognition:



FILMS



The Company recognizes revenue from
the sale (minimum guarantee or non-refundable advances) or licensing arrangement (royalty agreements) of a film in accordance
with ASC 605-15 “Revenue Recognition”. Revenue will be recognized only when all of the following criteria have
been met:



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

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

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

| | d) | The
                                                                                                                    arrangement
                                                                                                                    fee is fixed
                                                                                                                    or determinable.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e) | Collection
                                                                                                                    of the arrangement
                                                                                                                    fee is reasonably
                                                                                                                    assured.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A written agreement with clients
(purchase order, letter, contract, etc.), indicating the film name, territory and period is required for the recognition of revenue.
Revenue is recognized when the performance criteria in the contracts have been met. The customer generally confirms agreement
by their signature on the contract.



Minimum guarantee revenue (i.e.,
non-refundable advances) is recognized as and when the film is available for delivery to the respective territories. Cash deposits
received on the signing of the contracts are recorded as deferred revenue until the film is available for delivery (as described
above) at which point the deferred revenue is recognized as revenue. The Company does not recognize any revenues relating to minimum
guarantee on any motion picture or related amortization expense on that picture until United States theatrical release if it has
agreed with the licensees that delivery or payment of minimum guarantee will be delayed for any material period of time to permit
such a theatrical release.



Royalty revenue, which equates to
an agreed share of gross receipts of films, is recognized as income as and when the Company is notified of the amounts by the
customers through their royalty reports. Revenue is recorded net of any sales or value added taxes charged to customers.



MUSIC



Revenue, which equates to an agreed
share of gross receipts, is recognized as income when the Company is notified of the amounts by the distribution agent through
their distribution reports.



Revenue is recorded:



| | a) | net
                                                                                                                    of any  sales
                                                                                                                    or value added
                                                                                                                    taxes charged
                                                                                                                    to customers
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | net
                                                                                                                    of discounts
                                                                                                                    agreed with
                                                                                                                    customers
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | net  of  returns
                                                                                                                    provision
                                                                                                                    agreed with
                                                                                                                    the distributor
                                                                                                                    and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d) | grossed
                                                                                                                    up for the
                                                                                                                    distribution
                                                                                                                    fee charged
                                                                                                                    by the distribution
                                                                                                                    agent.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-12







Revenue from digital distribution
will be reported by the various digital platforms such as  iTunes in their periodic reports and posted as received.



FILM TAX CREDITS



Many countries make tax credits
available to encourage film production in the territory. Seven Arts benefits from tax credits in:



|a) | The UK and several other European
    territories for their European productions
|-- | --------------------------------------------------------------------------------
|b) | Canada for their Canadian productions                                           
|c) | Louisiana for their US productions                                              
|d) | Tax preferred financing deals                                                   



These tax credits may be treated
as a reduction in the capitalized costs of the film assets they are financing or as producer fees to us if the tax credits are
earned and owned by a company in the Group and paid to us as overhead or producer fees.





Fee Income Receivable from Related Party





Revenue in the form of fee income
is due to the Company from a related party, SAPLA (owned by the wife of Peter Hoffman, the Company’s former CEO) for developer,
advisory and financial services provided by the Company as concerns infrastructure and historic rehabilitation tax credits earned
by SAPLA. In accordance with an intercompany agreement between SAE and SAPLA, the cash proceeds from the disposition of the
tax credits earned by SAPLA are due to SAE. The Company has recognized the fair value of the services as revenue with any excess
received as a capital contribution by the related party.



Foreign Currency Transactions
and Comprehensive Income:



The Company’s functional currency,
as well as that of all the Company’s subsidiaries, is the US Dollar. The functional currency of the Company’s predecessor,
was the Pound Sterling (“GPB”), and some transactions which are generated in the United Kingdom are denominated in
GBP.



F-13







Assets and liabilities generated
in a currency other than the functional currency are translated at exchange rates as of the balance sheet date. Revenues and expenses
are translated at average rates in effect for the periods presented. The cumulative translation adjustment is included in the
accumulated other comprehensive gain (loss) within shareholders’ equity. Foreign currency transaction gains and losses
arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included
in the consolidated results of operations. The Company no longer has any operations generated in a currency other than the functional
currency and therefore there is no resulting other comprehensive income/loss.



The Company records transaction
gains and losses in the consolidated statements of operations related to the recurring measurement and settlement of such transactions.



To date, the Company has not hedged
any transactional currency exposure but will keep such exposures under review and where appropriate may enter into such transactions
in future.



Income Taxes:



The Company has adopted ASC 740-10
“Income Taxes”, which requires the use of the liability method in the computation of income tax expense and
the current and deferred income taxes payable.



Cash and Cash Equivalents:



Cash and cash equivalents includes
cash in banks with original maturities of three months or less and are stated at cost which approximates market value, which in
the opinion of management, are subject to an insignificant risk of loss in value. The cash and cash equivalents of the Company
consisted of cash balances held on deposit with banks, including various accounts denominated in US Dollars, Pounds Sterling and
Euros.



Accounts Receivable:



Accounts Receivable are carried at their face amount, less an allowance for doubtful accounts. On a periodic
basis, the Company evaluates accounts receivable and establishes an allowance for doubtful accounts based on a combination of specific
customer circumstances and credit conditions, and on a history of write offs and collections. The Company’s policy is generally
not to charge interest on trade receivables after the invoice becomes past due. A receivable is considered past due if payments
have not been received within agreed upon invoice terms. Write offs are recorded at a time when a customer receivable is deemed
uncollectible. The Company’s allowance for doubtful accounts was $131,062 and $171,062 at June 30, 2013 and June 30,
2012, respectively. Substantially all of the trade receivables in the consolidated financial statements are pledged as security
for borrowings by the Company.



Due To/Due From Related Parties



In September 2004, the Company’s predecessor entered into an agreement with SAP under which SAP
provided the services of Mr. Peter Hoffman for the amount of his contracted salary and the Los Angeles office and staff of SAP
Inc. to the Company’s predecessor at cost. Pursuant to two inter Company agreements, SAP also from time-to-time owned limited
liability companies in the United States which distributed the Company’s motion pictures for a fee, with all profits ensuing
to the benefit of the Company. These companies also provided other services to the Company at no fee other than Mr. Hoffman’s
salary and the direct third-party costs of SAP’s Los Angeles office, all of which were reflected in the Company’s financial
statements. Portions of Mr. Hoffman’s salary have not been paid to him and have been reflected as Due To Related Party. As
of June 30, 2013 and 2012, $1,665,762 and $1,698,578 (Restated), respectively, was owed to Mr. Hoffman for unpaid salary and unreimbursed
expenses, as well as repayment of cash he advanced the Company or its predecessors.



These other services may include
accounting services, audits of distribution statements, collection of accounts receivable, supervision of production of motion
pictures and similar day-to-day aspects of the Company’s business.    SAP assigned to the Company any
proceeds arising from services performed by SAP on its behalf. SAP was granted the power and authority to enter into agreements
on the Company’s behalf. These agreements were terminated from December 31, 2011.



SAP directly or through related
various Louisiana limited liability companies have,  from time-to-time,  made non-interest bearing advances
to the Company or its subsidiaries or have received advances back from the Company,  and have paid expenses on each
other’s behalf.



F-14







Other Receivables and Prepayments:



The
Company has entered into contracts for investor relations and consulting services to assist in future fundraising activities.
A portion of these services were prepaid with shares of common stock that vested immediately and will be amortized over the period
the services are to be provided.  Additionally, the Company had approximately $200,000 in revenue to be received from digital
platforms on the film, The Pool Boys,which
has been earned but not received as of June 30, 2012. The Company also has prepaid some legal costs, which will be released when
services are performed, or related transaction is completed. As of June 30, 2013 substantially all of the balance represents prepaid
legal fees.



Film Costs:



Film costs include the unamortized
costs of completed films which have been produced by the Company or for which the Company has acquired distribution rights, libraries
acquired as part of acquisitions of companies and films in progress and in development. For films produced by the Company, capitalized
costs include all direct production and financing costs, capitalized interest and production overhead.



Costs of acquiring and producing
films are amortized using the individual-film-forecast method, whereby these costs are amortized and participations and residuals
costs are accrued in the proportion that current year’s revenue bears to management’s estimate of ultimate revenue
at the beginning of the current year expected to be recognized from the exploitation, exhibition or sale of the films. The majority
of a film's costs (approximately 80% or more) are generally amortized within three years of the picture's initial release.



Ultimate revenue includes estimates
over a period not to exceed ten years following the date of initial release. Film costs are stated at the lower of amortized cost
or estimated fair value. Individual film costs are reviewed on a title-by-title basis, when an event or change in circumstances
indicates that the fair value of a film is less than its unamortized cost. The fair value of the film is determined using management’s
future revenue and cost estimates and a discounted cash flow approach. Impairment is recorded in the amount by which the unamortized
costs exceed the estimated fair value of the film. Estimates of future revenue involve measurement uncertainty, and therefore
it is possible that reductions in the carrying value of investment in films may be required as a consequence of changes in management’s
future revenue estimates.



Films are included in the general
“library” category when initial release dates are at least three years prior to the acquisition date.



Films in progress include the accumulated
costs of productions which have not yet been completed. Films in development include costs of acquiring film rights to books,
stage plays or original screenplays and costs to adapt such projects. Such costs are capitalized and, upon commencement of production,
are transferred to production costs. Projects in development are written off at the earlier of the date they are determined not
to be recoverable or when abandoned.



All Exploitation Costs (comprising
of direct costs, including marketing, advertising, publicity, promotion, and other distribution expenses) incurred in connection
with the distribution of a film ) are expensed as incurred in accordance with ASC 720- 926- 25-3 .



The Company begins to accrue participation
costs after a film is released when it is probable that such costs will become payable. Participation costs are accrued using
the individual-film-forcast method, which accrues participation costs in the same ratio that current period actual revenue bears
to the estimated remaining unrecognized ultimate revenue as of the beginning of the current fisc al year.

Music Assets:



The initial material assets that
were acquired comprise 52 completed sound recordings including two completed albums with “DMX”, up to two additional
albums from “DMX” and up to five albums from “Bone Thugs-N-Harmony”.



Music assets include the unamortized
costs of completed albums, singles and videos which have been produced by the Company or for which the Company has acquired distribution
rights, libraries acquired as part of acquisitions and albums  in progress and in development.   For
albums  produced by the Company, capitalized costs include all direct production and financing costs, capitalized interest
and production overhead.



Costs of acquiring and producing
music assets will be  amortized using the individual-album-forecast method, whereby these costs are amortized  in
the proportion that current year’s revenue bears to management’s estimate of ultimate revenue at the beginning of
the current year expected to be recognized from the exploitation or sale of the music.



F-15













Building Improvements :



On June 30, 2012, the Company acquired SAFELA, which was previously
a related party company.  SAFELA has a 30 year lease on 807 Esplanade, New Orleans, Louisiana, which was constructed
as a production and post-production facility.   The Company has since assumed the liability
for $1,000,000 of these loans plus a contingent sum of $750,000 (contingent on receipt of the tax credit revenue of at least $5,000,000
in cash proceeds from the tax credits to be earned by SAPLA) due to an agreement with the now mortgagor Palm Finance. Additionally,
a construction loan of $1,850,000 previously guaranteed by the Company has now been assumed by the Company for the property
at 807 Esplanade. The Company did not receive any consideration or benefit when they assumed the mortgage and construction loans,
and have looked to the authoritative guidance on guarantees as a analogy.  As the guidance on financial guarantees does not
address  which account would be set up as an offsetting entry when
the liability is recognized at the inception of the guarantee, the Company has determined to call this asset balance created upon
assumption of the debt “Building Improvements related to indebtedness”The Building Improvements will
be amortized in a manner similar to leasehold improvements, over the life of the lease (30 years).

The post production facility commenced operations on July 1, 2012.





Property & Equipment:



Equipment is carried at the cost
of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repair and
maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve
the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains
and losses on dispositions of equipment are reflected in operations. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets, which are 3 to 5 years.



Impairment of Long Lived Assets:



The Company evaluates, on a periodic
basis, long-lived assets to be held and used for impairment in accordance with the reporting requirements of ASC 360-10, “Accounting
for the Impairment or Disposal of Long-Lived Assets”. The evaluation is based on certain impairment indicators, such
as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as
well as other external market conditions or factors that may be present. If these impairment indicators are present or other factors
exist that indicate that the carrying amount of the asset may not be recoverable, then an estimate of the discounted value of
expected future operating cash flows is used to determine whether the asset is recoverable and the amount of any impairment is
measured as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated
using valuation techniques such as market prices for similar assets or discounted future operating cash flows.



Deferred Income:



Any income received from customers
before a film is delivered for release, (such as deposits on distribution contracts)  is recorded as a liability called
deferred income in case the film does not reach completion and the income has to be returned to customers.



Provision for earn-out for David
Michery/Big Jake Music:





The Company’s Asset Purchase Agreement with David Michery
provided for 50,000 of the Company’s $100 stated, Convertible Redeemable Series B Preferred Shares, be held in Escrow until
the Net EBIT (as defined in the agreement) from distribution of the DMX Albums and two albums embodying the performance of Bone
Thugs-n-Harmony exceeds $5,000,000, as confirmed by the Company’s independent auditor.     At the
end of five years, should the Net EBIT be less than $5,000,000, the shares will be released on a fractional basis, as defined in
the agreement.    As of the year ended June 30, 2012 the Company ha determined the estimated fair value of
the earnout to be $0. The PS held in escrow were released or cancelled as of a settlement agreement with Mr. Michery in February
2013, described previously.



In connection with the acquisition of the stock of BJM, the Company issued 10,000 shares of the Company’s
Series B convertible preferred stock, par value $100 convertible at approximately $1.10 per share) to Jake Shapiro and his assigns
and agreed to issue an additional 70,000 shares of Series B convertible preferred stock to Shapiro and his assigns if certain specific
terms were met; 40,000 shares were subject to proving valuation and usage of  certain advertising credits and 30,000
shares were subject to an earnout over a two year period.  The 70,000 shares were held in escrow, until their cancellation
in relation to a settlement with BJM, in February 2013, described previously.





As of June 30, 2012, the Company had determined the fair value of the earnout with regard until the proving
of the media credits to be $50,000, which the Board believed was the value of an equivalent public relations campaign..  Mr.
Shapiro did have the right to seek an independent valuation. As the shares held in escrow against the valuation of the media credits
were cancelled, as part of the settlement (Note 1) the earn-out has been derecognized on the accompanying financial statements.



F-16







Asset Transfer Agreement:



On June 11, 2010, Seven Arts Entertainment,
Inc. (“SAE”), a Nevada Corporation, was formed and became a wholly owned subsidiary of Seven Arts Pictures Plc. As
of June 11, 2010, the Company entered into an Asset Transfer Agreement, This was approved by the PLC shareholders at an Extraordinary
General Meeting on that date, and  was subsequently amended on January 27, 2011 and again on August 31, 2011, to transfer
all of the assets with a cost basis from PLC to SAE, in exchange for assumption by SAE of certain indebtedness and for one share
of common stock of SAE for each ordinary share of PLC which have been distributed to shareholders. Additionally, 28,571 shares
of SAE were issued to PLC in order to satisfy any remaining obligations . The purpose of this transfer was to eliminate our status
as a foreign private issuer and to assume compliance with all obligations of a domestic issuer under all applicable state and
Federal securities laws. The Company’s intention in executing this transaction was to redomicile our business with no change
in the economic interests of the Company’s shareholders. As the majority of the Company’s shareholders were domestic
we felt they would be better served by the Company as a domestic issuer.



The assets and certain of the liabilities
of SAP Plc. were transfered at net book value.  All related party balances of PLC were left in the original company
as were the shares in SAFE(UK) Ltd and Cinematic Finance Ltd.  All disputed debts were left with the PLC. The “
consideration paid for the asset transfer was a one for one share exchange of PLC shares for shares of SAE Inc. and an issuance
of a further 2,000,000 (pre-split) (28,571 post-split ) shares in SAE Inc.   The issuance of the 2,000,000 shares
was booked at the closing market price on August 31 2011, which was $0.66/ share.    The Board approved the issuance
of the 2 million shares (pre-reverse split) to satisfy any remaining obligations in PLC, which approximated the amount of the
liabilities left behind at the time of the issuance.



Although the transfer agreement
amendment was executed on January 27, 2011, the PLC remained the parent company through August 31, 2011. until all procedures
and approvals were in place with NASDAQ, DWAC and the transfer agent to finalize the one share of common stock of SAE for each
ordinary share of PLC to be distributed to shareholders and trading of SAE to take over from PLC The fair value of the 2,000,000
shares was determined at the closing market price on August 31 2011, which was $0.66/share.



Earnings Per Share:



Basic earnings (loss) per share
are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted
earnings (loss) per share include the effects of any outstanding options, warrants and other potentially dilutive securities.
For the periods presented, there were no potentially dilutive securities outstanding, therefore basic earnings per share equals
diluted earnings per share. Basic and diluted earnings per share (“EPS”) are based on weighted-average common shares
and exclude shares that would have an anti-dilutive effect. In accordance with ASC 260-10-45-19, the Company did not consider
any potential common shares in the computation of diluted EPS as of June 30, 2013 and 2012, due to the loss from continuing operations,
as they would have an anti-dilutive effect on EPS.



Share Based Payments:



The Company accounts for share based
payments using a fair value based method whereby compensation cost is measured at the grant date based on the value of the services
received and is recognized over the service period. The Company uses the Black-Scholes pricing model to calculate the fair value
of options and warrants issued. In calculating this fair value, there are certain assumptions used such as the expected life of
the option, risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of a different estimate for any one
of these components could have a material impact on the amount of calculated compensation expense.



Segment Reporting:



The Company has three operating segments based on its major lines of businesses: a motion picture producer
and distributor, music label, and post-production facility. Each operating segment derives its revenues from the sale of products
or services, respectively and each is the responsibility of a group of senior management of the Company who has knowledge of product
and service specific operational risks and opportunities. The Company’s chief operating decision maker reviews and evaluates
separate sets of financial information for decisions regarding resources allocation and performance assessments.



Fair Value Measurements:



ASC Topic 820, “Fair Value
Measurements and Disclosures”, defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and requires certain disclosures about fair value measurements. In general, fair value of financial instruments
are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon
internally developed models that primarily use, as inputs, observable market based parameters. Valuation adjustments may be made
to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty
credit quality and the Corporation’s credit worthiness, among other things, as well as unobservable parameters. Any such
valuation adjustments are applied consistently over time.



F-17







Derivative Instruments:



The Company’s policy is to
not use derivative or hedging financial instruments for trading or speculative purposes, except certain embedded derivatives derived
from certain conversion features or reset provisions attached to the convertible debentures, as described in Note 9.



Reclassification:



Certain prior year balances were
reclassified to conform with current year presentation.



Recently Issued Accounting Pronouncements:



In October 2012, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-07, "Entertainment - Films
(Topic 926): Accounting for Fair Value Information That Arises after the Measurement date and Its Inclusion in the Impairment
Analysis of Unamortized Film Costs." ASU No. 2012-07 eliminates the rebuttable presumption that the condition leading to
the write-off of unamortized film costs existing after the balance sheet date also existed as of the balance sheet date. In addition,
in performing the impairment test, an entity is no longer required to incorporate the effects of changes in estimates resulting
from evidence arising subsequent to the balance sheet date if the information would not have been considered by market participants
at the balance sheet date. This guidance was effective for the Company's impairment assessments performed on or after December
15, 2012.



The Company does not expect the
adoption of and other recently issued accounting pronouncements to have a significant impact on the Company’s results of
operations, financial position or cash flow.



F-18







NOTE 2 - SEGMENT INFORMATION



In accordance with ASC 280 “Segment
Reporting”, operating segments are identified as components of an enterprise about which separate discrete financial
information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how
to allocate resources and assess performance.   Our chief decision maker, as defined under the FASB’s guidance,
is a combination of the Chief Executive Officer and the Chief Financial Officer.



In the quarter ended March 31, 2012,  the
Company formed a new subsidiary, Seven Arts Music, and acquired music assets from David Michery and purchased the stock of Big
Jake Music.   This was a new line of business for the Company, and therefore, for the year ended June 30, 2012,
the Company had two reportable operating segments.



The pre and post production facility
run by the Company’s majority owned subsidiary, SAFLA, commenced operations in July 2012, and therefore for the year ended
June 30, 2013 the Company has three reportable segments.



The tables below present the financial
information for the reportable segments for the years ended June 30, 2013 and 2012:





|                     |  |      |             |   |       |   |            | Year endedJune 30,2013 |  |   |          |  
|-------------------- |  | ---- | ----------- | - | ----- | - | ---------- | ---------------------- |  | - | -------- | -
|                     |  | Film |             |   | Music |   |            | Productionfacility     |  |   | Total    |  
|Revenue              |  | $    | 841,956     |   |       | $ | 574,434    |                        |  | $ | 106,417  |  
|Cost of Revenue      |  |      | (7,004,141  | ) |       |   | (5,395,410 | )                      |  |   | (22,160  | )
|Gross profit/(loss)  |  |      | (6,162,185  | ) |       |   | (4,820,975 | )                      |  |   | (84,257  | )
|Operating expenses   |  |      | (6,447,117  | ) |       |   | (480,620   | )                      |  |   | (361,955 | )
|                     |  |      |             |   |       |   |            |                        |  |   |          |  
|Loss from operations |  | $    | (12,609,302 | ) |       |   | (5,301,595 | )                      |  |   | (277,698 | )









|                     |  | Year ended                   |            
|-------------------- |  | ---------------------------- | -----------
|                     |  | June 30, 2012
    (Restated) |            
|                     |  | Film                         |            
|Revenue              |  | $                            | 4,052,029  
|Cost of revenue      |  |                              | 14,350,858 
|Gross profit/(loss)  |  | $                            | (10,364,937
|Operating expenses   |  |                              | 2,467,111  
|Loss from operations |  | $                            | (12,765,944



Assets



|                       |  | June 30,
    2013 |           |  | June 30,
    2012 (Restated) |  
|---------------------- |  | ----------------- | --------- |  | ---------------------------- | -
|                       |  |                   |           |  |                              |  
|Film assets            |  | $                 | 8,368,686 |  |                              | $
|Music assets           |  |                   | 296,795   |  |                              |  
|Post-production assets |  |                   | 4,102,525 |  |                              |  



F-19







NOTE 3 – RELATED PARTY
DUE TO/DUE FROM



Related Party Due/From at June 30,
2013 consisted of:





|              |  | SAE, Inc. |            |   | SAFE |  |          | SAFELA |  |  | ConsolidatedBalance | 
|------------- |  | --------- | ---------- | - | ---- |  | -------- | ------ |  |  | ------------------- | 
|Due from:     |  |           |            |   |      |  |          |        |  |  |                     | 
|              |  |           |            |   |      |  |          |        |  |  |                     | 
|SAMT          |  |           | 13,000     |   |      |  |          |        |  |  |                     | 
|SAPLA         |  |           | 173,006    |   |      |  |          |        |  |  |                     | 
|              |  |           |            |   |      |  |          |        |  |  |                     | 
|Peter Hoffman |  |           |            |   |      |  |          |        |  |  | 19,781              | 
|              |  |           |            |   |      |  |          |        |  |  |                     | 
|Total         |  |           | 186,006    |   |      |  |          |        |  |  |                     | 
|              |  |           |            |   |      |  |          |        |  |  |                     | 
|Peter Hoffman |  |           | (1,272,112 | ) |      |  | (393,650 | )      |  |  |                     | 
|SAFE (UK)     |  |           | (2,383)    |   |      |  | (13,556  | )      |  |  |                     | 
|              |  |           | (1,274,495 | ) |      |  | (407,206 | )      |  |  |                     | 











|                    |  |         |            |   |      |   |         | CONSOLIDATED               | 
|------------------- |  | ------- | ---------- | - | ---- | - | ------- | -------------------------- | 
|As of June 30, 2012 |  | SAE INC |            |   | SAFE |   |         | BALANCE
        (Restated) | 
|                    |  |         |            |   |      |   |         |                            | 
|SAP Inc             |  | $       | 1,801,098  |   |      | $ | (20,850 | )                          | 
|                    |  |         |            |   |      |   |         |                            | 
|SAPLA               |  |         | 336,290    |   |      |   | -       |                            | 
|                    |  |         |            |   |      |   |         |                            | 
|Peter Hoffman       |  |         | (1,679,617 | ) |      |   | (18,961 | )                          | 
|                    |  |         |            |   |      |   |         |                            | 
|SAFE (UK)           |  |         | -          |   |      |   | (13,556 | )                          | 
|                    |  |         |            |   |      |   |         |                            | 
|                    |  | $       | 457,771    |   |      | $ | (53,367 | )                          | 





SAP, Inc. has pledged an interest
in its shares of the Company’s stock to secure certain indebtedness for which SAP, Inc. and the Company are jointly liable
such as the Apollo and Armadillo debts. The stock of SAP, Inc. (previously owned by Peter Hoffman) was transferred to the listing
predecessor of SAE on September 1, 2011.



SAP Inc. and Louisiana Companies:



The Company’s former Chief
Executive Officer who is on a leave of absence, Peter Hoffman, controls several companies, including (prior to September 10, 2011)
Seven Arts Pictures, Inc. (“SAP, Inc.”) that are not part of the Company but from which it obtained or transferred
distribution rights or other assets related to the business and which control production of the motion pictures. The agreements
with Mr. Hoffman, and the companies controlled by him, provide that all revenues related to the Company’s business payable
to Mr. Hoffman or any of these related party companies is due to the Company, except Mr. Hoffman’s salary, bonus and stock
ownership. None of these affiliates are variable interest or special purpose entities.



Prior to January 1, 2012, pursuant
to a related party agreement, SAP, Inc. held ownership of limited liability corporations in the United States, with all distribution
rights and profits thereof being due to SAFE, Ltd. In addition, they have also provided other services for Seven Arts Pictures
Plc. and SAFE, Ltd. and SAE, Inc. at no fee other than Mr. Hoffman’s salary and the direct third party costs of the Los
Angeles office, all of which are reflected in the financial statements of SAFE, Ltd. These other services include any reasonable
requests of the management of the Company including accounting services, audits of distribution statements, collection of accounts
receivable, supervision of production of motion pictures and similar day-to-day aspects of the Company’s business. Effective
January 1, 2012 no further such transactions were conducted.



As of June 30, 2013, the amount
due from the related party, SAP, Inc, was determined to be uncollectible due to SAP, Inc. having been transferred to PLC, which
is in liquidation proceedings. Therefore, $1,868,547 was included in Bad Debt expense in the accompanying financial statements.



F-20











Peter
Hoffman:



In
September 2004, the Company’s predecessor entered into an agreement with SAP under which SAP provided the services of Mr.
Peter Hoffman for the amount of his contracted salary and the Los Angeles office and staff of SAP Inc. to the Company’s
predecessor at cost.  Pursuant to two inter Company agreements, SAP also from time-to-time owned limited liability companies
in the United States which distributed the Company’s motion pictures for a fee, with all profits ensuing to the benefit
of the Company. These companies also provided other services to the Company at no fee other than Mr. Hoffman’s salary and
the direct third-party costs of SAP’s Los Angeles office, all of which were reflected in the Company’s financial statements.  Portions
of Mr. Hoffman’s salary have not been paid to him and have been reflected as Due To Related Party.



During
the year ended June 30, 2013, 7,143 (25,000,000 pre-split) and 140,000 (7,000,000 pre-split) shares were issued in exchange
for $914,786, and $1,190,000, respectively, of the Due to related party balance.  The 7,143 shares have been pledged
to JMJ Financial in connection with a $500,000 convertible debenture, as collateral against repayment of the note. The 140,000
shares have been pledged to Tonaquint Inc, in connection with a total of $590,000 in convertible debentures, under the terms of
an amendment dated October 5, 2012, as collateral against repayment of the note. (Note 9) In the event of a default on either
of the notes the holder may transfer and sell the pledged shares and apply the proceeds against the outstanding amounts on the
notes. Per agreements between the Company and Mr. Hoffman in respect to the pledged shares, if the pledged shares are sold and
applied to the note balance, or if the shares are not utilized by the pledges and returned to the Company, Mr. Hoffman’s
Due to related party balance as of the date of the agreements, will be reinstated. Due to the future obligation to in substance
repurchase the shares and reinstate the Due to related party balance, the shares have been treated as if issued for no consideration,
and a liability for $2,104,786 was recognized included in the Due to related party balance for the obligation to reinstate the
Due to balance.



SAPLA Guarantee:



Seven
Arts Pictures Louisiana LLC, (“SAPLA”) a related party of the Company, entered into a Credit Agreement with Advantage
Capital Community Development Fund LLC dated October 11, 2007, for the acquisition and improvement of the production and post-production
facility located at 807 Esplanade Avenue in New Orleans, Louisiana for aggregate principal advances of up to $3,700,000.   This
agreement was guaranteed by the Company’s predecessor.   Approximately $3,700,000 plus interest has been
drawn under the terms of this Credit Agreement, as of June 30, 2012. The Company has since assumed the liability for $1,000,000
of this amount plus a contingent sum of $750,000 due to Advantage Capital (contingent on receipt of the tax credit revenueof at least $5,000,000 in cash proceeds from the tax credits to be earned by SAPLA)
due to an agreement with the now mortgagor Palm Finance.



A construction loan of $1,850,000
previously guaranteed by the Company has now been assumed by the Company for the property at 807 Esplanade.





The Company did not receive any consideration or benefit when
they assumed the mortgage and construction loans, and have looked to the authoritative guidance on guarantees as a analogy. 
As the guidance on financial guarantees does not address  which account would be set up as an offsetting
entry when the liability is recognized at the inception of the guarantee, the Company has determined to call this asset balance
created upon assumption of the debt “Building Improvements related to indebtedness”The Building Improvements
will be amortized in a manner similar to leasehold improvements, over the life of the lease (30 years).







SAPLA Advances:





On February 28, 2012, the Company took out a convertible
loan of $200,000 which was in turn loaned  to SAPLA to cover outstanding interest payments which were due on the construction
loan  on 807 Esplanade  previously guaranteed by the Company.  Three additional convertible loans
were taken out totaling $600,000 during the year ended June 30, 2012 and then loaned to SAPLA to pay down the construction loan
on the property at 807 Esplanade, as to not further delay the construction and opening of the facility. As of June 30, 2013, the
convertible loan balance, after conversions, on the Company’s financial statements is approximately $325,000.





NOTE 4 – FEE INCOME
RECEIVABLE FROM RELATED PARTY (RESTATED)



SAPLA has filed for historical rehabilitation
tax credits available from the United States (26%) and Louisiana (25%) on approximately $9,500,000 of historical rehabilitation
expenses paid in connection with the renovation of  the building and property at 807 Esplanade Avenue in New Orleans, Louisiana
(the “Property”) and reflected in a compilation of expenses by an independent accounting firm. SAPLA has filed the
Part I application for historic rehabilitation credits and has received the Part II and Part III approvals from the United States
Department of Parks with respect to the Property :



| | · | SAPLA
                                                                                                                                               will
                                                                                                                                               allocate
                                                                                                                                               the
                                                                                                                                               Federal
                                                                                                                                               historic
                                                                                                                                               rehabilitation
                                                                                                                                               credits
                                                                                                                                               to
                                                                                                                                               investors
                                                                                                                                               in
                                                                                                                                               its
                                                                                                                                               lessee,
                                                                                                                                               807
                                                                                                                                               Esplanade
                                                                                                                                               Ave.
                                                                                                                                               MT
                                                                                                                                               LLC
                                                                                                                                               (“MT”),
                                                                                                                                               and
                                                                                                                                               receive
                                                                                                                                               cash
                                                                                                                                               or
                                                                                                                                               reduction
                                                                                                                                               in
                                                                                                                                               indebtedness
                                                                                                                                               as
                                                                                                                                               a
                                                                                                                                               result
                                                                                                                                               of
                                                                                                                                               such
                                                                                                                                               allocation.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | SAPLA
                                                                                                                                               will
                                                                                                                                               assign
                                                                                                                                               the
                                                                                                                                               Louisiana
                                                                                                                                               historic
                                                                                                                                               rehabilitation
                                                                                                                                               for
                                                                                                                                               cash.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-21







SAPLA has also filed for Louisiana
film infrastructure tax credits (40%) on all of its investment of approximately $11,500,000 in connection with the Property to
date, as reflected in an audit report of an independent accounting firm (which also includes audits of all rehabilitation expenses).
SAPLA has approval from Louisiana that the Property is a certified state film infrastructure project and SAFELA, as lessee of
MT, is now operating a production and post - production facility at the Property.



To date Louisiana has certified
approximately $6,500,000 of the $11,500,000 film infrastructure expenditure filed for , the tax credits accruing on which SAPLA
will assign for cash, with the remaining expenses remaining under consideration by the Louisiana Department of Economic Development
(“LED”). SAPLA has received no objections to any of its film rehabilitation expenses from LED as reflected in the
audit report submitted to LEDF on July 2, 2012. Under a published Opinion of the Attorney General of Louisiana, the Louisiana
tax credits vest upon certification as a film infrastructure project which occurred in 2008. Revenue is not recognized until
the required audit or compilation is complete and available to be submitted to the appropriate agency.



Under the terms of the related party
agreement between SAPLA and SAE Inc.  proceeds received from the disposition of the tax credits earned by SAPLA on the building
are due to SAE to reduce the notes payable to Palm Finance and as fees for services provided by the Company .   SAPLA
is due to receive approximately $9,447,544 from disposition of Louisiana and Federal historic rehabilitation and film infrastructure
tax credits for the restoration and the establishment of a post-production facility at 807 Esplanade.



SAPLA will pay the proceeds from
disposition of such tax credits to SAE Inc. as fee income.  The Company provided “developer” services as concerns
oversight of the rehabilitation work carried out on the facility, as well as advisory services in connection with the obtaining
of the tax credits, and financial services related to the loans and mortgage. The Company has concluded the services evidence
an earning process, in the providing of a service, and as such have recognized revenue in relation to the fair value of the services
provided. The fair value of $3,235,000 was determined based on the amounts stated as “qualified expenses” and determined
to be reasonable and industry standard in the required audit of cost report expenditures performed on the project by an independent
accountant. Any excess over the fair value of the services received by the Company from SAPLA will be recognized as a contribution
to capital.



As of December
31, 2012, the current director of LED has toured 807 Esplanade and seemed satisfied with his review.  He requested the
building get a permanent business license and to confirm that the equipment in the building is permanent.  The permanent
business license was obtained on April 1 and the permanency of the equipment was confirmed by that date as well.



As of June 30, 2013, the Louisiana
Department of Economic Development has not issued a Tax Credit Certification Letter as pertains to the LFI credits, and on June
23, 2013 SAPLA received a letter from the Louisiana Economic Development (“LED”) office that they could “not
proceed further with any consideration to approve” the tax credits until SAPLA proves they have the correct occupational
license from the city. SAPLA does have the appropriate license and is currently appealing this notification. In light of these
subsequent occurrences, management has determined that the amount underlying the LFI credits should be reserved against as of
June 30, 2013, until such time as the Tax Credit Certification Letter is received by SAPLA.



Additionally, the State Historic
Preservation Office (“SHPO”) has not yet issued their Part III approval, confirming what amount of the tax credits
they are approving. In October 2012 the SHPO sent SAPLA some questions on their expenditures, which were answered by the independent
auditor who performed the required audit of the cost expenditures, but there has been no further correspondence since. SAPLA is
pursuing the issue with SHPO to force them to state the amount of tax credits they are approving, based on a recent law in Louisiana
which says SHPO must state which line item they are disallowing. Therefore, the Company has also determined to reserve against
the amount of the proceeds representing the LHR credits, until such time as SAPLA resolves the issue with SHPO and receives a
Part III approval.



The total reserve recognized as
of June 30, 2013 for the fee income from related party is $1,180,000, which represents the cash proceeds underlying the LFI and
LHR tax credits in excess of the $3,235,000 recognized as revenue, and reduces the receivable amount to the amount the Company
has determined to be known to be collectible, the amount of the cash proceeds underlying the Federal tax credits.



NOTE 5 – FILM COSTS



Film costs as of June 30, 2013 and
June 30, 2012 are as follows:



|                                          |  | June 30, 2013 |           |  | June 30, 2012 |  
|----------------------------------------- |  | ------------- | --------- |  | ------------- | -
|Released, net of accumulated amortization |  | $             | 3,314,728 |  |               | $
|Completed and not released                |  |               | —         |  |               |  
|In production                             |  |               | 1,209,931 |  |               |  
|In development                            |  |               | 3,844,027 |  |               |  
|                                          |  | $             | 8,368,686 |  |               | $



Amortization
of film costs was $2,044,272 and $3,996,576 for the years ended June 30, 2013 and 2012. The Company estimates that its amortization
expense in the next year will be $1,275,000.



The Company reviews capitalized
film costs for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not
be recoverable or at least once per year. Determination of recoverability is based on an estimate of future cash flows resulting
from the use of the asset, and its eventual disposition. Measurement of an impairment loss for the assets is based on the fair
value of the asset as estimated using a discounted cash flow model. As a result of the impairment evaluation the Company
recognized an impairment of $2,054,171 and $9,494,247 (Restated) in the years ended June 30, 2013 and 2012, respectively, based
on reduced ultimate revenue estimations.



All Exploitation Costs (comprising
of direct costs, including marketing, advertising, publicity, promotion, and other distribution expenses) incurred in connection
with the distribution of a film) are expensed as incurred in accordance with ASC 720-926-25-3.



No participations have been recorded
as the Company   does not believe anything will be due in the next 12 months.



F-22







NOTE 6 – MUSIC ASSETS



Music assets are as follows:



|                                                    |  | June 30, 2013 |           |  | June 30, 2012 (Restated) |  
|--------------------------------------------------- |  | ------------- | --------- |  | ------------------------ | -
|Music assets                                        |  |               | 5,423,205 |  |                          | $
|Intangible Assets – music assets                    |  |               | -         |  |                          |  
|                                                    |  |               | 5,423,205 |  |                          |  
|                                                    |  |               |           |  |                          |  
|Impairment recognized during the year               |  |               | 4,718,205 |  |                          |  
|                                                    |  |               |           |  |                          |  
|Total music assets                                  |  |               | 705,000   |  |                          |  
|Less: Accumulated amortization                      |  |               | 408,205   |  |                          |  
|Total music assets, net of accumulated amortization |  |               | 296,795   |  |                          | $



There were two separate transactions
in which SAE acquired the “music assets”.  One was an Asset Purchase Agreement with David Michery, which
was accounted for as an asset purchase.  In this transaction SAE acquired the music assets comprised of masters recordings. The
other was the BJM acquisition, in which SAE acquired the stock of BJM, which was accounted for as a business combination



The initial material assets that
were acquired from David Michery comprise 52 completed sound recordings including  two completed albums with “DMX”,
up to two additional albums from “DMX” and up to five albums from “Bone Thugs-N-Harmony”. The music assets
were initially recorded at the fair value of the preferred stock issued, less the amount of preferred stock held in escrow, which
was $5,000,000.



The BJM transaction qualified as
an acquisition of a business, as defined in ASC 805-10-55-2, as the Company, the acquirer, gained control of BJM by issuing Series
B Preferred Stock as consideration. BJM falls under the definition of a business, as set forth in ASC 805-10-55-4 through
7, as although BJM was not operational, they had inputs, in the form of intangible assets, including access to artists and customers
and distribution channels and were pursuing a plan to produce outputs (the recordings and CDs or digital downloads).  .



At the time of acquisition the only
assets were the intangibles, and certain media credits, which could not be precisely valued. BJM’s common shares were
not publically traded, and therefore, were also difficult to value. In accordance with ASC ASC 505-50-30-6 which gives
guidance on how to measure the equity issued in a non-monetary exchange, as the value of the Company’s Series B Preferred
Stock was determined as the most readily determinable, the consideration was calculated as the fair value of the Series B Preferred
Stock, which was determined to be $1,000,000. Per the guidelines for acquisition accounting, as the only asset was the intangible
assets, which could not be clearly and separately identified in a cost effective manner,, the $1,000,000 consideration was allocated
to the fair value of “Intanbible Assets - music assets”.



The contracts with DMX and BTH allow
for royalties varying from 12% to 20%, based on sales and other varying terms, be paid to the artists after initial advances are
recouped by the Company. The Company does not anticipate that any additional royalties will be due after recoupment.



The Company capitalized $606,774
and $1,324,158 in music costs during the years ended June 30, 2013 and 2012, respectively, representing costs incurred in the
production of the current DMX album and related videos.. The Company will begin to amortize the music assets once the related
records are released, over the estimated life of the recorded performance using a method that reasonably relates the amount to
the net revenue expected to be realized.



F-23







The $408,205 was the amortization
charge based on sales of the DMX “Undisputed” album compared to current forecast sales for the assets acquired.





The Company reviews capitalized music assets for impairment
whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable or at least
once per year. Determination of recoverability is based on an estimate of future cash flows resulting from the use of the asset,
and its eventual disposition. Measurement of an impairment loss for the assets is based on the fair value of the asset as estimated
using a discounted cash flow model. As of June 30, 2013 and June 30, 2012 , the Company recognized impairment losses of $ 4,718,205
and $3,035,000 (restated), respectively. The first of the DMX albums, “Undisputed”, was released in September 2012,
and sales were below expectations. Management analyzed the realizability based on future use of the music assets and adjusted their
estimations of sales on the albums to be released based on the remaining masters, which include one additional album for DMX and
one album for Bone Thugs-N-Harmony, to reflect the actual sales and profit recognized on Undisputed The impairment in the year
ended June 30, 2012 was determined as the difference between the original consideration and the expected sales on the albums to
be released from the masters acquired, and additionally included all of the intangibles, which were determined to have no future
use.







NOTE 7 – BUILDING IMPROVEMENTS



On June 30, 2012, the Company acquired SAFELA, which was previously
a related party company.  SAFELA has a 30 year lease on 807 Esplanade, New Orleans, Louisiana, which was constructed
as a production and post-production facility.   The Company has since assumed the liability
for $1,000,000 of these loans plus a contingent sum of $750,000 (contingent on receipt of the tax credit revenue of at least $5,000,000
in cash proceeds from the tax credits to be earned by SAPLA) due to an agreement with the now mortgagor Palm Finance. Additionally,
a construction loan of $1,850,000 previously guaranteed by the Company has now been assumed by the Company for the property
at 807 Esplanade.



The Company did not receive any consideration or benefit when
they assumed the mortgage and construction loans, and have looked to the authoritative guidance on guarantees as a analogy. 
As the guidance on financial guarantees does not address  which account would be set up as an offsetting entry when the liability
is recognized at the inception of the guarantee, the Company has determined to call this asset balance created upon assumption
of the debt “Building Improvements related to indebtedness”  The Building Improvements will be amortized in a
manner similar to leasehold improvements, over the life of the lease (30 years). The post production
facility commenced operations on July 1, 2012, and the Company began amortization of the building improvements on July 1, 2013.Amortization expense for the year ended June 30, 2013 was $164,526.





NOTE 8 – INCOME TAXES



Deferred
tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting
purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at June 30:.



|                    |  | 2013 |             |   | 2012 |  
|------------------- |  | ---- | ----------- | - | ---- | -
|Deferred tax assets |  |      |             |   |      |  
|NOL carryforwards   |  | $    | 11,413,000  |   |      | $
|                    |  |      |             |   |      |  
|Valuation allowance |  |      | (11,413,000 | ) |      |  
|Net                 |  | $    | -           |   |      | $



A
valuation allowance has been recorded against the realizability of the net deferred tax asset such that no value is recorded for
the asset in the accompanying financial statements. The valuation allowance increased $7,621,000 between the year ended June 30,
2012 and 2013.



The
Company has net operating loss carryforwards available for federal and state tax purposes of approximately $33,569,000, at June
30, 2013, which expire in varying amounts through 2032.



For
the years ended June 30, 2013 and 2012, a reconciliation of the statutory rate and effective rate for the provisions for income
taxes consists of the following:



|                    |  | Percentage |      
|------------------- |  | ---------- | -----
|                    |  | 2013       |      
|Tax statutory rate  |  |            | (34.0
|Valuation allowance |  |            | 34.0 
|Effective rate      |  |            | 0.0  



F-24







NOTE 9 – LOANS



Indebtedness as of June 30, 2013
consists of:



|Lender                                                       |  | Balance |           |  | InterestRate |  |    | IssuanceDate |  | MaturityDate |  |           
|------------------------------------------------------------ |  | ------- | --------- |  | ------------ |  | -- | ------------ |  | ------------ |  | ----------
|                                                             |  |         |           |  |              |  |    |              |  |              |  |           
|Film and Production
    Loans:                               |  |         |           |  |              |  |    |              |  |              |  |           
|                                                             |  |         |           |  |              |  |    |              |  |              |  |           
|Palm Finance Corporation                                     |  | $       | 5,479,777 |  |              |  | 18 | %            |  |              |  |           
|Palm Finance Corporation                                     |  |         | 2,221,572 |  |              |  | 18 | %            |  |              |  |           
|Palm Finance Corporation                                     |  |         | 113,064   |  |              |  | 10 | %            |  | 7/30/2012    |  |           
|                                                             |  |         |           |  |              |  |    |              |  |              |  |           
|                                                             |  | $       | 7,814,412 |  |              |  |    |              |  |              |  |           
|                                                             |  |         |           |  |              |  |    |              |  |              |  |           
|Conversions:                                                 |  |         |           |  |              |  |    |              |  |              |  |           
|                                                             |  |         |           |  |              |  |    |              |  |              |  |           
|Trafalgar Capital                                            |  | $       | 585,729   |  |              |  | 9  | %            |  | 10/15/2008   |  | 8/31/2009 
|JMJ Financial                                                |  |         | 438,373   |  |              |  | 10 | %            |  | 6/29/2012    |  | 10/27/2012
|GHP                                                          |  |         | 137,573   |  |              |  | 18 | %            |  | 1/21/2011    |  | 4/30/2012 
|Tonaquint                                                    |  |         | 447,975   |  |              |  | 8  | %            |  | 8/22/12      |  | 7/2/13    
|Beaufort Ventures PLC                                        |  |         | 240,132   |  |              |  | 10 | %            |  | 7/31/2012    |  | 8/30/12   
|Beaufort Ventures PLC                                        |  |         | 163,932   |  |              |  | 10 | %            |  | 7/26/12      |  | 2/25/13   
|Runway Investments, LTD                                      |  |         | 154,582   |  |              |  | 12 | %            |  | 11/1/12      |  | 9/30/12   
|Sendero Capital Ltd                                          |  |         | 292,986   |  |              |  | 12 | %            |  | 1/24/12      |  | 9/30/12   
|Isaac Capital Group LLC                                      |  |         | 148,825   |  |              |  | 12 | %            |  | 1/20/12      |  | 6/30/12   
|Beaufort Ventures, PLC                                       |  |         | 82,110    |  |              |  | 10 | %            |  | 7/19/12      |  | 7/19/12   
|Beaufort Ventures, PLC                                       |  |         | 54,740    |  |              |  | 10 | %            |  | 7/19/12      |  | 7/19/13   
|Beaufort Ventures, PLC                                       |  |         | 27,192    |  |              |  | 10 | %            |  | 8/14/12      |  | 2/8/13    
|Beaufort Ventures, PLC                                       |  |         | 78,921    |  |              |  | 12 | %            |  | 1/22/13      |  | 7/22/13   
|CMS Capital                                                  |  |         | 39,503    |  |              |  | 12 | %            |  | 12/15/2011   |  | 6/30/12   
|Hanover Holdings LLC                                         |  |         | 280,581   |  |              |  | 10 | %            |  | 2/23/12      |  | 4/23/13   
|Beaufort Ventures PLC                                        |  |         | 56,066    |  |              |  | 12 | %            |  | 6/26/12      |  | 6/26/13   
|Agua Alta (Cold Fusion)                                      |  |         | 112,164   |  |              |  | 12 | %            |  | 6/25/12      |  | 6/25/13   
|Beaufort Ventures PLC                                        |  |         | 12,015    |  |              |  | 12 | %            |  | 11/30/2011   |  | 11/30/2013
|Tripod Group, LLC                                            |  |         | 108,685   |  |              |  | 12 | %            |  | 1/2/12       |  | 1/2/13    
|Beaufort Ventures, PLC                                       |  |         | 48,009    |  |              |  | 12 | %            |  | 6/4/12       |  | 6/10/12   
|Old Capital Ltd                                              |  |         | 277,166   |  |              |  | 12 | %            |  | 5/31/12      |  | 11/30/2012
|WHC Capital                                                  |  |         | 79,097    |  |              |  | 10 | %            |  | 5/20/13      |  | 5/20/14   
|Firerock                                                     |  |         | 81,335    |  |              |  | 5  | %            |  | 12/8/12      |  | 7/15/13   
|Elegant Funding                                              |  |         | 17,975    |  |              |  | 18 | %            |  | 6/5/13       |  | 1/5/14    
|Firerock                                                     |  |         | 719       |  |              |  | 12 | %            |  | 7/31/12      |  | 6/14/13   
|WHC Capital                                                  |  |         | 26,036    |  |              |  | 21 | %            |  | 4/19/13      |  | 4/18/14   
|WHC Capital                                                  |  |         | 20,472    |  |              |  | 21 | %            |  | 5/20/13      |  | 5/20/14   
|Tangiers                                                     |  |         | 40,630    |  |              |  | 10 | %            |  | 10/15/2012   |  | 10/15/2014
|Tangiers                                                     |  |         | 20,382    |  |              |  | 10 | %            |  | 5/31/13      |  | 5/31/14   
|                                                             |  |         |           |  |              |  |    |              |  |              |  |           
|                                                             |  | $       | 4,073,901 |  |              |  |    |              |  |              |  |           
|                                                             |  |         |           |  |              |  |    |              |  |              |  |           
|Mortgage
    and Construction Loan                           |  |         |           |  |              |  |    |              |  |              |  |           
|Palm Finance Corporation- mortgage
    and construction loan |  | $       | 3,743,286 |  |              |  | 15 | %            |  |              |  |           
|                                                             |  |         |           |  |              |  |    |              |  |              |  |           
|                                                             |  | $       | 3,743,286 |  |              |  |    |              |  |              |  |           



Indebtedness as of June 30, 2012
consists of:



|Lender                      |  |   |           |  |  |  |                                                                      |  
|--------------------------- |  | - | --------- |  |  |  | -------------------------------------------------------------------- | -
|Film and Production Loans   |  |   |           |  |  |  |                                                                      |  
|                            |  |   |           |  |  |  |                                                                      |  
|Palm Finance  *             |  | $ | 4,324,431 |  |  |  | 18                                                                   | %
|Palm Finance                |  |   | 82,354    |  |  |  | 18                                                                   | %
|                            |  |   |           |  |  |  |                                                                      |  
|Palm Finance *              |  |   | 1,538,218 |  |  |  | 18                                                                   | %
|                            |  |   |           |  |  |  |                                                                      |  
|120db Film Finance LLC      |  |   | 4,425     |  |  |  | Non
                                                          stated |  
|                            |  |   |           |  |  |  |                                                                      |  
|Cold Fusion Media Group LLC |  |   | 175,000   |  |  |  | 10                                                                   | %
|                            |  | $ | 6,124,428 |  |  |  |                                                                      |  



F-25







|                                    |  |   |           |  | Originalagreed |   |      |            |  |               |  |               
|----------------------------------- |  | - | --------- |  | -------------- | - | ---- | ---------- |  | ------------- |  | --------------
|                                    |  |   |           |  | Conversionrate |   |      | Issue Date |  | Maturity Date |  | Variable Terms
|Convertibles                        |  |   |           |  |                |   |      |            |  |               |  |               
|                                    |  |   |           |  |                |   |      |            |  |               |  |               
|Trafalgar Capital                   |  |   | 531,986   |  |                |   |      |            |  |               |  | Due on demand 
|TCA                                 |  |   | 62,149    |  |                |   |      |            |  | 3/31/2011     |  | 9/30/2011     
|GHP                                 |  |   | 137,573   |  |                |   |      |            |  |               |  |               
|JMJ Financial                       |  |   | 500,137   |  |                |   |      |            |  | 6/30/2012     |  | 10/27/2012    
|Hanover Holding                     |  | $ | 160,479   |  |                | $ | 0.10 |            |  | 19/10/2011    |  | 18/05/2012    
|Hanover Holding                     |  | $ | 65,821    |  |                | $ | 0.10 |            |  | 16/11/2011    |  | 16/02/2012    
|Beauvoir Capital Ltd                |  | $ | 110,899   |  |                | $ | 0.20 |            |  | 22/11/2011    |  | 31/03/2012    
|FireRock                            |  | $ | 28,784    |  |                | $ | 0.25 |            |  | 12/12/2011    |  | 12/06/2012    
|Aegis – Tripod                      |  | $ | 35,504    |  |                | $ | 0.27 |            |  | 15/12/2011    |  | 30/06/2012    
|Aegis – CMS                         |  | $ | 35,503    |  |                | $ | 0.27 |            |  | 15/12/2011    |  | 30/06/2012    
|Aegis - Rachel                      |  | $ | 35,503    |  |                | $ | 0.27 |            |  | 15/12/2011    |  | 30/06/2012    
|Runway                              |  | $ | 200,682   |  |                | $ | 0.20 |            |  | 11/01/2012    |  | 30/09/2012    
|Tripod                              |  | $ | 52,729    |  |                | $ | 0.24 |            |  | 16/01/2012    |  | 30/06/2012    
|Isaac Loan                          |  | $ | 263,315   |  |                | $ | 0.03 |            |  | 20/01/2012    |  | 30/06/2012    
|Sendero                             |  | $ | 262,986   |  |                | $ | 0.20 |            |  | 24/01/2012    |  | 30/09/2012    
|Tripod - $150k                      |  | $ | 125,918   |  |                | $ | 0.24 |            |  | 01/02/2012    |  | 01/02/2013    
|Briskin $100k                       |  | $ | 104,866   |  |                | $ | 0.23 |            |  | 03/02/2012    |  | 03/02/2013    
|Hanover                             |  | $ | 420,053   |  |                | $ | 0.10 |            |  | 23/02/2012    |  | 23/08/2012    
|Briskin - $50k                      |  | $ | 52,500    |  |                | $ | 0.09 |            |  | 04/04/2012    |  | 10/10/2012    
|Briskin - $40k                      |  | $ | 41,667    |  |                | $ | 0.09 |            |  | 13/04/2012    |  | 22/10/2012    
|Briskin - $60k                      |  | $ | 62,500    |  |                | $ | 0.09 |            |  | 17/04/2012    |  | 22/10/2012    
|Briskin - $45k                      |  | $ | 46,350    |  |                | $ | 0.07 |            |  | 14/05/2012    |  | 22/10/2012    
|Firerock - $62,500                  |  | $ | 62,654    |  |                |   |      |            |  | 21/06/2012    |  | 21/12/2012    
|Agua Alta (Cold Fusion)             |  | $ | 100,163   |  |                |   | **** |            |  | 25/06/2012    |  | 25/06/2013    
|Beaufort                            |  | $ | 50,066    |  |                |   | **** |            |  | 26/06/2012    |  | 26/06/2013    
|                                    |  |   |           |  |                |   |      |            |  |               |  |               
|Beaufort - $100k (807 Esplanade)    |  | $ | 102,794   |  |                |   | **** |            |  | 06/04/2012    |  | 05/04/2013    
|Beaufort - $250k (807 Esplanade)    |  | $ | 256,411   |  |                |   | **** |            |  | 13/04/2012    |  | 12/04/2013    
|Old Capital - $250k (807 Esplanade) |  | $ | 252,466   |  |                |   | **** |            |  | 31/05/2012    |  | 30/05/2013    
|                                    |  | $ | 4,162,458 |  |                |   |      |            |  |               |  |               



F-26







|Mortgage and construction:                    |  |   |           |  |  |  |    |  
|--------------------------------------------- |  | - | --------- |  |  |  | -- | -
|Palm Finance - mortgage and construction loan |  | $ | 3,001,271 |  |  |  | 15 | %



*The Company does not agree with
$957,696 of interest charged by Palm on these two film loans and believes the dispute will be resolved once the loans are repaid.





The loan amounts at June 30, 2013 and 2012 include accrued interest
of approximately $4,227,000 and $2,940,000 respectively.



Palm Agreement



The Company entered into two senior
financing loan and security agreements with Palm to finance the production costs of The Pool Boys, Autopsy and Nine
Miles Down dated May 7, 2007 and December 17, 2007.   These loans are secured by the revenues to be collected
from these motion pictures.  The revenues so far collected have been insufficient to repay the majority of these loans,
primarily as result of management’s decision to delay the release of these films.



F-27







In
July, 2011 we entered into an amended financing agreement with Palm in to refinance the existing indebtedness secured by our production
and post-production facility in New Orleans, Louisiana under which Palm has acquired the existing credit facility of $3,700,000
plus accrued interest of our affiliate SAPLA for $1,000,000 of this amount plus a continent sum of $750,000 (contingent on receiptof at least $5,000,000 in cash proceeds from the tax credits to be earned by SAPLA)
and  advanced an additional $1,800,000 to complete renovation and construction of this facility. Palm’s advance
and interest at the rate of 15% per annum are due and payable within five years and are secured by the property at 807 Esplanade
Avenue in New Orleans and Louisiana film infrastructure and historical rehabilitation credits, as well as Federal historical rehabilitation
credits associated with the Property.   Under this arrangement the group guaranteed the debt on the post production
facility and Palm forgave a total of $4,458,624 of principal and interest on the two production loans as well as reduced the liability
on the New Orleans production facility by $1,950,000 in exchange for the group guaranteeing the production facility debt.   The
reduction in principal and interest has been recognized in the year ended June 30, 2012 as Other Income (restated). Palm’s
advance and interest at the rate of 15% per annum are due and payable within five years and are secured by the property at 807
Esplanade Avenue in New Orleans and Louisiana film infrastructure and historical rehabilitation credits, as well as Federal historical
rehabilitation credits associated with the Property and cross guaranteed the Company,  its affiliates and CEO,  Peter
Hoffman.



In June, 2012 as detailed in Note
7, the Esplanade debt was assumed by SAFELA in connection with a 30 year lease on the facility.  SAFELA was in turn
acquired by the Company.



Trafalgar



SAP Plc. Borrowed £1,000,000
($1,651,000 ) convertible debenture from Trafalgar Capital Special Investment Fund (“Trafalgar”) that came due on
June 30, 2009.We were unable to repay the debenture and as a result, we defaulted on a payment of £1,000,000 plus interest
to Trafalgar Capital Special Investment Fund in June 2009.



On September 2, 2009 the Group repaid
Trafalgar $1,000,000 as a partial payment against this loan, with the remaining balance subject to repayment in cash or convertible
to the shares of common stockof the Group at the conversion terms as agreed between Trafalgar and the Group. On June
22, 2010 an amended agreement was entered into with Trafalgar for an extension of the due date of the convertible debentures to
December 31, 2010, and the Group agreed to issue  971  shares of common stockto settle a portion
of the debt. Trafalgar agreed to reduce the loan amount from the proceeds it received from selling the shares of common stock.Subsequent to June 30, 2010, a further amended agreement was entered into with Trafalgar for an extension of the due date
of the convertible debentures to March 31, 2011, and the Group agreed to issue 1,214 shares of common stockto settle
a portion of the debt. Trafalgar agreed to reduce the loan amount from the proceeds it received from selling the 1,214 shares
of common stock.There have been no subsequent extensions and the loan remains past due. Interest is being accrued
accordingly.



Tonaquint



On
August 22, 2012, the Company entered into a purchase agreement for several convertible debentures (or “notes”) with
Tonaquint, Inc.  (“Tonaquint”), in the principal amounts of $310,000, $255,000 and $125,000,   The
first convertible debenture under the agreement was issued on August 22, 2012 for $310,000, less a discount of $60,000 and $10,000
in expenses.  On October 5, 2012, due to a delisting default, an amendment was entered into which called for one of the 
additional convertible debentures to be issued in the principle amount of $155,000 (less a $25,000 discount and $5,000 in fees)
and the second in the principal amount of $125,000, to be issued in the future.   The debt discounts have been immediately
expensed, based upon the short term nature of the notes, and the insignificance of the amount as compared to the total Convertible
Debenture amount and to interest expense over the term of the note.



F-28







The
convertible debentures are convertible at $0.20, which is above the market value of the Company’s common stock on issuance
date, so there is no beneficial element recognized.  As a condition of the amendment the outstanding balance of the first
note was increased to $412,990 (to be reduced by $50,000 if the note is paid on its maturity date).  The notes are payable
on certain instalment dates, to be satisfied by conversion of the instalment amount, or cash, at the option of the Company (provided
no equity failure conditions, as defined in the agreement, exist, in which cash the instalment payment must be in cash.) 
As part of the amendment, Tonaquint entered into a Pledge Agreement with Peter Hoffman, for 140,000 post split/7,000,000
pre split shares of the Company’s common stock as collateral against repayment of the note.  In the event of a default
on the notes the holder may transfer and sell the pledged shares and apply the proceeds against the outstanding amounts on the
notes. (Note 3)



Convertible Debentures



The Company has evaluated the convertible
notes for embedded derivative features and has determined that no derivative liability exists.



Convertible debts are all convertible
to common stock on maturity at the option of the lender. They all bear interest at varying rates and convert at different times
and at fixed or variable conversion prices according to the contract.



Substantially
all of the convertible debentures issued in the year ended June 30, 2013 were in exchange for existing loans or other debt of
the Company, under assignment agreements between the original noteholder and the new noteholder.  The exchanges were
evaluated for any gains or losses to be recognized upon extinguishment of the original debt, and it was determined there were
no gains or losses to be recognized.



The
Company has evaluated their convertible notes for embedded derivative features and has determined that no derivative liability
is necessary to recognize, as the varying conversion price is based on the trading value of the Company’s stock, which is
considered indexed to one’s own stock, and therefore is fixed, . Convertible debts are all convertible to common stock
at the option of the holder. They all bear interest at varying rates and convert at different times and conversion  prices
according to the contract.  The conversion features were evaluated for any beneficial aspect and determined that no
beneficial conversion feature is necessary to recognize.



NOTE 10 – EQUITY TRANSACTIONS



Fourth
Quarter ended June 30, 2013:



Between April 1, 2013 and June 30,
2013 the Company issued 37,130,383 shares of the Company’s common stock upon conversion of $468,099 of notes payable, under
the original conversion terms of the convertible debentures.



The Company also issued 5,059,530
shares for services provided, with a fair value of $120,776, valued at the trading price of $XXX on the issuance date.



Third
Quarter ended March 31, 2013: (all figures quoted reflect the 1:50 reverse split on May 2, 2013)



Between
January 1, 2013 and March 31, 2013, the Company issued 3,552,522 common shares at an average price of $0.40 per
share.

| | 2,450,293 |  |  | common shares were issued in satisfaction of film and production debt
    totaling $844,707 converted at an average conversion price of $0.34 per share.                 
| | --------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 612,350   |  |  | common shares were issued in satisfaction of various expenses  totaling
    $173,075  converted at an average conversion price of $0.28 per share.                       
| | 145,588   |  |  | common shares of S-8 common stock were issued for consulting services totaling
    $134,994 at $0.93 per share                                                           
| | 20,000    |  |  | common shares were issued at $0.25 per share upon conversion of $5,000 in partial
    settlement of a music contract                                                     
| | 324,292   |  |  | shares were issued as collateral in settlement of an outstanding
    judgment  related to Nine Miles Down UK Ltd at $0.85 per share in satisfaction of a debt of $275,246
| | 3,552,522 |  |  | Total shares issued in the quarter                                                                                                                                       



F-29







The
shares issued as collateral arose out of a suit brought against Nine Miles Down UK Ltd, the original entity under which the film
9 Miles Down was being produced, as well as Seven Arts, among others.  The suit put the entity into liquidation, and
rather than delay the production of the film, or harm the chain of title on the film, Seven Arts determined to settle the case.  As
part of the settlement the Company is to pay £25,000 over a specified period of time, with restricted shares equal to the
amount issued as collateral.  Additionally the settlement called for £150,000 restricted shares to be issued as
collateral against the liquidation proceeds in favour of the creditors.  The restricted shares shall be released to
cover any shortfall not realized upon liquidation.  As the Company has determined that it is unlikely for the liquidation
to realize significant proceeds, it is considered to be probable that the shares will be released to cover the shortfall.  Therefore,
as of March 31, 2013, the Company has recognized the fair value of the shares held as collateral, or $275,246, as well as the
shares already released, as film costs.



Second
Quarter Ended December 31, 2012:



Between
October 1, 2012 and December 31, 2012, the Company issued 506,797 common shares at an average price of $5.73  per
share.



| | 153,777 |  |  | common shares were issued in satisfaction of
    film debt totalling $403,809, with an average conversion price of $2.63 per share.                                                                                                                                                                                 
| | ------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 140,000 |  |  | common shares were issued to Peter Hoffman, based on a
    market share price of $8.50 per share in exchange for debt of $1,190,000.  As the shares will be in substance repurchased
    and the debt reinstated at a point in the future, the shares were accounted for as if issued for no consideration (Note 3).
| | 69,091  |  |  | common shares were issued at $14.50 per share upon
    conversion of 38,000 Series B preferred shares                                                                                                                                                                                                               
| | 60,564  |  |  | common shares were issued in satisfaction of various convertible
    loans totalling $133,537  at an average conversion price of $2.20 per share.                                                                                                                                                                   
| | 35,456  |  |  | common shares were issued at $1.20 per share in satisfaction
    of $42,723 of 807 Esplanade loans                                                                                                                                                                                                                  
| | 34,075  |  |  | common shares were issued at $0.92 per share in satisfaction
    of $31,232 of expenses                                                                                                                                                                                                                             
| | 7,833   |  |  | S-8 common shares were issued for consulting services totalling
    $82,500 at $10.53 per share                                                                                                                                                                                                                     
| | 6,000   |  |  | common shares were issued to David
    Furth, a director,  at a price of $3.00 per share                                                                                                                                                                                                                            
| | 506,796 |  |  | Total shares issued in the quarter                                                                                                                                                                                                                                                                                  



Warrants
and Options



On
December 17, 2012, the Company declared a warrant dividend to those persons beneficially owning its common stock as of the close
of the markets on August 31, 2012. For every ten pre-reverse split shares of common stock held as of such date and time, the holders
thereof will be entitled to receive one warrant as a dividend, exercisable at $1.50 per post-reverse split share (a “Warrant
Share”), which expire on June 30, 2014. The warrants fair value was determined using the Black Scholes Merton Model.  The
fair value of $480,371 has been recognized on the accompanying financial statement in Accumulated Deficit and Warrant Dividend
to be distributed.



First
Quarter Ended September 30, 2012:



On
August 31, 2011, NASDAQ approved the substitution of one share of SAE stock for the Company's NASDAQ listing, effective at the
opening of trading on September 1, 2011. On that date, each of the Company's ordinary shares were exchanged for one share of common
stock of SAE, and commenced trading on NASDAQ as the successor to the Company's NASDAQ listing. This transaction was approved
by the Company’s shareholders at the Company’s Extraordinary General Meeting on June 11, 2010.



F-30







During
the three months ended September 30, 2012, Company issued 48,534 shares at an average price of $56.58 per share
in satisfaction of $2,446,219 of outstanding loans payable and accrued interest and 171 shares for $300,000 cash.



| | 5,161  |  |  | common shares were issued in partial payment
    of the Palm debt to the value of $133,500 at an average conversion price of  $25.87 per share.           
| | ------ |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | 21,161 |  |  | common shares were issued in satisfaction of the Schism
    debt of $646,374 at an  average conversion price of $30.55 per share                          
| | 9,654  |  |  | common shares were issued in satisfaction of various convertible
    loans totaling $586,114 converted at an average conversion price of $60.71 per share.
| | 1,814  |  |  | common shares were issued for expenses totalling $179,800
    for the music company  at $99.12 per share                                                  
| | 894    |  |  | S-8 common shares were issued for consulting services totalling
    $54,200 at $60.63 per share                                                           
| | 4,883  |  |  | common shares were issued for general expenses totalling
    $357,232 provided under the 3a9 authority  at  $73.16 per share.                             
| | 1,514  |  |  | common shares were issued to lenders as fees for loan arrangements
    of $159,000 at $105.02 per share                                                   
| | 1,714  |  |  | common shares were issued as collateral for a loan totalling
    $180,000 at $105.02 per share                                                            
| | 171    |  |  | common shares were issued for $300,000 cash at $1,754.39
    per share                                                                                    
| | 1,612  |  |  | common shares were issued to cover 807 Esplanade construction
    fees totalling $150,000 at $93.05 per share                                             
| | -44    |  |  | adjustment for reverse split shares                                                                                                                       
| | 48,534 |  |  | Total shares issued in the quarter                                                                                                                        



Fourth Quarter Ended June 30,
2012:



Between April 1, 2012 and  June
30, 2012,  the Company issued  1,140,343 shares at an average price of $4.81 per share.  The total number
of shares outstanding on June 30, 2012 was 1,739,900



| | 111,143   |  |  | common shares were issued in part payment  of
    the Palm debt to the value of $430,000 at an average conversion price of  $3.87/share .       
| | --------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------
| | 174,240   |  |  | common shares were issued in satisfaction of the Blue Rider
    debt of $980,000 at an  average conversion price of $5.62/share                 
| | 160,556   |  |  | common shares were issued in satisfaction of the Cold Fusion
    debt of $725,000 was converted at an  average conversion price of $4.52/ share.
| | 40,118    |  |  | common
    shares were issued against the Pool Boystax credit loan of $100,000  at an average conversion price of $2.49/share.                  
| | 16,071    |  |  | common shares were issued for cash, for the music company  at
    $6.22/share                                                                   
| | 69,908    |  |  | common shares were issued for consulting services totalling
    $513,321 provided under the S-8 authority at $7.34/share                        
| | 156,158   |  |  | common shares were issued as general loans totalling $494,152
    at $3.16/share                                                                
| | 357,143   |  |  | common shares were issued to Peter Hoffman in satisfaction
    of a debt of $877,824 at $2.46/share                                             
| | 55,006    |  |  | common shares were issued to cover
    807 Esplanade construction fees totalling $200,000 at $3.64/share                                        
| | 1,140,343 |  |  |                                                                                                                                                 



F-31







Third Quarter Ended March 31,
2012:



Between January 1, 2012 and March
31, 2012, the Company issued  276,411  shares at an average price of $13.30 per share.



| | 96,425  |  |  | common shares were issued in satisfaction of
    the $943,580 of newly converted  film debt at an average conversion price of  approximately $9.80/share
    .                                                           
| | ------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 65,237  |  |  | common shares were issued in satisfaction of $929,596 of
    overhead at an  average conversion price of $14.00/share                                                                                                    
| | 49,889  |  |  | common shares were issued on the conversion of old  notes
    including the final conversion of  the Runway convertible notes, total debt of  $516,568 was converted
    at an average conversion price of $10.50/ share.
| | 43,928  |  |  | common shares were issued in satisfaction of $698,736 of  film
    loans previously converted  at an average conversion price of $16.10/share.                                                                           
| | 17,143  |  |  | common shares were issued as restricted stock for cash,
    to Blue Rider at $0.50/share                                                                                                                                 
| | 3,789   |  |  | common restricted shares were issued
    for consulting services provided under the S-8 authority at $19.60/share                                                                                                        
| | 276,411 |  |  |                                                                                                                                                                                                                          



Second Quarter Ended December
31, 2011:



Between October 1, 2011 and December
31, 2011 the Company issued  163,868  shares:



| | 66,272  |  |  | common shares were issued in satisfaction of
    the $612,336 of convertible debt shares at an average conversion price of  $9.10/share .                                
| | ------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 40,734  |  |  | common shares were issued on the conversion of the Agua
    Alta, Sendero and Isaac convertible notes totalling $427,706 at an average conversion price of $10.50/ share.
| | 49,863  |  |  | common shares were issued in satisfaction of $906,000 of
    corporate loans at an average conversion price of $18.20/share.                                             
| | 5,714   |  |  | common shares were issued as restricted stock for cash,
    $250,000 to Fletcher and $150,000 to Goldstrand at $70.00/share                                              
| | 1,071   |  |  | common restricted shares were issued for investor relations
    services at $25.20/share                                                                                 
| | 214     |  |  | common restricted shares were issued
    to a director in lieu of compensation at $35.00/share                                                                           
| | 163,868 |  |  |                                                                                                                                                                          



First Quarter Ended September
30, 2011:



During the three months ending September
30, 2011, Company issued  92,805  shares in satisfaction of $3,188,028 of outstanding loans payable and accrued
interest, consisting of $225,000 of convertible notes payable and $2,963,028 of film and production loans. The conversions were
done at contractual share prices ranging from $.20 to $2.00 per share (pre-reverse split, equal to $14.00 to $140.00 post-split).



In July 2011, the Company also issued
143 shares for investor relations services valued at approximately $10,000.



As of September 30, 2011, $1,986,722
of stock was fully paid but still to be issued, consisting of $1,251,250 of Series A preferred stock and $735,472 of debt that
was being converted to equity.



F-32







Warrants and Options:



| | · | During
                                                                                                                                 the
                                                                                                                                 year
                                                                                                                                 ended
                                                                                                                                 June
                                                                                                                                 30,
                                                                                                                                 2012,
                                                                                                                                 the
                                                                                                                                 Company
                                                                                                                                 issued
                                                                                                                                 1,429
                                                                                                                                 options
                                                                                                                                 to
                                                                                                                                 the
                                                                                                                                 seven
                                                                                                                                 members
                                                                                                                                 of
                                                                                                                                 the
                                                                                                                                 board
                                                                                                                                 of
                                                                                                                                 directors.   These
                                                                                                                                 options
                                                                                                                                 have
                                                                                                                                 a
                                                                                                                                 five
                                                                                                                                 year
                                                                                                                                 term
                                                                                                                                 and
                                                                                                                                 a
                                                                                                                                 strike
                                                                                                                                 price
                                                                                                                                 equal
                                                                                                                                 to
                                                                                                                                 the
                                                                                                                                 closing
                                                                                                                                 price
                                                                                                                                 of
                                                                                                                                 the
                                                                                                                                 Company’s
                                                                                                                                 stock
                                                                                                                                 at
                                                                                                                                 the
                                                                                                                                 date
                                                                                                                                 of
                                                                                                                                 issue.   Each
                                                                                                                                 director
                                                                                                                                 was
                                                                                                                                 issued
                                                                                                                                 5,714
                                                                                                                                 options
                                                                                                                                 with
                                                                                                                                 a
                                                                                                                                 strike
                                                                                                                                 price
                                                                                                                                 of
                                                                                                                                 $30.80
                                                                                                                                 on
                                                                                                                                 October
                                                                                                                                 14,
                                                                                                                                 2011
                                                                                                                                 and
                                                                                                                                 714
                                                                                                                                 options
                                                                                                                                 with
                                                                                                                                 a
                                                                                                                                 strike
                                                                                                                                 price
                                                                                                                                 of
                                                                                                                                 $27.30
                                                                                                                                 on
                                                                                                                                 December
                                                                                                                                 6,
                                                                                                                                 2011.     Half
                                                                                                                                 of
                                                                                                                                 the
                                                                                                                                 options
                                                                                                                                 vested
                                                                                                                                 on
                                                                                                                                 December
                                                                                                                                 31,
                                                                                                                                 2011
                                                                                                                                 and
                                                                                                                                 the
                                                                                                                                 remaining
                                                                                                                                 half
                                                                                                                                 vested
                                                                                                                                 on
                                                                                                                                 December
                                                                                                                                 31,
                                                                                                                                 2012.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | During
                                                                                                                                 the
                                                                                                                                 quarter
                                                                                                                                 ended
                                                                                                                                 June
                                                                                                                                 30,
                                                                                                                                 2012,
                                                                                                                                 the
                                                                                                                                 Company
                                                                                                                                 issued
                                                                                                                                 28,571
                                                                                                                                 options
                                                                                                                                 to
                                                                                                                                 David
                                                                                                                                 Michery
                                                                                                                                 in
                                                                                                                                 conjunction
                                                                                                                                 with
                                                                                                                                 his
                                                                                                                                 employment
                                                                                                                                 agreement
                                                                                                                                 with
                                                                                                                                 the
                                                                                                                                 Company.   These
                                                                                                                                 options
                                                                                                                                 have
                                                                                                                                 a
                                                                                                                                 strike
                                                                                                                                 price
                                                                                                                                 of
                                                                                                                                 $12.60  and
                                                                                                                                 vest
                                                                                                                                 and
                                                                                                                                 shall
                                                                                                                                 be
                                                                                                                                 exercisable
                                                                                                                                 in
                                                                                                                                 equal
                                                                                                                                 monthly
                                                                                                                                 instalments
                                                                                                                                 over
                                                                                                                                 the
                                                                                                                                 term
                                                                                                                                 of
                                                                                                                                 his
                                                                                                                                 employment
                                                                                                                                 agreement,
                                                                                                                                 which
                                                                                                                                 is
                                                                                                                                 February
                                                                                                                                 22,
                                                                                                                                 2012
                                                                                                                                 through
                                                                                                                                 December
                                                                                                                                 31,
                                                                                                                                 2016 .
                                                                                                                                 The
                                                                                                                                 Company
                                                                                                                                 measures compensation
                                                                                                                                 expense
                                                                                                                                 related
                                                                                                                                 to
                                                                                                                                 stock
                                                                                                                                 options
                                                                                                                                 with
                                                                                                                                 the
                                                                                                                                 Black
                                                                                                                                 Scholes
                                                                                                                                 option
                                                                                                                                 pricing
                                                                                                                                 model,
                                                                                                                                 and
                                                                                                                                 recognizes
                                                                                                                                 expense
                                                                                                                                 over
                                                                                                                                 the
                                                                                                                                 vesting
                                                                                                                                 period.
                                                                                                                                 The
                                                                                                                                 employment
                                                                                                                                 agreement
                                                                                                                                 was
                                                                                                                                 terminated
                                                                                                                                 as
                                                                                                                                 part
                                                                                                                                 of
                                                                                                                                 the
                                                                                                                                 settlement
                                                                                                                                 agreement
                                                                                                                                 with
                                                                                                                                 Mr.
                                                                                                                                 Michery.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | During
the quarter ended June 30, 2012, the Company has agreed to issue 714 options per year to Jake Shapiro in conjunction with his
employment agreement with the Company.   These options have a strike price equal to the closing price of the Company’s
stock at the date of issue, with the exception of the first year, which the strike price was set at $55.30  per share.    The
Company measures compensation expense related to stock options with the Black Scholes option pricing model, and recognizes
expense over the vesting period. The employment agreement was terminated as part of the settlement agreement in May 29, 2013,
with Big Jake Music.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On
                                                                                                                                 June
                                                                                                                                 29,
                                                                                                                                 2012,
                                                                                                                                 119,048  warrants
                                                                                                                                 were
                                                                                                                                 issued
                                                                                                                                 to
                                                                                                                                 JMJ
                                                                                                                                 Financial.
                                                                                                                                 These
                                                                                                                                 options
                                                                                                                                 have
                                                                                                                                 a
                                                                                                                                 strike
                                                                                                                                 price
                                                                                                                                 of
                                                                                                                                 $2.10
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



No warrants or options have been exercised through June 30,
2013.



Convertible Preferred Stock



| | · | 125,125
                                                                                                                                 shares
                                                                                                                                 of
                                                                                                                                 Series
                                                                                                                                 A
                                                                                                                                 Cumulative
                                                                                                                                 Convertible
                                                                                                                                 $10.00
                                                                                                                                 Preferred
                                                                                                                                 Stock
                                                                                                                                 with
                                                                                                                                 a
                                                                                                                                 dividend
                                                                                                                                 rate
                                                                                                                                 of
                                                                                                                                 8%
                                                                                                                                 (payable
                                                                                                                                 quarterly)
                                                                                                                                 were
                                                                                                                                 issued
                                                                                                                                 in
                                                                                                                                 November
                                                                                                                                 2011.
                                                                                                                                 The
                                                                                                                                 conversion
                                                                                                                                 price
                                                                                                                                 into
                                                                                                                                 common
                                                                                                                                 stock
                                                                                                                                 of
                                                                                                                                 the
                                                                                                                                 Company
                                                                                                                                 is
                                                                                                                                 $10.50/share.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 180,000
                                                                                                                                 Series
                                                                                                                                 B
                                                                                                                                 convertible
                                                                                                                                 preferred
                                                                                                                                 stock,
                                                                                                                                 $100.00
                                                                                                                                 par
                                                                                                                                 value,
                                                                                                                                 were
                                                                                                                                 issued
                                                                                                                                 to
                                                                                                                                 acquire
                                                                                                                                 music
                                                                                                                                 assets
                                                                                                                                 for
                                                                                                                                 the
                                                                                                                                 Company
                                                                                                                                 (Note
                                                                                                                                 XX).
                                                                                                                                 120,000
                                                                                                                                 of
                                                                                                                                 these
                                                                                                                                 shares
                                                                                                                                 were
                                                                                                                                 in
                                                                                                                                 escrow
                                                                                                                                 and
                                                                                                                                 shown
                                                                                                                                 on
                                                                                                                                 the
                                                                                                                                 balance
                                                                                                                                 sheet
                                                                                                                                 as
                                                                                                                                 a
                                                                                                                                 reduction
                                                                                                                                 in
                                                                                                                                 equity
                                                                                                                                 as
                                                                                                                                 of
                                                                                                                                 June
                                                                                                                                 30,
                                                                                                                                 2012.  The
                                                                                                                                 per-share
                                                                                                                                 conversion
                                                                                                                                 price
                                                                                                                                 for
                                                                                                                                 the
                                                                                                                                 Series
                                                                                                                                 B
                                                                                                                                 Preferred
                                                                                                                                 Stock
                                                                                                                                 is
                                                                                                                                 $1.10.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





The Preferred Shares include
piggyback registration rights. There are no damages or penalties for failure to file or maintain a registration statement.



During the year ended
June 30, 2013 38,000 of the Series B convertible preferred shares were converted into common shares and 100,000 shares were cancelled
in connection with settlement agreements.



F-33







NOTE
11 – NON-CONTROLLING INTEREST



The
Company’s subsidiary SAFELA is owned 60 % by the Company and 40% by another party. Accordingly, the subsidiary is included
in the consolidated financial position and results of operations of the Company, with recognition of the non-controlling interest
separately in the Statement of Operations and from the equity of the Company’s shareholders on the balance sheet.



The
activity of the non-controlling interest as of June 30, 2013 is as follows:



|Initial balance recognized at July 1, 2012                                                      |  | $ | -       | 
|----------------------------------------------------------------------------------------------- |  | - | ------- | 
|Non-controlling interest's proportionate share
    of Net loss for the year ended June 30, 2013 |  |   | 353,530 | 
|                                                                                                |  |   |         | 
|Non-controlling interest at June 30, 2013                                                       |  | $ | 353,530 | 



NOTE 12 – COMMITMENTS
AND CONTINGENCIES



Creditors
Liquidation of SAP Plc.



The Company’s listing predecessor
Seven Arts Pictures Plc. (‘PLC’) was placed by the English Companies Court into compulsory liquidation on November
8, 2011. The Company’s CEO, Mr. Peter Hoffman, as a director of PLC had sought an administration order but this request
was denied by the Courts as a result of inter alia the opposition of Parallel Pictures LLC (‘Parallel’). PLC’s
principal creditors have appointed a liquidator for the orderly winding up of its remaining assets not transferred to the Company
pursuant to the Asset Transfer Agreement, effective January 27, 2011.



Based on discussions with the liquidator,
our management believes this liquidation proceeding will have no material effect on the cost, business or market value of common
stock.



Further
Share Issue to SAE Inc.



On
June 11, 2010, Seven Arts Entertainment, Inc. (“SAE”), a Nevada Corporation, was formed and became a 100% owned subsidiary
of Seven Arts Pictures Plc. As of June 11, 2010, the Company entered into an Asset Transfer Agreement, as amended on January 27, 2011
and again on August 31, 2011, to transfer all of the assets with a cost basis from PLC to SAE, in exchange for assumption by SAE
of certain indebtedness and for one share of common stock of SAE for each ordinary share of PLC which have been distributed to
shareholders. Additionally, 2,000,000 shares of SAE were issued to PLC in order to satisfy any remaining obligations.  SAE
Inc. may issue more shares of its common stock to resolve any claim made on the liquidation of PLC. The 2,000,000 pre-split shares
were originally booked on January 27, 2012 at the market price on the day the SEC approved the transaction i.e. $3.94/share. Management
now believe the shares should be booked at the August 31, 2012 market price of $0.66/share which is the date from which the shares
in SAE were tradeable.



807
Esplanade Guarantee



Seven Arts Pictures Louisiana LLC,
a related party and/or an affiliate of the Company, entered into a Credit Agreement with Advantage Capital Community Development
Fund LLC dated October 11, 2007,  for the acquisition and improvement of the  production and post-production
facility located at 807 Esplanade Avenue in New Orleans, Louisiana (“807 Esplanade”)  for aggregate principal
advances of up to $3,700,000. This agreement was guaranteed by the Company’s predecessor. Approximately $3,700,000
plus interest has been drawn under the terms of this Credit Agreement, as of  June 30, 2012. The Company has now assumed
the liability for $1,000,000 of this amount due to an agreement with the now mortgagor Palm Finance. A construction loan
of $1,850,000 previously guaranteed by the Company has now been assumed by the Company. The Company has a  30 year lease
on the property to operate a production and post-production facility.



F-34







As part of the assumption of the
mortgage and construction loans regarding 807 Esplanade, the Company has agreed to pay an additional $750,000 in connection with
the loan, contingent on the receipt of at least $5,000,000 in cash proceeds from the tax credits earned by SAPLA. As the Company
has determined it is not probable at this point that the $5,000,000 will be achieved, they have not recognized the $750,000 in
the accompanying financial statements.



Armadillo



The Company has guaranteed a $1,000,000
note plus interest due to Armadillo by the Employee Benefit Trust of the Company’s listing predecessor resulting from the
purchase of Seven Arts preferred stock from Armadillo.



Fireworks Litigation





The
Company obtained summary judgment on February 10, 2011 in an action in Ontario Superior Court, Canada, against CanWest Entertainment
and two of its affiliates (“CanWest”) confirming the Company’s ownership of five motion pictures Rules of
Engagement, An American Rhapsody, Who Is Cletis Tout, Onegin, and The Believer, (the “Copyrights”).
CineVisions v. Fireworks International,No. 03-CV-247553 CM2. The Company has filed on September 7, 2011, an action in the
High Court of England and Wales on September 7, 2011 against Content Media Corporation (“Content”) and Paramount Picture
Corp. (“Paramount”) to recover the Copyrights and substantial damages for the use of the copyrighted works after their
purported acquisition from CanWest. Seven Arts Filmed Entertainment v. Content Media Corp.No. HC11CO3046. The Company may
incur up to $200,000 in legal expenses to pursue this claim but expects to recover those fees from Content. The Company’s
motion for summary judgment against Content in the United Kingdom was denied demurred on March 18, 2013, but the dismissal did
not consider the merits of the Company’s claims, only that Content was not bound by the Canadian judgment. The Company has
also filed on May 27, 2011 an action in United States District Court in Los Angeles, California against Paramount Pictures for
infringement of the Copyrights. Seven Arts Filmed Entertainment v. Paramount Pictures Corp. No. CV 11-04603.This action
was dismissed on October 3, 2012 by the District Court based on a claimed application of the statute of limitation and we have
appealed to the Ninth Circuit No, 11-56759, the argument on which was heard on August 28, 2013.



Jonesfilm



Seven
Arts Pictures plc (“PLC”), the Company’s listing predecessor, its then-subsidiary Seven Arts Filmed Entertainment
Limited (“SAFE”) and Seven Arts Pictures Inc. (“SAP”), were the subject of an arbitration award of attorney
fees totaling approximately $ 246,000, with interest and charges, both of which were reduced to judgment in favor of Jonesfilm
(“JF ”) in a judgment dated June 19, 2007 entered by United States District Court in Los Angeles, California (“Judgment”). 
This amount is included in Accrued Liabilities on the accompanying financial statements.    JF asserts that the
Company is liable as the “successor in interest” to PLC, which the Company denies.   JF has sought to enforce
the Judgment against SAFE, Mr. Hoffman and SAP in proceedings filed on July 28, 2009 in United States District Court in New Orleans,
Louisiana, in Case Nos. 09-4814/4815.  Thereafter, Jonesfilm filed claims purportedly against the separate property
of Mr. Hoffman’s wife in Case Nos. 11-1994 and 12-0535.  Mrs. Hoffman filed action against Jonesfilm to seek relief
(from Jonesfilm’s actions against her and her separate property).  All proceedings are still pending.  
Mr. Hoffman and SAFE have appealed to the Fifth Circuit (No. 11-311 24) an order of garnishment against Leeway and penalties and
legal fees awarded in connection with that order of garnishment, which appeal was denied.  The Company does not believe it
owes any amounts over the amount already accrued above.



F-35







Arrowhead Target Fund



Seven Arts Future Flow I (“SFF”),
a limited liability company owned by SAP Inc., a company previously controlled by Mr. Hoffman, obtained financing from the Arrowhead
Target Fund, Ltd. (“Arrowhead”) of approximately $8,300,000 (the “Arrowhead Loan”).  SFF secured
the Arrowhead Loan with liens on 12 motion pictures. The Company’s only liability is to repay the Arrowhead Loan from the
proceeds of the film assets pledged against the Arrowhead Loan. The Company is not required to repay the Arrowhead Loan from any
of its other assets or revenues. SAE’s subsidiary, SAFE, Ltd. was the collateral agent of the film assets.



The Arrowhead Loan became due in
February 2009 and SFF has not paid the outstanding principle and interest due thereon. Arrowhead has the right to foreclose on
the pledged film assets, but has not done so at the present time. SFF has received a default notice to this effect and as a result
Arrowhead is now collecting directly all sums receivable by the Company with respect to these motion pictures, and has appointed
a new servicing agent for these motion pictures with the result that the Company no longer controls the licensing of these motion
pictures. Failure to repay or refinance the Arrowhead Loan could result in a material disposition of assets through the loss of
the Company’s rights to the twelve motion pictures and related loss of revenues in amounts that are difficult to predict.



Arrowhead filed an action on September
22, 2010 in New York Supreme Court, New York, New York, Arrowhead Target Fund v. HoffmanNo. 657481/2010, which seeks recovery
from the Company of the monies which the Company has retained under its interpretation of the relevant agreements with Arrowhead.
In addition, Arrowhead makes substantial additional claims against the Company, Mr. Hoffman and SAP Inc. regarding claimed breaches
of the terms of the operative agreements, including failure to properly account, failure to turn over materials, failure to remit
monies collected, and similar matters. The claims against the Company for these breaches of warranties for damages are $8,300,000
although Arrowhead states no basis for this amount.



The Company had moved to dismiss
the action against all defendants other than Seven Arts Future Flows I LLC, which is not part of the Company. On August 9, 2011,
the New York Supreme Court granted the Company’s motion and dismissed all defendants except Seven Arts Filmed Entertainment
Limited in its capacity as a collateral agent, which is not a material element of Arrowhead claim. The Company continues to believe
that Arrowhead’s claims against the Company are without substantial merit.



Arrowhead has purported to amend its claim against the Company
and the other defendants. The Company has moved for dismissal of these claims on the same grounds. A former counsel for SAFE and
Mr. Hoffman failed to appear at a hearing and the Court orally entered default against SAFE and Mr. Hoffman on October 7, 2013,
both of whom will move to vacate the order for the motion to dismiss based on lack of personal jurisdiction on the merits The
Company continues to believe that Arrowhead’s claims against the Company are without substantial merit and will vigorously
defend. The Company has accrued $744,000 as a loss contingency on this matter.





Arrowhead has purported to amend
its claim against the Company and the other defendants. The Company will seek dismissal of these claims on the same grounds. As
of June 30, 2013, and through the date of this filing, there have been no further development.  The Company continues to
believe that Arrowhead’s claims against the Company are without substantial merit and will vigorously defend.  The
Company has accrued $744,000 as a loss contingency on this matter.



F-36







Arrowhead Capital Partners –
ACG Loan



PLC, SAP and SAFE,
and several special purpose companies formed by SAP were named as defendants in an action by Arrowhead Capital Partners Ltd filed
in the Supreme Court of New York County of New York State served on May 24, 2010, seeking to collect $1,000,000 plus interest
(the “ACG Loan”) due to Arrowhead Consulting Group LLC (“ACG”) as well as foreclosure on the collateral
granted as part of the Cheyne Loan described above in Note 13 under “Production Loans”. Arrowhead Capital Finance
v. Seven Arts Pictures, No. 601199/10.  The ACG Loan is fully subordinated to repayment of the Cheyne Loan, which has
not been repaid, and a subsidiary of the Company has been assigned all Cheyne’s rights under the subordination provision
of the Cheyne Loan.   ACG and the Company filed our motion for summary judgment which resulted in summary judgment in
favor of ACG against SAFE, SAP and the special purpose companies.  That summary judgment is on appeal to the New York
Court of Appeals.  As of June 30, 2013, and the date of this filing, there has been no decision in the appeal.
The Company plans to vigorously defend this matter and cannot yet determine the probability
of the outcome.  The Company has not accrued a loss contingency on this matter and it is not a defendant in this action. 
Any claim against SAFE will be subject to the customary liquidation proceedings of SAFE under the law of the United Kingdom.



Investigation into Claim for
Tax Credits (SAPLA)/ Possible Litigation Re: Tax Credits



The US Attorney in New Orleans is
investigating claims for Louisiana film infrastructure tax credits including such tax credits to be claimed by Seven Arts
Pictures Louisiana LLC (“SAPLA”) and has issued subpoenas for discovery of documents in the possession of the Company
related to these tax credits.  The Company has complied with that subpoena on March 15, 2012.



This investigation appears to include
investigation as to whether certain expenses claimed by this affiliate were improper or fraudulent. All such claimed expenses
were audited by independent auditors in Louisiana and reviewed by counsel. Management believes that this investigation will have
no material adverse effect on the Company’s operations or the total tax credits to be received by the Company’s affiliates,
but could result in charges against current or former employees of this affiliate based on prior audits, including Mr. Hoffman.



SAPLA, controlled by Mr. Hoffman’s
wife, filed legal action in the 19th District Court in Baton Rouge, Louisiana in August, 2013 to require the Louisiana
Department of Economic Development and State Historic Preservation Office to certify the tax credits due SAPL A, the proceeds
of which have been assigned to the Company.



Parallel Action



On June 28, 2011, Seven Arts Pictures
Plc. (“PLC”) filed an action in the High Court of England against Parallel Media LLC (“Parallel”) to collect
sums due to PLC with respect to acquisition of distribution rights in Russia to four motion pictures and to confirm Parallel’s
obligations under both a signed and unsigned investment agreement with respect to the motion picture project Winter Queen. On
the same day Parallel filed a petition to wind up and liquidate PLC in the Companies Courts of England based on its claim of repayment
of $1,000,000 of investment made by Parallel in Winter Queen. PLC is no longer part of the Company.



F-37









On September 19, 2011, Parallel filed a
new action against PLC and SAE in the Superior Court of California in Los Angeles, asserting the same claims as in the winding
up petition and seeking to enjoin the proposed administration proceedings in England. Parallel Media v. Seven Arts Entertainment,
No. SC114182. A request for a preliminary injunction was denied by the Superior Court.   Parallel was permitted to pursue
a claim in the Los Angeles Superior Court for alleging that the Asset Transfer Agreement dated July 1, 2011 between PLC and the
Company (“ATA”) was not for fair consideration.  Parallel’s motion for summary judgment has been denied.
The Company believes that a favorable decision by the liquidator as discussed above will resolve this action in the Company’s
favor. The Company has not accrued for a loss contingency in this matter. The potential loss to the Company could be between $million
and $1.75 million.



The liquidator has been advised in a letter
from its counsel dated October 10, 2013, that the Company may be obligated to reimburse the liquidator for additional shares of
the Company’s common stock by reason of the reduction in the value of the Company’s common stock issued to PLC pursuant
to the ATA, from July 1, 2010 to August 31, 2011. The Company had previously offered to the liquidator to make such an adjustment
in the consideration paid pursuant to the ATA. The Company intends to negotiate an amicable resolution of this issue with the liquidator
which counsel believes should resolve any claims by Parallel.



HMRC Investigation



On July 19, 2011 Officers of Her
Majesty’s Revenue & Customs (“HMRC”) attended the offices of Seven Arts Pictures Plc. (the “Company”)
in London. Documents were retained appertaining to arrangements involving the subscription for shares in a number of companies
which had lost value, resulting in subscribers making claims to tax relief.



The Company’s participation
in these transactions was limited to the Company’s predecessor’s transfer of rights to certain motion pictures to
the investors in return for their investments in the production and release costs of those pictures and making available the provision
of loans to fund a portion of those investments. The Company received no tax benefits from the transactions, which were made on
arms-length terms. The Company believes that it is not a subject of the HMRC investigation.



In connection with the transactions,
the Company did not make any representations or warranties to any party, including the investors, regarding any potential tax
benefits related to the transactions. Prior to the closing of the transactions the investors obtained and made available to the
Company, an opinion of prominent Queen’s counsel, specializing in United Kingdom tax laws, that the transactions were permitted
and acceptable under the terms of the applicable United Kingdom revenue laws. The Company remains confident that the transactions
were permitted and acceptable under the terms of the applicable United Kingdom revenue laws.



HMRC has requested interviews with
three officers of PLC to discuss whether those officers were involved in the arrangements for subscription of shares in the relevant
companies, the first of which with Ms. Elaine New, CFO, occurred in April 2012 and a second in May 2012. PLC is fully cooperating
with the investigation. PLC believes there is no basis for any claim of responsibility of any of its officers or employees. Based
on facts currently known by PLC, there is no need for it to record a contingent liability in its financial statements in connection
with the investigation or the related transactions.



F-38







Commitments:



Employment agreements



We
have an employment agreement with Peter Hoffman pursuant to which he will act as our CEO until December 31, 2018. He has taken
a leave of absence until December 31, 2013, and has waived his salary in that period. In connection with that employment agreement,
we have granted Mr. Hoffman:



| | • | the
                                                                                                                        right
                                                                                                                        to sole
                                                                                                                        responsibility
                                                                                                                        for creative
                                                                                                                        and business
                                                                                                                        decisions
                                                                                                                        regarding
                                                                                                                        motion
                                                                                                                        pictures
                                                                                                                        we develop
                                                                                                                        and produce,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a
                                                                                                                        right
                                                                                                                        of first
                                                                                                                        refusal
                                                                                                                        to produce
                                                                                                                        remakes,
                                                                                                                        sequels
                                                                                                                        or prequels
                                                                                                                        of motion
                                                                                                                        pictures
                                                                                                                        produced
                                                                                                                        by Mr.
                                                                                                                        Hoffman
                                                                                                                        and acquired
                                                                                                                        by us
                                                                                                                        or any
                                                                                                                        motion
                                                                                                                        picture
                                                                                                                        produced
                                                                                                                        by us
                                                                                                                        during
                                                                                                                        his employment,
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an
                                                                                                                        annual
                                                                                                                        salary
                                                                                                                        of $500,000
                                                                                                                        per year
                                                                                                                        plus bonuses,
                                                                                                                        expenses
                                                                                                                        and a
                                                                                                                        signing
                                                                                                                        option
                                                                                                                        and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a
                                                                                                                        right
                                                                                                                        upon termination
                                                                                                                        without
                                                                                                                        cause
                                                                                                                        to a lump
                                                                                                                        sum payment
                                                                                                                        of approximately
                                                                                                                        $1,500,000,
                                                                                                                        an assignment
                                                                                                                        of all
                                                                                                                        projects
                                                                                                                        in development
                                                                                                                        during
                                                                                                                        the term
                                                                                                                        of his
                                                                                                                        employment
                                                                                                                        and any
                                                                                                                        amounts
                                                                                                                        due upon
                                                                                                                        such compensation
                                                                                                                        as an
                                                                                                                        excise
                                                                                                                        tax.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have
an employment agreement with Kate Hoffman for a term ending on April 30, 2018, pursuant to which she will act as our COO at a
salary of £100,000 per year plus bonuses and expenses. Ms. Hoffman’s contract contains a ‘‘non-compete’’
clause pursuant to which she will be excluded from competing against us for 6 months following the date of her termination.



We have
a consultant agreement with Candace Wernick pursuant to which she will act as chief financial officer for compensation of $167,000
per year and expenses, as well as additional compensation for special projects. The contract automatically renews each July 15,
unless advance notice is given.



Appointment of
new Chairman and President



On April 2, 2013,
we appointed Vince Vellardita as President and Chairman of the Board of Directors., pursuant to a three-year employment agreement
dated April 1, 2013. Pursuant to the employment agreement, Mr. Vellardita will receive an annual salary of $200,000 payable on
a monthly basis and a bonus of 10% of any net income realized by the Company or its subsidiaries for the music and movie license
agreements to be entered into with him. Mr. Vellardita will also be entitled to reimbursement of all reasonable and customary
expenses and other benefits that are generally available to the Company’s employees. On August 29, 2013 Mr. Vallardita resigned
from the Company and $40,000 (to be satisfied in common stock of the Company) has been accrued in the accompanying financial statements
as settlement of his employment contract.



Leases – 807





The Company, through its subsidiary SAFELA, has a sublease on
the property at 807 Esplanade, New Orleans, Louisiana, which houses the post-production facility. The sublease is with 808 Espanade
Ave MT, LLC, and unrelated party, who leases the property through a master lease with SAPLA. The term of the lease is for 30 years,
terminating on December 31, 2024, with annual rent of $110,000.





Lease – West Hollywood



The Company has entered into a lease
for their West Hollywood office which commenced on January 1, 2011 and terminates on December 31, 2016, with a monthly base rent
of approximately $9,516. The Company has the option to extend the lease period for one five year period. The base rent shall increase
annually by the Consumer Price Index, but in no case to be less than 3% or greater than 6%.



On February 1, 2012, the Company
and landlord amended the lease to include additional space for a new total base rent of $15,138, and extended the lease term through
December 31, 2017. As of June 30, 2012 the Company has vacated the additional space, and the landlord has leased the space to
new tenants. The Company and management are negotiating a settlement on the termination of the lease, for which $75,000 has been
included in accrued expenses.



F-39







NOTE 13 – FAIR VALUE
MEASUREMENTS



Cash, accounts receivable, accounts
payable and other accrued expenses and other current assets and liabilities are carried at amounts which reasonably approximate
their fair values because of the relatively short maturity of those instruments.



ASC 820, “Fair Value Measurements
and Disclosures”, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described as follows:



Level 1 - Inputs to the
valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has
the ability to access.



Level 2 - Inputs to the
valuation methodology include:



| | · | quoted
                                                                                                                          prices
                                                                                                                          for
                                                                                                                          similar
                                                                                                                          assets
                                                                                                                          or liabilities
                                                                                                                          in active
                                                                                                                          markets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | quoted
                                                                                                                          prices
                                                                                                                          for
                                                                                                                          identical
                                                                                                                          or similar
                                                                                                                          assets
                                                                                                                          or liabilities
                                                                                                                          in inactive
                                                                                                                          markets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | inputs
                                                                                                                          other
                                                                                                                          than
                                                                                                                          quoted
                                                                                                                          prices
                                                                                                                          that
                                                                                                                          are
                                                                                                                          observable
                                                                                                                          for
                                                                                                                          the
                                                                                                                          asset
                                                                                                                          or liability;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | inputs
                                                                                                                          that
                                                                                                                          are
                                                                                                                          derived
                                                                                                                          principally
                                                                                                                          from
                                                                                                                          or corroborated
                                                                                                                          by observable
                                                                                                                          market
                                                                                                                          data by
                                                                                                                          correlation
                                                                                                                          or other
                                                                                                                          means.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If
the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term
of the asset or liability.



Level 3 - Inputs to the
valuation methodology are unobservable and significant to the fair value measurement.



F-40







The asset or liability’s fair
value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair
value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable
inputs.



The preceding method described may
produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore,
although the Company believes its valuation method is appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value
measurement at the reporting date. As of June 30, 2013 and June 30, 2012, all of the Company’s financial assets and liabilities
were considered current and due to the short maturity the carrying amounts are considered to approximate fair value.



NOTE 14 – SUBSEQUENT
EVENTS



Subsequent stock issuances:



The Company issued the following shares of common stock subsequent to June 30, 2013:



Between July
1, 2013 and October 15, 2013, the Company issued 172,952,931 common shares at an average price of $0.001962 per share. The
total number of shares outstanding on October 15, 2013 was 219,276,228.





|154,127,619 |  |  | common shares were issued in satisfaction of various convertible loans totalling $ 309,250 converted at an average conversion price of $0.002006/share.                                     
|----------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|18,825,312  |  |  | common shares were issued in satisfaction of various convertible loans related to construction loans totalling $ 30,000 and was converted at an average conversion price of $0.001594 share.
|172,952,931 |  |  |                                                                                                                                                                                             



Debt issuances:



On June 14, 2013, the Company entered into a debt agreement for approximately $216,000 to cover expenses connected to its'
film "Schism". The note was not finalized and funded until subsequent to year end, and therefore is not recognized in the
loan balance outstanding as of June 30, 2013. The note is due October 31, 2013 and bears interest at 10%.



On September 15,
2013, the Company issued a convertible note for $50,000, due March 15, 2014. The note is convertible at the lessor of $0.003
or 65% of the closing price on the trading day prior to the holder's exercise of the note.



On October 1, 2013, the Company
entered into three convertible notes, with two parties. One party acquired convertible notes in the amount of $50,000 and
$10,000, the second party's note was in the amount of $10,000. All three notes are due on April 1, 2014, and have the same
conversion rate of $0.002, with certain reset rights.



SAFE UK in liquidaton:





On Wednesday, October 9, 2013, Seven Arts Filmed Entertainment
Limited (“SAFE”), agreed to voluntary creditors liquidation under the terms of English law.  One of SAFE’s
creditors, Content Media, is seeking to convert this proceeding into an involuntary creditors’ liquidation and has filed
a petition in the Company’s Court, part of the High Court of London and Wales, No. ________.  SAFE’s agreement
to voluntary creditors liquidation follows from the termination of its business by reason of the Asset Transfer Agreement between
the Company and SAFE dated January 3, 2012 and the termination of SAFE’s activities in the United Kingdom in May, 2013. 
SAFE’s voluntary liquidation was supported by its and the Company’s principal creditor, Palm Finance Inc., which controls
more than 50% of the aggregate indebtedness of SAFE.



Sixteen19:



In October
of 2012, SAFELA began negotiations with Sixteen19, a post production and digital production facility with offices in New York,
Los Angeles and London, to run the operations of the production facility located at 807 Esplanade Avenue on New Orleans.  As
of this date the parties have not completed a formal agreement.  It is not contemplated that there will be a new company
formed for this joint venture, but rather a contracted partnership between SAFELA and Sixteen19. The name of the facility has
been agreed to be French Quarter Film Center.



The basic
terms of the agreement to run the facility were agreed in early December as follows: SAFELA and Sixteen19 agreed to joint operational
control of the facility. For any business which utilized residential or office space at the facility, SAFELA will earn 80% of
the gross revenue and pay Sixteen19 a 20% commission. For any business which was considered editorial or digital daily work, Sixteen19
will earn 80% of the gross revenue and pay SAFELA a 20% commission. There was an agreed set of “base rates” and any
deviation below the agreed level of base rates for any new business will have to be mutually agreed by Kate Hoffman on behalf
of SAFELA and Pete Conlin on behalf of Sixteen19. In addition, SAFELA agreed to pay 100% of the costs associated with the running
of the building, including but not limited to all utilities, cleaning, gardening, sundry supplies and repairs to any damage to
the facility that did not included technical issues. Sixteen19 agreed to pay 100% of the equipment and personnel costs associated
with the editorial and digital daily business. In addition, SAFELA and Sixtyeen19 agreed to split the salary of a facility manager
50/50.



During
the year ended June 30, 2013 the joint venture did contract some work with CBS Sports which was purely editorial and digital daily
work performed at the facility.  As such, SAFELA is entitled to a twenty percent commission of the gross revenue paid
by CBS Sports to Sixteen19.



F-41







On August
29, 2013, Vince Vellardita resigned as Chairman and a Director and employee of Seven Arts Entertainment Inc., and its affiliates
(the "Company"). Mr. Vellardita will be issued $40,000 in newly issued common stock of SAE, with a restrictive legend
under Rule 144. Mr Vellardita will appoint the Company as an agent to license of the television series “AJ Time Traveler”
pursuant to a customary distribution agreement subject to good faith negotiation with standard industry parameters. The terms
of the agency shall be two years with a commission of 25% to Mr Vellardita of actual collections, whenever such collections are
made. Mr Vellardita shall have approval of any cost incurred by the Company above $5,000 in relation to the licensing of “AJ
Time Traveler”.



Form S-1:



The Company
is currently in the process of responding to SEC comments on the registration statement on Form S-1 which was filed with the SEC
on January 22, 2013.



NOTE 15 –
Restatement of Previously Issued Financial Statements



The Company is restating the consolidated
financial statements for the years ended June 30, 2012 and 2011. The Company identified certain errors as follows:



| | • | The
                                                                                                                        Company
                                                                                                                        recognized
                                                                                                                        $4,489,721
                                                                                                                        for forgiveness
                                                                                                                        of debt
                                                                                                                        and interest
                                                                                                                        for the
                                                                                                                        year ended
                                                                                                                        June 30,
                                                                                                                        2011 based
                                                                                                                        on a verbal
                                                                                                                        agreement
                                                                                                                        with the
                                                                                                                        lender.
                                                                                                                        However,
                                                                                                                        it was
                                                                                                                        not until
                                                                                                                        October
                                                                                                                        of 2011
                                                                                                                        that all
                                                                                                                        the other
                                                                                                                        terms
                                                                                                                        and issues
                                                                                                                        of the
                                                                                                                        Forbearance
                                                                                                                        and Workout
                                                                                                                        Agreement
                                                                                                                        #6 (“Forbearance
                                                                                                                        agreement”)
                                                                                                                        were memorialized
                                                                                                                        in a formal
                                                                                                                        agreement.
                                                                                                                        Management
                                                                                                                        originally
                                                                                                                        concluded
                                                                                                                        the verbal
                                                                                                                        agreement
                                                                                                                        and finalized
                                                                                                                        agreement
                                                                                                                        were sufficient
                                                                                                                        evidential
                                                                                                                        matter
                                                                                                                        to support
                                                                                                                        the determination
                                                                                                                        that the
                                                                                                                        forgiveness
                                                                                                                        could
                                                                                                                        be recognized
                                                                                                                        during
                                                                                                                        the year
                                                                                                                        ended
                                                                                                                        June 30,
                                                                                                                        2011.
                                                                                                                        Management
                                                                                                                        has revisited
                                                                                                                        this conclusion
                                                                                                                        and has
                                                                                                                        instead
                                                                                                                        determined,
                                                                                                                        based
                                                                                                                        on the
                                                                                                                        executed
                                                                                                                        formal
                                                                                                                        agreements,
                                                                                                                        to recognize
                                                                                                                        the forgiveness
                                                                                                                        as of
                                                                                                                        the date
                                                                                                                        the Forbearance
                                                                                                                        Agreement
                                                                                                                        was finalized,
                                                                                                                        on October
                                                                                                                        28, 2011.
                                                                                                                        Therefore,
                                                                                                                        the gain
                                                                                                                        on forgiveness
                                                                                                                        of debt
                                                                                                                        and interest
                                                                                                                        has been
                                                                                                                        restated
                                                                                                                        to be
                                                                                                                        recognized
                                                                                                                        during
                                                                                                                        the year
                                                                                                                        ended
                                                                                                                        June 30,
                                                                                                                        2012,
                                                                                                                        instead
                                                                                                                        of June
                                                                                                                        30, 2011.
| | - | 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-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | During
                                                                                                                        the year
                                                                                                                        ended
                                                                                                                        June 30,
                                                                                                                        2012,
                                                                                                                        the Company
                                                                                                                        had recognized
                                                                                                                        $6,459,247
                                                                                                                        as a one
                                                                                                                        time “Change
                                                                                                                        in estimate
                                                                                                                        on impairment
                                                                                                                        of film
                                                                                                                        costs”.
                                                                                                                        The Company
                                                                                                                        is reclassifying
                                                                                                                        this amount
                                                                                                                        to properly
                                                                                                                        be included
                                                                                                                        as a component
                                                                                                                        of Cost
                                                                                                                        of Revenue.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | • | The
                                                                                                                        Company
                                                                                                                        recognized
                                                                                                                        $7,540,898
                                                                                                                        for “Fee
                                                                                                                        related
                                                                                                                        revenue
                                                                                                                        –
                                                                                                                        related
                                                                                                                        party”
                                                                                                                        in the
                                                                                                                        year ended
                                                                                                                        June 30,
                                                                                                                        2012.
                                                                                                                        The amounts
                                                                                                                        were clearly
                                                                                                                        labeled
                                                                                                                        and disclosed
                                                                                                                        as between
                                                                                                                        the Company
                                                                                                                        and a
                                                                                                                        related
                                                                                                                        party,
                                                                                                                        on both
                                                                                                                        the face
                                                                                                                        of the
                                                                                                                        financial
                                                                                                                        statements
                                                                                                                        as well
                                                                                                                        as in
                                                                                                                        the footnote
                                                                                                                        disclosures.
                                                                                                                        Upon further
                                                                                                                        reflection,
                                                                                                                        management
                                                                                                                        has determined
                                                                                                                        a more
                                                                                                                        appropriate
                                                                                                                        treatment
                                                                                                                        of the
                                                                                                                        transaction
                                                                                                                        would
                                                                                                                        be to
                                                                                                                        recognize
                                                                                                                        as revenue
                                                                                                                        an amount
                                                                                                                        equal
                                                                                                                        to the
                                                                                                                        fair value
                                                                                                                        for the
                                                                                                                        services
                                                                                                                        as if
                                                                                                                        it had
                                                                                                                        occurred
                                                                                                                        between
                                                                                                                        unrelated
                                                                                                                        third
                                                                                                                        parties.
                                                                                                                        The fair
                                                                                                                        value
                                                                                                                        of $3,235,000
                                                                                                                        was determined
                                                                                                                        based
                                                                                                                        on the
                                                                                                                        amounts
                                                                                                                        stated
                                                                                                                        as “qualified
                                                                                                                        expenses”
                                                                                                                        and determined
                                                                                                                        to be
                                                                                                                        reasonable
                                                                                                                        and industry
                                                                                                                        standard
                                                                                                                        in the
                                                                                                                        required
                                                                                                                        audit
                                                                                                                        of the
                                                                                                                        cost report
                                                                                                                        of infrastructure
                                                                                                                        expenditures
                                                                                                                        done performed
                                                                                                                        by an
                                                                                                                        independent
                                                                                                                        accounting
                                                                                                                        firm.
                                                                                                                        Therefore,
                                                                                                                        the “Fee
                                                                                                                        related
                                                                                                                        revenue
                                                                                                                        –
                                                                                                                        related
                                                                                                                        party”
                                                                                                                        has been
                                                                                                                        restated
                                                                                                                        during
                                                                                                                        the year
                                                                                                                        ended
                                                                                                                        June 30,
                                                                                                                        2012,
                                                                                                                        from $7,540,898
                                                                                                                        to $3,235,000..
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | During
                                                                                                                        the year
                                                                                                                        ended
                                                                                                                        June 30,
                                                                                                                        2012 the
                                                                                                                        Company
                                                                                                                        revalued
                                                                                                                        Series
                                                                                                                        B Preferred
                                                                                                                        Stock
                                                                                                                        that had
                                                                                                                        been issued
                                                                                                                        in an
                                                                                                                        acquisition
                                                                                                                        for music
                                                                                                                        assets,
                                                                                                                        as an
                                                                                                                        acquisition
                                                                                                                        price
                                                                                                                        adjustment
                                                                                                                        during
                                                                                                                        the measurement
                                                                                                                        period.
                                                                                                                        The “revalue”
                                                                                                                        of the
                                                                                                                        Series
                                                                                                                        B Preferred
                                                                                                                        Stock
                                                                                                                        resulted
                                                                                                                        in a journal
                                                                                                                        entry
                                                                                                                        that debited
                                                                                                                        the Series
                                                                                                                        B Preferred
                                                                                                                        Stock
                                                                                                                        and credited
                                                                                                                        the Music
                                                                                                                        Assets
                                                                                                                        by $4,400,684.
                                                                                                                        Upon re-examination
                                                                                                                        of the
                                                                                                                        facts
                                                                                                                        and accounting
                                                                                                                        literature,
                                                                                                                        management
                                                                                                                        also has
                                                                                                                        determined
                                                                                                                        that the
                                                                                                                        events
                                                                                                                        on which
                                                                                                                        the decision
                                                                                                                        to remeasure
                                                                                                                        the Series
                                                                                                                        B Preferred
                                                                                                                        Stock
                                                                                                                        during
                                                                                                                        the measurement
                                                                                                                        period
                                                                                                                        did not
                                                                                                                        in fact
                                                                                                                        reflect
                                                                                                                        circumstances
                                                                                                                        that existed
                                                                                                                        at the
                                                                                                                        acquisition
                                                                                                                        date.
                                                                                                                        Furthermore,
                                                                                                                        as the
                                                                                                                        Series
                                                                                                                        B Preferred
                                                                                                                        Stock
                                                                                                                        was determined
                                                                                                                        to be
                                                                                                                        classified
                                                                                                                        as permanent
                                                                                                                        equity
                                                                                                                        it should
                                                                                                                        not have
                                                                                                                        been remeasured
                                                                                                                        after
                                                                                                                        initial
                                                                                                                        measurement.
                                                                                                                        Therefore,
                                                                                                                        the financial
                                                                                                                        statements
                                                                                                                        have been
                                                                                                                        restated
                                                                                                                        to reflect
                                                                                                                        this correction
                                                                                                                        of an
                                                                                                                        error,
                                                                                                                        resulting
                                                                                                                        in an
                                                                                                                        increase
                                                                                                                        to both
                                                                                                                        the Music
                                                                                                                        Assets
                                                                                                                        and Series
                                                                                                                        B by $4,400,684.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of the increase
to Music Assets as of June 30, 2012, the Company re-evaluated it’s impairment analysis for this date, which has resulted
in the recognition of a $3,035,000 impairment in the year ended June 30, 2012.



| | · | The
                                                                                                                                               Company
                                                                                                                                               entered
                                                                                                                                               into
                                                                                                                                               an
                                                                                                                                               agreement
                                                                                                                                               with
                                                                                                                                               Mr.
                                                                                                                                               Hoffman
                                                                                                                                               whereby
                                                                                                                                               he
                                                                                                                                               pledged
                                                                                                                                               25,000,000
                                                                                                                                               (pre-splits)
                                                                                                                                               shares
                                                                                                                                               to
                                                                                                                                               a
                                                                                                                                               certain
                                                                                                                                               noteholder
                                                                                                                                               as
                                                                                                                                               collateral
                                                                                                                                               against
                                                                                                                                               the
                                                                                                                                               debt.
                                                                                                                                               The
                                                                                                                                               shares
                                                                                                                                               pledged
                                                                                                                                               were
                                                                                                                                               newly
                                                                                                                                               issued
                                                                                                                                               to
                                                                                                                                               Mr.
                                                                                                                                               Hoffman,
                                                                                                                                               and
                                                                                                                                               under
                                                                                                                                               the
                                                                                                                                               Company’s
                                                                                                                                               original
                                                                                                                                               accounting
                                                                                                                                               treatment
                                                                                                                                               the
                                                                                                                                               Company
                                                                                                                                               charged
                                                                                                                                               the
                                                                                                                                               issuance
                                                                                                                                               of
                                                                                                                                               the
                                                                                                                                               shares
                                                                                                                                               against
                                                                                                                                               Mr.
                                                                                                                                               Hoffman’s
                                                                                                                                               Due
                                                                                                                                               to
                                                                                                                                               account.
                                                                                                                                               However,
                                                                                                                                               per
                                                                                                                                               further
                                                                                                                                               research
                                                                                                                                               of
                                                                                                                                               the
                                                                                                                                               transaction,
                                                                                                                                               if
                                                                                                                                               the
                                                                                                                                               pledged
                                                                                                                                               shares
                                                                                                                                               are
                                                                                                                                               sold
                                                                                                                                               and
                                                                                                                                               applied
                                                                                                                                               to
                                                                                                                                               the
                                                                                                                                               note
                                                                                                                                               balance,
                                                                                                                                               or
                                                                                                                                               if
                                                                                                                                               the
                                                                                                                                               shares
                                                                                                                                               are
                                                                                                                                               not
                                                                                                                                               utilized
                                                                                                                                               by
                                                                                                                                               the
                                                                                                                                               pledges
                                                                                                                                               and
                                                                                                                                               returned
                                                                                                                                               to
                                                                                                                                               the
                                                                                                                                               Company,
                                                                                                                                               Mr.
                                                                                                                                               Hoffman’s
                                                                                                                                               Due
                                                                                                                                               to
                                                                                                                                               related
                                                                                                                                               party
                                                                                                                                               balance
                                                                                                                                               as
                                                                                                                                               of
                                                                                                                                               the
                                                                                                                                               date
                                                                                                                                               of
                                                                                                                                               the
                                                                                                                                               agreements,
                                                                                                                                               will
                                                                                                                                               be
                                                                                                                                               reinstated.
                                                                                                                                               Due
                                                                                                                                               to
                                                                                                                                               the
                                                                                                                                               future
                                                                                                                                               obligation
                                                                                                                                               to
                                                                                                                                               in
                                                                                                                                               substance
                                                                                                                                               repurchase
                                                                                                                                               the
                                                                                                                                               shares
                                                                                                                                               and
                                                                                                                                               reinstate
                                                                                                                                               the
                                                                                                                                               Due
                                                                                                                                               to
                                                                                                                                               related
                                                                                                                                               party
                                                                                                                                               balance,
                                                                                                                                               it
                                                                                                                                               has
                                                                                                                                               been
                                                                                                                                               determined
                                                                                                                                               the
                                                                                                                                               shares
                                                                                                                                               should
                                                                                                                                               have
                                                                                                                                               been
                                                                                                                                               treated
                                                                                                                                               as
                                                                                                                                               if
                                                                                                                                               issued
                                                                                                                                               for
                                                                                                                                               no
                                                                                                                                               consideration,
                                                                                                                                               with
                                                                                                                                               only
                                                                                                                                               recognition
                                                                                                                                               of
                                                                                                                                               the
                                                                                                                                               number
                                                                                                                                               of
                                                                                                                                               shares
                                                                                                                                               issued
                                                                                                                                               at
                                                                                                                                               par,
                                                                                                                                               with
                                                                                                                                               an
                                                                                                                                               offset
                                                                                                                                               to
                                                                                                                                               APIC.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-42









Seven Arts Entertainment,
Inc.

(Formerly Seven
Arts Pictures, Plc)

Consolidated Statements
of Operations

For the Year Ended
June 30, 2012







|                                                                                                |  | Year Ended June 30,2012 |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|----------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ------------------- |  | --------- | --------------------------------------------- |  |  | ----------------------------- | - |  | ------------------------------------------- | --------- |  | --------------------- | 
|                                                                                                |  | (as originallyfiled)    |            |   | Foregiveness ofDebt |  |           | Reclass of "one-timerevlauation offilm costs" |  |  | Impairment
    ofMusic Assets |   |  | Adjustment ofRevenue/ARrecognized fromSAPLA |           |  | June
    30, Restated | 
|Revenue:                                                                                        |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Film revenue                                                                                    |  |                         | 823,006    |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Fee income revenue - related
    party                                                          |  |                         | 7,540,898  |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Total revenue                                                                                   |  |                         | 8,363,904  |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Cost of revenue                                                                                 |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Amortization  of film costs                                                                     |  |                         | 3,996,577  |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Impairment of film and music costs                                                              |  |                         |            |   |                     |  |           |                                               |  |  | 6,459,247                     |   |  |                                             | 3,035,000 |  |                       | 
|Other cost of revenue                                                                           |  |                         | 899,065    |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Cost of revenue                                                                                 |  |                         | 4,895,642  |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Gross profit                                                                                    |  |                         | 3,468,262  |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Operating expenses:                                                                             |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|General and administrative expense                                                              |  |                         | 2,251,139  |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Change in estimate on impairment of film costs                                                  |  |                         | 6,459,247  |   |                     |  |           |                                               |  |  | (6,459,247                    | ) |  |                                             |           |  |                       | 
|Bad debt expense                                                                                |  |                         | 307,481    |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Total operating expenses                                                                        |  |                         | 9,017,867  |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Income from operations                                                                          |  |                         | (5,549,605 | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Non-operating income(expense)                                                                   |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Other income                                                                                    |  |                         | 31,100     |   |                     |  | 4,458,621 |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Interest expense                                                                                |  |                         | (2,752,682 | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Interest income                                                                                 |  |                         | -          |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Total non-operating income (expense)                                                            |  |                         | (2,721,582 | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Income/(loss) before taxes                                                                      |  |                         | (8,271,187 | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Change in debt derivative                                                                       |  |                         | -          |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         | (8,271,187 | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Provision for income tax (benefit)                                                              |  |                         | -          |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Net income
    (loss)                                                                           |  |                         | (8,271,187 | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Comprehensive income (loss):                                                                    |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Net income (loss)                                                                               |  |                         | (8,271,187 | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Foreign exchange translation
    gain (loss)                                                    |  |                         | (13,555    | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Comprehensive
    income (loss)                                                                 |  |                         | (8,284,742 | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         |            |   |                     |  | 4,458,621 |                                               |  |  | -                             |   |  |                                             | 3,035,000 |  |                       | 
|                                                                                                |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Weighted average number
    of ordinary shares used in the profit (loss) per share calculation: |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Basic                                                                                           |  |                         | 453,057    |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Diluted                                                                                         |  |                         | 453,057    |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|                                                                                                |  |                         |            |   |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Basic profit/ (loss) per share                                                                  |  |                         | (18.26     | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 
|Diluted profit/ (loss) per
    share                                                            |  |                         | (18.26     | ) |                     |  |           |                                               |  |  |                               |   |  |                                             |           |  |                       | 





F-43









Seven Arts Entertainment,
Inc.



(Formerly Seven
Arts Pictures, Plc)

Consolidated Balance
Sheets

A of June 30,
2012





|                                                                                                                 |  | June
    30,2012(Audited) |            |   | 2011restatement ofForegiveness ofDebt/Interest |  |            | Foregiveness
    ofDebt/Interest |  |  | Correct"revaluation" ofSeries B PS |   |  | RecognizeImpairment onMusic Assets afterrestatement of PS |           |  | Reversal
    ofRevenue/ARrecognized fromSAPLA |  |            | Recognizeadjusted revenuefrom SAPLA |  |  | Adjustment
    forshares pledged inconnection withdebt |   |  | June
    30, Restated |          
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | - | ---------------------------------------------- |  | ---------- | -------------------------------- |  |  | ---------------------------------- | - |  | --------------------------------------------------------- | --------- |  | --------------------------------------------- |  | ---------- | ----------------------------------- |  |  | ------------------------------------------------------ | - |  | --------------------- | ---------
|ASSETS                                                                                                           |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|                                                                                                                 |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|CURRENT ASSETS:                                                                                                  |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Cash and cash equivalents                                                                                        |  | $                         | 120,658    |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Accounts receivable, net of allowance for doubtful
    accounts of $171,062 and $195,623                         |  |                           | 192,035    |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Due from related parties, net                                                                                    |  |                           | 2,116,538  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Fee income receivable from related parties                                                                       |  |                           | 5,896,970  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  | (5,896,970                                             | ) |  |                       | 3,235,000
|Other receivables and prepayments                                                                                |  |                           | 849,845    |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Total Current Assets                                                                                             |  |                           | 9,176,047  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Long term receivable from related parties                                                                        |  |                           | 1,643,928  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  | (1,643,928                                             | ) |  |                       |          
|Film costs, less amortization and impairment of $10,458,823
    and $2,843,734                                   |  |                           | 14,612,608 |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Music assets                                                                                                     |  |                           | 2,923,474  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           | 4,400,684 |  |                                               |  | (3,035,000 | )                                   |  |  |                                                        |   |  |                       |          
|Leasehold Improvements                                                                                           |  |                           | 4,551,270  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Property and equipment, net of
    accumulated depreciation of $111,232 and $106,671                             |  |                           | 16,137     |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|TOTAL ASSETS                                                                                                     |  | $                         | 32,923,463 |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|                                                                                                                 |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|LIABILITIES
    AND SHAREHOLDERS' EQUITY                                                                         |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|                                                                                                                 |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|CURRENT LIABILITIES:                                                                                             |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Accounts payable                                                                                                 |  |                           | 1,152,977  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Accrued liabilities                                                                                              |  |                           | 2,758,845  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Due to related parties                                                                                           |  |                           | 1,060,906  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Shares to be issued                                                                                              |  |                           | 200,000    |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Participation and residuals                                                                                      |  |                           | 114,215    |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Other loans                                                                                                      |  |                           | 7,163,730  |   |                                                |  | 4,458,621  |                                  |  |  | (4,458,621                         | ) |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Film & production loans                                                                                          |  |                           | 6,124,428  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Deferred income                                                                                                  |  |                           | 849,080    |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|VAT                                                                                                              |  |                           | -          |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Provision for earn-out                                                                                           |  |                           | 50,000     |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Total Current Liabilities                                                                                        |  |                           | 19,474,181 |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|TOTAL LIABILITIES                                                                                                |  | $                         | 19,474,181 |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|                                                                                                                 |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           | 4,400,684 |  |                                               |  | (3,035,000 | )                                   |  |  | (7,540,898                                             | ) |  |                       | 3,235,000
|STOCKHOLDERS' EQUITY                                                                                             |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Convertible redeemable Series A preference shares
    at $10 par value, 125125 authorised and outstanding        |  | $                         | 1,251,250  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Convertible redeemable Series B preference shares
    at $100 par value, 200,000 authorised, 180,000 outstanding |  |                           | 4,762,952  |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           | 4,400,684 |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Convertible redeemable Series B shares held in escrow                                                            |  |                           | (3,163,636 | ) |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Common stock ; $0.01 par value, 35,992,964 authorised,1,739,900  issued
    and outstanding                      |  |                           | 17,399     |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Common stock; £0.25
    par value; 20,527,360 shares authorized;                                                 |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|37,759 issued and outstanding                                                                                    |  |                           | -          |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Deferred stock; £0.45
    par value; 13,184,000 shares authorized;                                               |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|and 13,184,000 shares issued and outstanding                                                                     |  |                           | -          |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Deferred stock; £1.00par value; 2,268,120                                                                        |  |                           |            |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|shares issued and outstanding                                                                                    |  |                           | -          |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Additional paid in capital                                                                                       |  |                           | 18,866,060 |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Convertible debentures                                                                                           |  |                           | -          |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Receivable from EBT                                                                                              |  |                           | -          |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Accumulated profit /(deficit)                                                                                    |  |                           | 0          |   |                                                |  | (4,458,621 | )                                |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Comprehensive income                                                                                             |  |                           | (13,555    | ) |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|Current Earnings                                                                                                 |  |                           | (8,271,187 | ) |                                                |  |            |                                  |  |  | 4,458,621                          |   |  |                                                           |           |  |                                               |  | (3,035,000 | )                                   |  |  | (7,540,898                                             | ) |  |                       | 3,235,000
|Shareholders' equity                                                                                             |  |                           | 13,449,283 |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|TOTAL LIABILITIES
    AND SHAREHOLDERS' EQUITY                                                                   |  | $                         | 32,923,463 |   |                                                |  |            |                                  |  |  |                                    |   |  |                                                           |           |  |                                               |  |            |                                     |  |  |                                                        |   |  |                       |          
|                                                                                                                 |  |                           |            |   |                                                |  | (4,458,621 | )                                |  |  | 4,458,621                          |   |  |                                                           | 4,400,684 |  |                                               |  | (3,035,000 | )                                   |  |  | (7,540,898                                             | ) |  |                       | 3,235,000













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