NOTE 6 - COMMITMENTS AND CONTINGENCIES
On April 14, 2011, the Company entered into a lease for office space. The lease is for one (1) year and requires monthly payments of $2,927 in addition to a security deposit of $ 5,855 (equal to 2 month’s rent in advance).
In August 2009, the Company entered into a one year engagement agreement with successful comedy writer Pat Proft to hire him as the Senior Vice President of Comedy. His role was to create and write our movies. Per the terms of his engagement, Mr. Proft received 200,000 shares of our common stock, and an initial monthly fee of $10,000 for a minimum of one year. During March 2010, a new agreement was negotiated which reflected that Mr. Proft would be paid half of this monthly fee in the form of stock compensation – retroactive from January 2010. As of February 29, 2012 and November 30, 2011, accrued cash and stock compensation totaling $15,000 and $40,000, respectively, was due to Mr. Proft and included in accrued liabilities on the accompanying balance sheet. This agreement terminated in August 2010.
During the production of the film Carjacked, the production company Carjacked Entertainment, LLC and Carjacked Investments, LLC (collectively “Carjacked LLC’s”) obtained financing from Wet Rose Productions, LLC (“Wet Rose”) in the amount of $850,000. Grodfilm Corp,owned by the Company's CEO, is the managing member of the LLC's and acts on behalf of 9207-8856 Quebec Inc, a Quebec company and owner of the copyright to the motion picture "Carjacked".
On October 5, 2010, the Company entered into an indirect guarantee of the indebtedness in which the Company guaranteed any shortfalls in repayment of the $850,000 of debt related to the investment provided by Wet Rose up to an amount not to exceed $250,000. The financing from Wet Rose becomes due and payable at a date which is 30 months after first release of the film Carjacked. The film was released on November 22, 2011 and accordinglya payable may become due in 30 months on May 22, 2014. As of February 29, 2012 and November 30, 2011, management evaluated the guarantee liability under ASC 460-10 – “Guarantees”and ASC 450-20 – “Loss Contingencies” by reviewing the projected ability of the Carjacked film to repay the obligation under contract to determine if there is a probable chance of a default, and if so,provide a reasonable estimate for losses. As of February 29, 2012 and November 30, 2011 management determined it is too early in the film’s release and guarantee contract to make a reasonable estimate of probable losses.
Funding of the film closed on December 23, 2010. In connection therewith, as consideration, the Company would receive a $50,000 “guarantor fee” upon close of production funding for the motion picture Carjacked, which was recorded as a stand-ready obligation liability until the contingency is resolved over the 30-month period. The Company received $25,000 of the total $50,000 during fiscal 2011. The remaining $25,000 was initially recorded as a receivable and reserved against as of February 29, 2012 and November 30, 2011 as Management determined collectability was in doubt.
Movie Rights Option Contract
On November 1, 2010, the Company entered in to an “option/purchase” agreement with Richard Taylor (the “Writer”) in which the Company would be granted the exclusive right and option (“Option”) to acquire all motion picture, television and allied and ancillary rights to the Writer’s screenplay – “Bad Monday”. The initial term of this option agreement wasfor one year; however the Company subsequently obtainedan extension thethrough October 31, 2012. As consideration, the Company paid the Writer $2,000. If the Company exercises the Option, the Writer would be paid a purchase price of
between $40,000 and $100,000, depending on the final production budget for the motion picture. Additionally, the Writer would be entitled to 5% of the net proceeds of the picture, and an additional 2.5% of net proceeds if the Writer received shared writing credit on the picture.