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Common Man Swallows Asia Capital Money, KPMG Doubtful Over Financials

|Includes: The Walt Disney Company (DIS), MYRY

By Jithendra Antonio

It is not about underestimating power of 'A Common Man' as Shah Rukh Khan says in Bollywood Movie Chennai Express but this time it is about Bollywood movie 'A Wednesday!' remake - Chandran Rutnam's 'A Common Man' swallowing the money from Sri Lanka's listed investment bank Asia Capital PLC (ACAP), after its former Chairman Manohan Nanayakkara encouraged group to diverse and invest in movie business.

Sri Lanka's pioneer investment bank Asia Capital PLC (ACAP) group after making considerable profits through disposal of its two major subsidiaries including Asian Alliance Insurance PLC (AAIC)and Asia Siyaka Commodities in previous years now sits on a loss over Rs.727.65 million in Financial Year 2012/2013 after company ventured in to movie business with Asia Digital Entertainment (Private) Limited.

On the contrary company's insiders points out that in financial year 2011/2012 Asia Capital group had made a profit of over Rs.697.23 million thanks to another investment bank bringing out a new investor to buy the Asian Alliance Insurance stake held by Asia Capital and related parties to the tune of over Rs.3.3 billion.

According to insiders from Asia Capital the brainchild of company's movie venture is former chairman Manohan Nannayakkara who has a background in industrial economics and strategic development and now he sits on a cash pile worth of Rs.34 million in company's stock which he received as gratuity prior to leaving the company's board. Nanayakkara officially left Asia Capital on 31st August 2013.

"Earlier on 19th April 2013 it was disclosed to Colombo Stock Exchange (NYSE:CSE) under a 'Directors Dealing of Shares' that Manohan Nanayakkara bought 2 million shares of the company at Rs.25 per share each totaling to Rs.50 million. But it was not the case it was free shares given to him prior to his resignation at the company's expense" a top source from Asia Capital said.

Now after company lying inside the Colombo Stock Exchange's (CSE) Default Board since 10th September 2013 due to failure of delay in releasing annual financials, the company's Annual Report that lately came to CSE after over 3 months on 4th January 2014 outlines 'Questionable Doubts' over company's subsidiaries that may not bring revenues as expected.

KPMG's Main Doubt

Accordingly in the Independent Auditor's Report of Asia Capital's Annual Report one of the 'Big Four' Auditors in the world - KPMG points out that inventories of Asia Digital (Private) Limited, a subsidiary of the Group, comprise of films completed and films under production as reflected in the Statement of Financial Position as at 31st March 2013 amounting to over Rs.321.93 million.

KPMG also highlights that 'Further, in relation to these films, as of the reporting date, Annual Report's Note 38.1, indicates the estimated capital expenditure commitments approved but not contracted for. Note 19.1 indicate the gross receipts estimated on the distribution of the highest value film namely 'A Common Man.'

KPMG further goes in to explain that "However, due to the lack of certainty of future receipts expected from the film namely 'A Common Man' and the inability to determine the gross receipts from other films, the recoverability of the balances cannot be established."

Accordingly company's annual financials under Note 19.1 highlights that 'Estimated Gross Receipts' includes expected gross receipts from Motion Pictures namely "A Common Man" which was fully completed during the latter part of the year 2012/2013 and was released to lending distributor - Myriad Pictures based in Santa Monica, California, USA, for the worldwide distribution of the movie except India and Sri Lanka.

In term of distribution agreement, Myriad Pictures have agreed to pay US$ 150,000 to Asia Digital Entertainment (Pvt) Ltd a subsidiary of the Group as a minimum guaranteed fee for the rights granted. Asia Digital Entertainment (Private) Limited has planned to generate US $ 1.81 million from screening the movie and this includes US$ 918,300 from worldwide distribution, US$ 320,000 from DVD sales and US$ 572,000 from screening the film in India. Further Asia Digital Entertainment (Private) Limited expect to screen the movie in Sri Lanka in 2014 and expects to generate Rs. 50 million approximately.

However according to several movie fans in Sri Lanka 'A Common Man' is already up for sale in local DVD shops and boutiques at Premier Shopping Malls such as Majestic City, Liberty Plaza and several other shopping arcades that house third party shop owners.

"I highly doubt that 'A Common Man' movie will earn even Rs.10 million in Sri Lanka, at present our country's movie tickets range from Rs.250 to Rs.400 per head at premier Cinemas and sometimes Rs.600 per head for 3-D Cinema. So hardly any common man or a common woman go for a movie with their common kids due to higher costs unless it is a suburban cinema with low quality screening" A top local movie industry and entertainment industry analyst said.

"I have already watched it back in June 2013. I bought it for Rs.80 at from DVD shop at Union Place. And for Rs.80 the quality was also good" Sapumal Herath said adding that it may be impossible that movie will earn at least Rs.5 million since many have already watched purchasing from boutique movie sellers by the roadsides at Pettah and many other busy cities island-wide.

A Common Man is a 2013 thriller film starring Oscar Award winner Ben Kingsley and Ben Cross and directed by Sri Lankan film maker Chandran Rutnam. The film is an official remake of the Indian thriller A Wednesday! A Box Office hit in with domestic earnings that topped over US $ 1.8 million (over Indian Rs.120 million) in India with a production budget of US 770,000.

But Rutnam has reworked the screenplay of 'A Wednesday!' to a highly suspenseful thriller with a budget of nearly US $ 2.5 million that was entirely financed by Asia Capital group's Asia Digital Entertainment (Pvt) Ltd. (ADE). Thus ADE's largest project to date, also its maiden international production is US$ 2.5 Million Hollywood production titled 'The Common Man', starring Ben Kingsley. The movie was filmed entirely in Sri Lanka using state-of-the-art equipment and addresses a host of social and physiological implications in post war Sri Lanka and the much anticipated movie was premier at the Cannes Film Festival in May 2012, according to Asia Capital's annual review of Financial Year 2011/2012

However 'A Common Man' was an award winning movie that won Best Picture, Best Director and Best Actor awards at the Madrid International Film Festival and bronze medal in the Feature Films category at the New York Festivals' International Television and Film Awards, three of the 119 Gold World Medals, 145 Silver, 104 Bronze, and 327 Finalist Certificates awarded that day.

'A Common Man'

In the plot, movie starts in a room full of bomb making material and newspaper articles about LTTE bombings in Sri Lanka, the screen then cuts to a typical busy morning in Colombo. "The Man" (Ben Kingsley) plants five bombs around the city; on a public bus, in a shopping mall and the Polgoda police station, on an intercity train, and at the Katukurunda Airfield. The man then establishes his mini control station on top a skyscraper in Dehiwala and calls the police chief Morris Da Silva (Ben Cross) and informs him that if four prisoners are not released, the bombs will be detonated.

The movie received negative reviews. The IMDb (Internet Movie Database) has so far rated the movie 4.5/10 on their site and famous film review aggregator RottenTomatoes has given it a 16% with an average rating of 1.9/5 through audience rating while 'No Score' given yet to date by 'Tomatometer'. Many movie fans worldwide has already stressed that Ben Kingsley's makes a magnificent acting in the movie which is ruined by other actors all over the movie with a weak script.

'A Common Man' was released worldwide on 21 May 2013 in Blu-ray by Anchor Bay Films and Myriad Pictures. The movie had its premiere at the Laemmle Music Hall Cinema in Beverly Hills, California on 15 March 2013 with the participation of celebrated movie personalities in Hollywood.

"I watched both 'Madras Café' that was produced with only a budget of US $ 5.4 million and 'A Common Man' at home DVD and then 'Madras Café' twice at the theatre but 'A Common Man'; I think they have chosen a late time to release here. Now the entire Bollywood movies almost released here at theatres within a week from Original release date in India perhaps at the same day and Hollywood movies too" Shashikala a movie enthusiast from Wattala said.

"Madras Café was much better, compared to 'A Common Man'" she said.

In Financial Year 2011/2012 accounts of Asia Capital it is noted that Paul Mason the world renowned film producer and talent scout who mentored the master filmmaker Steven Spielberg, acts in an advisory capacity to ADE. "He is also one of the executive producers for 'The Common Man'" Asia Capital notes. However the movie's profile only lists Paul Mason's name as an executive producer along with Jonathan Sheinberg - the son of lawyer and film executive Sid Sheinberg and actress Lorraine Gary.

The Financial Year 2011/2012 accounts of Asia Capital also notes that there is a successful partnership with 'Bubble Factory' which belongs to Sid Sheinberg of Universal legacy, for global distribution rights to ADE productions.

UTV's litigation

In another development Asia Capital accounts highlight that India's UTV filed action against Asia Digital Entertainment (Private) Limited and Gemini Industries and Imaging Limited of India stating that Company had breached the terms of the Remake Agreement executed between the parties.

However the Courts in India has held in favour of Asia Digital and stated that they believe that UTV had fraudulently inserted a clause into the Remake Agreement stating that the movie, "A Common Man" cannot have any foreign actors starring in the movie, when in fact UTV was aware that negotiations had been proceeding to obtain foreign actors to star in the movie. According to the Remake Agreement the parties should have firstly gone into Arbitration in the event of a dispute and then into Court.

However, since UTV directly went to Court initially, they invoked their rights to ensue with Arbitration proceedings. These proceedings are on-going as of now and the Asia Capital accounts note that directors of the Asia Capital group believe, based on the information currently available, that the ultimate resolution of such legal procedures would not likely to have a material adverse effect on the operations of the Company. Accordingly no provision for any liability has been made in these financial statements of Asia Capital PLC (ACAP).

According to Asia Capital financials ADE's amount of capital expenditure approved not contracted for films that are in progress amounts to Rs.93 million. Among them are; 'Vaishnavee' with Rs.15 million expenditure till first copy of the film and Rs.16 million for real printing and publicity, 'Boradiya Pokuna' with Rs.15 million for 15 copies of film and publicity, 'Bahuchitha Vadiya' with Rs.10 million for post production of the film, 'Three Wheel Diaries' with Rs.10 million for post production of the film, 'Flying Fish' Rs.15 million for real printing and publicity of the film, 'Swara' Rs.10 million for real printing and publicity for the film, 'Alimankada' with Rs. 2 million for 3 copies of films and 'A Common Man' with Rs. 10 million for local advertising in the event of screening the film in Sri Lanka.

Asia Capital's 2011/2012 Financials also highlights that equally important are the local collaborations of ADE. Accordingly 'Vaishnavee', starring international award winning Sri Lankan actress Nita Fernando is a movie that is born of one such collaboration. It is produced by ADE and directed by Sri Lanka's legendary Film greats Dr. Lester James and Sumithra Peiris. Although financials notes that it is currently still being filmed and is slated for release in 2013; however movie has so far not yet witnessed the official release to date.

Accordingly another notable movie project is the 'Three Wheel Diaries', a psychological thriller that penetrates the inner sanctum of the human mind. The movie is in the post production stage and is due for completion and release in 2013 according to Asia Capital Financials of Financial Year (FY) 2011/2013 but to date it has not yet been released.

The same financials notes that present ADE has reached an equilibrium point in the film production cycle through its mature portfolio of movies. And thus company says that the company does not expect to undertake any new projects in the immediate future and all future commitments would be staggered.

Asia Capital's FY 2012/2013 financials says that during the year ended March 31st 2011, The ownership and all rights of "Flying Fish" Film has been transferred to Asia Digital Entertainment (Private) Limited by the Asset Transfer Agreement entered into on 12th November 2010 between Asia Growth Fund 1 (Private) Limited and Asia Digital Entertainment (Private) Limited. Subsequently expenses incurred on behalf of Asia Digital Entertainment (Private) Limited and Investments made in Flying Fish have been transferred against the amounts due to Asia Capital PLC during the year ended 31st March 2011.

The film officially banned by Sri Lanka's government on Friday the 12th July after being shown at a festival promoted by the French embassy in Colombo. A government spokesman that time said the film was "illegal" and used images of the army uniform without permission.

According to company profile ADE's vision was to revolutionize the cinema experience by digitizing the entire theatre industry which was likely come into fruition in the Financial Year 2013. Although the necessary groundwork has been laid and was in the approval stage according to FY 2011/2012 to date company had not achieved its objectives. That time ADE's technology boasted that it would transform the industry by moving away from the archaic reel technology towards a sophisticated digital screening platform and that in the FY 2013, ADE hopes to materialize many of its ongoing projects and spearhead a campaign to broad base operations within the South Asian region.

On the other hand in FY 2012/2013 under Note 40 of Asia Capital financials highlights that Asia Digital Entertainment (Pvt) Limited' (ADE) incurred a net loss of Rs. 25,473,028 and has recorded accumulated losses of Rs. 46,568,362 as at 31 March 2013.

"The Company's current liabilities exceeded its current assets by Rs. 62,237,538 as at 31 March 2013. These factors raise doubt on the Company's ability to continue as a going concern" the Note for company's accounts points out.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.