UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2012

[ ] 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: 000-53213

T.O ENTERTAINMENT, INC

(Exact name of registrant as specified in its charter)


Colorado		26-2666328
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)
90 Madison Street Suite 701 Denver, CO 80206
(Address of principal executive offices)
303-329-3008
(Registrant’s telephone number, including area code)

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 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. [ X ] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 [ X ] No

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


Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

As of ~~August~~January 1431, ~~2012~~2013, the ~~Issuer~~Registrant had 33,000,000 shares of common stock issued and outstanding.

	TABLE OF CONTENTS
		Page Number
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of June 30, 2012 (unaudited) and March 31, 2012	1
	Consolidated Balance Sheets as of September 30, 2012 (unaudited) and March 31, 2012	1
	Consolidated Statements of Operations for the three months ended June 30, 2012 and 2011 (unaudited)	3
	Consolidated Statements of Operations for the three and six months ended September 30, 2012 and 2011 (unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended June 30, 2012 and 2011 (unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended September 30, 2012 and 2011 (unaudited)	5
	Notes to Condensed Financial Statements (unaudited)	56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
SIGNATURES		30

PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

T.O Entertainment, Inc.
Condensed Consolidated Balance Sheets
	June 30, 2012		March 31, 2012
	September 30, 2012		March 31, 2012
	(Unaudited)		(Audited)
Assets
Current assets:
Cash and cash equivalents	$	80183,~~965~~678	$	679,541
Accounts receivable, less allowance for doubtful accounts and provision for sales returns		3,~~919~~226,~~787~~914		4,893,283
Other receivables		18126,~~684~~747		20,519
Prepaid expenses and other current assets		578,050		83,482
Inventories		1,052,658		850,210
Inventories		1,241,209		850,210
Prepaid expenses and other current assets		453,608		83,482
Deferred tax assets		~~715,911~~-		683,968
Consumptions tax receivable		373,319
Total Current Assets		5,043,605		7,211,003
Total Current Assets		6,927,925		7,211,003
Non-current assets:
Film costs		64,~~956~~264,~~666~~962		5,387,482
Investment in animation film		2,~~375~~048,~~979~~800		2,117,904
Property, plant and equipment		5646,~~399~~052		64,620
Other assets		~~256~~364,~~871~~238		573,595
Total non-current assets		96,~~645~~724,~~915~~052		8,143,601
Total assets	$	1611,~~573~~767,~~840~~657	$	15,354,604
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	6,~~614~~684,~~429~~198	$	5,072,609
Other payables and accrued expenses		1640,~~077,528~~831		191,858
Bank loans – Current portion		811,559		858,953
Bank loans – current portion		242,158		858,953
Deferred revenue		63,~~652~~821,~~646~~529		7,861,505
Convertible bond		450,404
Bond payable (previously convertible)		466,560		-
Option liability		1,097
Total Current Liabilities		11,855,276		13,984,925
Total Current Liabilities		15,607,663		13,984,925
Non-current liabilities:
Bank loans – non-current portion		4,050,583		3,037,898
Convertible bonds		-		421,464
Option liability		-		2,988
Bank loans – non-current portion		3,179,832		3,037,898
Total non-current Liabilities		4,050,583		3,462,350
Total non-current Liabilities		3,179,832		3,462,350
Total liabilities		15,905,859		17,447,275
Total liabilities		18,787,495		17,447,275
Commitments and contingencies
Stockholders’ deficit:
Common stock, no par value; 100,000,000 shares authorized; 33,000,000 shares issued and outstanding at September 30, 2012 and March 31, 2012		396,000		396,000
Additional paid in capital		2,790,998		2,790,998
Accumulated deficit		(6,617,036)		(4,724,986)

Common stock, no par value; 100,000,000 shares authorized; 33,000,000 shares issued and outstanding at June 30, 2012 and March 31, 2012		396,000		396,000
Accumulated other comprehensive loss		(708,164)		(554,683)
Additional paid in capital		2,790,998		2,790,998
Total stockholders’ deficit		(4,138,202)		(2,092,671)
Accumulated deficit		(4,746,717)		(4,724,986)
Total liabilities and stockholders’ deficit	$	11,767,657	$	15,354,604
Accumulated other comprehensive loss		(653,936)		(554,683)
Total stockholders’ deficit		(2,213,655)		(2,092,671)
Total liabilities and stockholders’ deficit	$	16,573,840	$	15,354,604
See notes to consolidated financial statements

T.O Entertainment, Inc.
Condensed Consolidated Statement of Operations
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 2012 and 2011
(Unaudited)
(Unaudited)
	For the six months ended September 30,				For the three months ended September 30,
	2012		2011	~~2011~~	2012		2011
Revenues	$	610,~~851~~110,~~834~~803	$	$10,763,832	~~3,767,158~~$	3,258,969	$	6,996,674
Cost of revenue		59,~~967~~219,~~323~~487		8,287,350	~~3,552,712~~	3,252,164		4,734,638
Gross profit		~~884~~891,~~511~~316		2,476,482	~~214,446~~	6,805		2,262,036
Selling, general and administrative expenses		~~882~~1,~~029~~502,989		1,284,306	~~637,610~~	631,978		657,594
Income/(Loss) from operations		2,482			(423,164)
Depreciation and amortization		21,873		23,288		10,855		12,390
Other income (expenses)
		1,524,862		1,307,594		642,833		669,984
Interest expenses		(37,211)			(39,435)
Income/(Loss) from operations		(633,546)		1,168,888		(636,028)		1,592,052
Other income (expense)		12,998			(280)
Other income (expenses)
		(24,213)			(39,715)
(Loss) /Income from unconsolidated entities		(455,478)		-		(465,064)		-
(Loss) from operations before income taxes		(21,731)			(462,879)
Interest expenses		(86,249)		(87,942)		(49,038)		(48,507)
Income tax refund and refundable		-			16
Gain on derivative		3,086		-		3,086		-
Net (loss)		(21,731)			(462,863)
Other income		6,713		13,096		3,301		13,376
Other comprehensive loss:
		(531,928)		(74,846)		(507,715)		(35,131)
Foreign currency translation loss		(99,253)			(66,318)
Income/(Loss) from operations before income taxes		(1,165,474)		-		(1,143,743)		1,556,921
Comprehensive (loss)	$	(120,984)		$	(529,181)
Income taxes		726,576		-		726,576		-
Per share information – basic:
Net income /(loss)		(1,892,050)		1,094,042		(1,870,319)		1,556,921
Weighted average shares outstanding - basic		31,998,247			31,680,000
Other comprehensive loss:
Net (loss) per share - basic	$	(0.00)		$	(0.01)
Foreign currency translation loss		(153,481)		(277,135)		(54,228)		(210,817)
See notes to consolidated financial statements
Comprehensive gain/(loss)	$	(2,045,531)	$	816,907	$	(1,924,547)		1,346,104

T.O Entertainment, Inc.
Per share information – basic:
Condensed Consolidated Statements of Cash Flows
Weighted average shares outstanding - basic		33,000,000		31,680,000		33,000,000	31,680,000
For the Three Months Ended June 30, 2012 and 2011
Net earnings/(loss) per share – basic	$	(0.06)	$	0.03	$	(0.06)	0.05
(Unaudited)
See notes to consolidated financial statements
	2012		2,011
Net cash (used in) operating activities	$	(386,629)	$	1,536,644
Cash flows from investing activities:
Investments and acquisitions, net of cash acquired		(127,729)		(732,465)
Net cash (used in) investing activities		(127,729)		(732,465)
Cash flows from financing activities:
Proceeds from long-term bank loans		-		1,787,800
Repayments of long-term bank loans		-		(702,605)
Proceeds from short-term bank loans		126,600		176,979
Repayment of short-term bank loans		(213,372)		(431,805)
Proceeds from issuance of common stock		-		237,523
Net cash provided by financing activities		(86,772)		1,067,892
Effect of exchange rate changes on cash		2,554		(2,136)
Net (decrease) in cash and cash equivalents		(598,576)		1,869,935
Cash and cash equivalents at beginning of year		679,541		636,743
Cash and cash equivalents at end of year	$	80,965	$	2,506,678
Supplementary cash flow information
Income taxes paid	$	-	$	-
Interest paid	$	(37,211)	$	(39,435)

T.O Entertainment, Inc.


T.O Entertainment, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 2012 and 2011
(Unaudited)

	2012		2,011
Net cash (used in) operating activities	$	(325,682)	$	2,056,982

Cash flows from investing activities:
Purchase of plant and equipment		23,187		-
Investments and acquisitions, net of cash acquired		(320,712)		(3,127,444)
Net cash (used in) investing activities		(297,525)		(3,127,444)

Cash flows from financing activities:
Proceeds from long-term bank loans		823,440		1,634,989
Repayments of long-term bank loans		-		(1,060,920)
Proceeds from short-term bank loans		324,000		-
Repayment of short-term bank loans		(994,305)		-
Proceeds from issuance of common stock				262,873
Net cash provided by financing activities		153,135		836,942

Effect of exchange rate changes on cash		(25,791)		24,430

Net (decrease) in cash and cash equivalents		(495,863)		(209,090)
Cash and cash equivalents at beginning of year		679,541		636,744
Cash and cash equivalents at end of year	$	183,678	$	427,654

Supplementary cash flow information
Income taxes paid	$	-	$	-
Interest paid	$	86,249	$	69,915

~~Notes to Condensed Consolidated Financial Statements~~5

~~For~~NOTE ~~the~~1. ORGANIZATION ~~Three~~AND ~~Months~~PRINCIPAL ~~Periods Ended June 30, 2012 and 2011~~ACTIVITY

Throughout this report, the terms “our,” “we,” “us,” and “Company” refer to T.O Entertainment, Inc., including its subsidiaries. The accompanying unaudited financial statements of T.O Entertainment, Inc. at September 30, 2012 and 2011 have been prepared in accordance with generally accepted accounting principles (~~Unaudited~~“GAAP”) for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended March 31, 2012. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included. The results of operations for the periods ended September 30, 2012 and 2011 presented are not necessarily indicative of the results to be expected for the full year. The March 31, 2012 balance sheet has been derived from our audited financial statements included in our annual report on Form 10-K for the year ended March 31, 2012.

~~NOTE~~T.O 1Entertainment, -Inc. ~~ORGANIZATION~~(formerly ~~AND~~IBI ~~PRINCIPAL~~Acquisitions, ~~ACTIVITIES~~Inc. or “IBI”) was incorporated in the State of Colorado on May 22, 2008. The Company was formed to explore merger and acquisitions opportunities with other companies.

~~Throughout~~On ~~this~~January ~~report~~3, ~~the terms “our~~2012,” ~~“we,”~~pursuant ~~“us,” and “Company” refer~~ to ~~T.O~~the ~~Entertainment,~~terms ~~Inc.,~~of ~~including~~a ~~its~~Agreements ~~subsidiaries. The~~between ~~accompanying~~IBI ~~unaudited~~and ~~financial statements of~~ T.O Entertainment, Inc. ~~at June 30~~, ~~2012~~Japan ~~and 2011 have been prepared in accordance with generally accepted accounting principles~~ (“~~GAAP~~TOE Japan”) ~~for~~the ~~interim~~shareholders ~~financial~~invested ~~statements,~~100% ~~instructions~~of tothe ~~Form~~then ~~10-Q,~~outstanding ~~and~~stock ~~Regulation S-X. Accordingly, certain information and footnote disclosures normally included~~ in ~~financial~~IBI ~~statements~~by ~~prepared~~transferring inownership ~~accordance~~of ~~with~~such ~~GAAP~~shares ~~have~~to ~~been condensed or omitted~~IBI. ~~These~~IBI ~~condensed~~issued ~~financial~~a ~~statements~~total ~~should~~of ~~be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended March~~ 31, ~~2012. In management's opinion~~680,000 ~~all~~common ~~adjustments~~shares ~~(consisting only~~ of ~~normal~~its ~~recurring~~common ~~adjustments)~~stock ~~considered necessary for a fair presentation~~ to ~~make our financial statements not misleading have been included. The results of operations for~~ the ~~periods~~TOE ~~ended~~Japan’s ~~June~~shareholders 30, 2012 and 2011 presented are not necessarily indicative of the results to be expected for the full year. The March 31, 2012 balance sheet has been derived from our audited financial statements included in ~~our~~exchange ~~annual report on Form 10-K~~ for ~~the~~their ~~year~~TOE ~~ended~~Japan ~~March~~common ~~31, 2012~~shares.

~~T.O~~On ~~Entertainment~~March 5, ~~Inc. (formerly IBI Acquisitions~~2012, ~~Inc.~~the orCompany ~~“IBI”)~~changed ~~was incorporated in~~ the ~~State~~name offrom ~~Colorado~~IBI ~~on May 22~~Acquisitions, ~~2008~~Inc. ~~The Company was formed~~ to ~~explore~~T.O ~~merger~~Entertainment, ~~and acquisitions opportunities with other companies~~Inc.

OnThe ~~January~~transaction 3,was ~~2012,~~accounted ~~pursuant~~for toas a “reverse merger,” since the ~~terms~~original stockholders of the TOE Japan own a ~~Agreements~~majority ~~between~~of ~~IBI~~the ~~and~~outstanding ~~T.O~~shares ~~Entertainment,~~of ~~Inc.,~~our ~~Japan~~common (“stock immediately following the completion of the transaction. TOE Japan”) was the ~~shareholders~~legal ~~invested~~acquiree ~~100%~~but ofdeemed ~~the~~to ~~then~~be ~~outstanding~~the ~~stock~~accounting inacquirer, IBI bywas ~~transferring~~the ~~ownership~~legal ofacquirer ~~such~~but ~~shares~~deemed to ~~IBI~~be the accounting acquiree in the reverse merger. The ~~IBI~~historical ~~issued~~financial astatements ~~total~~prior to the acquisition are those of ~~31,680,000~~the ~~common~~accounting ~~shares~~acquirer (TOE Japan). Historical stockholders' equity of ~~its~~the ~~common~~acquirer ~~stock~~prior to the ~~TOE~~merger ~~Japan’s~~are ~~shareholders~~retroactively inrestated ~~exchange~~(a recapitalization) for ~~their~~the ~~TOE~~equivalent ~~Japan~~number ~~common~~of shares received in the merger. Operations prior to the merger are those of the acquirer. After completion of the transaction, the Company’s consolidated financial statements include the assets and liabilities of the Company and its subsidiaries, the operations and cash flow of the Company and its subsidiaries

OnWe ~~March~~are 5an entertainment company incorporated in Tokyo, ~~2012~~Japan on April 1, ~~the~~2003, ~~Company~~whose ~~changed~~businesses ~~the~~include ~~name~~filmed ~~from~~entertainment ~~IBI~~and ~~Acquisitions~~book publishing and production which consists principally of production and distribution of animated and live feature films, ~~Inc~~including distribution of such films on DVD’s and Blue Ray Discs, and. Book publishing consisting principally of the sale of books to Twhich TOE has the rights to print and distribute.O ~~Entertainment~~TOE operations are currently in Japan, ~~Inc~~Singapore, the United Kingdom and the Russia Federation.

~~The~~After ~~transaction~~the ~~was accounted for as a “~~reverse merger,” ~~since the original stockholders of the~~ TOE ~~Japan~~has ~~own~~been aoperating ~~majority~~in of the ~~outstanding~~United ~~shares~~States of ~~our~~America, ~~common~~Japan, ~~stock~~Republic ~~immediately following the completion~~ of ~~the transaction. TOE Japan was the legal acquiree but deemed to be the accounting acquirer~~Singapore, ~~IBI~~and ~~was~~ the ~~legal~~Russian ~~acquirer~~Federation ~~but~~while ~~deemed to be~~ the ~~accounting~~operations ~~acquiree~~ in the ~~reverse~~United ~~merger. The~~Kingdom ~~historical financial statements prior to the acquisition~~ are those of the accounting acquirer (TOE Japan). Historical stockholders' equity of the acquirer prior to the merger are retroactively restated (a recapitalization) for the equivalent number of shares received in ~~the merger~~dormant. Operations prior to the merger are those of the acquirer. After completion of the transaction, the Company’s consolidated financial statements include the assets and liabilities of the Company and its subsidiaries, the operations and cash flow of the Company and its subsidiaries

WeNOTE are an entertainment company incorporated in Tokyo, Japan on April 1, 2003, whose businesses include filmed entertainment and book publishing and production which consists principally of production and distribution of animated and live feature films, including distribution of such films on DVD’s and Blue Ray Discs, and2. ~~Book~~BASIS ~~publishing~~OF ~~consisting~~PRESENTATION ~~principally~~AND ofSUMMARY ~~the~~OF ~~sale~~SIGNIFICANT ofACCOUNTING ~~books to which TOE has the rights to print and distribute. TOE operations are currently in Japan, Singapore, the United Kingdom and the Russia Federation.~~ POLICIES

~~After~~Basis ~~the reverse merger, TOE has been operating in the United States~~ of ~~America, Japan, Republic of Singapore, and the Russian Federation while the operations in the United Kingdom are in dormant.~~presentation

~~NOTE~~The 2condensed –consolidated ~~BASIS~~financial OFstatements ~~PRESENTATION~~have ~~AND~~been ~~SUMMARY~~prepared OFin ~~SIGNIFICANT~~accordance ~~ACCOUNTING~~with ~~POLICIES~~GAAP and are expressed in United States dollars ($). Financial statements prepared in accordance with GAAP contemplate the realization of assets and the satisfaction of liabilities in the normal course of business.

~~Basis~~As of ~~presentation~~September30, 2012 the Company has an accumulated deficit of $6,617,036 and its current liabilities exceed its current assets by $6,811,671. Included in non-current assets at September 30, 2012 is $4,264,962 of film costs which will be expensed against future revenues and will not require the use of cash. Included in current liabilities at September 30, 2012 is $3,821,529 of deferred revenue, which accounted for approximately 32% of the current liabilities, and represents projects in production. The deferred revenue does not represent a cash liability. Excluding

The condensed consolidated financial statements have been prepared in accordance with GAAP and are expressed in United States dollars ($). Financial statements prepared in accordance with GAAP contemplate the realization of assets and the satisfaction of liabilities in the normal course of business.6

5the deferred revenue, at September 30, 2012 we would have had a working capital deficit of $2,990,142. In view of the matters described above, recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company's ability to raise additional financing and to succeed in its future operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

TManagement has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern.O ~~Entertainment~~The Company is actively pursuing additional funding which would enhance capital employed and strategic partners which would increase revenue bases or reduce production costs. Subsequent to September 30, ~~Inc~~2012 the Company entered in a Credit Agreement with an unrelated third party (see Note 15 for additional details). Management believes that the above actions will allow the Company to continue its operations throughout the next fiscal year.

~~Notes~~Use toof ~~Condensed Consolidated Financial Statements~~Estimates

~~For~~The ~~the~~preparation ~~Three~~of ~~Months~~financial ~~Periods~~statements ~~Ended~~in ~~June~~conformity 30with GAAP requires management to make estimates, ~~2012~~judgments and ~~2011~~assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.

~~(Unaudited)~~Significant estimates and judgments inherent in the preparation of these consolidated financial statements include, among other things, accounting for asset impairments, allowances for doubtful accounts, depreciation and amortization, the determination of ultimate revenues as it relates to amortization of capitalized film costs from participations and residuals, books and DVD sales returns, equity-based compensation, income taxes, and contingencies.

~~(Continued)~~Foreign Currency Translation

AsThe ofCompany’s ~~June~~reporting ~~30,~~currency ~~2012~~is the ~~Company~~United ~~has~~States andollar ~~accumulated deficit of~~ (“$~~4,746,717~~”) and ~~its~~the ~~current~~accompanying ~~liabilities~~consolidated ~~exceed~~financial ~~its~~statements ~~current~~have ~~assets~~been byexpressed ~~$8,679,738. Included~~ in ~~non-current~~United ~~assets~~States atdollars. ~~June~~The ~~30,~~Company’s ~~2012~~functional currency is ~~$6,956,666 of film costs which will be expensed against future revenues and will not require~~ the ~~use~~Japanese ofYen ~~cash~~(“¥”). ~~Included~~In ~~in current liabilities at June 30~~addition, ~~2012~~its isoperating ~~$6,652,646~~subsidiaries ofin ~~deferred~~the ~~revenue,~~United ~~which~~Kingdom ~~accounted~~and ~~for~~Singapore ~~approximately~~maintain ~~43%~~their ofbooks ~~the current liabilities,~~ and ~~represents~~record ~~projects~~ in ~~production.~~their ~~The~~respective ~~deferred~~local ~~revenue~~currencies, ~~does not represent a cash liability. Excluding~~ the ~~deferred~~British ~~revenue,~~Pound ~~at June 30~~(“£”), ~~2012~~the weSingapore ~~would~~dollar ~~have had a working capital deficit of~~ (“SG$2”),~~027,092. In~~ ~~view~~and of the ~~matters~~Russian ~~described~~ruble ~~above,~~(“Rup”) ~~recoverability~~which ofis a ~~major~~functional ~~portion~~currency ofas being the ~~recorded~~primary ~~asset~~currency ~~amounts and realization~~ of the ~~portion~~economic ofenvironment ~~current liabilities into revenue shown~~ in ~~the~~which ~~accompanying~~their ~~balance sheets are dependent upon continued~~ operations ~~of the Company, which in turn~~ are ~~dependent upon the Company's ability to raise additional financing and to succeed in its future operations~~conducted. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

~~Management~~In ~~has~~accordance ~~taken~~with ~~the~~Financial ~~following~~Accounting ~~steps~~Standards toBoard ~~revise~~(“FASB”) ~~its~~Accounting ~~operating~~Standards ~~and~~Codification ~~financial~~(“ASC”) ~~requirements,~~Topic ~~which~~830 it“Translation ~~believes~~of ~~are~~Financial ~~sufficient~~Statements” to(“ASC ~~provide~~830”), ~~the~~capital ~~Company~~accounts ~~with~~of the ~~ability~~consolidated tofinancial ~~continue~~statements asare atranslated ~~going~~into ~~concern.~~United ~~The~~States ~~Company~~dollars isfrom ~~actively~~Japanese ~~pursuing~~yen ~~additional~~at ~~funding~~their ~~which~~historical ~~would~~exchange ~~enhance~~rates when the capital ~~employed~~transactions occurred. Assets and ~~strategic~~liabilities ~~partners~~are ~~which~~translated ~~would~~at ~~increase~~the ~~revenue~~exchange ~~bases~~rates oras ~~reduce~~of ~~production~~balance ~~costs~~sheet date. ~~Management~~Income ~~believes~~and ~~that~~expenditures are translated at the ~~above~~average ~~actions~~exchange ~~will~~rate ~~allow~~of the ~~Company~~respective toyear. The ~~continue~~resulting ~~its~~exchange ~~operations~~differences ~~throughout~~are recorded in the ~~next~~consolidated ~~fiscal~~statement ~~year~~of operations.

~~Use~~Translation of ~~Estimates~~amounts from the local currency of our subsidiaries into United States dollars has been made at the following exchange rates for the six month periods ended September 30, 2012 and 2011:

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.



	2012	2011
Period-end ¥: $1 exchange rate	77.17	76.33
Average period ¥ : $1 exchange rate	79.37	79.36
Period-end £: $1 exchange rate	0.63	0.64
Average period £: $1 exchange rate	0.61	0.61
Period-end SG$: $1 exchange rate	1.23	1.30
Average period SG$: $1 exchange rate	1.25	1.23
Period-end Rub: $1 exchange rate	34.45	31.94
Average period Rub: $1 exchange rate	31.49	28.49

~~Significant~~Fair estimates and judgments inherent in the preparation of these consolidated financial statements include, among other things, accounting for asset impairments, allowances for doubtful accounts, depreciation and amortization, the determination of ultimate revenues as it relates to amortization of capitalized film costs from participations and residuals, books and DVD sales returns, equity-based compensation, income taxes, and contingencies.Value

~~Foreign~~ASC ~~Currency~~Topic ~~Translation~~820 “Fair Value Measurement and Disclosures” establishes a three-tier fair value hierarchy, which

The Company’s reporting currency is the United States dollar (“$”) and the accompanying consolidated financial statements have been expressed in United States dollars. The Company’s functional currency is the Japanese Yen (“¥”). In addition, its operating subsidiaries in the United Kingdom and Singapore maintain their books and record in their respective local currencies, the British Pound (“£”) and the Singapore dollar (“SG$”), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted.7

Inprioritizes ~~accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830 “Translation of Financial Statements” (“ASC 830”), capital accounts of~~ the ~~consolidated~~inputs ~~financial~~used ~~statements~~in ~~are~~measuring ~~translated~~fair ~~into United States dollars from JPY at their historical exchange rates when the capital transactions occurred~~value. ~~Assets~~ ~~and~~The ~~liabilities~~hierarchy ~~are~~prioritizes ~~translated at~~ the ~~exchange~~inputs ~~rates~~into asthree oflevels ~~balance~~based ~~sheet~~on ~~date. Income and expenditures are translated at~~ the ~~average~~extent ~~exchange~~to ~~rate~~which ofinputs ~~the~~used ~~respective~~in ~~year. The~~measuring ~~resulting~~fair ~~exchange~~value ~~differences~~ are ~~recorded~~observable in the ~~consolidated statement of operations~~market.

6These tiers include:

~~T.O~~·Level ~~Entertainment,~~1—defined ~~Inc.~~as observable inputs such as quoted prices in active markets;

~~Notes~~·Level to2—defined ~~Condensed~~as ~~Consolidated~~inputs ~~Financial~~other ~~Statements~~than quoted prices in active markets that are either directly or indirectly observable; and

~~For~~·Level ~~the~~3—defined ~~Three~~as ~~Months~~unobservable ~~Periods~~inputs ~~Ended~~in ~~June~~which 30little or no market data exists, ~~2012~~therefore ~~and~~requiring ~~2011~~an entity to develop its own assumptions.

~~(Unaudited)~~The Company’s financial instruments consist of cash and cash equivalents, trade receivables, other receivables, payables, and long term debt. The carrying values of cash and cash equivalents, trade receivables, other receivables, and payables approximate their fair value due to their short maturities. The carrying value of long term debt approximates the fair value of debt of similar terms and remaining maturities available to the company.

~~(Continued)~~The Company’s non-financial assets are measured on a recurring basis. These non-financial assets are measured for impairment annually on the Company’s measurement date at the reporting unit level using Level 3 inputs. For most assets, ASC 820 requires that the impact of changes resulting from its application be applied prospectively in the year in which the statement is initially applied.

	As at and for the three months ended June 30, 2012	As at March 31, 2012 and for the three months ended June 30, 2011
Period-end ¥ : $1 exchange rate	78.31	81.97
Average period ¥ : $1 exchange rate	78.98	78.74
Period-end £ : $1 exchange rate	0.65	0.63
Average period £ : $1 exchange rate	0.64	0.63
Period-end SG$ : $1 exchange rate	1.28	1.26
Average period SG$ : $1 exchange rate	1.27	1.25
Period-end Rub:$1 exchange rate	30.35	29.41
Average period Rub : $1 exchange rate	36.73	29.59

The Company’s non-financial assets measured on a non-recurring basis include the Company’s property, plant and equipment and finite-use intangible assets which are measured for recoverability when indicators for impairment are present. ASC 820 requires companies to disclose assets and liabilities measured on a non-recurring basis in the period in which the re-measurement at fair value is performed.

~~Fair~~The ~~Value~~Company valued the convertible bonds using Level 3 criterion. As of September 30, 2012, the valuations resulted in a gain on derivatives of $3,086.

~~ASC Topic 820 “~~Fair Value ~~Measurement~~of ~~and~~Financial ~~Disclosures”~~Instruments ~~establishes~~with aConversion three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.Features

~~These~~In ~~tiers~~accordance ~~include:~~with ASC Topic 815 “Derivatives and Hedging”, the conversion feature of convertible bonds are separated from the debt instrument and accounted for separately as a derivative instrument. On the date the Company’s convertible bonds are issued, the conversion feature was recorded as a liability at its fair value, and future decreases in fair value recognized in earnings while increases in fair values recognized in expenses as interest expense.

·The Company used the Black-Scholes-Merton (“Black-Scholes”) model to obtain the fair value of the conversion feature. The Company’s expected volatility assumption is based on the historical volatility of stock prices of entertainment industry average in Japan. The expected life assumption is primarily based on the expiration date of the conversion features. The risk-free interest rate for the expected term of the conversion features is based on the U.S. Treasury yield curve in effect at the time of measurement.

~~Level~~The ~~1—defined~~convertible asbonds ~~observable~~reached ~~inputs~~maturity ~~such~~and aswere ~~quoted~~not ~~prices~~converted. The inconversion ~~active~~feature ~~markets;~~has expired and is no longer available.

·Investments in Animations Films

~~Level~~Investments ~~2—defined~~in asanimation ~~inputs~~films ~~other~~includes ~~than~~the ~~quoted~~Company’s ~~prices~~investments in ~~active~~co-production ~~markets~~animation ~~that~~films which are ~~either~~generally ~~directly~~less orthan ~~indirectly~~50% ~~observable;~~owned by the Company and are produced by the other investors of the ventures. Prior to August 1, 2012, the Company accounted for investments in animated films for which it had an interest greater than 20% and exercised influence over the investment using the equity . Under the equity method, the initial investment is recorded at cost and adjusted annually to recognize the Company’s share of earnings and losses of the entity. As a result of the Company’s inability to fund certain requirements of its investment it no longer exercises any influence over the co-productions. On August 1, 2012, the Company ceased accounting for its investment in animated films under the equity method, and began accounting for the investment utilizing the cost method.

·Film Costs and Revenues

~~Level~~Feature ~~3—defined~~films astypically ~~unobservable~~are ~~inputs~~produced for initial exhibition in ~~which~~theaters, ~~little~~followed orby nodistribution ~~market~~in ~~data~~the ~~exists~~home video, ~~therefore~~electronic ~~requiring~~sell-through, anvideo-on-demand, ~~entity~~pay tocable, ~~develop~~basic ~~its~~cable ~~own~~and ~~assumptions~~broadcast network sectors. Generally,

The Company’s financial instruments consist of cash and cash equivalents, trade receivables, other receivables, payables, and long term debt. The carrying values of cash and cash equivalents, trade receivables, other receivables, and payables approximate their fair value due to their short maturities. The carrying value of long term debt approximates the fair value of debt of similar terms and remaining maturities available to the company.8

~~Warrants~~distribution to the home video, video-on-demand, pay cable, basic cable and ~~conversion~~broadcast ~~features~~network ~~embedded~~sectors ineach ~~the~~commence ~~Convertible~~within ~~Notes,~~a ~~which~~range of approximately one to five years of initial theatrical release. Theatrical revenues are ~~accounted~~recognized as ~~liabilities,~~the films are ~~treated~~exhibited. asRevenues ~~derivative~~from ~~instruments,~~home ~~which~~video ~~will~~sales beare ~~measured~~recognized at ~~each~~the ~~reporting~~later of the delivery date or the date that video units are made widely available for ~~their~~sale ~~fair~~or ~~value~~rental ~~using~~by ~~Level~~retailers 2based ~~inputs~~on gross sales less a provision for estimated returns. A warranty period for six months are usually provided by the Company on the film produced or arranged by the Company. Based on management’s past experience, no report of defects or claim for compensation

~~The~~Upfront ~~Company’s~~or ~~non-financial~~guaranteed ~~assets~~payments for the licensing of intellectual property are ~~measured~~recognized onas arevenue ~~recurring~~when ~~basis.~~(i) ~~These~~an ~~non-financial~~arrangement ~~assets~~has ~~are~~been ~~measured~~signed ~~for~~with ~~impairment~~a ~~annually~~customer, on(ii) the ~~Company~~customer’s ~~measurement~~right ~~date~~to atuse or otherwise exploit the ~~reporting~~intellectual ~~unit~~property ~~level~~has ~~using~~commenced ~~Level~~and 3there ~~inputs.~~is ~~For~~no ~~most~~requirement ~~assets,~~for ~~ASC~~significant ~~820~~continued ~~requires~~performance ~~that~~by the ~~impact~~Company, of(iii) ~~changes~~licensing ~~resulting~~fees ~~from~~are ~~its~~either ~~application~~fixed beor ~~applied~~determinable ~~prospectively~~and in(iv) collectability of the ~~year~~fees inis ~~which~~reasonably assured. In the ~~statement~~event any significant continued performance is ~~initially~~required ~~applied~~in these arrangements, revenue is recognized when the related services are performed.

Film costs include the unamortized cost of completed films, films in production and film rights in preparation of development. Film costs are stated at the lower of cost, less accumulated amortization, or fair value. The ~~Company’s~~amount ~~non-financial~~of ~~assets~~capitalized ~~measured~~film oncosts recognized as cost of revenues for a ~~non-recurring~~given ~~basis~~film ~~include~~as it is exhibited in various sectors, throughout its life cycle, is determined using the ~~Company’s~~film ~~property~~forecast computation method. Under this method, ~~plant~~the ~~and~~amortization ~~equipment~~of capitalized costs and ~~finite-use~~the ~~intangible~~accrual ~~assets~~of ~~which~~participations and residuals are ~~measured~~based ~~for~~on ~~recoverability~~the ~~when~~proportion ~~indicators~~of ~~for~~the ~~impairment~~film’s ~~are~~revenues ~~present. ASC~~recognized ~~820~~for ~~requires~~such ~~companies~~period to ~~disclose~~the ~~assets~~film’s ~~and~~estimated ~~liabilities~~remaining ~~measured~~ultimate onrevenues. The process of estimating a ~~non-recurring~~film’s ~~basis~~ultimate inrevenues (i.e., the ~~period~~total inrevenue ~~which~~to ~~the~~be ~~re-measurement~~received atthroughout ~~fair~~a ~~value~~film’s life cycle) is ~~performed~~discussed further under “Film Cost Recognition and Impairments.”

~~The~~Film ~~Company~~Cost ~~valued~~Recognition ~~the~~and ~~convertible bonds using Level 3 criterion. As of June 30, 2012, the valuations resulted in a gain on derivatives of $1,908.~~Impairments

~~Fair~~Film ~~Value~~costs include direct production costs, production overhead and acquisition costs for films are stated at the lower of ~~Financial~~unamortized ~~Instruments~~cost ~~with~~or ~~Conversion~~estimated ~~Features~~fair value and classified as noncurrent assets. Accounting for film costs, as well as related revenues requires the exercise of judgment relates to the process of estimating a film’s ultimate revenues and is important for two reasons. First, while a film is being produced and the related costs are being capitalized, as well as at the time the film is released, it is necessary for management to estimate the ultimate revenues, less additional costs to be incurred (including exploitation and participation costs), in order to determine whether the value of a film has been impaired and, thus, requires an immediate write-off of unrecoverable film costs. Second, it is necessary for management to determine, using the film forecast computation method, the amount of capitalized film costs and the amount of participations and residuals to be recognized as costs of revenues for a given film in a particular period. To the extent that the film’s ultimate revenues are adjusted, the resulting gross margin reported on the exploitation of that film in a period is also adjusted.

InPrior ~~accordance~~to ~~with~~the ~~ASC~~theatrical ~~Topic~~release ~~815~~of ~~“Derivatives~~a film, management bases its estimates of ultimate revenues for each film on factors such as the historical performance of similar films, the rating and ~~Hedging”~~genre of the film, pre-release market research (including test market screenings) and the ~~conversion~~expected ~~feature~~number of ~~convertible~~theaters ~~bonds~~in ~~are~~which ~~separated~~the film will be released. Management updates such estimates based on information available during the film’s production and, upon release, the actual results of each film. Changes in estimates of ultimate revenues from period to period affect the ~~debt~~amount ~~instrument~~of film costs amortized in a given period and, ~~accounted~~therefore, could have an impact on the Company’s financial results for ~~separately~~that asperiod. For example, prior to a ~~derivative~~film’s ~~instrument~~release, the Company often will test market the film to the film’s targeted demographic. OnIf the ~~date~~film is not received favorably, the Company may (i) reduce the film’s ~~convertible~~estimated ~~bonds~~ultimate ~~are~~revenues, ~~issued~~(ii) revise the film, which could cause the ~~conversion~~production ~~feature~~costs ~~was~~to ~~recorded~~increase asor (iii) perform a ~~liability~~combination atof both. Similarly, a film that generates lower-than-expected theatrical revenues in its ~~fair~~initial ~~value,~~weeks of release would have its theatrical and home video ultimate revenues adjusted downward.

7Collaborative Arrangements

~~T.O~~The ~~Entertainment~~Company has entered into collaborative arrangements in the film business, ~~Inc~~with one or more active participants to jointly finance produce and/or distribute motion picture or television product under which both the Company and the other active participants share in the risks and rewards of ownership. These arrangements are referred to as co-production and distribution arrangements.

~~Notes~~The toCompany ~~Condensed~~typically ~~Consolidated~~records ~~Financial~~an ~~Statements~~asset for only the portion of the film it owns and finances. The Company and the other participants typically distribute the product in different media or markets. Revenues earned and expenses

~~For the Three Months Periods Ended June 30, 2012 and 2011~~9

incurred for the media or markets in which the Company distributes the product are typically recorded on a gross basis. The Company typically does not record revenues earned and expenses incurred when the other participants distribute the product. The Company and the other participants typically share in the profits from the distribution of the product in all media or markets. For films product, if the Company is a net receiver of (~~Unaudited~~1) the Company’s share of the profits from the media or markets distributed by the other participants less (2) the other participants’ share of the profits from the media or markets distributed by the Company then the net amount is recorded as net sales. If the Company is a net payer then the net amount is recorded in cost of sales.

~~(Continued)~~Comprehensive Income

~~future~~Comprehensive ~~decreases~~income inis ~~fair~~defined ~~value~~to ~~recognized~~include all changes in ~~earnings~~equity ~~while~~except ~~increases~~those inresulting ~~fair~~from ~~values~~investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in ~~expenses~~a financial statement that is presented with the same prominence as ~~interest~~other ~~expense~~financial statements. Comprehensive income includes net income and the foreign currency translation changes.

~~The~~Recent Company used the Black-Scholes-Merton (“Black-Scholes”) model to obtain the fair value of the conversion feature. The Company’s expected volatility assumption is based on the historical volatility of stock prices of entertainment industry average in Japan. The expected life assumption is primarily based on the expiration date of the conversion features. The risk-free interest rate for the expected term of the conversion features is based on the U.S. Treasury yield curve in effect at the time of measurement.Pronouncements

~~Investments~~We inhave ~~Animations~~reviewed ~~Films~~all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoptions of any such pronouncements may be expected to cause a material impact on our financial condition or the results of operations.

~~Investments~~NOTE in3 ~~animation films includes the Company’s investments in co~~-~~production~~ animation films which are generally less than 50% owned by the Company and are produced by the other investors of the ventures. Equity method of accounting is adopted for the investments in animations films. Income from investment projects for the three months ended June 30, 2012 was $9,586. There was no income for the three months ended June 30, 2011.INVENTORIES

~~Film~~Inventories ~~Costs~~are valued at cost, not in excess of market, cost being determined on the “First-in-first-out” basis and ~~Revenues~~consist of finished goods of books and DVDs. Inventories are at September 30, 2012 and March 31, 2012are summarized as follows:

Feature films typically are produced for initial exhibition in theaters, followed by distribution in the home video, electronic sell-through, video-on-demand, pay cable, basic cable and broadcast network sectors. Generally, distribution to the home video, video-on-demand, pay cable, basic cable and broadcast network sectors each commence within a range of approximately one to five years of initial theatrical release. Theatrical revenues are recognized as the films are exhibited. Revenues from home video sales are recognized at the later of the delivery date or the date that video units are made widely available for sale or rental by retailers based on gross sales less a provision for estimated returns. A warranty period for six months are usually provided by the Company on the film produced or arranged by the Company. Based on management’s past experience, no report of defects or claim for compensation


	September 30		March 31
Inventories	$	1,052,658	$	859,478
Less: provision for inventory written off		-		(9,268)
Inventories	$	1,052,658	$	850,210

~~Upfront~~The orinventories ~~guaranteed~~represent ~~payments for~~ the ~~licensing~~ending balance of ~~intellectual~~finished ~~property~~goods ~~are~~of ~~recognized~~books ~~as revenue when (i) an arrangement has been signed with a customer, (ii) the customer’s right to use or otherwise exploit the intellectual property has commenced~~ and ~~there~~DVDs isas noat ~~requirement~~September ~~for significant continued performance by the Company~~30, ~~(iii)~~2012 ~~licensing fees are either fixed or determinable~~ and ~~(iv)~~March ~~collectability of the fees is reasonably assured. In the event any significant continued performance is required in these arrangements~~31, ~~revenue is recognized when the related services are performed~~2012.

~~Film~~NOTE ~~costs~~4 ~~include~~– ~~the~~FILM unamortized cost of completed films, films in production and film rights in preparation of development. Film costs are stated at the lower of cost, less accumulated amortization, or fair value. The amount of capitalized film costs recognized as cost of revenues for a given film as it is exhibited in various sectors, throughout its life cycle, is determined using the film forecast computation method. Under this method, the amortization of capitalized costs and the accrual of participations and residuals are based on the proportion of the film’s revenues recognized for such period to the film’s estimated remaining ultimate revenues. The process of estimating a film’s ultimate revenues (i.e., the total revenue to be received throughout a film’s life cycle) is discussed further under “Film Cost Recognition and Impairments.”COSTS

Film ~~Cost~~costs ~~Recognition~~at September 30, 2012 and ~~Impairments~~March 31, 2012 are summarized as follows:

Film costs include direct production costs, production overhead and acquisition costs for films are stated at the lower of unamortized cost or estimated fair value and classified as noncurrent assets. Accounting for film costs, as well as related revenues requires the exercise of judgment relates to the process of estimating a film’s ultimate revenues and is important for two reasons. First, while a film is being produced and the related costs are being capitalized, as well as at the time the film is released, it is necessary for management to estimate the ultimate revenues, less additional costs to be incurred (including exploitation and participation costs), in order to determine whether the value of a film has been impaired and, thus, requires an immediate write-off of unrecoverable film costs. Second, it is necessary for management to determine, using the film forecast computation method, the amount of capitalized film costs and the amount of participations and residuals to be recognized as costs of revenues for a given film in a particular period. To the extent that the film’s ultimate revenues are adjusted, the resulting gross margin reported on the exploitation



		September 30	March 31
Film costs — Theatrical film and animation:
Released, less amortization	$	1,142,396	$	886,069
Completed and not released		1,252,050		-
In production and development		1,185,926		568,301
Television production:
Released, less amortization		684,500		1,079,684
In production and development		-		2,853,428
	$	$4,264,962	$	5,387,482

8The cost of completed films amounting to $1,929,896 and $1,965,753, respectively, are expected to be amortized in the next operating cycle (i.e. 12 months from the date of September 30, 2012 and March 31, 2012).

~~T.O Entertainment, Inc.~~10

~~Notes~~All unamortized film cost as of September 30, 2012 and March 31, 2012 are expected to ~~Condensed~~be ~~Consolidated~~amortized ~~Financial~~within ~~Statements~~three years from September 30, 2012 and March 31, 2012.

~~For~~NOTE ~~the~~5 ~~Three~~– ~~Months Periods Ended June 30~~PROPERTY, ~~2012~~PLANT ~~and~~AND ~~2011~~EQUIPMENT

~~(Unaudited)~~Property and equipment at September 30, 2012 and March 31, 2012 is summarized as follows:

(Continued)


	September 30		March 31
Leasehold improvement	$	104,603	$	98,469
Office equipment		147,117		138,655
		251,720		237,124
Accumulated depreciation		(205,668)		(172,504)
	$	46,052	$	64,620

The depreciation of ~~that~~leasehold ~~film~~improvement inand aoffice ~~period~~equipment ischarged ~~also~~was ~~adjusted~~$21,873, $23,288, $10,691 and $12,390 for the six and three months periods ended September 30, 2012 and 2011, respectively.

~~Prior~~NOTE to6 ~~the~~– ~~theatrical~~DEFERRED release of a film, management bases its estimates of ultimate revenues for each film on factors such as the historical performance of similar films, the rating and genre of the film, pre-release market research (including test market screenings) and the expected number of theaters in which the film will be released. Management updates such estimates based on information available during the film’s production and, upon release, the actual results of each film. Changes in estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, could have an impact on the Company’s financial results for that period. For example, prior to a film’s release, the Company often will test market the film to the film’s targeted demographic. If the film is not received favorably, the Company may (i) reduce the film’s estimated ultimate revenues, (ii) revise the film, which could cause the production costs to increase or (iii) perform a combination of both. Similarly, a film that generates lower-than-expected theatrical revenues in its initial weeks of release would have its theatrical and home video ultimate revenues adjusted downward.REVENUE

~~Collaborative~~The ~~Arrangements~~deferred revenue represents the amount of money received from other participants of the films and animation in production stage. This deferred revenue will be realized when the Company fulfills its performance obligation stated in the production contracts entered into with other participant. As of September 30, 2012 and March 31, 2012, the Company had a balance of $ 3,821,529 and $7,861,505 respectively as deferred revenue.

~~The~~NOTE ~~Company~~7 ~~has~~–BANK entered into collaborative arrangements in the film business, with one or more active participants to jointly finance produce and/or distribute motion picture or television product under which both the Company and the other active participants share in the risks and rewards of ownership. These arrangements are referred to as co-production and distribution arrangements.LOANS

~~The~~Bank ~~Company~~loans typically records an asset for only the portion of the film it owns and finances. The Company and the other participants typically distribute the product in different media or markets. Revenues earned and expenses incurred for the media or markets in which the Company distributes the product are ~~typically~~summarized recorded on a gross basis. The Company typically does not record revenues earned and expenses incurred when the other participants distribute the product. The Company and the other participants typically share in the profits from the distribution of the product in all media or markets. For films product, if the Company is a net receiver of (1) the Company’s share of the profits from the media or markets distributed by the other participants less (2) the other participants’ share of the profits from the media or markets distributed by the Company then the net amount is recorded as ~~net sales. If the Company is a net payer then the net amount is recorded in cost of sales.~~follows:

Comprehensive Income


	Interest rate	Due date	September 30, 2012		March 31, 2012
Financial institution in Japan¹	2.000%	10/31/2012	$	2,411	$	8,345
Financial institution in Japan¹	1.975%	7/15/2013		84,240		97,600
Financial institution in Japan¹	2.200%	3/25/2014		270,151		117,120
Financial institution in Japan¹	1.975%	7/15/2014		907,135		284,797
Financial institution in Japan¹	2.250%	10/10/2015		56,635		268,400
Financial institution in Japan¹	2.150%	6/30/2015		647,870		271,206
Financial institution in Japan¹	2.200%	2/29/2016		103,680		220,820
Financial institution in Japan²	1.200%	7/31/2015		259,200		139,068
Financial institution in Japan²	2.300%	3/31/2021		252,137		886,489
Financial institution in Japan²	2.300%	3/31/2021		209,952		55,364
Financial institution in Japan²	2.300%	4/28/2018		129,782		644,770
Financial institution in Japan²	2.000%	5/25/2021		915,961		902,872
Financial institution in Japan²	4.175%	11/30/2012		64,787
Financial institution in Japan²	5.900%	9/30/2013		388,800
Notes payable to banks				4,292,741		3,896,851
Less current portion				(242,158)		(858,953)

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation changes.11

~~Recent~~Long ~~Pronouncements~~term loan payable $ 4,050,583 $ 3,037,898

We1. Bank ~~have~~loans ~~reviewed~~guaranteed ~~all~~by ~~recently issued, but not yet effective, accounting pronouncements and do not believe~~ the ~~future~~Company’s ~~adoptions~~Chief ofExecutive ~~any such pronouncements may be expected to cause a material impact on our financial condition or the results of operations.~~Officer

~~NOTE~~2. Bank 3loans -guaranteed ~~INVENTORIES~~by the Company’s Chief Executive Officer and Tokyo Credit Guarantee Association, an independent commercialized credit guarantee company.

~~Inventories~~The ~~are~~scheduled ~~valued~~maturities ~~at cost, not in excess~~ of ~~market, cost being determined on~~ the ~~“First-in-first-out”~~Company’s ~~basis.~~bank ~~Inventories~~loans are ~~at June 30, 2012 and March 31, 2012are summarized~~ as follows:

	June 30		March 31
12 Months ending September 30,
Inventories	$	1,239,723	$	859,478
2013	$	242,158
Inventories Singapore		1,486	-	-
2014		898,867
Less: provision for inventory written off		-		(9,268)
2015		845,977
Inventories	$	1,241,209	$	850,210
2016		762,462
2017		373,365
Thereafter		1,169,912
Total	$	4,292,741

9NOTE 8 - CONVERTIBLE BONDS

~~T.O~~The ~~Entertainment~~Company previously issued an unsecured convertible bond aggregating $466,560 ~~Inc~~(amount in original currency: ¥42,000,000) with an undetectable conversion feature in the form of a warrant due September 30, 2012 to stockholders of the company. The convertible bond bears interest at 3% per annum. The convertible bond reached maturity and was not converted. The conversion feature has expired and no longer is available.

~~Notes~~The convertible bond holder agreed to ~~Condensed~~extend ~~Consolidated~~the ~~Financial~~payment ~~Statements~~date of bond until March31, 2013.

~~For~~NOTE ~~the~~9 ~~Three~~- ~~Months~~SHARE ~~Periods~~BASED ~~Ended June 30, 2012 and 2011~~COMPENSATION

~~(Unaudited)~~All shares amounts have been restated retroactively to reflect the reverse merger.

On August 29, 2005, Board of Directors passed a resolution which was approved by the Company’s stockholders to permit the grant of incentive stock options to its officers, employees, consultants and non-employee directors. In November, 2005, 599,691 stock options were granted pursuant to the resolution. Option awards could be exercised two years after the day of allocation of the share option to eight years after that. The exercise price for this option is ¥7.25 per share (~~Continued~~$0.09 per share at September 30, 2012). On October 25, 2006, the Company exercised a stock split of ratio 1:3 and accordingly, the number of option granted and the price was adjusted accordingly.

~~The~~On ~~inventories~~October ~~represent~~22, 2007 the ~~ending~~Board ~~balance~~ of ~~finished~~Directors ~~goods~~passed ofa ~~books~~resolution ~~and~~which ~~DVDs~~was asapproved atby ~~June~~the 30Company’s stockholders to grant incentive options to its officers, ~~2012~~employees, consultants and ~~March~~non-employee 31directors. In October, 2007, 16,543,200 stock options were granted pursuant to the resolution. Option awards could be exercised two years after the day of allocation of the share option to eight years after that. The exercise price for this option is ¥8.70 per share ($0.11 per share at September 30, 2012).

~~NOTE~~During 42008, –516,975 ~~FILM~~of ~~COSTS~~16,543,200 stock options were automatically cancelled upon the departure of two employees who were granted with such stock options according to the stock option agreement.

~~Film~~On ~~costs~~January 20, 2010 the Board of Directors passed a resolution which was approved by the Company’s shareholders in a special shareholder meeting held at ~~June~~the ~~30,~~same ~~2012~~date ~~and~~to ~~March~~grant 31incentive options to a business partner. In January 26, ~~2012~~2011, ~~are~~689,300 ~~summarized~~stock asoptions ~~follows:~~were granted pursuant to the resolution. Option awards could be exercised the following day after the date of allocation of the share option to ten years after that. The exercise price for this option is ¥8.70 per share ($0.11 per share at September 30, 2012).

		June 30	March 31
Film costs — Theatrical film and animation:
Released, less amortization	$	1,130,890	$	886,069
Completed and not released		1,305,517		-
In production and development		487,286		568,301
Television production:
Released, less amortization		799,006		1,079,684
In production and development		3,233,967		2,853,428
	$	$6,956,666	$	5,387,482

*TheOn ~~cost~~July of6, ~~completed~~2010, ~~films amounting $1~~137,~~929,896~~860 ~~and~~of $116,~~965~~543,~~753~~200 ~~are~~stock ~~expected~~options towere beautomatically ~~amortized~~cancelled inupon the ~~next~~departure ~~operating~~of ~~cycle~~an ~~(i.e.~~employee 12who ~~months~~was ~~from~~granted ~~the~~with ~~date~~such ofstock ~~June~~options ~~30,~~according ~~2012~~to ~~and~~the ~~March~~stock ~~31,~~option ~~2012)~~agreement.

**On ~~All~~September ~~unamortized~~22, ~~film~~2011, ~~cost~~1,488,888 asstock options granted during the year of ~~June~~2005 30were exercised at price of ¥2.42 per share ($0.03 per share at September 22, ~~2012~~2011), ~~and~~On ~~March~~same 31date, ~~2012~~1,723,250 ~~are~~share ~~expected~~options togranted beduring ~~amortized~~the ~~within~~year ~~three~~of ~~years~~2011 ~~from~~were ~~June~~exercised ~~30,~~at ~~2012~~price ~~and~~of ~~March~~¥8.70 31($0.11 per share at September 22, ~~2012~~2011).

~~NOTE~~The 5fair –value ~~PROPERTY,~~of ~~PLANT~~stock ~~AND~~acquisition ~~EQUIPMENT~~rights granted to employees on the date of grant and used to recognize compensation were estimated using the Black-Scholes model with the following weighted-average assumptions:

Property and equipment at June 30, 2012 and March 31, 2012 is summarized as follows:



Dividend yield		0.00%
Volatility		38.4-43.14%
Risk free rate		4.42-4.75%
Expected option life		8-10 years

	June 30		March 31
Leasehold improvement	$	103,069	$	98,469
Office equipment		144,847		138,655
		247,916		237,124
Accumulated depreciation		(191,517)		(172,504)
	$	56,399	$	64,620

There was no expense recorded for the three month periods ended September 30, 2012 and 2011.

The ~~depreciation~~following oftable ~~leasehold~~summarizes ~~improvement~~options ~~and~~outstanding ~~office~~issued ~~equipment~~to ~~charged~~employees ~~for~~at ~~the~~September ~~three~~30, ~~month~~2012. There ~~periods~~were ~~ended~~no ~~June~~options ~~31,~~granted ~~2012~~exercised ~~and~~or ~~2011~~cancelled ~~was~~during ~~$11,084~~the ~~and~~three ~~$10~~months ended September 30,~~898~~ 2012.

NOTE 6 – DEFERRED REVENUE



	Options	Weighted Average Exercise Price			Weighted Average remaining contractual life (in years)	Average Intrinsic Value
Outstanding as at September 30, 2012	13,786,000	$	0.11	#	4.8	$	16,833	(*)

~~The~~(#): ~~deferred~~Weighted ~~revenue~~average ~~represents~~exercise ~~the~~prices ~~amount of money received from other participants of the films and animation~~ in ~~production~~original ~~stage.~~currency ~~This~~are ~~deferred revenue will be realized when the Company fulfills its performance obligation stated in the production contracts entered into with other participant~~¥8.61 Asas ofat ~~June~~September 30, 2012 ~~and March 31, 2012, the Company had a balance of $ 6,652,646 and $7,861,505 respectively as deferred revenue~~.

10(*): Average intrinsic values in original currency are ¥1,299,000 as at September 30, 2012.

~~T.O~~The ~~Entertainment,~~stock ~~Inc~~option granted to non-employees is for the services rendered or sign-up bonus to strengthen the relationship with business partners or service providers. The fair values of the vesting non-employee options were determined using the Black Scholes option pricing model with the following assumptions:

Notes to Condensed Consolidated Financial Statements



Dividend yield		0.00%
Volatility		38.4-43.14%
Risk free rate		4.42-4.75%
Expected option life		8-10 years

~~For~~The ~~the~~following ~~Three~~table ~~Months~~summarizes ~~Periods~~options ~~Ended~~outstanding ~~June~~issued to non-employees at September 30, 2012. ~~and~~There ~~2011~~were no options granted exercised or cancelled during the three months ended September 30, 2012.

(Unaudited)



	Options	Weighted Average Exercise Price			Weighted Average remaining contractual life (in years)	Average Intrinsic Value
Outstanding September 30, 2012	1,378,600	$	0.10	(#)	5.2	$	25,010

(~~Continued~~#): Weighted average exercise price in original currency is ¥7.90 as at September 30, 2012.

~~NOTE 7 –BANK LOANS~~13

~~Bank~~There ~~loans~~was ~~are~~no ~~summarized~~stock asoption ~~follows:~~expense of non-employee options for the six and three months periods ended September 30, 2012 and 2011, respectively.

			June 30		March 31
	Interest rate	Due date
Financial institution in Japan 1	2.000%	10/31/2012		5,555	$	8,345
Financial institution in Japan 1	1.975%	7/15/2013		83,005		97,600
Financial institution in Japan 1	2.200%	3/25/2014		266,191		117,120
Financial institution in Japan 1	1.975%	7/15/2014		902,354		284,797
Financial institution in Japan 1	2.250%	10/10/2015		56,341		268,400
Financial institution in Japan 1	2.150%	6/30/2015		647,503		271,206
Financial institution in Japan 1	2.200%	2/29/2016		107,268		220,820
Financial institution in Japan 2	1.200%	7/31/2015		261,785		139,068
Financial institution in Japan 2	2.300%	3/31/2021		262,615		886,489
Financial institution in Japan 2	2.300%	3/31/2021		216,579		55,364
Financial institution in Japan 2	2.300%	4/28/2018		134,953		644,770
Financial institution in Japan 2	2.000%	5/25/2021		919,542		902,872
Financial institution in Japan 2	4.175%	11/30/2012		127,700
Notes payable to banks				3,991,391		3,896,851
Less current portion				(811,559)		(858,953)
Long term loan payable			$	3,179,832	$	3,037,898

The following table summarizes all options outstanding issued to both employee and non-employees at September 30, 2012:

1. Bank loans guaranteed by the Company’s Chief Executive Officer



			Options Outstanding			Options Exercisable
			Weighted			Weighted
			Average	Weighted		Average	Weighted
Range of			Remaining	Average		Remaining	Average
Exercise Price		Number Outstanding	Contractual Life	Exercise Price	Number Exercisable	Contractual Life	Exercise Price
$0.03	(*)	310,185	2.45	$0.03	310,185	2.45	$0.03
$0.11	(#)	14,165,115	5.45	$0.11	14,165,115	5.45	$0.11
$0.11	(#)	689,300	7.75	$0.11	689,300	7.75	$0.11
Total		15,164,600			15,164,600

~~2. Bank~~(*): ~~loans~~Weighted ~~guaranteed~~average byexercise ~~the~~price ~~Company’s~~in ~~Chief~~original ~~Executive~~currency ~~Officer~~is ~~and~~¥2.37 ~~Tokyo~~as ~~Credit~~at ~~Guarantee~~September ~~Association~~30, ~~an independent commercialized credit guarantee company~~2012.

~~The~~(#): ~~scheduled~~Weighted ~~maturities~~average ofexercise ~~the~~price ~~Company’s~~in ~~bank~~original ~~loans~~currency ~~are~~is ¥8.69 as ~~follows:~~at September30, 2012.

12 Months ending June 30,
2013	$	811,559
2014		797,103
2015		625,424
2016		459,273
2017		320,271
Thereafter		977,761
Total	$	3,991,391

Although the fair value of stock options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

NOTE 810–INCOME ~~- CONVERTIBLE BONDS~~TAXES

~~The~~We ~~Company~~account ~~previously~~for ~~issued~~income antaxes ~~unsecured~~in ~~convertible~~interim ~~bond~~periods ~~aggregating~~in ~~$506,879~~accordance ~~(amount~~with inASC ~~original~~Topic ~~currency: ¥42~~740,~~000,000~~ Income Taxes (“ASC 740”). We ~~with~~have determined an ~~undetectable~~estimated ~~conversion~~annual ~~feature~~effective intax rate. The rate will be revised, if necessary, as of the ~~form~~end of aeach ~~warrant~~successive ~~due~~interim ~~September~~period ~~30,~~during ~~2012~~our fiscal year to ~~stockholders~~our best current estimate. As of September 30, 2012, the ~~company.~~estimated ~~The~~effective ~~convertible~~tax ~~bond~~rate ~~bears~~for ~~interest~~the atyear 3%will ~~per~~be ~~annum.~~0%

~~The~~In ~~convertible~~accordance ~~bond~~with ~~(which~~ASC ~~includes~~740, ~~principal~~at ~~and~~September ~~accrued~~30, ~~interest~~2012 ~~thereon)~~we isdetermined ~~convertible~~that toa ~~common~~valuation ~~stock~~allowance atshould abe ~~price~~recognized ~~(the~~against ~~“Conversion~~deferred ~~Price”)~~tax ofassets ~~$766~~because, ~~(amount~~based inon ~~original~~the ~~currency:~~weight ~~¥60,000~~of ~~per~~available ~~unit)~~evidence, atit ~~any~~is ~~time~~more ~~until~~likely ~~September~~than ~~29,~~not ~~2012~~(i.e., asgreater ~~adjusted~~than ~~for~~50% ~~the~~probability) ~~exchange~~that ofsome ~~shares~~portion inor all of the ~~merger.~~deferred ~~The~~tax ~~mechanism~~asset ~~for~~will ~~the~~not ~~conversion~~be isrealized ~~through~~in athe ~~warrant~~future. ~~When~~We ~~the~~recognized ~~holder~~a ~~elects~~reserve toof ~~convert~~100% ~~the~~of ~~bond, he receives~~ the ~~warrant~~amounts ~~and~~of ~~uses~~ the ~~debt~~deferred astax ~~payment~~benefit ~~for~~in the ~~common~~amount ~~stock. No~~of ~~cash is paid upon conversion.~~$726,576

~~Based~~There onare ~~current~~open ~~guidance,~~statutes ~~the~~of ~~Company~~limitations ~~concluded~~for ~~that~~taxing ~~the~~authorities ~~convertible~~in ~~bond~~federal ~~was~~and ~~required~~state jurisdictions to beaudit ~~accounted~~our tax returns from 2008 through the current period. Our policy is to account for asincome atax related interest and penalties in income tax expense in the statement of operations. There have been no income tax related interest or penalties assessed or recorded.

11ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

~~T.O~~NOTE ~~Entertainment,~~11- ~~Inc.~~INVESTMENT IN ANIMATED FILMS

~~Notes~~The Company invests in co-production of animated films through co-production agreements in which it generally has less than a 50% ownership interest, and records its investment in the co-productions using the equity method of accounting for projects in which it has a 20% to ~~Condensed~~50% ~~Consolidated~~ownership ~~Financial~~interest, ~~Statements~~and the cost method of accounting for projects in which it has an ownership interest of less than 20%, prescribed by ASC Topic 323 “Investments – Equity Method and Joint Ventures”.

~~For the Three Months Periods Ended June 30, 2012 and 2011~~14

~~(Unaudited)~~Co-production animated films that we account for using the equity method have a committee set-up which is used to co-ordinate the relationship between all participating parties. The co-production committee agreement allocates production duties and ownership percentages among the parties. The ownership ratio of the participants in the co-production committee is also adopted as the profit or loss sharing ratio of the participants.

~~(Continued)~~Costs incurred by the participants upon performance of their duties under the co-production agreement are capitalized. The maximum cost capitalized is limited to the estimated total cost of production developed by the committee in the planning stage. Spending by any participant in excess of its portion of the total estimated cost of production specified in the co-production agreement, is recorded as an expense and is not capitalized.

~~derivative.~~There ~~This~~are ~~guidance~~no ~~requires~~liabilities incurred by the ~~Company~~co-production tobecause ~~bifurcate~~each ~~and~~participant ~~separately~~bears ~~account~~responsibility for ~~the~~its ~~conversion~~portion ~~features~~ of the ~~convertible~~cost ~~notes~~of ~~issued as embedded derivatives~~production.

~~Derivative~~None ~~financial~~of ~~instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities,~~ the ~~derivative~~investments ~~instrument~~have isany ~~initially~~liquidity ~~recorded~~because attransfer ~~its~~of ~~fair~~ownership ~~value and~~ is ~~then~~restricted ~~re-valued~~by ~~at each reporting date, with changes in~~ the ~~fair~~co-production ~~value reported as charges or credits to income~~agreement.

~~The~~As a result of the Company’s ~~used~~inability ato ~~Black~~fund ~~Scholes~~certain ~~that~~requirements ~~values~~of its investments, the ~~compound~~cost ~~embedded~~contribution ~~derivatives~~and ~~with~~profit sharing ratio decrease led to an equity interest reduction. Consequently it no longer exercises any influence over the ~~following~~co-productions. As ~~variable~~of ~~inputs:~~August 1, 2012, the Company ceased accounting for its investment in animated films under the equity method, and began accounting for the investment utilizing the cost method.

	June 30, 2012		March 31, 2012
Stock price on grant date:	＄766	(*)	$732	(*)
Dividend yield:	0	%	0	%
Volatility:	32.87	%	20	%
Risk free rate:	0.03	%	0.15	%
Expected life:	0.25		0.5

(Loss)/Income from unconsolidated entities for the three and six months ended September 30, 2012, includes $465,505 which represents the write off of investments from which the Company is no longer entitled to receive any distributions.

~~(*):~~NOTE ~~Amount~~12 in– ~~original~~EARNING ~~currency:~~PER ~~¥60,000, which was based on prior issuance price of common stock.~~SHARE

The ~~following~~Company iscalculates ~~detail~~earnings per share in accordance with ASC Topic 260 “Earnings Per Share”, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the ~~derivative~~weighted ~~liability~~average ~~balances~~number asof shares outstanding during the fiscal year. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of ~~June~~outstanding 30stock options, warrants and convertible note (using the if-converted method). The dilutive earnings per share was not calculated because the exercise price of the outstanding stock options in 2012: and the conversion price of convertible bonds and the exercise price outstanding stock options in 2011 were higher than the average trading price of shares in those periods.

		March 31, 2012		Additions		(Gain)/Loss from valuation		Foreign translation (gain)/loss		June 30, 2012
Convertible Bonds		$ 2,988		-		(1,908)		17		$1,097

NOTE 13 - RELATED PARTY TRANSACTIONS

~~NOTE~~There 9was -no ~~SHARE~~related ~~BASED~~transaction ~~COMPENSATION~~reported for the six and three months ended September 30, 2012 and 2011.

~~All~~NOTE ~~shares~~14 ~~amounts~~– ~~have~~SEGMENT ~~been restated retroactively to reflect the reverse merger.~~REPORTING

OnThe ~~August~~Company ~~29,~~has ~~2005,~~two ~~Board~~reportable ofbusiness ~~Directors~~segments; ~~passed~~(i) afilm ~~resolution~~entertainment, which ~~was~~consists ~~approved~~principally byof ~~the~~production ~~Company’s~~and ~~stockholders~~distribution toof ~~permit~~animated ~~the~~and ~~grant~~live offeature ~~incentive~~films, ~~stock~~including ~~options~~distribution toof ~~its~~such ~~officers,~~films ~~employees,~~on ~~consultants~~DVD and ~~non~~Blu-~~employee~~ray ~~directors. In November~~Disc, ~~2005,~~and ~~599,691~~(ii) ~~stock~~book ~~options~~publishing ~~were~~and ~~granted pursuant to the resolution~~distribution. The ~~Option~~accounting ~~awards~~policies ~~could be exercised two years after the day~~ of ~~allocation of~~ the ~~share~~segments ~~option~~are ~~to eight years after that. The exercise price for this option is ¥7.25 per share ($0.12 per share at June 30, 2012). On October 25, 2006,~~ the ~~Company~~same ~~exercised~~as athose ~~stock~~described ~~split~~in ~~of ratio 1:3 and accordingly,~~ the ~~number~~summary of ~~option~~significant ~~granted~~t ~~and~~accounting ~~the price was adjusted accordingly~~policies.

OnOperating ~~October~~profits ~~22,~~for ~~2007~~these ~~the~~segments ~~Board~~excludes ofunallocated ~~Directors~~corporate ~~passed~~items. Administrative aand ~~resolution~~staff ~~which was approved by the Company’s stockholders to grant incentive options to its officers, employees, consultants~~ and ~~non-employee~~costs ~~directors. In October, 2007, 16,543,200 stock options~~ were ~~granted~~commonly ~~pursuant~~used toby ~~the~~all ~~resolution.~~business ~~Option~~segments ~~awards~~and ~~could~~was ~~be exercised two years after the day of allocation of the share option to eight years after that~~indistinguishable. ~~The exercise price for this option is ¥8.70 per share ($0.12 per share at June 30, 2012).~~

~~During~~The ~~2008,~~following ~~516,975~~sets offorth ~~16,543,200~~information ~~stock~~about ~~options were automatically cancelled upon~~ the ~~departure~~operations of ~~two employees who were granted with such stock options according to~~ the ~~stock~~business ~~option agreement.~~segments:

OnAssets ~~January 20, 2010 the Board~~ of ~~Directors passed a resolution which was approved by~~ the Company’s ~~shareholders~~are inused afor ~~special~~all ~~shareholder~~business ~~meeting~~segments ~~held~~and ~~at the same date to grant incentive options to~~ a ~~business~~segment ~~partner.~~differentiation Incannot ~~January 26, 2011, 689,300 stock options were granted pursuant to the resolution. Option awards could~~ be ~~exercised the following day after the date of allocation of the share option to ten years after that~~made. ~~The exercise price for this option is ¥8.70 per share ($0.12 per share at June 30, 2012).~~

~~On July 6, 2010, 137,860 of 16,543,200 stock options were automatically cancelled upon the departure of an~~ 15


	Six months ended September 30,				Three months ended September 30,
Revenue	2012		2011		2012		2011
Film entertainment	$	7,820,352	$	9,616,117	$	2,130,825	$	6,044,957
Book publishing and distribution		2,290,451		1,147,715		1,128,144		951,717
Total revenue	$	10,110,803	$	10,763,832	$	3,258,969	$	6,996,674

Gross profit
Film entertainment	$	327,632	$	1,662,721	$	70,848	$	1,511,356
Book publishing		563,684		813,761		(64,043)		750,680
Total gross profit	$	891,316	$	2,476,482	$	6,805	$	2,262,036

Other items
General and administrative expenses
Unallocated	$	(1,524,862)	$	(1,307,594)	$	(642,833)	$	(669,984)
(Loss)/income from unconsolidated entities
Film entertainment	$	(455,478)	$		$	(465,064)	$
Interest (expense)
Unallocated amounts	$	(86,249)	$	(87,942)	$	(49,038)	$	(48,507)
Other income/(expense)
Unallocated	$	9,799	$	13,096	$	6,387	$	13,376

(film entertainment)
Operating Income (loss)
Film entertainment	$	(127,846)	$	1,662,721	$	(394,216)	$	1,511,356
Book publishing		563,684		813,761		(64,043)		750,680
Unallocated amounts		(1,601,312)		(1,382,440)		(685,484)		(705,115)
Total loss from operations before income taxes	$	(1,165,474)	$	1,094,042	$	(1,143,743)	$	1,556,921

~~T.O~~Assets ~~Entertainment,~~of ~~Inc~~the Company are used for all business segments and a segment differentiation cannot be made.

~~Notes~~More tothan ~~Condensed~~90% ~~Consolidated~~of ~~Financial~~the ~~Statements~~Company’s total revenue is derived from Japan and accordingly no geographic segment reporting is included.

~~For~~No single customer accounts for more than ten percent (10%) of the ~~Three~~Company’s ~~Months~~revenues ~~Periods~~in ~~Ended~~the ~~June~~six months and three month periods ended September 30, 2012 ~~and~~or 2011.

~~(Unaudited)~~NOTE 15 - SUBSEQUENT EVENT

~~(Continued)~~Management has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements other than as follows:

~~employee~~On ~~who~~November ~~was~~12, ~~granted~~2012 ~~with~~the ~~such~~Company ~~stock~~borrowed ~~options~~$1,200,000 ~~according~~from toan ~~the~~unrelated ~~stock~~third ~~option agreement~~party.

OnThe ~~June~~loan ~~22,~~was ~~2011,~~made ~~1,488,888~~pursuant ~~stock~~to ~~options granted during~~ the ~~year~~terms of ~~2005~~a ~~were~~Credit ~~exercised~~Agreement atdated ~~price~~as of ~~¥2.42~~October ~~per~~31, ~~share~~2012 (~~$0.03~~the ~~per~~"Credit ~~share~~Agreement"), atand ~~June~~made ~~22,~~effective ~~2011),~~as Onof ~~same~~November ~~date~~12, 12012,~~723,250~~ ~~share~~by ~~options~~and ~~granted~~is ~~during~~evidenced ~~the~~by ~~year~~a ofRevolving ~~2011 were exercised at price of ¥8~~Note.70 Under ~~($0.11~~the ~~per share at June 22, 2011).~~

The fair value of stock acquisition rights granted to employees on the date of grant and used to recognize compensation were estimated using the Black-Scholes model with the following weighted-average assumptions:16

Dividend yield		0.00%
Volatility		38.4-43.14%
Risk free rate		4.42-4.75%
Expected option life		8-10 years

Credit Agreement, the Company may borrow up to an amount equal to the lesser of 80% of its Eligible Accounts (as defined in the Credit Agreement) and the revolving loan commitment, which initially is $1,200,000. Upon satisfaction of certain conditions, The Company may, from time to time, request that the revolving loan commitment be raised up to a maximum of $5,000,000. The decision to grant any such increase in the revolving loan commitment is in the Lender's sole discretion.

~~There~~The ~~was~~loan nomatures ~~expense~~on ~~recorded~~the ~~for~~earlier of May 12, 2013, which is six (6) months from the ~~three~~closing date, subject to a six-month ~~periods~~extension ~~ended~~upon ~~June~~written 30request of the Company made prior to the initial closing date. The maturity date may also be extended in the Lender's sole discretion, ~~2012~~in ~~and~~connection ~~2011~~with execution of any modification, extension or renewal of the Revolving Note evidencing the loan.

The ~~following~~loan ~~table~~bears ~~summarizes~~interest ~~options~~at ~~outstanding~~the ~~issued~~rate of 10% per annum. In addition, the Company is required to ~~employees~~pay atcertain ~~June~~fees 30specified in the Credit Agreement. The fees include due diligence fees, ~~2012~~document review and legal fees, an asset monitoring fee, and a transaction advisory fee, all of which are payable in cash, and an additional advisory fee payable through issuance to the Lender of three (3) redeemable warrants to purchase shares of common stock of the Company. Each of the warrants has a term of 10 years, and each of them grants the Lender the right to purchase a number of shares equal to up to one percent (1%) of the Company’s issued and outstanding common stock at a price of $0.001 per share. ~~There~~Each ~~were~~of nothe ~~options~~warrants ~~granted~~includes ~~exercised~~a ormandatory ~~cancelled~~redemption ~~during~~provision pursuant to which the Company is required to redeem the warrant for a redemption price of $45,000 if the Lender has not previously elected to exercise the warrant. The mandatory redemption dates of the three ~~months~~warrants ~~ended~~are ~~June~~May 3012, ~~2012~~2013, August 12, 2013 and November 12, 2013, respectively, which dates are 6 months, 9 months and 12 months after the initial closing date.

	Options		Weighted Average Exercise Price			Weighted Average remaining contractual life (in years)		Average Intrinsic Value
Outstanding as at June 30, 2012	13,786,000		$	0.11		5.05		$	16,448	(*)

Under the terms of the Credit Agreement, the Company is required to direct all payments received on account to a lock box account under the control of the Lender. The Lender is authorized, on a weekly basis, to apply funds in the lock box account toward payment of fees and interest due and owing by the Company, to the establishment of a reserve in the amount of twenty percent (20%) of the amount of the revolving loan commitment, and, in its sole discretion, to prepayments of the outstanding principal due on the loan. Any funds remaining on deposit in the lock box account after payment of the foregoing items, are required to be disbursed on a weekly basis to the Company.

~~(#):~~In ~~Weighted~~addition ~~average~~to ~~exercise~~the ~~prices~~lock inbox, ~~original~~the ~~currency~~loan ~~are~~is ¥8secured by a pledge of substantially all of the assets of the Company, by a pledge of all of the shares of T.61O asEntertainment, atInc., ~~June~~a 30Japan corporation, ~~2012~~owned by the Company, and by the pledge by the officers and directors of the Company of a total of 8,581,725 shares of common stock of the Company currently owned by such officers and directors, and representing approximately 26% of the Company’s currently issued and outstanding common stock.

The Credit Agreement imposes certain restrictions on the Company, including restrictions on its ability to (*i): ~~Average~~incur ~~intrinsic~~any ~~values~~Funded Indebtedness (as defined in ~~original~~the ~~currency~~Credit ~~are~~Agreement), ¥1(ii) incur liens,~~299~~ (iii) make investments,~~000~~ (iv) permit a Change in Control (as atdefined ~~June~~in 30the Credit Agreement) or dispose of all or substantially all of its assets, ~~2012~~(v) make capital expenditures not in the ordinary course of its business, (vi) issue or distribute capital stock, (vii) make distributions to its shareholders, (viii) engage in any line of business other than the business engaged in on the date of the Credit Agreement and businesses reasonably related thereto, and (ix) enter into transactions with any affiliates except in the ordinary course of business and upon fair and reasonable terms that are no less favorable to Company than it would obtain in an arm-length's basis with a non-affiliate. Each of these restrictions is subject to certain exceptions, as specified in the Credit Agreement.

The ~~stock~~loan ~~option~~may ~~granted~~be toaccelerated ~~non-employees~~upon isthe ~~for~~occurrence and during the ~~services~~continuation ~~rendered~~of oran ~~sign-up~~Event ~~bonus~~of toDefault ~~strengthen~~(as defined in the ~~relationship~~Credit ~~with~~Agreement), ~~business~~including ~~partners~~nonpayment of amounts owed, misrepresentation, failure to perform under the Credit Agreement or ~~service~~related ~~providers.~~documents, ~~The~~default ~~fair~~under ~~values~~certain other obligations, events of bankruptcy, the ~~vesting~~entry ~~non-employee~~of ~~options~~a ~~were~~judgment ~~determined~~in ~~using~~excess of certain specified amounts, the ~~Black~~occurrence ~~Scholes~~of ~~option~~a ~~pricing~~Material ~~model~~Adverse ~~with~~Effect (as defined in the ~~following~~Credit ~~assumptions:~~Agreement), the occurrence of a Change in Control (as defined in the Credit Agreement), certain impairments of collateral, and the determination in good faith by the Lender that the prospect for payment or performance of the Obligations (as defined in the Credit Agreement) is impaired for any reason.

Dividend yield		0.00%
Volatility		38.4-43.14%
Risk free rate		4.42-4.75%
Expected option life		8-10 years

~~The following table summarizes options outstanding issued to non-employees at June 30, 2012. There were no options granted exercised or cancelled during the three months ended June 30, 2012.~~ 17

	Options		Weighted Average Exercise Price			Weighted Average remaining contractual life (in years)		Average Intrinsic Value
Outstanding June 30, 2012	1,378,600		$	0.10	(#)	5.45		$	25,010-

reserve account equal to 20% of the initial Revolving Loan Commitment of $1,200,000. All funds held in reserve by Lender prior to January 31, 2013, will continue to be held in reserve in the lock box account. In consideration for agreeing to enter into this Amendment, the Company agreed to pay Lender an additional advisory fee in the form of a redeemable warrant, giving the Lender the right to purchase, for no additional consideration, one percent (1.0%) of the issued and outstanding common stock of the Issuing Borrower, which warrant is in substantially the same form as the Warrants issued under the Credit Agreement (the “Additional Warrant”). The Additional Warrant includes a mandatory redemption feature pursuant to which the Company is required to redeem the warrant for a redemption price of $135,000 if the Lender has not previously elected to exercise the warrant. The mandatory redemption price is payable in twelve (12) equal monthly installments of $11,250.00 each, commencing on April 1, 2013, and continuing on the first day of each consecutive calendar month thereafter until the Additional Warrant is redeemed in full.

~~(#):~~There ~~Weighted~~are ~~average~~no ~~exercise~~material ~~price~~relationships inbetween ~~original~~the ~~currency~~Company isor ~~¥7.90~~any asof atits ~~June~~affiliates 30and the Lender, ~~2012~~other than with respect to the Credit Agreement.

~~There was no stock option expense of non-employee options incurred during the three months ended Jun e 30, 2012 and 2011.~~18

T.O Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three Months Periods Ended June 30, 2012 and 2011

(Unaudited)

(Continued)

The following table summarizes all options outstanding issued to both employee and non-employees at June 30, 2012:

			Options Outstanding			Options Exercisable
			Weighted			Weighted
			Average	Weighted		Average	Weighted
Range of			Remaining	Average		Remaining	Average
Exercise Price		Number Outstanding	Contractual Life	Exercise Price	Number Exercisable	Contractual Life	Exercise Price
$0.03	(*)	310,185	2.7	$0.03	310,185	2.7	$0.03
$0.11	(#)	14,165,115	5.7	$0.11	14,165,115	5.7	$0.11
$0.11	(#)	689,300	8.0	$0.11	689,300	8.0	$0.11
Total		15,164,600			15,164,600

(*): Weighted average exercise price in original currency is ¥2.37 as at June 30, 2012.

(#): Weighted average exercise price in original currency is ¥8.69 as at June30, 2012.

NOTE 10–INCOME TAXES

We account for income taxes in interim periods in accordance with ASC Topic 740, Income Taxes (“ASC 740”). We have determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during our fiscal year to our best current estimate. As of June 30, 2012, the estimated effective tax rate for the year will be 40.86%

There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2008 through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the statement of operations. There have been no income tax related interest or penalties assessed or recorded.

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

NOTE 11- INVESTMENT IN ANIMATED FILMS

The Company invests in co-production of animated films through co-production agreements in which it generally has less than a 50% ownership interest, and records its investment in the co-productions using the equity method of accounting for projects in which it has a 20% to 50% ownership interest, and the cost method of accounting for projects in which it has an ownership interest of less than 20%, prescribed by ASC Topic 323 “Investments – Equity Method and Joint Ventures”.

T.O Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three Months Periods Ended June 30, 2012 and 2011

(Unaudited)

(Continued)

Co-production animated films that we account for using the equity method have a committee set-up which is used to co-ordinate the relationship between all participating parties. The co-production committee agreement allocates production duties and ownership percentages among the parties. The ownership ratio of the participants in the co-production committee is also adopted as the profit or loss sharing ratio of the participants.

Costs incurred by the participants upon performance of their duties under the co-production agreement are capitalized. The maximum cost capitalized is limited to the estimated total cost of production developed by the committee in the planning stage. Spending by any participant in excess of its portion of the total estimated cost of production specified in the co-production agreement, is recorded as an expense and is not capitalized.

There are no liabilities incurred by the co-production because each participant bears responsibility for its portion of the cost of production.

None of the investments have any liquidity because transfer of ownership is restricted by the co-production agreement.

The following summarizes information as to 100% of the assets of each co-production committee (“Investee”) at June 30, 2012. As stated above, there are no liabilities at the Investee level. Assets consist of unamortized production costs incurred. The pro-rata share of the Company’s investment in each animated film may be different from that of the Investee, because the Investee does not report on a GAAP basis and the Company does report on a GAAP basis.

A	20%	$	651,080
C	21.31%		756,197
J	20%		-
K	20%		1,050,302
L	20%		-
M	22.50%		2,230,200
P	20%		2,185,596
R	20%		1,721,591
S	25%		571,936
TOTAL		$	9,166,902

The following summarizes the results of operations for the Investees for the three months ended June 30, 2012. The operating expenses are borne by each individual investor. The Investee does not have any operating expenses.

Project		Gross		Operating Expenses		Net Income
		Revenue
A	$	38,825	$	-	$	38,825
J		202,923		-		202,923
K		888,468		-		888,468
Total	$	1,130,216	$		$	1,130,216

Since the co-production accounting is not based on GAAP the Company makes adjustments to the amounts that are reported as its shares of net income. The adjustments are made in order to account for the amortization of film cost

T.O Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three Months Periods Ended June 30, 2012 and 2011

(Unaudited)

(Continued)

as required by ASC 926 “Entertainment –Film”.

Project		Company share of net income		Adjustment to investment account		Net income from unconsolidated entities
A	$	7,765	$	7,765	$	-
J		40,585		30,999		9,586
K		177,694		177,694		-
	$	226,044	$	216,458	$	9,586

NOTE 12 – EARNING PER SHARE

The Company calculates earnings per share in accordance with ASC Topic 260 “Earnings Per Share”, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options, warrants and convertible note (using the if-converted method). The dilutive earnings per share was not calculated because the exercise price of the outstanding stock options and the convertible price of convertible bonds were higher than the last trading price of shares between private investors, as well as the face value of the shares of the Company as at June 30, 2012 and 2011.

The calculation of the basic and diluted earnings per share attributable to the common stock holders is based on the following data:

		2012		2011
Earnings:
Profit /(Loss) for the purpose of basic earnings per share	$	(21,731)	$	(462,863)
Effect of dilutive potential common stock		-		-
Profit /(Loss) for the purpose of dilutive earnings per share	$	(21,731)	$	(462,863)
Number of shares:
Weighted average number of common stock for the purpose of basic earnings per share		31,998,427		31,680,000
Effect of potential common stock issuable from:
Potential common stock from stock option which is anti-dilutive and is therefore excluded from calculation (18,376,738 in 2012 and 2011))		-		-
Potential common stock from convertible bonds which is anti-dilutive and is therefore excluded from calculation (4,135,800 in 2012 and 2011)		-		-
Weighted average number of common stock for the purpose of dilutive earnings per share		31,998,427		31,680,000
Earnings per share:
Basic earnings/(loss) per share	$	0.00	$	(0.01)

*represents the recapitalized weighted average number of common stock

T.O Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three Months Periods Ended June 30, 2012 and 2011

(Unaudited)

(Continued)

NOTE 13 - RELATED PARTY TRANSACTIONS

There was no related transaction reported for the three months ended June 30, 2012 and 2011.

NOTE 14 – SEGMENT REPORTING

The Company has two reportable business segments; (i) film entertainment, which consists principally of production and distribution of animated and live feature films, including distribution of such films on DVD and Blu-ray Disc, and (ii) book publishing and distribution. The accounting policies of the segments are the same as those described in the summary of significant t accounting policies.

Operating profits for these segments excludes unallocated corporate items. Administrative and staff and costs were commonly used by all business segments and was indistinguishable.

The following sets forth information about the operations of the business segments:

Assets of the Company are used for all business segments and a segment differentiation cannot be made.

Revenue	2012		2,011
Film entertainment	$	5,689,527	$	3,576,604
Book publishing and distribution		1,162,307		190,554
Total revenue	$	6,851,834	$	3,767,158
Gross profit
Film entertainment	$	349,284	$	153,116
Book publishing		535,227		61,329
Total gross profit	$	884,511	$	214,445
Other items
General and administrative expenses
Unallocated	$	(882,029)	$	(637,610)
(Loss)/income from unconsolidated entities
Film entertainment	$	9,586	$	-
Interest (expense)
Unallocated amounts	$	(37,211)	$	(39,435)
Other income/(expense)
Unallocated	$	3,412	$	(279)
Operating loss
Film entertainment	$	256,784	$	153,116
Book publishing		627,727		61,329
Unallocated amounts		(906,242)		(677,324)
Total operating loss	$	(21,731)	$	(462,879)

Assets of the Company are used for all business segments and a segment differentiation cannot be made.

More than 90% of the Company’s total revenue is derived from Japan and accordingly no geographic segment reporting is included.

No single customer accounts for more than ten percent (10%) of the Company’s revenues in either the three months

T.O Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three Months Periods Ended June 30, 2012 and 2011

(Unaudited)

(Continued)

ended June 30, 2012 or 2011.

NOTE 15 - SUBSEQUENT EVENT

Management has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements.

ITEM 2.

MANAGEMENT’S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD LOOKING STATEMENT. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-Q AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.

Background

We were incorporated in the State of Colorado on May 22, 2008. Since inception, we have been engaged in organizational efforts and obtaining initial financing. The Company was formed as a vehicle to pursue a possible business combination.

On January 3, 2012, we entered into Investment Agreements with all shareholders of TOE Japan (the “Investors”). Pursuant to the Investment Agreements, each of the Investors agreed to make a direct investment in the Registrant in the form of a contribution to the Registrant of all shares of common stock of TOE Japan owned by the Investor (“TOE Japan Shares”). In consideration for the investment in the Registrant of the TOE Japan Shares by each Investor, the Registrant agreed to issue to each of the Investors approximately 6,893 shares of common stock of the Registrant for each TOE Japan Share invested in the Registrant. Twenty Investors, who were the holders of one hundred percent (100%) of the outstanding shares of TOE Japan, invested in the Registrant. At the time of closing under the Investment Agreements, the Investors invested a total of 4,596 TOE Japan Shares in the Registrant, representing 100% of the outstanding stock of TOE Japan, and the Registrant issued a total of 31,680,000 shares of common stock to the Investors. The effect of the transaction was to make TOE Japan and its subsidiaries (“TOE Group”) wholly-owned subsidiaries of the Registrant, and to cause a change of control of the Registrant.

TOE Japan was formed in 2003. It initially acted as an agent for authors and cartoonists and was mainly involved in the publishing of books. In 2007 TOE Japan entered into the production segment of the entertainment industry with the production of animated films such as Straight Jacket, a co-production with Manga Entertainment (Starz Entertainment Group)

In 2007, as TOE Japan’s growth continued in Japan, it formed its first subsidiary outside of Japan (“overseas”) in the United Kingdom and opened an office in London. In 2008, TOE set up a branch office in Korea and in 2009, TOE Japan set up a subsidiary in Singapore and a branch office in Russia (incorporated in 2011). In 2010 TOE Group set up a sales office in Los Angeles. These offices were set up in order to facilitate business expansion in those markets. These offices have limited staff and mainly operate with the assistance of the main office in Ebisu,

Japan. Our representative in the London office has recently resigned leaving the office dormant until we can find a replacement.

Currently we are engaged in two industry segments (i) film entertainment, which consists principally of production and distribution of animated and live action feature films, including distribution of such films on DVD’s and Blu-ray Discs (jointly referred to as “DVD”), and (ii) publishing and distribution of books

In addition TOE Group possesses the intellectual property rights of 24 films, including both animated and live action. TOE Group derives its revenue from these rights through the receipts of royalties. Depending on the nature of the intellectual property, royalty revenues can be derived from various distribution channels as stated below.

We derive our revenue from the production and distribution of animated and live action films and television programs. We receive a percentage of the ticket revenue generated by the theatrical release of our films. In addition we receive revenue from post theatrical release which includes the sale and/or license of DVD’s and Blu-ray Discs. The sale or rental of these products generally occurs in a variety of retail outlets such as video specialty stores, mass merchants, and convenience stores, and recently, films have become available for rental by mail from various companies and by downloading from the internet.

Normally the post theatrical release occurs 3 to 6 months after the theatrical release and broadcasting on television.

Additional revenue is generated from pay-per-view television which allows cable and satellite television subscribers to purchase individual programs, including recently released films, on a “per use” basis. The subscriber fees are typically divided among the program distributor, the pay-per-view operator and the cable system operator; pay television which allows subscribers to view premium channels that are offered by cable and satellite system operators for a monthly subscription fee; broadcast television which provides programming over the air; and basic cable which is a fee based service that provides programming via cable or satellite transmission. Broadcasters, cable and satellite systems pay fees to us for the right to air programming a specified number of times. However, revenue generated from this source is currently rather insignificant for TOE.

In addition to content produced by us, we may on occasion purchase the license right to create and distribute DVD and Blu-ray Discs of products produced by other companies. Distribution is divided between outsources and internal distribution.

Our profitability is based on our ability to control the cost of production through careful selection of the production houses and other subcontractors, monitoring of ongoing projects as to cost and budget, and selection of the most appropriate distribution channel for our products.

Our initial business was that of representing authors and creative talent. As a result of the relationships we established, we also began to engage in publishing their works. In addition to the works that are created by authors we represent, we also acquire the rights to translate foreign (non-Japanese) titles to be published in Japan.

In the book publishing sector, our revenues are derived from the sale of books we publish to publication wholesalers and in some instances also from sales directly to retailers when such sales will not compete with the distributor. Our profitability in this portion of our business is based on our ability to control the cost of production through careful selection of the printers and publication wholesalers for each book published.

Critical Accounting Policies

Basis of presentation

As of ~~June~~September 30, 2012 we have an accumulated deficit of $46,~~746~~617,~~717~~036, and our current liabilities exceed our current assets by $86,~~679~~811,~~738~~671. Included in non-current assets at ~~June~~September 30, 2012 is $64,~~956~~264,~~666~~962 of film costs which will be expensed against future revenues and will not require the use of cash. Included in current liabilities at ~~June 30, 2012~~

September 30, 2012 is $63,~~652~~821,~~646~~529 of deferred revenue, which accounted for ~~approximately 43~~approximately32% of the current liabilities, and represents projects in production. The deferred revenue does not represent a cash liability. Excluding the deferred revenue, at ~~June~~September 30, 2012 we would have had working capital deficit of $2,~~027~~990,~~092~~142.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts and realization of the portion of current liabilities into revenue shown in the accompanying balance sheets are dependent upon continued operations of the Company, which in turn are dependent upon the Company's ability to raise additional financing and to succeed in its future operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management has taken the steps which it believes are sufficient to revise our operating and financial requirements and provide us with the ability to continue as a going concern. We are actively pursuing additional funding which would enhance capital employed and strategic partners which would increase revenue bases or reduce production costs. Management believes that the above actions will allow us to continue our operations throughout the remainder of the current fiscal year.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.

Significant estimates and judgments inherent in the preparation of these consolidated financial statements include, among other things, accounting for asset impairments, allowances for doubtful accounts, depreciation and amortization, the determination of ultimate revenues as it relates to amortization of capitalized film costs from participations and residuals, books and DVD sales returns, equity-based compensation, income taxes, and contingencies.

Foreign Currency Translation

In accordance with ASC Topic 830 “Translation of Financial Statements”, capital accounts of the consolidated financial statements are translated into United States dollars from JPY at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the respective year. The resulting exchange differences are recorded in the consolidated statement of operations.

	As at and for the three months ended June 30, 2012	As at March 31, 2012 and for the three months ended June 30, 2011
Period-end ¥ : $1 exchange rate	78.31	81.97
Average period ¥ : $1 exchange rate	78.98	78.74
Period-end £ : $1 exchange rate	0.65	0.63
Average period £ : $1 exchange rate	0.64	0.63
Period-end SG$ : $1 exchange rate	1.28	1.26
Average period SG$ : $1 exchange rate	1.27	1.25
Period-end Rub:$1 exchange rate	30.35	29.41
Average period Rub : $1 exchange rate	36.73	29.59

Translation of amounts from the local currency of our subsidiaries into United States dollars has been made at the following exchange rates for the six month periods ended September 30, 2012 and 2011:


	2012	2011
Period-end ¥ : $1 exchange rate	77.17	76.33
Average period ¥ : $1 exchange rate	79.37	79.36
Period-end £ : $1 exchange rate	0.63	0.64
Average period £ : $1 exchange rate	0.61	0.61
Period-end SG$ : $1 exchange rate	1.23	1.30
Average period SG$ : $1 exchange rate	1.25	1.23
Period-end Rub:$1 exchange rate	34.45	31.94
Average period Rub : $1 exchange rate	31.49	28.49

Fair Value

ASC Topic 820 “Fair Value Measurement and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

These tiers include:

Level 1—defined as observable inputs such as quoted prices in active markets;

Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Warrants and conversion features embedded in the Convertible Notes, which are accounted as liabilities, are treated as derivative instruments, which will be measured at each reporting date for their fair value using Level 2 inputs.

The Company’s non-financial assets are measured on a recurring basis. These non-financial assets are measured for impairment annually on the Company’s measurement date at the reporting unit level using Level 3 inputs. For most assets, ASC 820 requires that the impact of changes resulting from its application be applied prospectively in the year in which the statement is initially applied.

The Company valued the convertible bonds using Level 3 criterion. As of ~~June~~September 30, 2012, the valuations resulted in a gain on derivatives of $13,~~908~~086.

Fair Value of Financial Instruments with Conversion Features

In accordance with ASC Topic 815 “Derivatives and Hedging”, the conversion feature of convertible bonds are separated from the debt instrument and accounted for separately as a derivative instrument. On the date the Company’s convertible bonds are issued, the conversion feature was recorded as a liability at its fair value, and future decreases in fair value recognized in earnings while increases in fair values recognized in expenses as interest expense.

The Company used the Black-Scholes-Merton (“Black-Scholes”) model to obtain the fair value of the conversion feature. The Company’s expected volatility assumption is based on the historical volatility of stock prices of entertainment industry average in Japan. The expected life assumption is primarily based on the expiration date of the conversion features. The risk-free interest rate for the expected term of the conversion features is based on the U.S. Treasury yield curve in effect at the time of measurement.

The convertible bonds reached maturity and were not converted. The conversion feature has expired and is no longer available.

Investments in Animations Films

Investments in animation films includes the Company’s investments in co-production animation films which are ~~projects in which we~~ generally ~~have~~ less than 50% ~~ownership,~~owned ~~and~~by ~~which~~the Company and are produced by the other investors inof the ~~projects~~ventures. ~~Equity~~ ~~method~~Prior ofto ~~accounting~~August is1, ~~adopted~~2012, ~~for~~ the Company’s accounted for investments in ~~animations~~animated ~~film~~films ~~projects~~for in which it ~~has~~had an interest ofgreater ~~between~~than 20% and ~~50%~~exercised influence over the investment using the equity . ~~Income~~ Under ~~from~~the equity method, the initial investment ~~projects~~is ~~for~~recorded at cost and adjusted annually to recognize the ~~three~~Company’s ~~months~~share ~~ended~~of ~~June~~earnings ~~30,~~and ~~2012~~losses ~~was~~of ~~$9,586~~the entity. ~~There~~As ~~was~~a result of the Company’s inability to fund certain requirements of its investment it no ~~income~~longer ~~for~~exercises any influence over the ~~three~~co-productions. On ~~months~~August ~~ended~~1, ~~June~~2012, 30the Company ceased accounting for its investment in animated films under the equity method, ~~2011~~and began accounting for the investment utilizing the cost method.

Film Costs and Revenues

Feature films typically are produced for initial exhibition in theaters, followed by distribution in the home video,

~~electronic~~Film ~~sell-through,~~Costs ~~video-on-demand, pay cable, basic cable~~ and broadcast network sectors. Generally, distribution to the home video, video-on-demand, pay cable, basic cable and broadcast network sectors each commence within a range of approximately one to five years of initial theatrical release. Theatrical revenues are recognized as the films are exhibited. Revenues from home video sales are recognized at the later of the delivery date or the date that video units are made widely available for sale or rental by retailers based on gross sales less a provision for estimated returns. A warranty period for six months are usually provided by the Company on the film produced or arranged by the Company. Based on management’s past experience, no report of defects or claim for compensation

Upfront or guaranteed payments for the licensing of intellectual property are recognized as revenue when (i) an arrangement has been signed with a customer, (ii) the customer’s right to use or otherwise exploit the intellectual property has commenced and there is no requirement for significant continued performance by the Company, (iii) licensing fees are either fixed or determinable and (iv) collectability of the fees is reasonably assured. In the event any significant continued performance is required in these arrangements, revenue is recognized when the related services are performed.

Film costs include the unamortized cost of completed films, films in production and film rights in preparation of development. Film costs are stated at the lower of cost, less accumulated amortization, or fair value. The amount of capitalized film costs recognized as cost of revenues for a given film as it is exhibited in various sectors, throughout its life cycle, is determined using the film forecast computation method. Under this method, the amortization of capitalized costs and the accrual of participations and residuals are based on the proportion of the film’s revenues recognized for such period to the film’s estimated remaining ultimate revenues. The process of estimating a film’s ultimate revenues (i.e., the total revenue to be received throughout a film’s life cycle) is discussed further under “Film Cost Recognition and Impairments.”

Film Cost Recognition and Impairments

Prior to the theatrical release of a film, management bases its estimates of ultimate revenues for each film on factors such as the historical performance of similar films, the rating and genre of the film, pre-release market research (including test market screenings) and the expected number of theaters in which the film will be released. Management updates such estimates based on information available during the film’s production and, upon release, the actual results of each film. Changes in estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, could have an impact on the Company’s financial results for that period. For example, prior to a film’s release, the Company often will test market the film to the film’s targeted demographic. If the film is not received favorably, the Company may (i) reduce the film’s estimated ultimate revenues, (ii) revise the film, which could cause the production costs to increase or (iii) perform a combination of both. Similarly, a film that generates lower-than-expected theatrical revenues in its initial weeks of release would have its theatrical and home video ultimate revenues adjusted downward.

Collaborative Arrangements

The Company has entered into collaborative arrangements in the film business, with one or more active participants to jointly finance produce and/or distribute motion picture or television product under which both the Company and ~~the other active participants share in the risks and rewards of ownership. These arrangements are referred to as co-production and distribution arrangements.~~

the other active participants share in the risks and rewards of ownership. These arrangements are referred to as co-production and distribution arrangements.

The Company typically records an asset for only the portion of the film it owns and finances. The Company and the other participants typically distribute the product in different media or markets. Revenues earned and expenses incurred for the media or markets in which the Company distributes the product are typically recorded on a gross basis. The Company typically does not record revenues earned and expenses incurred when the other participants distribute the product. The Company and the other participants typically share in the profits from the distribution of the product in all media or markets. For films product, if the Company is a net receiver of (1) the Company’s share of the profits from the media or markets distributed by the other participants less (2) the other participants’ share of the profits from the media or markets distributed by the Company then the net amount is recorded as net sales. If the Company is a net payer then the net amount is recorded in cost of sales.

Comprehensive Income

Recent Pronouncements

We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoptions of any such pronouncements may be expected to cause a material impact on our financial condition or the results of operations.

Results of Operations

Our revenue for the six and three ~~months~~month periods ended ~~June~~September 30, 2012 and 2011 was $610,~~851~~110,~~834~~803, ~~and~~$10,763,932, $3,~~767~~258,~~158~~969, and$6,996,674, respectively. Our net income/(loss) for the six and three ~~months~~month periods ended ~~June~~September 30, 2012 and 2011 was $(211,~~731~~892,050), ~~and~~$1,094,042, $(~~462~~1,~~863~~870,319), and $1,556,921, respectively. Our comprehensive income/(loss) for the six and three ~~months~~month periods ended ~~June~~September 30, 2012 and 2011 was $(~~120~~2,~~984~~045,531), ~~and~~$816,907, $(~~529~~1,~~181~~924,547), and $1,346,104, respectively. Through ~~June~~September 30, 2012 our cumulative net losses and cumulative comprehensive loss were $(46,~~746~~617,~~717~~036) and $(~~653~~708,~~936~~164), respectively.

RESULTS OF OPERATION FOR THE ~~THREE~~SIX MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2012 COMPARED TO THE ~~THREE~~SIX MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2011

(References to 2012 and 2011 are to the ~~three~~six months ended ~~June~~September 30, 2012 and 2011 respectively, unless otherwise specified.)

Total Revenue ~~increased~~decreased $3653,~~084,676~~029 (~~81.86~~6%) from $310,~~767~~763,~~158~~832 for 2011 to $610,~~851~~110,~~834~~803 for 2012. Revenue from film entertainment ~~increased~~decreased $21,~~112~~795,~~923~~765 (~~59.08~~19%) from $39,~~576~~616,~~604~~117 for 2011 to $57,~~689~~820,~~527~~352 for 2012. Revenue from book publishing and distribution increased $~~971~~1,~~753~~142,736 (~~509~~99%) from $~~190~~1,~~554~~147,715 for 2011 to $12,~~162~~290,~~307~~451 for 2012.

The ~~increase~~decrease in revenue isfrom ~~due~~film toentertainment anis ~~increased~~due ~~number of projects during 2012 as compared~~ to ~~2011. In~~a ~~2012~~reduction ~~we participated~~ in ~~2 more film project,~~ the ~~distribution~~number of 1new ~~more~~producing ~~DVDs~~film ~~and~~contracts 11in ~~more~~2012 ~~book~~compared ~~titles~~to ~~than we did in~~ 2011. WeAs ~~feel~~a ~~that~~result ~~not only has the quantitative value~~ of ~~our~~cash ~~revenue~~flow ~~increased~~constraints ~~but~~we ~~the qualitative value has also increased. Our efforts in DVD~~ were ~~not~~involved ~~only~~ in ~~the~~fewer ~~number of~~ productions ~~but also in the international geographic distribution of them~~.

During ~~the three months ended June 30,~~ 2012, our book division released a total of 1526 ~~books. Sales from~~ new ~~releases~~books ~~totaled~~which generated $1,~~067~~420,~~826~~552 ~~during~~of the ~~period~~total book revenue of $2,290,451 ~~and~~as ~~total~~compared ~~revenue~~to ~~from~~11 new books which generated $973,915 of the total book ~~sales~~revenue ~~was~~of $1,~~162~~147,~~307~~715 ~~for~~in ~~the period~~2011.

We anticipate that our growth ~~will continue as we participate~~ in ~~more and larger projects in~~ the ~~next~~book ~~three~~publishing ~~months~~segment inwill ~~both~~continue ~~the~~as ~~film~~we ~~entertainment~~release ~~segment~~more ~~and~~new ~~the book publishing segment~~titles.

Cost of revenue increased $2932,~~414,611~~ 137(~~67.97~~11%) from $38,~~552~~287,~~712~~350 in 2011 to $59,~~967~~219,~~323~~487 in 2012. In terms of percentage of revenue, cost of revenue was ~~87.09~~91% in 2012 as compared to ~~94.31~~77% in 2011.

Cost of revenue for our film entertainment segment was approximately 93.86% for 2012 as compared to 95.71%

in 2011.

Cost of revenue for our film entertainment segment was approximately 95% for 2012 as compared to 82% in 2011.

Cost of revenue is calculated using a fraction in which the denominator is an estimate of the ultimate revenue that a production will produce and the numerator is the revenue achieved for the accounting period. The unamortized film cost for the project is then multiplied by the percentage calculated. To the extent that the film’s ultimate revenues are adjusted, the resulting gross margin reported on the exploitation of that film in a period is also adjusted.

Changes in estimates of ultimate revenues from period to period affect the amount of film costs amortized in a given period and, therefore, have an impact on our financial results for that period. For example, prior to a film’s release, we often will test market the film to the film’s targeted demographic. If the film is not received favorably, we may then (i) reduce the film’s estimated ultimate revenues, (ii) revise the film, which could cause the production costs to increase or (iii) perform a combination of both. Similarly, a film that generates lower-than-expected theatrical revenues in its initial weeks of release would have its theatrical and home video ultimate revenues adjusted downward. (See Film Costs and Revenues included in Critical Accounting Policies and Estimates above for a more detailed explanation of the accounting).

Our estimates of ultimate revenue were ~~higher~~lower in 2012 than in 2011. This resulted in a ~~lower~~higher cost of revenue.

Cost of revenue for our book publishing segment was approximately ~~53.95~~75% in 2012 as compared ~~to 67.82~~to29% in 2011. The ~~significant~~increase/ ~~decrease~~ in cost of revenue is attributable to ~~greater~~our ~~reader~~disposal ~~acceptance~~during 2012 of ~~titles~~unsold ~~published~~inventories inwhich ~~2012~~had been held without sales for a long period.

Total gross profit ~~increased~~decreased $~~670~~1,~~065~~585,166 (~~312~~36%) from $~~214~~2,~~446~~476,482 in 2011 to $~~884~~891,~~511~~316 in 2012. In terms of percentage of revenue, the gross profit percentage ~~increased~~decreased to ~~12.91~~9% for 2012 as compared to ~~5.69~~23% for 2011.Gross profit decreased in 2012 as compared to 2011 because of the fact that we had both a decrease in total revenues and an increase in cost of revenue in 2012 as compared to 2011.

Selling, general and administrative expenses increased $~~244~~218,~~419~~683 (~~38.33~~17%) from $~~637~~1,~~610~~284,306 for 2011 to $~~882~~1,~~029~~502,989 for 2012. ~~The increase is generally due to an increase in the number of projects and releases we made in 2012 as compared 2011.~~

The following is a summary of selling general and administrative expenses for the ~~three~~six months ended ~~June~~September 30, 2012 and 2011.

	2012		2011		Difference
Personnel costs	$	~~440~~909,~~795~~719	$	~~293~~791,~~617~~464	$	~~147~~118,~~178~~255
Director fees		116,599		110,373		6,226
Rental		212,573		193,464		19,109
Rental		105,018		104,852		166
Professional fees		100,665		6,175		94,490
Professional fees		47,000		2,512		44,488
Travel and entertainment		73,265		99,477		(26,212)
Travel and entertainment		43,979		38,240		5,739
Other		206,767		193,726		13,041
Other		117,650		77,118		40,531
	$	1,502,989	$	1,284,306	$	218,683
Depreciation and amortization		10,988		10,898		90
	$	882,029	$	637,610	$	244,418

Our most significant cost is personnel costs which include salaries, benefits and payroll taxes. These costs increased $~~147~~118,~~178~~255 (~~50.13~~15%) from $~~293~~791,~~617~~464 in 2011 to $~~440~~909,~~795~~719 in 2012, primarily as a result of an increase in the number of employees in the first quarter of our fiscal year. We had an average of 2728 employees for the ~~three~~six months ended ~~June~~September 30, 2011 and an average of 3435 for the ~~three~~six months ended ~~June~~September 30, 2012. The increase inwas ~~number~~minimized ofby ~~employees~~a isdecrease ~~due to our increasing activity and having more projects~~ in ~~production~~officer ~~during 2012 than 2011~~compensation. WeOfficer ~~anticipate~~salaries ~~that~~decreased ~~personnel~~by ~~costs~~$46,000. In ~~will continue to rise in~~ future periods asour itpersonnel ~~becomes~~cost ~~necessary~~should togo ~~increase~~down ~~our~~as ~~staff~~a inresult ~~order~~of toshifting ~~continue~~some toof ~~increase~~our ~~the~~work ~~number~~to ofour ~~projects~~Okinawa ~~which~~office wewhere ~~simultaneously~~salaries ~~have~~are ~~in process~~lower.

~~Director~~Rental ~~fees~~expenses ~~increased~~remained ~~$6,226~~fairly ~~(5.64%)~~consistent ~~from~~for ~~$110,373~~2011 inand ~~2011~~2102. We are planning to ~~$116~~downsize our office space,~~599~~ inthus ~~2012. The~~reducing ~~change~~our isrental ~~not~~expense ~~significant~~in future periods.

~~Rental~~Legal ~~expenses~~and ~~remained~~professional ~~fairly~~fees ~~consistent~~increased ~~for~~$94,490(1530%) ~~2011~~from ~~and~~$6,175 ~~2102. We~~in ~~required~~2011 ~~additional~~to ~~space~~$100,665 in ~~future~~2012 ~~periods~~as ~~and~~a ~~expect~~result ~~that~~of ~~our~~the ~~rent~~merger ~~expense~~which ~~will~~took ~~increase.~~place in 2012

Legal and professional fees increased $44,488 (1771%) from $2,512 in 2011 to $47,000 in 2012 as a result of the merger which took place in 2012

Travel and entertainment increased $5,739 (15.01%) from $38,240 in 2011 to $43,979 in 2012. The increase directly relates to the increase in activity and the number of projects and the travel cost associated with it.25

~~Other~~Travel ~~expenses~~and ~~include~~entertainment ~~items~~decreased ~~such as office expenses~~$26,212 ~~software~~(26%) ~~related~~from ~~costs~~$99,477 ~~telephone~~in ~~and~~2011 ato ~~variety~~$73,265 ofin ~~other miscellaneous costs~~2012. ~~Included~~ inThe ~~other~~decrease ~~cost~~directly ~~were~~relates ~~the~~to ~~costs~~our ofefforts ~~opening~~to anminimize ~~office~~operating inexpenses ~~Okinawa,~~which ~~Japan. Other~~will ~~than~~be ~~opening~~continued through the ~~office~~remainder ~~which was approximately $20,000, none~~ of ~~these~~the ~~cost~~current ~~individually~~fiscal ~~increased or decreased significantly~~year.

WeOther ~~anticipate~~selling, ~~that~~general weand ~~will~~administrative ~~incur~~expenses ~~higher~~include ~~general~~items ~~and~~such ~~administrative~~as office expenses, assoftware related costs, telephone and a ~~public~~variety ~~company~~of other miscellaneous costs. WeIncluded ~~expect~~in ~~that~~other ~~our~~cost ~~professional~~were ~~fees~~the costs of opening an office in Okinawa, Japan. Other than the cost of ~~transfer~~opening ~~agent~~the office in Okinawa, ~~investor~~which ~~relations~~was ~~costs~~approximately ~~and~~$20,000, ~~other~~none ~~stock~~of ~~related~~these costs ~~will~~individually ~~increase~~increased or decreased significantly. We opened the office in Okinawa to reduce personnel cost as salaries are lower than in Tokyo where our main office is located.

We ~~also~~ anticipate that ~~selling,~~we will incur higher general and administrative expenses ~~will~~as ~~concurrently~~a ~~increase~~public ~~with~~company ~~our~~than ~~increased~~we ~~activity~~incurred in the ~~future~~past ~~but~~as ~~will~~a ~~not~~private company. We expect that our professional fees, cost of transfer agent, investor relations costs and other stock related costs will increase. We inare ~~the~~currently ~~same~~reviewing ~~proportion~~all of our costs in order to ~~that~~reduce ofoverhead ~~revenue~~expenses.

Our income (loss) from operations ~~increased~~decreased $~~425~~1,~~646~~802,434 ~~(101%)~~ from aan ~~loss~~income of $~~(423~~1,~~164)~~168,888 in 2011 to ~~income~~a loss of $2(633,~~482~~546) in 2012. The increase in income from operations was the result of the fact that we had both a decrease in revenue and an increase in general and administrative expenses in 2012 as compared to 2011.

Other ~~income (~~expense) increased $15457,~~502~~082 (~~39.03~~612%) from ~~expense of~~ $3974,~~715~~846 in 2011 to ~~expense of~~ $24532,~~213~~928 in 2012. ~~Included~~During 2012 we wrote off investments in ~~2012~~animated ~~was~~films in the amount of $9465,~~586~~505 ofand recorded income from ~~unconsolidated~~investments ~~entities~~of $10,029. There was no income from this source in 2011.

~~The~~In ~~net~~light ~~(loss)~~of ~~decreased~~continued ~~$441~~losses,~~132~~ ~~(95.31~~at September 30, 2012 we could no longer be more than 50%) assured that we would receive the benefit from ~~$(462~~deferred tax assets carried on our balance sheet. Accordingly,~~863)~~ inwe ~~2011~~reserved tofor ~~income~~100% of ~~$21,731~~the indeferred ~~2012~~tax asset and recorded tax expense of $726,576.

The net (loss) increased $2,986,092 from $1,094,042 in 2011 to $(1,892,050) in 2012.

RESULTS OF OPERATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2011

(References to 2012 and 2011 are to the three months ended September 30, 2012 and 2011 respectively, unless otherwise specified.)

Total Revenue decreased $3,737,705(53%) from $6,996,674 for 2011 to $3,258,969 for 2012 as a result of a decrease in revenue from film entertainment. Revenue from film entertainment decreased $3,914,132(64%) from $6,044,957for 2011 to $2,130,825for 2012, while revenue from book publishing and distribution increased $176,427 (18%) from $951,717for 2011 to $1,128,144 for 2012.

The decrease in revenue in film entertainment is due to a reduction in the number of new producing film contracts in 2012 as compared to 2011. Our cash constraints required us to cut back in the number of new film productions.

During the three months ended September 30, 2012, our book division released a total of 11books. Sales from new releases totaled $843,736 during the period, and total revenue from book sales was $929,728 for the period.

We do not anticipate significant growth until such time as our cash flow improves. We estimate that our growth will resume by the end of this fiscal year.

Cost of revenue decreased $1,482,474(31%) from $4,734,638 in 2011 to $3,252,164 in 2012. In terms of percentage of revenue, cost of revenue was 99% in 2012 as compared to 33% in 2011.

Cost of revenue for our film entertainment segment was approximately96% for 2012 as compared to75% in 2011.

Cost of revenue is calculated using a fraction in which the denominator is an estimate of the ultimate revenue that a

production will produce and the numerator is the revenue achieved for the accounting period. The unamortized film cost for the project is then multiplied by the percentage calculated. To the extent that the film’s ultimate revenues are adjusted, the resulting gross margin reported on the exploitation of that film in a period is also adjusted.

Our estimates of ultimate revenue were lower in 2012 than in 2011. This resulted in a higher cost of revenue.

Cost of revenue for our book publishing segment was approximately105% in 2012 as compared to21% in 2011. The increase in cost of revenue is attributable to our disposal during 2012 of unsold inventories which had been held without sales for a long period.

Total gross profit decreased $2,255,231from $2,262,036 in 2011 to $6,805 in 2012. In terms of percentage of revenue, the gross profit percentage decreased to 0.2% for 2012 as compared to 32% for 2011.

Selling, general and administrative expenses decreased $25,645 (4%) from $657,594 for 2011 to $631,948 for 2012.

The following is a summary of selling general and administrative expenses for the three months ended September 30, 2012 and 2011.


	2012		2011		Difference
Personnel costs	$	352,325		387,475	$	35,150
Rental		107,555		88,611		18,944
Professional fees		53,665		3,663		50,002
Travel and entertainment		29,286		61,237		(31,951)
Other		89,117		116,608		(27,491)
	$	631,948		657,594	$	(25,645)

Our most significant cost is personnel costs which include salaries, benefits and payroll taxes. These costs decreased $17,116 (6%) from $268,275 in 2011 to $285,391 in 2012. We had an average of34 employees for the three months ended September 30, 2011 and an average of 29for the three months ended September 30, 2012. In addition to the decrease in number of staff we also had salary cuts during the period in 2012. The most significant reduction was in officer salaries.

Rental expenses remained fairly consistent for 2011 and 2102. We are planning to downsize the office to cut the expenses. This should effect all future periods.

Professional fees increased $50,002(1365%) from $3,663 in 2011 to $53665 in 2012 as a result of the merger which took place in 2012 and the cost of being a public company.

Travel and entertainment decreased $31,951 (52%) from $61,237 in 2011 to $29,286 in 2012. The decrease directly relates to our efforts to minimize operating expenses which will be continued through the remainder of the current fiscal year.

Other selling, general and administrative expenses include items such as office expenses, software related costs, telephone and a variety of other miscellaneous costs. Included in other cost were the costs of opening an office in Okinawa, Japan. Other than opening the office which was approximately $20,000, none of these cost individually

increased or decreased significantly.

We anticipate that we will incur higher general and administrative expenses as a public company than we incurred in the past as a private company. We expect that our professional fees, cost of transfer agent, investor relations costs and other stock related costs will increase.

We also anticipate that selling, general and administrative expenses will concurrently increase with any increased activity in the future but will not increase in the same proportion to that of revenue. We are currently reviewing all of our costs in order to reduce overhead expenses.

Our income (loss) from operations decreased $2,228,080 from income of $1,591,052 in 2011 to a loss of $(636,028) in 2012.

Other expense increased $542,846 (1545%) from $35,131 in 2011 to $507,715 in 2012. During 2012 we wrote off investments in animated films in the amount of $465,505 and recorded income from investments of $10,029. There was no income from this source in 2011.

In light of continued losses, at September 30, 2012 we could no longer be more than 50% assured that we would receive the benefit from deferred tax assets carried on our balance sheet. Accordingly, we reserved for 100% of the deferred tax asset and recorded tax expense of $726,576.

The net (loss) increased $3,427,240 from $1,556,921 in 2011 to $(1,870,319) in 2012.

Liquidity and Capital Resources

At ~~June~~September 30, 2012, we had a working capital deficit of $86,~~679~~811,~~738~~671, as compared to a working capital deficit of $6,773,922 at March 31, 2012. Of the working capital deficit at ~~June~~September 30, 2012, $63,~~652~~821,~~646~~529 was in deferred revenue and does not represent a cash liability. This amount will be included in future revenue. In addition, $64,~~956~~264,~~666~~962 was in film costs and this asset will not result in our receipt of cash. This amount will be used as a cost of revenue in the future. Excluding the amounts for deferred revenue, we would have had working capital deficit of $2,~~027~~990,~~092~~142 at ~~June~~September 30, 2012.

During the ~~three~~six months ended ~~June~~September 30, 2012, operating activities used cash of $~~386~~325,~~629,~~682 and for the ~~three~~six months ended ~~June~~September 30, 2011, we provided cash from operations of $12,~~536~~056,~~644~~982. This was primarily due to the loss in 2012.

During the ~~three~~six months ended ~~June~~September 30, 2012, investing activities used $~~127~~297,~~729~~525 of cash and for the ~~three~~six months ended ~~June~~September 30, 2011, investing activities used $~~732~~3,~~465~~127,444 of cash. In 2011, we invested in excess of $3,000,000 in animated film projects and in 2012 we only invested approximately $320,000.

During the ~~three~~six months ended ~~June~~September 30, 2012, financing activities ~~used~~provided $86153,~~772~~135of of cash and for the ~~three~~six months ended ~~June~~September 30, 2011, financing activities provided $1836,~~067,892~~942 of cash. For the ~~three~~six months ended ~~June~~September 30, 2012 new bank borrowings, both short and long term, of $~~126~~1,~~600~~147,440 were offset by repayments of $~~213~~994,~~372~~305 as compared to borrowings of $1,~~964~~634,~~779~~989 and repayments of $1,~~134~~060,~~410~~920 for the ~~three~~six months ended ~~June~~September 30, 2011.

We are dependent on third party financing to provide the liquidity to fund future projects. In the past this funding has been provided by bank loans which have been guaranteed by our Chief Executive Officer and some of which have had an additional guarantee of a third party commercialized credit guarantee company. There can be no assurances that we will be able to continue financing projects in this manner. We are currently exploring other alternatives which might include equity financing.

In addition to the bank financing, in prior years we issued convertible bonds, to a shareholder of ours, in the original amount of ¥84,000,000 (approximately US$1,103,758). The bonds bear interest at a fluctuating rate of interest equal to the prime lending rate for long-term credit established by Mizuho Corp bank as of the first day of each interest payment period plus 0.3%, based on prime rate. Interest is due and payable semi-annually and the bonds are due and payable in full on September 30, 2012. At any time prior to redemption, the bonds are convertible by the

2628

~~holder~~interest ~~into~~payment ~~shares~~period ofplus ~~common stock of the Company at a conversion price of approximately US$~~0.~~105~~3%, ~~per~~based ~~share. If~~on weprime dorate. The ~~not~~convertible ~~have~~bonds ~~sufficient~~matured ~~cash~~on toSeptember ~~repay~~30, ~~the~~2012 ~~obligation~~ and the holder ~~does~~agreed ~~not~~to ~~convert,~~extend ~~there~~the ~~can~~due bedate nountil ~~assurances~~March ~~that~~31, we2013. The ~~will~~bonds beare ~~able~~no tolonger ~~renegotiate the terms of the bonds~~convertible.

Subsequent Event

On November 12, 2012 we borrowed $1,200,000 from an unrelated third party.

The loan was made pursuant to the terms of a Credit Agreement dated as of October 31, 2012 (the "Credit Agreement"), and made effective as of November 12, 2012, by and is evidenced by a Revolving Note. Under the Credit Agreement, We may borrow up to an amount equal to the lesser of 80% of its Eligible Accounts (as defined in the Credit Agreement) and the revolving loan commitment, which initially is $1,200,000. Upon satisfaction of certain conditions, we may from time to time, request that the revolving loan commitment be raised up to a maximum of $5,000,000. The decision to grant any such increase in the revolving loan commitment is in the Lender's sole discretion.

The loan matures on the earlier of May 12, 2013, which is six (6) months from the closing date, subject to a six-month extension upon written request of we made prior to the initial closing date. The maturity date may also be extended in the Lender's sole discretion, in connection with execution of any modification, extension or renewal of the Revolving Note evidencing the loan.

The loan bears interest at the rate of 10% per annum. In addition, we are required to pay certain fees specified in the Credit Agreement. The fees include due diligence fees, document review and legal fees, an asset monitoring fee, and a transaction advisory fee, all of which are payable in cash, and an additional advisory fee payable through issuance to the Lender of three (3) redeemable warrants to purchase shares of our common stock. Each of the warrants has a term of 10 years and each of them grants the Lender the right to purchase a number of shares equal to up to one percent (1%) of our issued and outstanding common stock at a price of $0.001 per share. Each of the warrants includes a mandatory redemption provision pursuant to which we are required to redeem the warrant for a redemption price of $45,000 if the Lender has not previously elected to exercise the warrant. The mandatory redemption dates of the three warrants are May 12, 2013, August 12, 2013 and November 12, 2013, respectively, which dates are 6 months, 9 months and 12 months after the initial closing date.

Under the terms of the Credit Agreement, we are required to direct all payments received on account to a lock box account under the control of the Lender. The Lender is authorized, on a weekly basis, to apply funds in the lock box account toward payment of fees and interest due and owing by us, to the establishment of a reserve in the amount of twenty percent (20%) of the amount of the revolving loan commitment, and, in its sole discretion, to prepayments of the outstanding principal due on the loan. Any funds remaining on deposit in the lock box account after payment of the foregoing items are required to be disbursed on a weekly basis to us.

In addition to the lock box, the loan is secured by a pledge of substantially all of the our assets, by a pledge of all of the shares of T.O Entertainment, Inc., a Japan corporation, owned by us, and by the pledge by the officers and directors of the Company of a total of 8,581,725 shares of our common stock currently owned by such officers and directors, and representing approximately 26% of our currently issued and outstanding common stock.

The Credit Agreement imposes certain restrictions on us, including restrictions on its ability to (i) incur any Funded Indebtedness (as defined in the Credit Agreement), (ii) incur liens, (iii) make investments, (iv) permit a Change in Control (as defined in the Credit Agreement) or dispose of all or substantially all of its assets, (v) make capital expenditures not in the ordinary course of its business, (vi) issue or distribute capital stock, (vii) make distributions to its shareholders, (viii) engage in any line of business other than the business engaged in on the date of the Credit Agreement and businesses reasonably related thereto, and (ix) enter into transactions with any affiliates except in the ordinary course of business and upon fair and reasonable terms that are no less favorable to us than we would obtain in an arm-length's basis with a non-affiliate. Each of these restrictions is subject to certain exceptions, as specified in the Credit Agreement.

The loan may be accelerated upon the occurrence and during the continuation of an Event of Default (as defined in the Credit Agreement), including nonpayment of amounts owed, misrepresentation, failure to perform under the Credit Agreement or related documents, default under certain other obligations, events of bankruptcy, the entry of a

judgment in excess of certain specified amounts, the occurrence of a Material Adverse Effect (as defined in the Credit Agreement), the occurrence of a Change in Control (as defined in the Credit Agreement), certain impairments of collateral, and the determination in good faith by the Lender that the prospect for payment or performance of the Obligations (as defined in the Credit Agreement) is impaired for any reason.

On January 31, 2013 the Credit Agreement was modified. The Lender agreed to waive its right to retain any portion of payments received in the lock box between January 31, 2013 and March 31, 2013 for purposes of establishing a reserve account equal to 20% of the initial Revolving Loan Commitment of $1,200,000. All funds held in reserve by Lender prior to January 31, 2013, will continue to be held in reserve in the lock box account. In consideration for agreeing to enter into this Amendment, the Company agreed to pay Lender an additional advisory fee in the form of a redeemable warrant, giving the Lender the right to purchase, for no additional consideration, one percent (1.0%) of the issued and outstanding common stock of the Issuing Borrower, which warrant is in substantially the same form as the Warrants issued under the Credit Agreement (the “Additional Warrant”). The Additional Warrant includes a mandatory redemption feature pursuant to which the Company is required to redeem the warrant for a redemption price of $135,000 if the Lender has not previously elected to exercise the warrant. The mandatory redemption price is payable in twelve (12) equal monthly installments of $11,250.00 each, commencing on April 1, 2013, and continuing on the first day of each consecutive calendar month thereafter until the Additional Warrant is redeemed in full.

There are no material relationships between us or any of our affiliates and the Lender, other than with respect to the Credit Agreement.

Summary

Generally speaking, the production of video footage such as animation and movies takes ~~about~~approximately 2 years from planning to being screened to the public. WeAs a result of our cash flow problems we are currently involved in ~~more~~smaller ~~projects~~size ~~than~~animation ~~previous years~~productions. We started a number of projects in the ~~three~~six months ended ~~June~~September 30, 2012 and will continue to see the results in future periods. As of ~~June~~September 30, 2012 a total of $64,~~956~~264,~~666~~962 in costs has been capitalized as film costs which will be offset against future revenue. We also have deferred revenue of $63,~~652~~821,~~646~~529 which will result in revenue in future periods.

In addition, we ~~have~~do ~~increased~~not anticipate increasing the number of DVD’s produced ~~and~~nor the number of books produced. We will begin to increase our activity as our cash flow improves.

In the entertainment industry, financial success is based upon audience acceptance of the products produced. Although we are selective in our choice of projects, there can be no guarantee that our productions will be widely received.

In order to minimize our risk of acceptance by audiences, we plan to do sequels of titles that have previously done well and also to prepare new titles with the same production team that produced the hits. Our main target group, the “Otaku”, are known for their tendency in purchasing of related products.

As a result of our weakened cash flow position caused by delays in closing the loan discussed above as a subsequent event, we were unable to fund certain projects that we had planned. Until such time as we can fund additional projects our growth will be slowed. There is no assurance that we can obtain additional financing for those projects and we will have to fund them form cash flow.

Off-Balance Sheet Arrangements

At ~~June~~September 30, 2012, we had no obligations that would qualify to be disclosed as off-balance sheet arrangements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

Not Applicable

ITEM 4.

CONTROLS AND PROCEDURES:

Disclosure Controls and Procedures

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company's "disclosure, controls and procedures" (as defined in the Exchange Act Rules 13a-15(3) and 15-d-15(3) as of the end of the period covered by this annual report (the "Evaluation Date"). As a result of the evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures although designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported with the time periods specified were not effective. During the period covered by this report the Company lost personnel in the accounting department which caused the Company to not have timely financial information.

27The Company will remedy the inadequacy by hiring additional accounting personnel.

and 15-d-15(3) as of the end of the period covered by this annual report (the "Evaluation Date"). Based on that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported with the time periods specified. Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of June 30, 2012 to provide reasonable assurance of the achievement of these objectives.

Changes in Internal Controls Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) or any other factors during the three months ended ~~June~~September 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

ITEM 1A. RISK FACTORS.

Not Applicable.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5.

OTHER INFORMATION.

None.

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ITEM 6.

EXHIBITS.

(a)

The following exhibits are filed herewith:

Regulation S-K Number	Exhibit
10.12	Credit Agreement Amendment No. 1, dated January 31, 2013, by and among T.O Entertainment, Inc., a Colorado corporation, T.O Entertainment, Inc., a Japan corporation, T.O Entertainment United Kingdom, a United Kingdom corporation, T.O Entertainment Rus, LLC., a Russia limited liability company, and T.O Entertainment Singapore PTE Ltd., a Singapore corporation, collectively as Borrower and TCA Global Credit Master Fund LP, as Lender*
31.1	Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101	INS XBRL Instance Document*
101	SCH XBRL Schema Document*
101	CAL XBRL Taxonomy Extension Calculation Linkbase Document*
101	LAB XBRL Taxonomy Extension Label Linkbase Document*
101	PRE XBRL Taxonomy Extension Presentation Linkbase Document*
101	DEF XBRL Taxonomy Extension Definition Linkbase Document*



*	filed herewith

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SIGNATURES

Pursuant to the requirements 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.

T.O ENTERTAINMENT, INC

By: /S/ Takeichi Honda

Takeichi Honda, Chief Executive Officer

Date: ~~August~~February 166, ~~2012~~2013

By: /S/ Arnold Tinter

Arnold Tinter, Principal Financial Officer

Date: ~~August~~February 166, ~~2012~~2013

3034

Filing Compare · T.O ENTERTAINMENT, INC.