UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM C-AR

UNDER THE SECURITIES ACT OF 1933

(Mark one.)

  • Form C: Offering Statement
  • Form C-U: Progress Update
  • Form C/A: Amendment to Offering Statement
    • Check box if Amendment is material and investors must reconfirm within five business days.
  • Form C-AR: Annual Report
  • Form C-AR/A: Amendment to Annual Report
  • Form C-TR: Termination of Reporting

Name of issuer

ArtCraft Entertainment, Inc.

Legal status of issuer

            Form

            Corporation

            Jurisdiction
of Incorporation/Organization

            Delaware

            Date
of organization

            May 20,
2013

Physical address of issuer

815 A Brazos St #313, Austin, TX 78701

Website of issuer

www.crowfall.com

Current number of employees

31

 

Most recent fiscal year-end

Prior fiscal year-end

Total Assets

$855,863.00

$741,827.00

Cash & Cash Equivalents

$744,494.00

$713,258.00

Accounts Receivable

$0.00

$0.00

Short-term Debt

$0.00

$0.00

Long-term Debt

$0.00

$0.00

Revenues/Sales

$31,445.00

$0.00

Cost of Goods Sold

$0.00

$0.00

Taxes Paid

$0.00

$0.00

Net Income

-$3,488,790.00

-$1,374,306.00

 

April 28, 2017

 

 

FORM C-AR

 

ArtCraft Entertainment, Inc.

 

This Form C-AR (including the cover
page and all exhibits attached hereto, the "Form C-AR”) is being furnished
by ArtCraft Entertainment, Inc., a Delaware Corporation (the
"Company," as well as references to "we, " "us, "
or "our") for the sole purpose of providing certain information about
the company as required by the Securities and Exchange Commission
("SEC").

No federal or state
securities commission or regulatory authority has passed upon the accuracy or
adequacy of this document. The U.S. Securities and Exchange Commission does not
pass upon the accuracy or completeness of any disclosure document or
literature. The Company is filing this Form C-AR pursuant to Regulation CF (§
227.100 et seq.) which requires that it must file a report with the Commission
annually and post the report on its website at www.crowfall.com no later than
120 days after the end of each fiscal year covered by the report. The Company
may terminate its reporting obligations in the future in accordance with Rule
202(b) of Regulation CF (§ 227.202(b)) by 1) being required to file reports
under Section 13(a) or Section 15(d) of the Exchange Act of 1934, as amended,
2) filing at least one annual report pursuant to Regulation CF and having fewer
than 300 holders of record, 3) filing annual reports for three years pursuant
to Regulation CF and having assets equal to or less than $10,000,000, 4) the repurchase
of all the Securities sold pursuant to Regulation CF by the Company or another
party, including any payment in full of debt securities or any complete
redemption of redeemable securities, or 5) the liquidation or dissolution of
the Company in accordance with state law.

The date of this Form C-AR is April 28, 2017.

THIS FORM C-AR DOES NOT
CONSTITUTE AN OFFER TO PURCHASE OR SELL SECURITIES.

Forward
Looking Statement Disclosure

 

This Form
C-AR and any documents incorporated by reference herein or therein contain
forward-looking statements and are subject to risks and uncertainties. All
statements other than statements of historical fact or relating to present
facts or current conditions included in this Form C-AR are forward-looking
statements. Forward-looking statements give the Company's current reasonable
expectations and projections relating to its financial condition, results of
operations, plans, objectives, future performance and business. You can
identify forward-looking statements by the fact that they do not relate
strictly to historical or current facts. These statements may include words
such as "anticipate," "estimate," "expect,"
"project," "plan," "intend," "believe,"
"may," "should," "can have," "likely"
and other words and terms of similar meaning in connection with any discussion
of the timing or nature of future operating or financial performance or other
events.

 

The
forward-looking statements contained in this Form C-AR and any documents
incorporated by reference herein or therein are based on reasonable assumptions
the Company has made in light of its industry experience, perceptions of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate under the circumstances. As you read and
consider this Form C-AR, you should understand that these statements are not
guarantees of performance or results. They involve risks, uncertainties (many
of which are beyond the Company's control) and assumptions. Although the
Company believes that these forward-looking statements are based on reasonable
assumptions, you should be aware that many factors could affect its actual
operating and financial performance and cause its performance to differ
materially from the performance anticipated in the forward-looking statements.
Should one or more of these risks or uncertainties materialize, or should any
of these assumptions prove incorrect or change, the Company's actual operating
and financial performance may vary in material respects from the performance
projected in these forward-looking statements.

 

Any
forward-looking statement made by the Company in this Form C-AR or any
documents incorporated by reference herein or therein speaks only as of the
date of this Form C-AR. Factors or events that could cause our actual operating
and financial performance to differ may emerge from time to time, and it is not
possible for the Company to predict all of them. The Company undertakes no
obligation to update any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as may be required by
law.

 

 

 

 

Table of Contents

 

SUMMARY ................................................................................................................................... 6

The Business .......................................................................................................................... 6

The Business
Plan .................................................................................................................. 6

RISK FACTORS ........................................................................................................................... 6

Risks Related to
the Company's Business and Industry ....................................................... 7

BUSINESS ................................................................................................................................... 13

Description of
the Business ................................................................................................. 13

Business Plan ....................................................................................................................... 13

History of the
Business ....................................................................................................... 13

The Company's
Products and/or Services ........................................................................... 13

Competition ......................................................................................................................... 13

Supply Chain and
Customer Base ....................................................................................... 14

Intellectual
Property and Research and Development ........................................................ 14

Real Property ....................................................................................................................... 14

Governmental/Regulatory
Approval and Compliance ........................................................ 15

Litigation ............................................................................................................................. 15

Other ................................................................................................................................... 15

DIRECTORS, OFFICERS AND EMPLOYEES ....................................................................... 15

Directors .............................................................................................................................. 16

Officers ............................................................................................................................... 17

Control/Major
Decisions ..................................................................................................... 18

Employees ........................................................................................................................... 18

CAPITALIZATION AND OWNERSHIP ................................................................................. 18

Capitalization ...................................................................................................................... 18

Ownership ........................................................................................................................... 23

FINANCIAL INFORMATION .................................................................................................. 24

Please see the
financial information listed on the cover page of this Form C-AR and attached
hereto in addition to the following information. ................................................................................ 24

Operations ........................................................................................................................... 24

Liquidity and
Capital Resources ......................................................................................... 24

Capital
Expenditures and Other Obligations ...................................................................... 24

Material Changes
and Other Information ........................................................................... 24

Trends and
Uncertainties .................................................................................................... 24

Restrictions on
Transfer ...................................................................................................... 25

TRANSACTIONS WITH RELATED PERSONS AND CONFLICTS OF INTEREST .......... 25

Related Person
Transactions ............................................................................................... 25

Conflicts of
Interest ............................................................................................................ 26

OTHER INFORMATION ........................................................................................................... 26

Bad Actor
Disclosure .......................................................................................................... 26

EXHIBITS ................................................................................................................................... 29

EXHIBIT A ........................................................................................................................ 30

 

About this Form C-AR

 

You should rely only on the information contained in this
Form C-AR. We have not authorized anyone to provide you with information
different from that contained in this Form C-AR. You should assume that the
information contained in this Form C-AR is accurate only as of the date of this
Form C-AR, regardless of the time of delivery of this Form C-AR. Our business,
financial condition, results of operations, and prospects may have changed
since that date.

Statements contained herein as to the content of any
agreements or other document are summaries and, therefore, are necessarily
selective and incomplete and are qualified in their entirety by the actual
agreements or other documents.

SUMMARY

 

The following summary is qualified in its entirety by more
detailed information that may appear elsewhere in this Form C-AR and the
Exhibits hereto.

ArtCraft Entertainment, Inc. (the "Company") is a
Delaware Corporation, formed on May 20, 2013. The Company was formerly known as
Art + Craft Entertainment, Inc.

The Company is located at 815 A Brazos St #313, Austin, TX
78701.

The Company's website is www.crowfall.com.

The information available on or through our website is not a
part of this Form C-AR.

The Business

ArtCraft Entertainment Inc. is a developer and publisher of
massively multiplayer online role playing games.

The Business Plan

Our company creates gaming environments that aggregate
online communities. We call these “Community Engagement Games,” as they become
significant lifestyle hobbies for our customers, far beyond simple distractions
or casual entertainment.

RISK FACTORS

 

Risks Related to the
Company's Business and Industry

We are a newly-created company, with limited operating
history, and are creating our first product.

The Company was formed in May
2013 and is creating its first product. Investment in the Company is highly
speculative because it entails significant risk that we may never become
commercially viable. We need to complete development of our product, and while
the funds raised through this offering will be used to fund the development of
our initial product (i.e., the game Crowfall®), we will require additional
funding after this offering to complete the development and then launch our
product. Once developed, we will need to transition from a company focused on
development to a company that is also capable of successfully marketing,
launching and operating the product. We may not be successful in such a
transition.

As a new business, we may
encounter unforeseen expenses, difficulties, complications, delays and other
known and unknown factors. We are subject to all of the risks that are
commonplace among newly-formed businesses and should be considered as a startup
business with significant risk that may face various difficulties typical for
development stage companies. These may include, among others: relatively
limited financial resources; developing new investment opportunities; delays in
reaching projected goals and milestones; competition from larger, more
established companies; and difficultly recruiting and retaining qualified
employees and other personnel. The Company may encounter these and other
difficulties in the future, some of which may be beyond its control. If the
Company is unable to successfully address these difficulties as they arise, the
Company’s future growth and earnings will be negatively affected. The Company
cannot give assurance to prospective investors that its business model and
plans will be successful or that it will successfully address any problems that
may arise. There is substantial doubt about the ability of development stage
companies continue as a going concern.

Our future revenue is unpredictable and is based upon
a single initial game that is currently under development.

We cannot guarantee that Crowfall
or any future products will be successfully developed or that our products will
be profitable. Our business is speculative and dependent upon the acceptance of
our products and the effectiveness of our marketing program to convince players
to choose our products. We cannot assure that consumers will accept our
products or that we will earn any revenues or profit. Investors may lose their
entire investment. In addition, there is a substantial risk that we may not
receive sufficient funding after this offering to complete the development of
our initial game. It is also difficult to accurately forecast our revenues and
operating results, and they may fluctuate in the future due to a number of
factors. These factors include, but are not limited to, player acceptance of
our games, competition from other market participants, and adverse changes in
general economic, industry and regulatory conditions and requirements.

The loss of key personnel, or the inability to attract
talent, could adversely impact our business.

Our success is largely dependent
on the retention of certain key personnel, including, but not limited to, our
Chief Executive Officer and member of the board of directors, J. Todd Coleman,
and our President and member of the board of directors, Conrad Gordon Walton
Jr. Our success is also dependent on the retention of certain of key team
members focused on the design, development, engineering and/or production of
the product. The loss of services of one or more of any of these key personnel
members from our Company could adversely affect our business, projected sales,
revenue and prospects. Our success is also dependent on our ability to hire and
retain other key team members to assist in, among other things, the production,
development and operations of the product. Competition for qualified personnel
in the gaming industry is high, and we may have difficulty in hiring and/or
retaining necessary personnel for a variety of reasons, including, without
limitation, such competitive nature.

We face significant market competition from larger
competitors.

While many new products are
regularly introduced in our industry, it is increasingly difficult to produce
high-quality products and to predict, prior to completing product development,
what products will succeed. Competitors often develop products that could
replicate or compete with products of competitors, which in turn hinders growth
of a customer base and profitability. Products published by our competitors may
take a larger share of players spending than anticipated, which could cause our
product sales to fall below expectations. Players may lose interest in our
product. If our competitors develop more successful products and/or offer
competitive products at lower prices, our revenues, margins and profitability
could be impaired. Our competitors include very large corporations with
significantly greater financial, marketing and product development resources
than we have. The availability of significant financial resources is a major
competitive factor in the production of high-quality products and in the
marketing of products that are ultimately well-received. Our larger competitors
may be able to leverage their greater financial, technical, personnel, and
other resources to finance larger budgets for development and marketing, and
make higher offers to licensors and developers for commercially desirable
properties as well as adopt more aggressive pricing policies to develop more
commercially successful products. In addition, larger competitors may have
greater leverage with distributors, retailers and other players.

If our game does not function as players expect, it
may have a negative impact on our business and model.

If our initial product does not
function as players expect, our projected sales may suffer and it may
negatively impact our business. Re-developing the product to satisfy players
could adversely impact the product and disappoint consumers. Additionally, if
players do not find our product compelling, our projected revenue and sales will
lower and negatively impact our business.

Our players may choose other games and/or other forms
of entertainment, and if players do not find our game compelling then our
projected revenue will decline.

Our player base will drive our
revenue and success. The gaming industry is a highly speculative and
competitive industry, and players may be critical of our product or business
practices for a wide variety of reasons. If players choose other products
and/or other forms of entertainment (whether by any action or inaction of our
company or our product), our projected revenue and business will decline. In
addition, if our product does not function as players anticipate, if players
find products that are more satisfying from their perspective, and/or if players
do not find our product entertaining or compelling to their satisfaction,
players may choose other products (or otherwise elect to just not use our
product), which would have a negative impact on our business. Many of these
factors are subjective and outside of the Company’s control.

The game may have a short lifecycle and fail to
generate significant revenues.

The video game industry is
characterized by short product lifecycles and the frequent introduction of new
games. Many products do not achieve sustained market acceptance or do not
generate a sufficient level of sales to offset the costs associated with
product development and distribution. A significant percentage of the sales of
new products generally occurs within a relatively short period following the
release of a game. Any competitive, financial, technological or other factor
which delays or impairs the ability to introduce and sell games could adversely
affect our operating results.

Investors may suffer potential loss or dissolution and
termination.

In the event of a dissolution or
termination of the Company, the proceeds realized from the liquidation of
assets, if any, will be distributed in the priority established by applicable
law, but only after the satisfaction of claims of creditors. Accordingly, the
ability of an investor to recover all or any portion of its investment under
such circumstances will depend on the amount of funds realized and claims to be
satisfied therefrom.

Actual results may vary from any projection we
present.

We may provide certain projected
results of operations to prospective investors in connection with this
offering. Projections are hypothetical and based upon present factors thought
by management to influence our operations. Projections do not, and cannot, take
into account such factors as market fluctuations, unforeseeable events such as
natural disasters, the terms and conditions of any possible financing, and
other possible occurrences that are beyond our ability to control or even to
predict. While management believes that the projections reflect the possible
outcome of our operation and performance, results depicted in the projections
cannot be guaranteed.

If general economic conditions decline, demand for our
product could decline.

Our product will involve discretionary
spending on the part of consumers. Consumers are generally more willing to make
discretionary purchases, including purchases of a product like ours, during
periods in which favorable economic conditions prevail. As a result, our
product will be sensitive to general economic conditions and economic cycles. A
reduction or shift in domestic or international consumer spending could result
in an increase in our selling and promotional expenses in an effort to offset
that reduction, and could have a material adverse effect on our business,
financial condition, results of operations, profitability, cash flows and
liquidity.

Our operating costs and unpredictable.

In addition to general economic
conditions and market fluctuations, significant operating cost increases could
adversely affect us due to numerous factors, many of which are beyond our
control. Increases in operating costs for the Company or the product would
likely negatively impact our operating income, and could result in
substantially decreased earnings or a loss from operations.

If we issue additional shares of our stock,
stockholders may experience dilution in their ownership of our company.

We have the right to raise
additional capital or incur borrowings from third parties to finance our
business. In the future we may issue more shares of our common stock or
preferred stock. Consequently, stockholders may experience more dilution in
their ownership of us in the future.

Certain future distribution relationships have not
been established.

The Company has established and
will establish certain relationships with others, which may include publishing,
marketing or distribution partners in certain geographic territories or for
certain game platforms. We will need to maintain such relationships and, in
some cases, establish new ones or replace existing ones. There will be several
agreements and documents that remain to be negotiated, executed, and
implemented with respect to certain aspects of our planned operations. In some
cases, the parties with whom we would need to establish a relationship may not
yet be identified. If we are unable to enter into these agreements or
relationships on satisfactory terms, our operations could be delayed or
curtailed, expenses could be increased, and profitability and the likelihood of
returns to any or all of our stockholders could be adversely affected.

There is no public market for the securities and you
will have to hold your securities indefinitely, subject only to a private sale
to a qualified counterparty that is exempt from registration, or a registration
of your securities, or a sale of the business.

Currently, there is no public or
other trading market for our securities and there is no current intent to
create a public market for our securities. Further, there can be no assurance
that we will be able to facilitate a private sale of your securities or that
any other market will develop. Thus, there can be no assurance that you will be
able to liquidate your investment in case of an emergency or if you otherwise
desire to do so. Investment in our Company is of a long-term nature.
Accordingly, purchasers of securities will bear the economic risk of investment
for an indefinite period of time.

Our buy-to-play business model may not be accepted by
the market.

Our buy-to-play business model
has not been adequately tested in the market, and if the model is not accepted
by the market, our business and projected revenue and sales will be negatively
impacted. We believe that the buy-to-play business model will be accepted, but
cannot confidentially predict the market acceptance for a variety of reasons,
including, without limitation, the rise and use of the free-to-play business
model in the market. Our buy-to-play business model also depends on sales of
subscriptions and digital items, and our results will be materially impacted if
we cannot execute on this model.

Marketing costs are volatile and can impact our growth
and profitability.

Marketing of our product and our Company
can be done through a variety of outlets, and part of the success of our
product may depend on such marketing efforts. However, it is difficult to
predict which marketing efforts will resonate with certain players. Due to the
volatile nature of marketing costs and the potential need to explore a variety
of marketing efforts, we may need to use additional funds for marketing that
could impact growth and projected profitability.

We may experience significant revenue fluctuations due
to a variety of factors.

We may experience significant
fluctuations in sales of the product due to a variety of factors, including the
timing of the release of the product, the popularity of the product, the timing
of customer purchases, fluctuations in the size and rate of growth of consumer
demand for the product, and the accuracy of forecasts of consumer demand. Our
expectations of future game revenue are based on certain assumptions and
projections, and our operating results will be disproportionately and adversely
affected by a failure of the product to meet sales expectations. There can be
no assurance that we can maintain consistent revenue, and any significant
fluctuations in revenue may reduce the value of your investment.

If the product contains defects, the product’s and our
reputation could be harmed and revenue would be adversely affected.

The product will be an extremely
complex software program, and is difficult to develop. While we have quality
controls in place to detect defects, these quality controls will be subject to
human error, overriding, and reasonable resource constraints. Therefore, these
quality controls and preventative measures may not be effective in detecting
defects in the product before it is released into the marketplace. In such an
event, that could significantly harm the business and operating results of the
Company and ultimately reduce the value your investment.

The video game industry is subject to increasing
regulation of content, consumer privacy, and distribution.

Non-compliance with laws and
regulations could materially adversely affect our business.

The video game industry is
subject to increasing regulation of content, consumer privacy, distribution and
online hosting and delivery in the various countries where the Company intends
to distribute the product. Such regulation could harm our business by limiting
the size of the potential market for the product and by requiring additional
differentiation between products for different countries to address varying
regulations. If we and our advisors do not successfully respond to these
regulations, sales may decrease and our business may suffer. Generally, any
failure of the Company to comply with laws and regulatory requirements
applicable to our business may, among other things, limit our ability to
generate revenue, and, in addition, could subject us to higher costs, damages,
class action lawsuits, administrative enforcement actions, and civil and
criminal liability.

If the product infringes on the intellectual property
rights of others, costly litigation would negatively affect sales and our
business may suffer.

Some of the images and other
content in the product may inadvertently infringe upon the intellectual
property rights of others. Although we will make efforts to ensure that the
product does not violate the intellectual property rights of others, it is
possible that third parties still may claim infringement. Infringement claims
against us, whether valid or not, may be time consuming and expensive to
defend. Such claims or litigations could require us to stop development, stop
selling a game, redesign the product or require us to obtain a license such
intellectual property, all of which would be costly and may increase costs
and/or negatively affect revenues received by the Company and the value of your
investment. We cannot be certain that a game will not infringe on issued
trademarks, patents, and copyright rights of others. We may be subject to legal
proceedings and claims from time to time in our ordinary course of business
arising out of intellectual property rights of others. These legal proceedings
can be very costly, and thus can negatively affect the results of our
operations.

If consumers move away from the platform or platforms
our games are distributed on, our growth and revenue would be materially
affected.

Our first product will be
delivered on the personal computer (“PC”) platform, and there is a possibility
that it may be delivered on console platforms in the future. If consumers begin
to migrate to other platforms, such as mobile and/or tablet devices, and the installed
base of the platform(s) on which we have delivered our product(s) loses
momentum, our revenue and growth opportunities will be directly and materially
affected.

There can be no assurance that we will develop the
game on our projected timeline or at all, or that the product will function as
intended once developed.

There can be no assurance that we
can develop Crowfall to be a saleable or successful game. Investors must
consider that we may not be able to create a game that we can effectively distribute
or market. There can be no assurance that we will be able to develop the
product on time or at all, or that the product will function as intended once
developed. Additionally, if we become subject to bankruptcy or a similar
proceeding or lose our ability to attract and retain qualified personnel, we
may not be able to sustain operations, complete development of the product or
may develop a product that fails to attract consumers, and consequently our
business will be materially adversely affected, as will the value of your
investment.

 

In addition to the risks listed above, businesses are often
subject to risks not foreseen or fully appreciated by the management. It is not
possible to foresee all risks that may affect us. Moreover, we cannot predict whether
we will successfully effectuate our current business plan. Investors are
encouraged to carefully analyze the risks and merits of an investment in our securities
and should take into consideration when making such analysis, among other, the
Risk Factors discussed above.

 

BUSINESS

 

Description
of the Business

ArtCraft Entertainment Inc. is a developer and publisher of
massively multiplayer online role playing games.

Business Plan

The Company's goal is to build up Crowfall’s sales and
momentum and then leverage that success to become a world-wide publisher and
developer of other “community engagement” (team oriented) titles. We will
partner with publishing/distribution companies in some overseas markets to
better exploit these markets though local service and support.

History of the Business

The Company was founded by Jeffrey Todd Coleman and Conrad
Gordon Walton, Jr. in 2013 for the purpose of developing and publishing
community engagement games.

The Company converted from a subchapter S-Corporation to a
C-Corporation for tax purposes effective on May 31, 2014. Accordingly, all
earnings and losses prior to the conversion passed through to the ownership and
were not taxable to the Company.

The Company's Products and/or Services

Product / Service

Description

Current Market

Crowfall Game Service

A massively multiplayer game service that allows near
24x7x365 access to an online game and the community elements around the game.

Worldwide via internet

Crowfall is a PC-based massively multiplayer online role
playing game that is currently in development. Proceeds from the offering will
be used for further development of the game. 100% of the proceeds of the offering
will be used to develop and market Crowfall.

The Company does not currently have any product in public
distribution. Crowfall is in pre-release testing through the internet for
customers who back the product through crowdfunding.

Competition

The Company's primary competitors are other video game
publishers and developers, particularly those who produce massively multiplayer
online (MMO) titles.

We operate in a highly competitive and rapidly changing
global marketplace and compete with a variety of organizations that offer
services competitive with those we offer. We believe that the principal
competitive factors in the industries in which we compete include: skills and
capabilities of people; technical and industry expertise; innovative service
and product offerings; ability to add business value and improve performance;
reputation and client references; contractual terms, including competitive
pricing; ability to deliver results reliably and on a timely basis; scope of
services; service delivery approach; quality of services and solutions;
availability of appropriate resources; and global and scale, including level of
presence in key emerging markets.

Supply
Chain and Customer Base

Our most important asset is our people. One of our key goals
is to have the best talent, with highly specialized skills, at the right levels
in the right locations, to enhance our products' differentiation and
competitiveness.

The Company currently has over 33,000 customers who have
pre-ordered the game and/or additional game rewards through consumer
crowdfunding. Our target market includes video game enthusiasts, particularly
those who play massively multiplayer online role-playing games (MMORPGs).

Intellectual Property and
Research and Development

Trademarks

Application or Registration#

Goods / Services

Mark

File Date

Registration Date

Country

4,871,674

Computer game software and others

Crowfall

September 17, 2014

December 15, 2015

United States of America

The Company expensed
$3,047,073 and $1,142,643 of costs related to the development of its game
software during the years ended December 31, 2015 and 2014, respectively, to
research and development.

Real Property

The Company owns or leases the following real property:

Property Address

Own or Lease

Description

withheld for security reasons

Lease

In December of 2015, the Company entered into a lease
agreement for office space to commence March 1, 2016 and continue for a 39
month term ending May 31, 2019. Rent payments escalate annually, ranging from
$6,828 to $7,397 per month. A deposit of $11,532 was paid on this lease
agreement.

Governmental/Regulatory
Approval and Compliance

The video game industry is subject to increasing regulation
of content, consumer privacy, and distribution. Non-compliance with laws and
regulations could materially adversely affect our business. The video game
industry is subject to increasing regulation of content, consumer privacy,
distribution and online hosting and delivery in the various countries where the
Company intends to distribute the product. Such regulation could harm our
business by limiting the size of the potential market for the product and by
requiring additional differentiation between products for different countries
to address varying regulations. If our Company and our advisors do not
successfully respond to these regulations, sales may decrease and our business
may suffer. Generally, any failure of the Company to comply with laws and
regulatory requirements applicable to our business may, among other things,
limit our ability to generate revenue, and, in addition, could subject us to
higher costs, damages, class action lawsuits, administrative enforcement
actions, and civil and criminal liability.

Our business does not have a direct environmental impact.

Litigation

None

Other

The Company's principal address is 815 A Brazos St #313,
Austin, TX 78701

The Company conducts business in Texas.

 

DIRECTORS,
OFFICERS AND EMPLOYEES

 

 

Directors

The directors or managers of the Company are listed below
along with all positions and offices held at the Company and their principal
occupation and employment responsibilities for the past three (3) years and
their educational background and qualifications.

Name

Conrad Gordon Walton, Jr.

All positions and offices held with the Company and
date such position(s) was held with start and ending dates

President, May 2013 - Present

Principal occupation and employment responsibilities
during at least the last three (3) years with start and ending dates

Being employed as the President of the Company has been his
full-time, principal occupation for the last three (3) years.

Education

Texas A&M University - B.S. in Computer Science

Name

Xiao Hong

All positions and offices held with the Company and
date such position(s) was held with start and ending dates

Director, June 2014 - Present

Principal occupation and employment responsibilities
during at least the last three (3) years with start and ending dates

Chief Executive Officer, Perfect World Group, August 2013 -
Present

Education

Tsinghua University - B.S. Physics University of Southern
California - Ph.D Engineering

Name

Jeffrey Todd Coleman

All positions and offices held with the Company and
date such position(s) was held with start and ending dates

Chief Executive Officer, May 2013 - Present Secretary, May
2013 - Present

Principal occupation and employment responsibilities
during at least the last three (3) years with start and ending dates

Being employed as the Chief Executive Officer of the Company
has been his full-time, principal occupation for the last three (3) years.

Education

Texas Christian University (TCU) - BBA in Management, Minor
in Computer Science, Minor in Religious Studies

 

Officers

The officers of the Company are listed below along with all
positions and offices held at the Company and their principal occupation and
employment responsibilities for the past three (3) years and their educational
background and qualifications.

Name

Conrad Gordon Walton Jr.

All positions and offices held with the Company and
date such position(s) was held with start and ending dates

President, May 2013 - Present

Principal occupation and employment responsibilities
during at least the last three (3) years with start and ending dates

Being employed as the President of the Company has been his
full-time, principal occupation for the last three (3) years.

Education

Texas A&M University - B.S. in Computer Science

Name

Jeffrey Todd Coleman

All positions and offices held with the Company and
date such position(s) was held with start and ending dates

Chief Executive Officer, May 2013 - Present Secretary, May
2013 - Present

Principal occupation and employment responsibilities
during at least the last three (3) years with start and ending dates

Being employed as the Chief Executive Officer of the Company
has been his full-time, principal occupation for the last three (3) years.

Education

Texas Christian University (TCU) - BBA in Management, Minor
in Computer Science, Minor in Religious Studies

 

Control/Major Decisions

The table below sets forth who can make the following major
decisions with respect to the Company on behalf of the Company:

Decision

Person/Entity

Issuance of additional securities

Board of Directors

Incurrence of indebtedness

Board of Directors

Sale of property, interests or assets of the Company

Board of Directors

Determination of the budget

Board of Directors

Determination of business strategy

Board of Directors

Dissolution of liquidation of the Company

Board of Directors and Shareholders

Indemnification

Indemnification is authorized by the Company to directors,
officers or controlling persons acting in their professional capacity pursuant
to Delaware law. Indemnification includes expenses such as attorney's fees and,
in certain circumstances, judgments, fines and settlement amounts actually paid
or incurred in connection with actual or threatened actions, suits or
proceedings involving such person, except in certain circumstances where a
person is adjudged to be guilty of gross negligence or willful misconduct,
unless a court of competent jurisdiction determines that such indemnification
is fair and reasonable under the circumstances.

Employees

The Company currently has 33 employees in Texas / United
States of America.

CAPITALIZATION
AND OWNERSHIP

 

Capitalization

 

The Company has issued the following outstanding securities:

Type of security

Common Stock

Amount outstanding

10,423,777

Voting Rights

The holders of common stock are entitled to one vote for
each share of common stock held at all meetings of stockholders (and written
actions in lieu of meetings). Holders of record of the Company's common stock
are entitled to elect directors as described in the Board Composition.

Anti-Dilution Rights

How this security may limit, dilute or qualify the
Notes/Bonds issued pursuant to Regulation CF

Percentage ownership of the company by holders of Common
Stock (assuming conversion if convertible securities)

50.2%

Type of security

Series Seed Preferred Stock

Amount outstanding

4,304,354

Voting Rights

Holders of Preferred Stock shall vote together with the
holders of Common Stock as a single class on an as-converted basis, shall
have full voting rights and powers equal to the voting rights and powers of
the holders of Common Stock.

Anti-Dilution Rights

How this security may limit, dilute or qualify the
Notes/Bonds issued pursuant to Regulation CF

Percentage ownership of the company by holders of the
Series Seed Preferred Stock (assuming conversion if convertible securities)

20.7%

Type of security

Series Seed-1 Preferred Stock

Amount outstanding

2,000,000

Voting Rights

Holders of Preferred Stock shall vote together with the
holders of Common Stock as a single class on an as-converted basis, shall
have full voting rights and powers equal to the voting rights and powers of
the holders of Common Stock.

Anti-Dilution Rights

How this security may limit, dilute or qualify the
Notes/Bonds issued pursuant to Regulation CF

Percentage ownership of the company by holders of the
Series Seed-1 Preferred Stock (assuming conversion if convertible securities)

9.6%

Type of security

Series Seed-2 Preferred Stock

Amount outstanding

586,273

Voting Rights

Holders of Preferred Stock shall vote together with the
holders of Common Stock as a single class on an as-converted basis, shall
have full voting rights and powers equal to the voting rights and powers of
the holders of Common Stock.

Anti-Dilution Rights

How this security may limit, dilute or qualify the
Notes/Bonds issued pursuant to Regulation CF

Percentage ownership of the company by holders of the
Series Seed-2 Preferred Stock (assuming conversion if convertible securities)

2.8%

Securities issued pursuant to Regulation CF

Type of security

Series Seed-3 Preferred Stock

Amount outstanding

549,626

Voting Rights

Holders of Preferred Stock shall vote together with the
holders of Common Stock as a single class on an as-converted basis, shall
have full voting rights and powers equal to the voting rights and powers of
the holders of Common Stock.

Anti-Dilution Rights

Percentage ownership of the company by holders of the
Series Seed-3 Preferred Stock (assuming conversion if convertible securities)

2.6%

Type of security

Employee Option Pool - Issued Options

Amount outstanding

1,259,423

Voting Rights

Holders of options have no voting rights unless and until
such options are exercised for shares of common stock.

Anti-Dilution Rights

How this security may limit, dilute or qualify the
Notes/Bonds issued pursuant to Regulation CF

Percentage ownership of the company by holders of the Issued
Options

6.1%

The Company has the following debt outstanding:

            The Company
has issued three convertible promissory notes that have an aggregate principal
amount of $1,099,998.36, each such note contains an interest rate of 2.00% per
annum and each such note has a maturity date of December 31, 2017.

The total amount of outstanding
debt of the company is $1,103,582.61, which is
comprised of the outstanding amounts under the foregoing convertible promissory
notes and two short-term notes issued to
Jeffrey Todd Coleman and Conrad
Gordon Walton, Jr., which contain outstanding amounts owed of $2,158.64 and
$1,425.61, respectively.

 

The Company has conducted the following prior securities
offerings in the past three years:

Security Type

Number Sold

Money Raised

Use of Proceeds

Offering Date

Exemption from Registration Used or Public Offering

Series Seed Preferred Stock

4,304,354

$2,354,921.00

Product development and other general corporate purposes.

June 24, 2014

Rule 506(b)

Series Seed-1 Preferred Stock

2,000,000

$2,085,400.00

Product development and other general corporate purposes.

May 21, 2015

Rule 506(b)

Series Seed-2 Preferred Stock

586,273

$611,352.00

Product development and other general corporate purposes.

November 7, 2016

Rule 506(b)

Series Seed-3 Preferred Stock

549,626

$613,342.08

Product development and other general corporate purposes.

November 15, 2016

Regulation CF

 

Ownership

A majority of the Company is owned by a few people. Those
people are Jeffrey Todd Coleman (Todd Coleman) and Conrad Gordon Walton Jr.
(Gordon Walton).

Below the beneficial owners of 20% percent or more of the Company's
outstanding voting equity securities, calculated on the basis of voting power,
are listed along with the amount they own.

Name

Percentage Owned

Jeffrey Todd Coleman

41.23%

(1)
        The above
includes 434,783 Series Seed Preferred Stock held by Mr. Coleman, which are
convertible into 434,783 Common Stock within 60 days

 

 FINANCIAL INFORMATION

 

Please see the financial
information listed on the cover page of this Form C-AR and attached hereto in
addition to the following information.

Operations

____________________

The Company believes that prior
earnings and cash flows are not indicative of future earnings and cash flows
because their first product, Crowfall, has not been released.

The Company does not expect to
achieve profitability in the next 12 months and intends to focus on the
following milestones: 1) Launch first product, Crowfall 2) Build team and
develop vision to begin pre-production of next title after Crowfall

The Company currently requires ~$330,000
in gross expenses offset by approximately $50,000 to $150,000 of incoming
revenue a month to sustain operations.

Liquidity
and Capital Resources

On or about January 17, 2017 the
Company closed an offering pursuant to Regulation CF and raised an amount of actual
total gross proceeds (prior to payment of any commissions) of $613,342.08.

The Company will require
additional funding in excess of the proceeds from the Regulation CF Offering in
order to sustain operations for the 12 months following that offering.  The Company’s primary sources of capital are
proceeds from that offering, other sales of equity or debt securities, and
licensing fees.

 

 

Capital Expenditures and
Other Obligations

The Company has made the
following material capital expenditures in the past two years:

Personal computers for the staff,
some limited furniture and some server and network machines for the office.

The Company does not intend to
make any material capital expenditures in the future.

 

The Company has a 3 year lease
for its current office space, that currently costs $11,228.49 per month running
from March 2016 through June 2019.

 

Material Changes and Other
Information

Trends and Uncertainties

 

After reviewing the above discussion of the steps the
Company intends to take, Investors should consider whether achievement of each
step within the estimated time frame is realistic in their judgement.  Investors should also assess the consequences
to the Company of any delays in taking these steps and whether the Company will
need additional financing to accomplish them.

The financial statements are an important part of this Form
C-AR and should be reviewed in their entirety. The financial statements of the
Company are attached hereto as Exhibit A.

Restrictions on Transfer

Any securities sold pursuant to Regulation CF being offered
may not be transferred by any purchaser of such Securities during the one-year
holding period beginning when the Securities were issued, unless such
securities were transferred: 1) to the Company, 2) to an accredited investor,
as defined by Rule 501(d) of Regulation D of the Securities Act of 1933, as
amended, 3) as part of an offering registered with the SEC or 4) to a member of
the family of the purchaser or the equivalent, to a trust controlled by the purchaser,
to a trust created for the benefit of a family member of the purchaser or the
equivalent, or in connection with the death or divorce of the purchaser or
other similar circumstances. "Member of the family" as used herein
means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse
or spousal equivalent, sibling, mother/father/daughter/son/sister/brother-in-law,
and includes adoptive relationships. Remember that although you may legally be
able to transfer the Securities, you may not be able to find another party
willing to purchase them.

TRANSACTIONS WITH RELATED
PERSONS AND CONFLICTS OF INTEREST

 

Related
Person Transactions

From time to time the Company may engage in transactions
with related persons. Related persons are defined as any director or officer of
the Company; any person who is the beneficial owner of 10 percent or more of
the Company's outstanding voting equity securities, calculated on the basis of
voting power; any promoter of the Company; any immediate family member of any
of the foregoing persons or an entity controlled by any such person or persons.

The Company has conducted the following transactions with
related persons:

 

Securities

 

Related Person/Entity

Gordon Walton Jr.

Relationship to the Company

Director, President and significant stockholder.

Total amount of money involved

$10,000.00

Description of the transaction

Purchase of shares of Series Seed-2 Preferred Stock.

OTHER INFORMATION

 

 

 

The Company has not failed to comply with the ongoing
reporting requirements of Regulation CF § 227.202 in the past.

 

Bad Actor Disclosure

 

None

 

SIGNATURE

Pursuant to the requirements of
Sections 4(a)(6) and 4A of the Securities Act of 1933 and Regulation
Crowdfunding (§ 227.100 et seq.), the issuer certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form
C-AR and has duly caused this Form to be signed on its behalf by the duly
authorized undersigned.

The issuer also certifies that the
attached financial statements are true and complete in all material respects.

/s/ J. Todd Coleman

(Signature)

Jeffrey Todd Coleman

(Issuer)

Chief Executive Officer & Secretary

(Title)

Pursuant to the requirements of
Sections 4(a)(6) and 4A of the Securities Act of 1933 and Regulation
Crowdfunding (§ 227.100 et seq.), this Form C-AR has been signed by the
following persons in the capacities and on the dates indicated.

/s/ J. Todd Coleman

(Signature)

Jeffrey Todd Coleman

(Name)

CEO

(Title)

April 28, 2017

(Date)

Instructions.

1.         The form
shall be signed by the issuer, its principal executive officer or officers, its
principal financial officer, its controller or principal accounting officer and
at least a majority of the board of directors or persons performing similar
functions.

2.         The name of
each person signing the form shall be typed or printed beneath the signature.

Intentional misstatements or omissions of facts constitute
federal criminal violations. See 18 U.S.C. 1001.

 

EXHIBITS

Exhibit A         Financial Statements

 

EXHIBIT A

Financial
Statements

 

 

© 2017 ArtCraft Entertainment, Inc.