Attached files
file | filename |
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EX-31 - Eastern Resources, Inc. | v178193_ex31.htm |
EX-32 - Eastern Resources, Inc. | v178193_ex32.htm |
EX-21 - Eastern Resources, Inc. | v178193_ex21.htm |
EX-10.7 - Eastern Resources, Inc. | v178193_ex10-7.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
Fiscal Year Ended: December 31, 2009
OR
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _______________ to _______________
Commission
file number: 333-149850
Eastern
Resources, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
45-0582098
|
|||
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification No.)
|
4 Park Ave., Suite 16K, New York,
NY
|
10016
|
|||
(Address
of principal executive offices)
|
(Postal
Code)
|
Issuer's
telephone number: (917)
687-6623
Securities
registered under Section 12(b) of the Act: None
Securities
registered under Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Exchange Act. Yes x 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 ¨ No ¨
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See the
definitions of the “large accelerated filer,” “accelerate filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer ¨
|
Accelerated
Filer ¨
|
|
|
Non-Accelerated
Filer ¨
|
Smaller
reporting company x
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨
No x
As of
June 30, 2009, there were 20,629,000 shares of the registrant's common stock,
par value $0.00001, issued and outstanding. Of these, 9,125,000
shares were held by non-affiliates of the registrant. The aggregate
market value of securities held by non-affiliates was $0 as registrant’s common
stock does not presently trade.
DOCUMENTS
INCORPORATED BY REFERENCE
If the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933,
as amended (“Securities Act”).
Not
Applicable.
TABLE
OF CONTENTS
FORWARD-LOOKING STATEMENTS
|
3
|
|
PART I
|
4
|
|
ITEM
1.
|
BUSINESS
|
4
|
ITEM
1A.
|
RISK
FACTORS
|
12
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
23
|
ITEM
2.
|
PROPERTIES
|
23
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
23
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
23
|
PART II
|
23
|
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
23
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
24
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
24
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA
|
28
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
28
|
ITEM
9A.[T]
|
CONTROLS
AND PROCEDURES
|
28
|
ITEM
9B.
|
OTHER
INFORMATION
|
30
|
PART III
|
30
|
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|
30
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
33
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
35
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
36
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
37
|
PART IV
|
38
|
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
38
|
2
FORWARD-LOOKING
STATEMENTS
Except
for historical information, this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking
statements involve risks and uncertainties, including, among other things,
statements regarding our business strategy, future revenues and anticipated
costs and expenses. Such forward-looking statements include, among
others, those statements including the words “expects,” “anticipates,”
“intends,” “believes” and similar language. Our actual results may
differ significantly from those projected in the forward-looking
statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in the sections
“Business,” “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” You should carefully
review the risks described in this Annual Report and in other documents we file
from time to time with the Securities and Exchange Commission. You
are cautioned not to place undue reliance on the forward-looking statements,
which speak only as of the date of this report. We undertake no
obligation to publicly release any revisions to the forward-looking statements
or reflect events or circumstances after the date of this document.
Although
we believe that the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements.
All
references in this Form 10-K to the “Company,” “Eastern,” “we,” “us” or “our”
are to Eastern Resources, Inc. and its wholly owned subsidiary, Buzz Kill,
Inc.
3
PART
I
ITEM
1. BUSINESS
Business
Strategy
Our plan
of operations is to create and produce independent films that appeal to
demographically diverse groups. We plan to acquire unique properties,
both dramatic and factual, from a broad spectrum of independent writers,
directors, and producers. Each project will become an independent
production company created as a subsidiary of Eastern Resources,
Inc. We plan to fund the projects and acquire and maintain ownership
of the films with the goal of building a film library with rights to DVD, book
and other reproductive media for sale to the public.
The
Film Industry in General
The film
industry includes about 9,000 companies with combined annual revenue of $50
billion. Large companies include Walt Disney, Sony Pictures, MGM,
Paramount, Twentieth Century Fox, Universal and Warner
Brothers. These “studios” are generally part of larger media
companies. The industry is highly concentrated as the 50 largest
companies account for approximately 80 percent of industry
revenue. There are also independent production companies, and a large
number of companies that provide services to the industry, including creative
talent, equipment, technical expertise, and various technical production and
distribution services.
The film
making business may broadly be segmented into three phases: Pre-production (or
Design Phase), Production and Post-production. Pre-production is the
planning phase, which includes budgeting, casting, finding the right location,
set and costume design and construction, and scheduling. Production
is the actual making of the film. The number of people involved in
the production phase can vary from a few, for a documentary film, to hundreds,
for a large studio feature film. It is during this phase that the
actual filming is done. Post-production activities take place in
editing rooms and recording studios, where the film is shaped into its final
form.
Generally,
even before the film starts production, marketing personnel develop the
marketing strategy for the release. They estimate the demand for the
film and the audience to whom it will appeal, develop an advertising plan, and
decide where and when to release the work. Advertising workers, or
unit publicists, write press releases and short biographies of actors and
directors for newspapers and magazines. They may also set up
interviews or television appearances for the stars or director to promote the
film. Sales representatives sell the finished
product. Many production companies hire staff or independent
companies to distribute, lease and sell their films to theater owners and
television networks.
4
The
Rise of Independent Film
While
independent films have been around for decades, dating back to B-movies and
poverty-row production companies, it was not until the late 1980’s that
independent films entered into the forefront of our movie culture. Over the last
20 years, we believe that there has been a significant shift in American
film-going audiences toward edgier, foreign and more non-traditional stories and
storytelling, indicated by the record-breaking box office sales of notable
independent films, such as Y
Tu Mamá Tabién, Monsoon
Wedding, Kissing
Jessica Stein and Adaptation. Box office
returns for independent films in 2004-2008 were at an unprecedented high and
have continued to rise, claiming an increasing market share and representing
approximately 35% of total 2009 domestic box office revenue. Each of the top 10
specialized films in 2004 grossed more than $10 million, and the trend continued
in 2005 and 2006 with such titles as Crash, Little Miss Sunshine and
Thank You For Smoking.
The most remarkable recent example of the potential success of independent film
is the 2009 sleeper mega-hit, “Paranormal Activity”, which cost $15,000 to
produce and has grossed in excess of $150 million in worldwide box office. This
figure does not include future earning potential via ancillary distribution
windows. Not surprisingly, Paranormal Activity 2 is
already in development, slated for a 2012 release. Moreover, encouraged by the
film’s colossal success, Paramount Pictures launched a new arm devoted solely to
producing micro-budget films with a production ceiling of $100,000. A more
conventional example of potential independent film success is the 2009 Sam
Rockwell vehicle, “Moon”, which more than recouped its $5 million production
cost solely through domestic box office returns.
It is
known throughout the industry that studio financed films must recoup four to
seven times their costs before they show a profit. While any investment is a
risk, we believe that the potential return on a low-budget independent film is
far greater than many expensive studio-produced films. My Big Fat Greek Wedding was
made for $5 million and had a box-office gross of over $200 million. Swingers, the critically
acclaimed independent hit was made in 1996 for $250,000 and was purchased by
Miramax for $5 million. Kissing Jessica Stein was
made for less than $1 million and grossed over $7 million at the box office. The
2006 Sundance Film Festival saw Little Miss Sunshine (Oscar
nominee for Best Picture) purchased for a reported $10.5 million by Fox
Searchlight. The 2009 romantic comedy (500) Days of Summer was made
for $7.5 million and earned over $32 million in domestic box office alone. In
2007, 2008 and 2009, the Sundance Film Festival reported a number of films
garnishing multi-million dollar distribution deals, and the recently wrapped
2010 Sundance Film Festival reported at least ten major domestic acquisitions,
including The Kids Are
Alright (Focus Features) for $5 million, Buried (Lionsgate) for $3.2
million, Twelve
(Hanover House) for $2 million and Hesher (Newmarket) for $1
million.
These
numbers and the growing number of major award nominations received by
independent films, including 2010 Oscar nominations for such films as Precious, The Hurt Locker, An Education, The Last Station and A Single Man, show that
quality independent films are often significantly more lucrative than the
Hollywood blockbusters into which studios pour tens of millions of dollars.
Since the expensive studio paradigm is proving increasingly more problematic
from an economic standpoint, the demand for independent production and
acquisition is on a steady rise. The solid performances of these specialized
films have given studios the financial incentive to make and distribute more
lower-budget movies.
Currently,
worldwide box office totals exceed $25 billion. Yearly domestic totals rose
steadily through the 1990’s and into the 2000’s, starting at about $4 billion in
1990 and finishing 2009 at over $10 billion. The film industry has also shown
remarkable durability and proved to be essentially recession proof as evidenced
by the box office returns for 1987, 1991, 2001 and 2009, when, despite a general
economic downturn, box office receipts continued to grow. The New York Times recently
reported how film investment has turned into a “conservative” investment during
the economic downturn.
5
We
believe that independent films are the fastest growing segment of the motion
picture business and are experiencing a growth record expected to continue
through the decade. The market continues to be responsive and rewards
cost-effective motion pictures made on smaller budgets. The breakout success of
the films, like those listed below, show that quality, well crafted films, made
with intelligence and originality, will find audiences despite their modest
budgets.
Moreover,
the development of new, digital distribution channels, such as Internet, mobile
and cable/satellite video on demand, has fundamentally shifted the way content
is distributed and consumed in the U.S. and around the world. Internet-based
video viewing software, new server and media storage systems, multiplatform
video on demand, multimedia gaming consoles and wireless video delivery now
allow for cost effective, immediate, mass distribution of filmed entertainment
programming. Because audiences can view content at any time from virtually any
digital pipeline, these new distributors are aggressively competing for consumer
viewing (and dollars) through diversity, exclusivity and volume of quality
product offerings. The result is a competitive, long-tail supply and demand
environment that currently favors the content producer.
The
levels of success achieved by the independent films identified below are
extremely rare for both independent and major studio releases. Major
distribution deals for independent films are extremely rare to non-existent,
except at major film festivals. There can be no assurance that our films will
achieve the same levels of profitability, if at all.
Independently
Produced Pictures
Title
(Distributor)
|
WW Box Office
|
Budget
|
Gross
|
|||||||||
($ in MM)
|
($ in MM)
|
($ in MM)
|
||||||||||
Chasing Amy
(Miramax)
|
$ | 14.7 | $ | 0.3 | $ | 14.4 | ||||||
Crash (Lions
Gate)
|
$ | 80 | $ | 6.5 | $ | 73.5 | ||||||
In The Company of Men
(Sony Classics)
|
$ | 2.9 | $ | 0.2 | $ | 2.7 | ||||||
Juno (Fox
Searchlight)
|
$ | 227 | $ | 7.5 | $ | 220 | ||||||
Kids
(Miramax)
|
$ | 7.4 | $ | 1.5 | $ | 5.9 | ||||||
Memento (Newmarket
Group)
|
$ | 25.5 | $ | 2.0 | $ | 23.5 | ||||||
Monster’s Ball (Lions
Gate)
|
$ | 34.9 | $ | 4.0 | $ | 30.9 | ||||||
My Big Fat Greek
Wedding (IFC)
|
$ | 273.8 | $ | 5.0 | $ | 268.8 | ||||||
Napoleon Dynamite (Fox
Searchlight)
|
$ | 46.0 | $ | 0.4 | $ | 45.6 | ||||||
Once (Fox
Searchlight)
|
$ | 9.4 | $ | 0.15 | $ | 9.2 | ||||||
Open Water (Lions
Gate)
|
$ | 53.4 | $ | 0.5 | $ | 52.9 | ||||||
Paranormal Activity
(Paramount Pictures)
|
$ | 151 | $ | 0.015 | $ | 150 | ||||||
Pi (Artisan
Entertainment)
|
$ | 4.6 | $ | 0.07 | $ | 3.9 | ||||||
Raising Victor Vargas
(Samuel Goldwyn)
|
$ | 2.07 | $ | 0.8 | $ | 2 | ||||||
Real Women Have Curves
(Newmarket)
|
$ | 10.63 | $ | 3.0 | $ | 7.63 | ||||||
Saw II (Lions
Gate)
|
$ | 122 | $ | 4.0 | $ | 118 | ||||||
Sex, Lies, & Videotape
(Miramax)
|
$ | 24.7 | $ | 1.0 | $ | 23.7 | ||||||
Slingblade
(Miramax)
|
$ | 24.5 | $ | 1.0 | $ | 23.5 | ||||||
Swingers
(Miramax)
|
$ | 8.3 | $ | 0.25 | $ | 7.1 | ||||||
The Blair Witch Project
(Artisan ENT.)
|
$ | 155.4 | $ | 0.06 | $ | 155.4 | ||||||
The Full Monty (Fox
Searchlight)
|
$ | 243.7 | $ | 3.5 | $ | 240.2 | ||||||
The Usual Suspects
(Gramercy Pics.)
|
$ | 25.8 | $ | 6.0 | $ | 19.8 | ||||||
The Visitor (Anchor
Bay)
|
$ | 9.4 | $ | 0.086 | $ | 9.3 | ||||||
Waiting For Guffman
(Sony Classics)
|
$ | 2.9 | $ | 1.9 | $ | 1.0 | ||||||
Welcome To The
Dollhouse (Sony Classics)
|
$ | 4.8 | $ | 0.8 | $ | 4.0 | ||||||
Whale Rider
(Newmarket)
|
$ | 41.4 | $ | 3.5 | $ | 37.9 | ||||||
You Can Count On Me
(Paramount Classics)
|
$ | 9.5 | $ | 1.2 | $ | 8.3 |
6
Sources: www.boxofficemojo.com
and www.imdb.com.
Expanding
in Existing and New Markets
We plan
to grow our operations through the funding of projects from proceeds of previous
productions, and through the potential acquisition and growth of a library of
films and media properties. We believe that we will be able to gain
market share by developing and maintaining a library, which may involve the
acquisition of films compatible with our mission. In addition to
continually seeking out and evaluating new projects of merit, we may consider
the acquisition of other production companies operating in a similar
intellectual space.
Maintain
Stringent Cost Controls
We
believe that maintaining stringent cost controls is a key factor in achieving
profitability and growth. We will limit our budget allocation for
each production, thus avoiding the most common mistake of film companies both
large and small, an excessive fiscal enthusiasm for one project at the expense
of future projects. We intend to set limits of $2,000,000 per project
with an operational target of $200,000. Our initial production,
described below, is estimated at roughly $1,200,000. These cost
controls will be maintained by monitoring production, scheduling and budgeting
on a daily basis.
Experienced
Management with Decentralized Operating Structure
As of
now, we intend to rely upon the expertise of our officers and directors to
spearhead initial productions. As we grow, we will rely upon the
expertise of our production managers, who will have significant experience in
the film industry. We also intend to purchase intellectual properties
from established creative personnel in the film industry. Each
production will be executed as a separate business, wholly owned by us, executed
by an independent crew of writers, directors and technicians with established
credentials in their respective fields. In order to align corporate
and divisional profit goals, production managers may receive bonuses based on
the return on investment of their respective productions. We believe
that this interaction between the divisional managers and corporate management
provides enhanced operating results. Due to our current capital limitations, we
will have difficulty in attracting experienced production managers and
established creative personnel.
7
Current
Project Description
In April
2007, we acquired the rights to exploit the literary work known as Buzz Kill, a screenplay
written by Steven Kampmann and Matthew Smollon. The film has a budget
of $1.2 million. We completed production and post-production of the
film in February 2008. This film is about a struggling writer who
acquires fame in an unusual way when a notorious serial murderer, named the
Karaoke Killer, steals his car and the newest draft of his
script. Along the way, he learns it doesn’t matter how you get
famous, just that you are famous.
Making a
full length motion picture at this budget level takes about 20 to 26
weeks. The process is broken down into a few discreet phases of
production.
A. Pre-Production
The
pre-production period is largely spent preparing to shoot the movie’s scenes
either on sets or on location. Contracts are secured with necessary
personnel, including directors of casting and photography and a line
producer. Actors for the various roles called for in the screenplay
are cast. Contracts with the appropriate unions are secured,
including the Screen Actors Guild, Writers Guild of America and Directors Guild
of America and International Brotherhood of Teamsters. Other film
crew positions are filled, such as assistant directors, cameramen, sound
technicians, wardrobe, hair and make-up workers are hired. Location
scouting begins and equipment rentals are secured.
B. Production
The
production phase largely consists of shooting the movie scenes. Our
production of BuzzKill
consisted of 20 shooting days in the New York area and five shooting days near
Los Angeles.
C. Post-Production
Post-production
is mostly the editing process, which took approximately 20
weeks. Editing the sound and video, adding titles at the beginning
and end of the movie, and developing a musical soundtrack all compose parts of
this process. It is in this phase that a final print of the film is
generated.
D. Marketing
We intend
to market, promote and advertise our films at every stage of
production. To date, we have participated in the following film
festivals:
New
Jersey Film Festival at Cape May (Winner Peoples Choice Award, Best Feature
Film);
The
Woodshole Film Festival;
The
Philadelphia Independent Film Festival; and
The Big
Easy Film Festival (Winner Best Feature Film Comedy and Best
Director)
8
We have
recently finished weighing four different distribution offers and are now
focusing our efforts on finalizing a distribution deal. It will likely be a
DVD/TV deal that should allow for Buzzkill to be publicly
available in the fourth quarter of 2010. In conjunction with the
foregoing, we are negotiating a license agreement for the film with a popular
entertainment entity which we hope will open up a number of marketing
opportunities. The more a production has to offer in terms of
promotion and advanced publicity, the more appealing it is to domestic
theatrical distributors. The following is the blueprint for marketing
our films, which may change or be altered at various stages of production as the
producer sees fit.
Pre-Production
|
·
|
The
film’s production will be announced in the production charts that are
carried in the industry’s trade publications, i.e., The Hollywood Reporter
and Variety. These charts are read by bankers, distributors and
the film community regularly and are a good source to begin positive
word-of-mouth.
|
|
·
|
Early
publicity will be generated as key casting announcements and other
production elements come into place. Periodic press releases
will be sent to the trades and other local and national publication for
“stories” on the development of the
production.
|
|
·
|
Work
will begin on a press kit and a unit photographer will be
hired. These will be important tools for the eventual
advertising and publicity of the
film.
|
Production
|
·
|
Early
production stories will be supplied to major newspaper and magazines in
order to establish early name recognition. Topics will include
stories on cast and crew, locations, soundtracks, independent filmmaking
and more.
|
|
·
|
A
video team will be hired to shoot “behind-the-scenes” footage, which will
be used for the future electronic press kit. These kits
typically include interviews of the cast, the director and the producers
as well as the film’s trailer and clips. It represents an
essential marketing tool to help develop the film’s profile with the
electronic media.
|
|
·
|
The
producer will finalize the selection of musical talent and secure musical
rights if necessary.
|
Post-Production
|
·
|
Distributors
will be invited into the editing room as a way to involve them in the
process and generate advance interest in the
film.
|
|
·
|
The
press kit will be finalized.
|
|
·
|
The
films will be submitted to numerous film festivals, including, but not
limited to:
|
|
·
|
The
Sundance Film Festival
|
9
|
·
|
The
American Film Market
|
|
·
|
The
Berlin International Film Festival
|
|
·
|
The
Toronto International Film Festival and
Market
|
|
·
|
The
Telluride Film Festival
|
|
·
|
The
New Directors/New Film Series presented by the Film Society of Lincoln
Center
|
|
·
|
The
Independent Feature Film Market
|
|
·
|
The
Taos Film Festival
|
|
·
|
The
Hamptons Film Festival
|
|
·
|
The
Tribeca Film Festival
|
An
aggressive marketing plan of our product will be displayed at these
venues. Through our participation in these festivals we will attract
attention to our film, use the buzz created and directly approach both foreign
and domestic distributors. We expect these efforts to enhance our
recognition ultimately leading to distribution.
|
·
|
A
rough cut of the film’s trailer will be
assembled.
|
|
·
|
Theatrical
distribution deals will be closely examined, particularly regarding print
and advertising commitments.
|
|
·
|
The
producer will work closely with distributors to create an advertising
campaign and promotional platform for the
film
|
E. Distribution
There are
two traditional roads a film can take towards distribution. For an
independent film, the most likely route is the purchase of worldwide rights by
one of a number of distribution companies. These companies buy films,
present them in theaters and exploit the film in all other
markets. Some large distributors have sister companies or a division
that deals specifically with low-budget independent films.
Competing
with these specialty divisions are the many “independent distributors” which are
unaffiliated with the major studios and acquire and distribute specialized films
through their own “studio-like” infrastructure, such as Weinstein Co. and
others.
The other
traditional route that may be explored is to distribute the films, via a sales
agent, through the various available markets. We will seek to exploit
seven principal motion picture markets: (i) theatrical release, (ii)
home video/DVD, (iii) pay cable services, (iv) pay-per-view, (v) independent
television, (vi) foreign markets and (vii) other markets.
Another
emerging trend in distribution is content on demand provided digitally through
the internet on home computers and on portable hand held devices such as
iPod. Soon, movies will come pouring through the internet and may
provide fresh opportunities for low budget independently produced
films.
10
The
producers will simultaneously explore all options and ultimately adopt the one
that maximizes the greatest exposure for the film and return to
investors.
F. Competition
The
independent film market today is very mature, with countless production
companies, films and other media productions. We would be competing
against these companies, films and other media productions.
Although
the industry is intense, we believe our business model will be
successful. Our Company does not target any specific genre of films.
Each project will stand on its own. Generally, we seek quality scripts that are
intelligent and entertaining. In addition, we will continue to choose scripts
that can be produced with a low budget and have large commercial appeal. We
believe our current film, BuzzKill, meets all of these
criteria and should appeal to those people who enjoy comedy/dark comedies. It
remains to be seen, however, whether our films will sustain in this intense
market. BuzzKill won the People’s
Choice Award for Best Feature Film at the 2008 NJ State Film Festival at Cape
May and Best Comedy Feature Film and Best Director at the Big
Easy. The exposure of BuzzKill at these festivals
helped open doors to new relations and as a direct result, we are currently
working to secure a distribution deal for BuzzKill and hope to have such a deal
in place during the first half of 2010. No assurance can be given
however, that we will be successful in this endeavor.
Compliance
with Government Regulation
We do not
believe that government regulation will have a material impact on the way we
conduct our business.
Employees
We
currently have two employees - our president and treasurer, Thomas H. Hanna,
Jr., and our vice president and secretary, Dylan Hundley. We plan to
conduct our business largely through agreements with consultants and other
independent third party vendors.
Patents,
Trademarks and Licenses
We do not
presently own, either directly or beneficially, any patents or
trademarks. The film Buzz Kill does however, have
copyright protection.
Research
and Development
We have
not performed any research and development since our inception.
Loans
On May 8,
2009 we received a $45,000 loan from an unaffiliated entity and in connection
therewith issued an 8.25% $45,000 convertible promissory note dated May 8, 2009.
Subject to prior conversion, interest and principal are due on the note on
November 8, 2010. The terms of the conversion have not been determined but will
be mutually determined by us and the holder.
11
On
January 29, 2010 we received a $70,000 loan from an unaffiliated entity and in
connection therewith issued a 10% $70,000 convertible promissory note dated
January 29, 2010. Subject to prior conversion, interest and principal are due on
the note on July 28, 2011. Until paid in full, all outstanding principal and
accrued interest due under the note are convertible into shares of our common
stock at the rate of $0.10 per share. The conversion price and number of shares
issuable upon conversion are subject to adjustment upon the happening of certain
events including mergers, consolidations, reclassifications, stock splits,
business combinations, and dividends. Further, until paid in full, if we issue
shares of our common stock or other securities which are convertible into shares
of our common stock a price or a conversion price of less than $0.10 per share,
the conversion price under the note will be reduced to such lower
price.
ITEM
1A. RISK FACTORS
We
have a history of operating losses which may continue.
We have a
history of losses and will continue to incur operating and net losses for the
foreseeable future. We incurred net losses of $118,606 and $99,278 during the
years ended December 31, 2009 and 2008, respectively. As of December
31, 2009, our accumulated deficit was $371,755. We have not achieved revenues
since our inception. Unless and until we commence new business
operations, we may never achieve revenue or profitability.
Our
auditors have indicated that our inability to generate sufficient revenue raises
substantial doubt as to our ability to continue as a going concern.
Our
audited financial statements for the year ended December 31, 2009 were prepared
on a going concern basis in accordance with United States generally accounting
principles. The going concern basis of presentation assumes that we will
continue in operation for the foreseeable future and will be able to realize our
assets and discharge our liabilities and commitments in the normal course of
business. However, our auditors have indicated that our lack of revenues and
accumulated losses raise substantial doubt as to our ability to continue as a
going concern. In the absence of additional financing or significant revenues
and profits, we may have to curtail or cease operations. However, we cannot
guarantee that will be able to obtain sufficient additional funds when needed,
or those funds, if available, will be obtainable on terms satisfactory to us. In
the event that our plans cannot be effectively realized, there can be no
assurance that we will be able to continue as a going concern.
We
face substantial capital requirements and financial risks.
The
nature of our business is such that significant initial expenditures are
required to produce, distribute and market a motion picture, while revenues from
a film are earned over an extended period of time after its
completion. A significant amount of time may elapse between our
expenditure of funds and the receipt of commercial revenues from our motion
picture. If we increase our production budget, we may be required to
increase overhead and/or make larger up-front payments to talent and
consequently bear greater financial risks. Any of the foregoing could
have a material adverse effect on our business, results of operations and
financial condition.
12
The costs
of producing and marketing feature films have generally increased in recent
years. These costs may continue to increase in the future, which may
make it more difficult for our films to generate a
profit. Historically, production costs and marketing costs have risen
at a higher rate than increases in either the number of domestic admissions to
movie theaters or admission ticket prices.
If
we do not obtain additional financing, our business may fail.
We may
not be able to expand or maintain our operations in the future without obtaining
additional financing. If additional financing is not available or
obtainable, investors may lose a substantial portion or all of their
investment. We believe that our existing financial resources will not
be sufficient to fund capital and operating requirements through such time as we
are able to complete our business plan. Accordingly, we will likely
need to seek additional financing to fund our operations in the
future. Such additional funds may be raised through the issuance of
equity, debt, convertible debt or similar securities that may have rights or
preferences senior to those of the common shares. To the extent we
issue shares of capital stock or other rights to purchase capital stock,
including options and warrants, existing stockholders might be diluted. If
adequate funds are not available to satisfy our short-term or long-term capital
requirements, we would be required to limit our operations significantly or
cease operations entirely. We have no immediate means for obtaining
additional financing. There can be no assurance that such additional
financing, when and if necessary, will be available to us on acceptable terms,
or at all.
Our
company is susceptible to industry trends and general economic
conditions.
The film
production business is capital intensive and affected by changes in the general
economy, interest rates, availability of capital, and the film/entertainment
industry. External events that are political, economic, or even
weather-driven in nature can cause sudden declines in audience
participation.
Furthermore,
there can be no assurance that the audiences for motion pictures will remain
constant. There can be no assurance that every film will have a
sufficient audience to produce a profit. If more than one film in
succession should fail, our ability to survive could be threatened.
Because
the film making industry is inherently risky, our films may fail under a number
of different scenarios.
Substantially,
all of our operating revenue will be derived from the production of motion
pictures for theatrical exhibition, television and other markets. The
motion picture and television industries are highly speculative and involve a
substantial degree of risk. Each motion picture is an individual
artistic work, and its commercial success is primarily determined by audience
reaction, which is unpredictable; accordingly, there can be no assurance as to
the financial success of any motion picture. Even if a production is
a critical or artistic success, there is no assurance that it will be
profitable. Relatively few motion pictures return a profit to
investors. There can be no assurance that a motion picture will
recoup its production costs. There is a high degree of risk that any
motion picture we produce will not return all or any portion of our
investment. The completion and commercial success of a motion picture
depends upon factors, such as:
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talent
and crew availability;
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financing
requirements;
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distribution
strategy, including the time of the year and the number of venues in which
the production will be shown;
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the
number, quality and acceptance of other competing films released into the
marketplace at or near the same
time;
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critical
reviews;
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the
availability of alternative forms of entertainment and leisure time
activities;
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piracy
and unauthorized recording, transmission and distribution of motion
pictures;
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general
socioeconomic conditions and political
events;
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weather
conditions; and
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other
tangible and intangible factors.
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To some
extent, these risks can be limited by insurance. It is not possible
to insure against all risks, and it is sometimes impossible to continue
production, notwithstanding the receipt of insurance proceeds, if
any.
Motion
picture piracy, which may intensify, could decrease the revenue we receive from
the exploitation of our films.
Piracy
and the unauthorized recording, transmission and distribution of our content
will be challenges that we will have to face. Motion picture piracy
is already prevalent outside of the United States, Canada and Western Europe and
in countries where we may have difficulty enforcing our intellectual property
rights. Technological advances, such as the digital distribution of
motion pictures, could increase the prevalence of piracy, including in the
United States, because such advances simplify the creation, transmission and
sharing of high quality unauthorized copies of motion pictures in theatrical
release, on videotapes and DVDs, from pay-per-view through set top boxes and
other devices and through unlicensed broadcasts on free TV and the
Internet. The proliferation of unauthorized copies of our products
could have an adverse effect on our business, financial condition and results of
operations and decrease the revenue we receive from our legitimate
products. Additionally, in order to contain this problem, we may have
to implement elaborate and costly security and anti-piracy measures, which could
result in significant expenses and losses of revenue. We cannot
assure you that even the highest levels of security and anti-piracy measures
will prevent piracy.
Motion
picture trade associations such as the Motion Picture Association of America
monitor the progress and efforts made by various countries to limit or prevent
piracy. Some of these trade associations have initiated voluntary
embargoes on motion picture exports to certain countries in the past to exert
pressure on the governments of those countries to become more aggressive in
preventing motion picture piracy. In addition, the U.S. government
has publicly considered implementing trade sanctions against specific countries
that, in its opinion, do not make appropriate efforts to prevent copyright
infringements of U.S. produced motion pictures. There can be no
assurance, however, that voluntary industry embargoes or U.S. government trade
sanctions will be enacted or, if enacted, effective. If enacted, such
actions could impact the amount of revenue that we realize from the
international exploitation of motion pictures depending upon the countries
subject to such action and the duration and effectiveness of such
action. If embargoes or sanctions are not enacted or if other
measures are not taken, we may lose an indeterminate amount of additional
revenue as a result of motion picture piracy.
14
Finding
a distributor will be key to our success.
A
prerequisite for many films success is the purchase of its distribution rights
by one of a limited number of distribution companies. Such companies
purchase the distribution rights to a film, advertise and market the film, see
that the film will be shown in theaters and exploit the film in other available
markets and media. Many distributors have arrangements with companies
already in place, assuring that their films will be shown in
theaters. Distributors also commit resources to the advertising and
marketing of films, making them more attractive to audiences and other
markets.
A
distributor looks at a number of factors in determining whether or not it wants
to ultimately distribute a particular film:
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personal
taste
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perceived
marketability
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cost
of purchasing the rights to the
film
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the
film’s genre
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the
film’s director
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the
attached talent and its performance
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the
story line
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success
at festivals
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overall
quality of the film
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Sometimes
demonstrating strength in all these areas is not enough to secure a
distributor. Although sometimes qualitative standards are applied, it
is more likely that a distributor is attracted to a certain film for subjective
reasons. Although we are currently in negotiations with an
independent media and production company, we cannot assure you that we will be
able to secure a distributor on acceptable terms, if at all.
A
distributor’s failure to promote our motion picture adequately would adversely
affect our business.
Distributors’
decisions regarding the timing of release and promotional support of motion
pictures are important in determining the success of these
pictures. We do not control the timing and manner in which a
distributor would distribute our motion picture. Any decision by
those distributors not to promote our motion picture or to promote our
competitors’ motion pictures to a greater extent than they promote ours could
have a material adverse effect on our business, results of operations and
financial condition.
Minimum
guarantees do not eliminate the risks we face when we license distribution
rights.
Licensing
distribution agreements we seek to enter into with sub-distributors, typically
with respect to international rights, may provide for minimum
guarantees. However, these minimum guarantees do not assure the
profitability of our motion pictures or our operations. Additional
revenues may be necessary from distribution of a motion picture in order for us
to recover any investment in excess of the aggregate minimum guarantees, pay for
distribution costs, continue acquisition and development of other motion
pictures, and cover general overhead. Licensing distribution rights
to sub-distributors in exchange for minimum guarantees may also result in us
receiving lower revenues with respect to highly successful films.
15
Our
success depends on the commercial success of motion pictures generally, which is
unpredictable.
Operating
in the motion picture industry involves a substantial degree of
risk. Each motion picture is an individual artistic work, and
inherently unpredictable audience reactions determine commercial
success. Generally, the popularity of our motion picture will depend
on many factors, including the critical acclaim it receives, the format of its
initial release (for example, theatrical or direct-to-video), the actors and
other key talent, the genre and its specific subject matter. The
commercial success of our motion picture also depends upon the quality and
acceptance of films that our competitors release into the marketplace at or near
the same time, critical reviews, the availability of alternative forms of
entertainment and leisure activities, general economic conditions and other
tangible and intangible factors, many of which we do not control and all of
which may change. We cannot predict the future effects of these
factors with certainty, any of which could have a material adverse effect on our
business, results of operations and financial condition.
In
addition, because a motion picture’s performance in ancillary markets, such as
home video and pay and free television, is often directly related to its box
office performance or television ratings, poor box office results may negatively
affect future revenue streams. Our success will depend on the
experience and judgment of our management to select and develop new investment
and production opportunities. We cannot make assurances that our
motion picture will obtain favorable reviews or ratings or that our motion
picture will perform well at the box office or in ancillary
markets.
Budget
overruns may adversely affect our business.
Our
business model requires that we be efficient in the production of our motion
picture. Actual motion picture costs often exceed their budgets,
sometimes significantly. The production, completion and distribution
of motion pictures are subject to a number of uncertainties, including delays
and increased expenditures due to creative differences among key cast members
and other key creative personnel or other disruptions or events beyond our
control. Risks such as death or disability of star performers,
technical complications with special effects or other aspects of production,
shortages of necessary equipment, damage to film negatives, master tapes and
recordings or adverse weather conditions may cause cost overruns and delay or
frustrate completion of a production. If our motion picture
production incurs substantial budget overruns, we may have to seek additional
financing to complete production.
In
addition, if our motion picture production incurs substantial budget overruns,
we cannot assure you that we will recoup these costs. Increased costs
incurred with respect to a particular film may correlate to such film not being
ready for release at the intended time and the postponement to a potentially
less favorable time, all of which could cause a decline in box-office
performance, and thus the overall financial success of such
film. Budget overruns could also prevent a picture from being
completed or released.
16
We
face substantial competition in all aspects of our business.
The
motion picture industry is extremely competitive. The competition
comes from both companies within the same business and companies in other
entertainment media which create alternative forms of leisure
entertainment. We compete with several “major” film studios which are
dominant in the motion picture industry, as well as with numerous independent
motion picture and television production companies, television networks and pay
television systems for the acquisition of literary properties, the services of
performing artists, directors, producers and other creative and technical
personnel, and production financing. Many of the organizations with
which we compete have significantly greater financial and other resources than
we do. The majors are typically large, diversified entertainment
concerns or subsidiaries of diversified corporations which have strong
relationships with creative talent, exhibitors and others involved in the
entertainment industry, and whose non-motion picture operations provide stable
sources of earnings that offset variations in the financial performance of their
motion picture operations.
The
entertainment industry is currently evolving into an industry in which certain
multi-national multi-media firms, because of their control over key film,
magazine and television content, as well as key network and cable outlets, will
be able to dominate the communications industries in the United
States. These organizations have numerous competitive advantages,
such as the ability to acquire financing for their projects and to make
favorable arrangements for the distribution of completed films. If we
are unable to compete in this intense industry, our business will
fail.
An
oversupply in the market could hinder our films from competing
effectively.
The
number of motion pictures released by our competitors, particularly the major
U.S. studios, may create an oversupply of product in the market, reduce our
share of box office receipts and make it more difficult for our film to succeed
commercially. Oversupply may become most pronounced during peak
release times, such as school holidays and national holidays, when theater
attendance is expected to be highest.
Moreover,
we cannot guarantee that we can release our film when it is
scheduled. In addition to production or other delays that might cause
us to alter our release schedule, a change in the schedule of a major studio may
force us to alter the release date of a film because we cannot always compete
with a major studio’s larger promotion campaign. Any such change
could adversely impact our financial performance. In addition, if we
cannot change our schedule after such a change by a major studio because we are
too close to the release date, the major studio’s release and its typically
larger promotion budget may adversely impact the financial performance of our
film.
The
limited supply of motion picture screens compounds this product oversupply
problem. Currently, a substantial majority of the motion picture
screens in the U.S. typically are committed at any one time to only 10 to 15
films distributed nationally by major studio distributors. In
addition, as a result of changes in the theatrical exhibition industry,
including reorganizations and consolidations and the fact that major studio
releases occupy more screens, the number of screens available to us when we want
to release our picture may decrease. If the number of motion picture
screens decreases, box office receipts, and the correlating future revenue
streams, such as from home video and pay and free television, of our motion
picture may also decrease, which could have a material adverse effect on our
business, results of operations and financial condition.
17
Protecting
and defending claims against intellectual property claims may have a material
adverse effect on our business.
Our
ability to compete depends, in part, upon successful protection of our
intellectual property. We do not have the financial resources to
protect our rights to the same extent as major studios. We will
attempt to protect proprietary and intellectual property rights to our
production through available copyright and trademark laws and licensing and
distribution arrangements with reputable companies in specific territories and
media for limited durations. Despite these precautions, existing
copyright and trademark laws afford only limited practical protection in certain
countries. We may also distribute our products in other countries in
which there is little effective copyright or trademark protection. As
a result, it may be possible for unauthorized third parties to copy and
distribute our production or certain portions or applications of our intended
production.
Litigation
may also be necessary in the future to enforce our intellectual property rights
or to determine the validity and scope of the proprietary rights of
others. Regardless of the validity or the success of the assertion of
these claims, we could incur significant costs and diversion of resources in
enforcing our intellectual property rights or in defending against such claims,
which could have a material adverse effect on our business, results of
operations and financial condition.
Because
our business is subject to intellectual property right laws, our business may
suffer due to illegal replication of our films or our own unintentional
infringement upon other’s proprietary interests.
We plan
to copyright all of our film properties and projects. Litigation may
be necessary in the future to enforce our intellectual property rights, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Any such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results or
financial condition.
One of
the risks of the film production business is the possibility that others may
claim that our production and production techniques misappropriate or infringe
the intellectual property rights of third parties with respect to their
previously developed films, stories, characters, other entertainment or
intellectual property. Any such assertions or claims may materially
adversely affect our business, financial condition or results of operations.
Irrespective of the validity or the successful assertion of such claims, we
could incur significant costs and diversion of resources in defending against
them, which could have a material adverse effect on our business, financial
condition or results of operations. If any claims or actions are
asserted against us, we may seek to settle such claim by obtaining a license
from the plaintiff covering the disputed intellectual property
rights. We cannot provide any assurances, however, that under such
circumstances a license, or any other form of settlement, would be available on
acceptable terms if at all.
18
We
face risks from doing business internationally.
We may
distribute our motion picture outside the United States through a distributor or
other third party licensee. As a result, our business could become
subject to certain risks inherent in international business, many of which are
beyond our control. These risks include:
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fluctuating
foreign exchange rates;
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differing
cultural tastes and attitudes;
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financial
instability and increased market concentration of buyers in foreign
television markets;
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differing
degrees of protection for intellectual
property;
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laws
and policies affecting trade, investment and taxes, including laws and
policies relating to the repatriation of funds and withholding taxes, and
changes in these laws;
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changes
in local regulatory requirements, including restrictions on
content;
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the
instability of foreign economies and governments;
and
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war
and acts of terrorism.
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Events or
developments related to these and other risks associated with international
trade could adversely affect our revenues from non-U.S. sources.
We
could be adversely affected by strikes or other union job actions.
We are
directly or indirectly dependent upon highly specialized union members who are
essential to the production of motion pictures, including members of the Screen
Actors Guild, the Writers Guild of America, the Directors Guild of America and
the International Brotherhood of Teamsters. A strike by, or a lockout
of, one or more of the unions that provide personnel essential to the production
of motion pictures could delay or halt our ongoing production
activities. Such a halt or delay, depending on the length of time,
could cause a delay or interruption in our motion picture.
Because
we have limited assets and inexact capital requirements, we may not have or be
able to obtain sufficient resources to successfully implement our business
plan.
We have
limited assets and require significant capital to complete the development of
our business plan. Our success may significantly depend upon our
ability to raise capital. Even if we are successful in raising
capital, there is still no assurance that the capital raised will be sufficient
to facilitate our ultimate needs, because we do not know the exact specific
financial requirements of the projects in which we may eventually participate,
and therefore do not know what our exact capital needs will be over
time. In addition, we may incur substantial costs in connection with
any research and/or negotiations for business opportunities, which may deplete
our assets.
19
We
cannot ensure that projections and assessments will be met.
Our
ability to accomplish our objectives and whether or not we will be financially
successful is dependent upon numerous factors, each of which could have a
material effect on the results obtained. Some of these factors are
within the discretion and control of management and others are beyond
management’s control. The assumptions and hypothesis used in
preparing any forward-looking assessments of profitability made by management
herein are considered reasonable. We can provide no assurance,
however, that any projections or assessments provided to potential investors
will be realized or achieved at any level.
Rules
issued under the Sarbanes-Oxley Act of 2002 may make it difficult for us to
retain or attract qualified officers and directors, which could adversely affect
the management of our business and our ability to retain listing of our common
stock.
We may be
unable to attract and retain those qualified officers, directors and members of
board committees required to provide for our effective management because of
rules and regulations that govern publicly held companies, including, but not
limited to, certifications by principal executive officers. The enactment of the
Sarbanes-Oxley Act has resulted in the issuance of rules and regulations and the
strengthening of existing rules and regulations by the SEC, as well as the
adoption of new and more stringent rules by the stock exchanges and NASDAQ. The
perceived personal risk associated with these rules and regulations may deter
qualified individuals from accepting roles as directors and executive
officers.
If
we fail to maintain an effective system of disclosure and internal controls, we
may not be able to accurately report our financial results or detect fraud.
Consequently, investors could lose confidence in our financial reporting and
this may decrease the trading price of our stock.
We must
maintain effective disclosure and internal controls to provide reliable
financial reports and detect fraud. Based on our evaluation as of December 31,
2009, we concluded that we do maintain effective disclosure controls and
procedures. Failure to implement changes to our controls that we may identify in
the future as necessary to maintain an effective system of such controls could
harm our operating results and cause investors to lose confidence in our
reported financial information. Any such loss of confidence would have a
negative effect on the trading price of our stock.
We
may be unable to obtain additional capital that we will require to implement our
business plan, which would restrict our ability to grow.
We have a
limited amount of working capital that will not be sufficient to fully fund our
planned operations. We will require additional capital to continue to operate
and expand our business. We may be unable to obtain the additional capital
required.
Future
acquisitions, as well as administrative requirements (such as salaries,
insurance expenses and general overhead expenses, as well as legal compliance
and accounting expenses) will require a substantial amount of additional capital
and cash flow. We may not be successful in locating suitable financing
transactions in the time period required or at all, and we may not be able to
obtain the capital we require by other means. If we do not succeed in raising
additional capital, we may be unable to fund our operations going
forward.
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Our
ability to obtain needed financing may be impaired by such factors as the
capital markets and our status as an enterprise without a demonstrated operating
history. If the amount of capital we are able to raise from financing
activities is not sufficient to satisfy our capital needs, we may be required to
curtail or cease our operations.
We may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We also may be
required to recognize non-cash expenses in connection with certain securities we
may issue, such as convertible notes and warrants, which may adversely impact
our financial condition.
Difficult conditions in the global
capital markets may significantly affect our ability to raise additional capital
necessary to fund our operations.
The
ongoing global financial and credit crisis may continue
indefinitely. Because of severely reduced market liquidity, we may
not be able to raise additional capital when we need it. Because the
future of our business will depend on the completion of one or more investment
transactions for which, most likely, we will need additional capital, we may not
be able to complete such transactions or acquire revenue producing
assets. As a result, we may not be able to generate income and, to
conserve capital, we may be forced to curtail our current business activities or
cease operations entirely.
We
may not be able to effectively expand operations or manage our growth, which may
harm our profitability.
Our
strategy envisions expanding our business. If we fail to effectively manage our
growth, our financial results could be adversely affected. Growth may place a
strain on our management systems and resources. We must continue to refine and
expand our business development capabilities, our systems and processes, and our
access to financing sources. As we grow, we must continue to hire, train,
supervise and manage new employees. We cannot assure you that we will be able
to:
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meet
our capital needs;
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expand
our systems effectively or efficiently or in a timely
manner;
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allocate
our human resources optimally;
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identify
and hire qualified employees or retain valued employees;
or
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incorporate
effectively the components of any business that we may acquire in our
effort to achieve growth.
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If we are
unable to manage our growth, our operations and our financial results could be
adversely affected by inefficiency, which could diminish our
profitability.
21
Our
business may suffer if we do not attract and retain talented
personnel.
Our
success will depend in large measure on the abilities, expertise, judgment,
discretion, integrity and good faith of our management and other personnel in
conducting our intended business. We presently have a small management team
consisting of our sole executive officer that we expect to expand in conjunction
with our planned acquisition activities. The loss of a key individual or our
inability to attract suitably qualified staff could materially adversely impact
our business. We presently do not maintain “key man” life insurance on any
member of our management team. If we are unable to attract and retain
key personnel, our business may be adversely affected.
There
has been a limited trading market for our common stock that may impair your
ability to sell your shares.
There has
not been a trading market for our common stock since our inception. The lack of
an active market may impair your ability to sell your shares at the time you
wish to sell them or at a price that you consider reasonable. The lack of an
active market may also reduce the fair market value of your shares. An inactive
market may also impair our ability to raise capital by selling shares of capital
stock and may impair our ability to acquire other assets or companies by using
common stock as consideration.
Our
common stock is currently quoted on the NASD’s Over-the-Counter Bulletin Board
under the symbol “ESRI.OB.” As indicated above, our common stock is not
presently trading. As a result, investors may find it difficult to obtain
accurate quotations of the price of our common stock. This situation severely
limits the liquidity of the common stock and hampers our ability to raise
additional capital.
We
do not expect to pay dividends in the foreseeable future.
We do not
intend to declare dividends for the foreseeable future, as we anticipate that we
will reinvest future earnings in the development and growth of our business.
Therefore, investors will not receive any funds unless they sell their common
stock, and stockholders may be unable to sell their shares on favorable terms or
at all. Investors cannot be assured of a positive return on investment or that
they will not lose the entire amount of their investment in our common
stock.
Applicable
SEC rules governing the trading of “penny stocks” will limit the trading and
liquidity of our common stock, which may affect the trading price of our common
stock.
Our
common stock is considered to be a “penny stock” and is therefore subject to SEC
rules and regulations that (i) impose limitations upon the manner in which our
shares may be publicly traded and (ii) regulate broker-dealer practices in
connection with transactions in “penny stocks.” Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer’s
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock, the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules and may increase the difficulty investors might experience in
attempting to liquidate such securities.
22
ITEM
1B. UNRESOLVED
STAFF COMMENTS
Not
Applicable.
ITEM
2. PROPERTIES
Our
principal executive office is located at 4 Park Avenue, Suite 16K, New York, NY
10016, which is provided to us, on a rent free basis, by our President and Chief
Executive Officer, Thomas H. Hanna, Jr.
ITEM
3. LEGAL
PROCEEDINGS
Legal
Proceedings
In the
ordinary course of our business, we may from time to time become subject to
routine litigation or administrative proceedings which are incidental to our
business. We are not a party to nor are we aware of any existing,
pending or threatened lawsuits or other legal actions involving us.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year covered by
this report.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market
Information
“Bid” and
”ask” prices for our common stock are quoted on the Over-The-Counter Bulletin
Board (the “OTCBB”) since September 2, 2008 under the symbol
“ESRI.OB”. However, our stock has never traded.
The
following table sets forth the high and low closing bid prices for our common
stock for the fiscal quarters indicated as reported on the OTCBB by the National
Association of Securities Dealers Composite Feed or other qualified interdealer
quotation medium. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and do not represent actual
transactions.
23
Quarter Ended
|
High Bid
|
Low Bid
|
||||||
December
31, 2009
|
$ | 0.02 | $ | 0.02 | ||||
September
30, 2009
|
0.02 | 0.02 | ||||||
June
30, 2009
|
0.02 | 0.02 | ||||||
March
31, 2009
|
0.15 | 0.02 | ||||||
December
31, 2008
|
$ | 0.25 | $ | 0.10 | ||||
September
30, 2008
|
N/A | N/A |
As of
March 10, 2010, we had 33 shareholders of record of our common
stock.
Dividends
We have
never declared any cash dividends with respect to our common
stock. Future payment of dividends is within the discretion of our
board of directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors. Although there are no
material restrictions limiting, or that are likely to limit, our ability to pay
dividends on our common stock, we presently intend to retain future earnings, if
any, for use in our business and have no present intention to pay cash dividends
on our common stock.
Recent
Sales of Unregistered Securities
During
the fiscal year ended December 31, 2009, we sold no equity
securities.
ITEM
6. SELECTED
FINANCIAL DATA
Not
applicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results
of Operations
For the
year ended December 31, 2009 and since our date of inception (March 15, 2007),
we have not generated any operating revenue. We do not anticipate generating
operating revenue in the near future. We are presently in the development stage
of our business and we can provide no assurance that we will make any money on
the films we produce.
We
incurred total operating expenses of $116,214 for the year ended December 31,
2009, as compared to total operating expenses of $101,609 for the year ended
December 31, 2008. The increase in total operating expenses was due to an
increase in general and administrative expenses.
We
generated interest income in the amount $3 for the year ended December 31, 2009,
as compared to interest income of $2,331 for the year ended December 31,
2008.
24
We have
generated no operating revenues and our net loss from inception through December
31, 2009 was $371,755.
Liquidity
and Capital Resources
The
report of our auditors on our audited financial statements for the fiscal year
ended December 31, 2009 contains a going concern qualification as we have
suffered losses since our inception. We have minimal assets and have
achieved no operative revenues since our inception. We have depended on loans
and sales of equity securities to conduct operations. As of December
31, 2009 and 2008, we had cash of $0 and $15,056, current assets of $0 and
$15,056 and current liabilities of $718,966 and $406,994,
respectively. Unless and until we achieve material revenues, we will
remain dependent on financings to continue our operations.
Plan
of Operation
We were
formed as a Delaware corporation on March 15, 2007 for the purpose of producing
full length independent feature films. Since inception, we have been
engaged in the production and attempted distribution of our first independent,
full-length feature film entitled BuzzKill.
On April
1, 2007, Buzz Kill, Inc., our wholly owned subsidiary, acquired all right, title
and interest in and to the screenplay entitled “Buzz Kill,” written by Steven
Kampmann and Matt Smollon. Pursuant to the Literary Purchase
Agreement, dated April 1, 2007, each of Messrs. Kampmann and Smollon received
the following compensation: (i) $6,250, (ii) $12,731 in deferred
compensation, and (iii) contingent compensation equal to 3.5% of the “net
proceeds” of the film. Messrs. Kampmann and Smollon will receive an
additional $25,000 if the film’s North American (i.e., the United States and
Canada) theatrical box office receipts reach $15,000,000 and an additional
$25,000 thereafter for each $15,000,000 in theatrical box office receipts
reached thereafter.
On April
13, 2007, Buzz Kill hired Mr. Kampmann to direct the film. Pursuant
to Director Agreement, dated April 13, 2007, for his director services, Mr.
Kampmann received the following compensation: (i) $20,000, (ii)
$50,000 in deferred compensation, (iii) an additional $10,000 for every $100,000
that the final, actualized budget exceeds $650,000, and (iv) contingent
compensation equal to 5% of the “net proceeds” of the film. Mr.
Kampmann will receive an additional $25,000 if the film’s North American (i.e.,
the United States and Canada) theatrical box office receipts reach $15,000,000
and an additional $25,000 thereafter for each $15,000,000 in theatrical box
office receipts reached thereafter.
Pursuant
to the Investment Agreement, dated May 1, 2007, between our Company and Buzz
Kill, we provided financing to Buzz Kill in the amount of $800,000 for the
production (principal photography only) and exploitation of
BuzzKill. Under the agreement, we received a “first priority” right
of recoupment of the financing amount and a 20% premium. In addition,
our Company is entitled to a percentage of the “net proceeds” of the picture,
calculated as a percentage equal to 50% of the fraction with a numerator equal
to the amount of our financing and a denominator equal to the amount of the
final, actualized budget of the film. Buzz Kill agreed that the negative cost of
the film (that is, the cost of actually producing and shooting the film and not
including such costs as distribution and promotion) shall not exceed $1,100,000
without the written consent of our Company and to limit its financing debt to
$300,000 plus 20%.
25
In
December 2007, we completed a private placement offering of 8,529,000 shares of
our common stock to a total of 33 purchasers at a price of $0.10 per share for
aggregate proceeds of $852,900. In June 2008, we sold additional 600,000 shares
of our common stock to an institutional investor at a price of $0.10 per share
for gross proceeds of $60,000.
As of
December 31, 2009, Buzz Kill has issued an aggregate principal amount of
$160,000 of its 10% Notes Series. The notes have an interest rate of 10%,
compounded monthly. $60,000 of the notes are due on August 1, 2010. $100,000 of
the notes are due on October 17, 2010. Upon repayment of the notes, in addition
to the outstanding principal balance and all accrued and unpaid interest, the
noteholders will be entitled to receive (i) a premium equal to 20% of the
original principal amount and (ii) contingent compensation equal to 12% of the
“net proceeds” of the film. All amounts under the notes remain unpaid and
outstanding, and proceeds from the notes were used to finance the production of
the film. As of September 30, 2009, BuzzKill also has a $40,000 demand loan
payable to Thomas H. Hanna, Jr. in the amount of $40,000 and a $45,000 loan
payable to an unaffiliated third party due November 8, 2010 and represented by
an 8.25% convertible promissory note dated May 9, 2009.
Unless
otherwise provided, the relative priority of the debt servicing and other
payments under our material agreements is as provided in the definition of “net
proceeds.” “Net proceeds” is defined as the sums remaining from all gross monies
received from the licensing, distribution and other exploitation of all rights
to the film after the deductions, in the following order, of (i) distribution
expenses, (ii) production deferments to any party providing rights, materials,
services or facilities in connection with the production of the film, (iii)
recoupment by the financier’s of the film of its financial contribution plus a
20% premium, (iv) repayment of costs of production provided by third parties,
and (v) other deferments.
In
February 2008, through our wholly owned subsidiary, Buzz Kill, Inc., we
completed post-production of the film, and now seek to market the film and
secure distribution. We have secured the services of a sales
representative who will assist us in guiding the film through the festival and
distribution process. We intend to raise additional capital through
the issuance of debt and/or equity securities to provide financing for our
marketing and distribution activities. Currently, we are in
negotiations with an independent media production and distribution company to
secure distribution for the film.
Milestone
to Achieve in the Next Twelve Months
Our major
objective in the next twelve months is to secure distribution and market our
first independent feature film, BuzzKill. Principal
photography on the film was completed in September 2007, and post-production was
completed in February 2008.
We are
currently engaged in the initial marketing of the film. (Our
production budget of approximately $1,000,000 does not include a marketing and
sales budget.) The finished film has entered into various
film festivals in the U.S. and abroad with significant success. The
fee for entering a film into a festival competition is typically $200-300 per
entry. We believe this is the most time-efficient and inexpensive
means of (i) measuring audience response, (ii) meeting film distributors both
domestic and foreign, and (iii) formulating a public relations campaign with
print, TV and other media outlets. To date, we have submitted our film to a
number of film festivals. The film won the People’s Choice Award for
Best Feature Film at the 2008 NJ State Film Festival at Cape May and Best Comedy
Feature Film and Best Director at the Big Easy Film Festivals..
26
Total
marketing and distribution costs are estimated at $200,000. We hope
to reduce out-of-pocket expenses by entering into a distribution
agreement. This distributor will market and distribute the film in
exchange for a percentage of royalties. This means that additional
out-of-pocket expense for marketing and sales would be minimal. If we
are unable to contract with a distributor, we intend to finance these
expenditures through additional private equity or debt
Over the
next twelve months we expect to enter into a distribution deal, a licensing deal
with a well known entertainment entity and have distribution of the film in the
fourth quarter of 2010. After that, our next objective in during the next twelve
months is to complete the conception phase and enter into the pre-production
phase of a second feature film. As of the date of this report, we have not
identified our second project.
Off
Balance Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Critical
Accounting Policies
In
December 2001, the Securities and Exchange Commission requested that all
registrants discuss their "critical accounting policies" in management's
discussion and analysis of financial condition and results of operations. The
SEC indicated that a "critical accounting policy" is one that is both important
to the portrayal of the company's financial condition and results and that
requires management's most difficult, subjective or complex judgments. Such
judgments are often the result of a need to make estimates about the effect of
matters that are inherently uncertain.
The
preparation of financial statements in conformity with generally accepted
accounting principles (”GAAP”) in the United States has required our management
to make assumptions, estimates and judgments that affect the amounts reported in
the financial statements, including the notes thereto, and related disclosures
of commitments and contingencies, if any. Our significant accounting policies
are disclosed in the notes to the audited financial statements for the fiscal
year ended December 31, 2009 included in this Annual Report on Form
10-K.
While our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements included elsewhere in this annual report, we
currently believe the following accounting policies to be
critical:
27
Capitalized Film Costs - Film
costs include all direct negative costs incurred in the physical production of
the film as well as allocated production overhead. Such costs include story
costs and scenario; compensation of cast, directors, producers and extras; set
construction and operations; wardrobe and accessories; sound synchronization;
location expenses and post production costs including music, special effects and
editing. Film costs are amortized based on the ratio of current period gross
revenues to estimated remaining ultimate revenues from all sources on an
individual production basis. Estimated ultimate revenues are revised
periodically and the carrying values of the films are evaluated for impairment.
Losses, if any, are provided in full.
Fair Value of Financial
Instruments - The carrying amount reported in the balance sheet for cash
and cash equivalents, accounts payable and accrued expenses approximate fair
value because of the immediate or short term maturity of these financial
instruments.
Revenue Recognition - The
Company recognizes revenues from the sale or licensing arrangement of a film
upon delivery of a completed film or the commencement of a licensing period. The
Company had substantially completed film production at December 31, 2009 but
realized no revenues as of that date
Income Taxes - Income taxes
are accounted for in accordance with the provisions of FASB ASC Topic No. 740,
“Income Taxes”(formerly
SFAS No. 109, “Accounting for Income
Taxes”). Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amounts expected to be realized.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA
Our
audited financial statements are included beginning immediately following the
signature page to this report. See Item 15 for a list of the
financial statements included herein.
ITEM
9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
·
|
Not
applicable.
|
ITEM
9A.[T] CONTROLS AND PROCEDURES
Evaluation
of Our Disclosure Controls and Internal Controls
We
maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed
under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded,
processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms and to ensure that such information is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer as appropriate, to allow timely decisions regarding required
disclosure. During the quarter ended December 31, 2009 we carried out an
evaluation, under the supervision and with the participation of our management,
including our principal executive and financial officer, of the effectiveness of
the design and operation of our disclosure controls and procedures, as defined
in Rule 13(a)-15(e) under the 1934 Act. Based on this evaluation, we concluded
that our disclosure controls and procedures are effective.
28
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with U.S. generally accepted accounting
principles.
Our
internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect transactions and dispositions of assets; (ii)
provide reasonable assurances that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures are being
made only in accordance with authorizations of management and the directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009 based on the framework established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on that assessment, management
concluded that, as of December 31, 2009, our internal control over financial
reporting was effective based on the criteria established in Internal
Control—Integrated Framework.
This
Annual Report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to rules of the Securities and Exchange
Commission that permit us to provide only management's report in this Annual
Report on Form 10-K.
29
Limitations
on Effectiveness of Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Our control systems
are designed to provide such reasonable assurance of achieving their
objectives. Further, the design of a control system must reflect the
fact that there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within our Company have been
detected. These inherent limitations include, but are not limited to, the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
Officers’
Certifications
Appearing
as exhibits to this Annual Report are “Certifications” of our Chief Executive
Officer and Chief Financial Officer. The Certifications are required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302
Certifications”). This section of the Annual Report contains
information concerning the Controls Evaluation referred to in the Section 302
Certification. This information should be read in conjunction with
the Section 302 Certifications for a more complete understanding of the topics
presented.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended December 31, 2009 that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
ITEM
9B. OTHER
INFORMATION
Not
applicable.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE
Executive
Officers, Directors and Key Employees
Directors
serve until the next annual meeting of the stockholders; until their successors
are elected or appointed and qualified, or until their prior resignation or
removal. Officers serve for such terms as determined by our board of
directors. Each officer holds office until such officer’s successor
is elected or appointed and qualified or until such officer’s earlier
resignation or removal. No family relationships exist between any of
our present directors and officers.
The
following table sets forth certain information, as of December 31, 2009, with
respect to our directors and executive officers.
30
Name
|
Positions Held
|
Age
|
|||
Thomas
H. Hanna, Jr.
|
President,
Treasurer and Director
|
43
|
|||
Dylan
Hundley
|
Vice
President, Secretary and Director
|
38
|
|||
Kristie
Rubendunst
|
Director
|
57
|
Our
directors and officers hold office until the earlier of their death, resignation
or removal or until their successors have been duly elected and
qualified. Our officers are appointed by the board of directors and
serve at the discretion of the board. There are no family
relationships among our directors and executive officers.
Thomas H. Hanna, Jr. has been
an attorney in New York City since 1992 and has a wide range of legal
experiences including litigation, real estate and entertainment. He
has extensive experience as a producer in film, television and
theatre. Most recently he has produced the off-Broadway shows, Pieces
(of ass) (2003-Present) through his production company, New Scenario
Entertainment, and Voyage of the Carcass (2006). From 2005-2006, he
produced and developed several television projects for Steven Van Zandt’s
company, Renegade Nation. From 2000-2001, Mr. Hanna was the producer
of the Shooting Gallery Film Series for Shooting Gallery Entertainment where he
oversaw all aspects of the series. He has served as legal counsel and
co-producer on the short film Death of the Monkey (1996) by David Goldsmith and
has worked on numerous feature films. His independent film credits
include being the assistant location manager on Better Living (1998) with
Olympia Dukakis and location manager on Hamlet (1998) with Ethan Hawke, Bill
Murray, Liev Schreiber and Sam Shepard; Dummy (2000) by Gregory Pritikin with
Adrien Brody; Perfume (2000) with Jeff Goldblum and Paul Sorvino; Maze (1999)
with Laura Linney; and Heartbreak Hospital (1999) by Ruedi
Gerber. Mr. Hanna received his J.D. from Widener University School of
Law in 1991 and his B.A. in Economics from St. Michael’s College in
1987.
During
our development stage, our president intends to devote his full business time to
our business.
Dylan Hundley has been our
vice president, secretary and a director since March 2007. She has extensive
experience as an actress in theatre and film and has a background in
finance. From November 2006 to May 2007, Ms. Hundley worked as a
consultant in financial marketing and investor relations for Aethlon Medical,
Inc., a developer of therapeutic devices. From August 2003 to November 2006, she
was Vice President at Friedland Capital Inc., a financial services company. Ms.
Hundley started her training as an actress at the Neighborhood Playhouse and The
Groundlings immediately after leaving high school. On her first
audition she managed to land the role of Sally Fowler in
Metropolitan. She went on to star in many independent films such as A
Holiday Affair, Brooklyn Film Festival’s 2001 winner for best
film. Other film credits include Dangerous Game alongside Madonna and
Harvey Keitel and The Last Days of Disco with Kate Beckinsale and Chloe
Sevigny. She has two television shows in development. One
entitled Underground Hall of Fame which follows largely unknown musical artists
with established followings and another called Funded. Ms. Hundley
also has consulted for HiFi Recordings, the home of Spacehog, The Marvelous
Three and Avril Lavigne from 1997-2000.
31
During
our development stage, our vice president intends to devote her full business
time to our business.
Kristie Rubendunst became one
of our directors on September 10, 2007. She has a varied background
which includes experience in the areas of corporate finance, photography and
film. From 2000 to 2007, Ms. Rubendunst served as a corporate finance
and securities paralegal at New York City law firms. She archived
over 5,000 photographic glass plates of Wilfred E. Stone, and as a result of
several exhibits she organized, Mr. Stone was recognized by Yankee Magazine as a
significant New England photographer. In 1994, Ms. Rubendunst received a
certificate in film production from NYU’s School of Continuing and Professional
Studies. In 1995-1996, she co-wrote and co-produced Trial By Fire, a
morality tale filmed in New York City. Since June 2007, she formed a consulting
firm to assist microcap companies and not-for-profit companies achieve their
growth goals.
Employment
Agreements
Our only
employees are our two executive officers. We do not presently
compensate our executive officers for their services as such and do not have
employment agreement with them. As described in greater detail in
“Certain Relationships and Related Transactions and Director Independence”,
however, we have compensated them for services provided in connection with the
film BuzzKill and may compensate them further.
Term
of Office
Our
directors are appointed for a period of one year or until such time as their
replacements have been elected by our shareholders. The officers of
the Company are appointed by our board of directors and hold office until their
resignation or removal.
Audit
Committee
We do not
have a standing audit committee, an audit committee financial expert, or any
committee or person performing a similar function. We currently have
limited working capital and no revenues. Management does not believe
that it would be in our best interests at this time to retain independent
directors to sit on an audit committee. If we are able to raise
sufficient financing in the future, then we will likely seek out and retain
independent directors and form an audit, compensation committee and other
applicable committees.
Board
of Directors
Two of
our three directors serve as our executive officers and as such are not
independent directors. Our third director, Kristie Rubendunst is an
independent director. We do not pay our directors for attending board
meetings. They are reimbursed, however, for their expenses, if any,
for attendance at meetings of the Board of Directors. Our Board of
Directors may designate from among its members an executive committee and one or
more other committees but has not done so to date. We do not have a
nominating committee or a nominating committee charter. Further, we
do not have a policy with regard to the consideration of any director candidates
recommended by security holders. To date this has not been a problem
as no security holders have made any such recommendations. Our entire
board performs all functions that would otherwise be performed by
committees. If we are able to grow our business and increase our
operations we intend to expand the size of our board and allocate
responsibilities accordingly.
32
Corporate
Governance
Leadership
Structure
Our Board
has 3 members as follows: Mr. Thomas Hanna, Ms. Dylan Hundley and Ms. Kristie
Rubendunst. We have not designated a Chairman and each of our directors assume
equal leadership roles.
We are a
small, development stage company which has yet to achieve operating revenues.
Two of three directors, Mr. Hanna and Ms. Hundley, also serve as our executive
officers. Our board members have complementary skills, enabling us to
operate in a cost and time effective manner. We believe that our
present management structure is appropriate for a company of sour size and state
of development.
Our board
is actively involved in our risk oversight function and collectively undertakes
our risk oversight function. This review of our risk tolerances includes, but is
not limited to, financial, legal and operational risks and other risks
concerning our reputation and ethical standards.
Given our
size, we do not have a Nominating Committee or a diversity policy. Our entire
board monitors and assesses the need for and qualifications of additional
directors. We may adopt a diversity policy in the future in
connection with our anticipated growth.
Compliance
with Section 16(a) of the Exchange Act
Our
common stock is not registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Accordingly, our
officers, directors and principal shareholders are not subject to the beneficial
ownership reporting requirements of Section 16(a) of the Exchange
Act.
Code
of Ethics
In March
2009 we adopted a Code of Ethics that applies to our Chief Executive Officer,
Chief Financial Officer, Chief Accounting Officer or Controller and persons
performing similar functions. A copy of our Code of Ethics will be
provided to any person requesting same without charge. To request a
copy of our Code of Ethics, please make written request to our President c/o
Eastern Resources, Inc. at 4 Park Avenue, Suite 16K, New York, NY
10016.
ITEM
11. EXECUTIVE
COMPENSATION
The
following table sets forth information concerning the total compensation paid or
accrued by us during the three fiscal years ended December 31, 2009, 2008 and
2007 to (i) all individuals that served as our principal executive officer or
acted in a similar capacity for us at any time during the fiscal year ended
December 31, 2009; (ii) all individuals that served as our principal financial
officer or acted in a similar capacity for us at any time during the fiscal year
ended December 31, 2009; and (iii) all individuals that served as executive
officers of ours at any time during the fiscal year ended December 31, 2009 that
earned annual compensation during the fiscal year ended December 31, 2009 in
excess of $100,000.
33
Summary
Compensation Table
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Grant
Date
Fair
Value
of
Stock
and
Stock
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compen-
sation ($)
|
Change in
Pension
Value
and
Non-
qualified
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compen-
sation ($)
|
Total
($)
|
||||||||||||||||||||||||||||
Thomas
H. Hanna, Jr.,
|
2009(1)
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Chief
Executive and
|
2008(1)
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Financial
Officer
|
2007(1)
|
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
(1) Excludes
payments made or payable to Mr. Hanna for his services as a producer on the film
BuzzKill. See
“Certain Relationships and Related Transactions, and Director
Independence.” Mr. Hanna’s compensation under the related producer
agreement dated August 1, 2007 includes (i) $25,000 paid in 2007; (ii) $25,000
presently due and payable; and (iii) $150,000 contingent compensation related to
the “net proceeds” generated by the film “BuzzKill.”
We have
not issued any stock options or maintained any stock option or other incentive
plans since our inception. We have no plans in place and have never maintained
any plans that provide for the payment of retirement benefits or benefits that
will be paid primarily following retirement including, but not limited to, tax
qualified deferred benefit plans, supplemental executive retirement plans,
tax-qualified deferred contribution plans and nonqualified deferred contribution
plans. Similarly, we have no contracts, agreements, plans or arrangements,
whether written or unwritten, that provide for payments to the named executive
officers or any other persons following, or in connection with the resignation,
retirement or other termination of a named executive officer, or a change in
control of us or a change in a named executive officer’s responsibilities
following a change in control.
Compensation
of Directors
None of
our directors receive any compensation for serving as such, for serving on
committees of the board of directors or for special assignments. During the
fiscal year ended December 31, 2009 there were no other arrangements between us
and our directors that resulted in our making payments to any of our directors
for any services provided to us by them as directors.
34
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of March 1, 2010 by:
|
·
|
each
person or entity known by us to be the beneficial owner of more than 5% of
our common stock;
|
|
·
|
each
of our directors;
|
|
·
|
each
of our executive officers; and
|
|
·
|
all
of our directors and executive officers as a
group.
|
The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on such date and all shares of our common stock issuable to such holder in the
event of exercise of outstanding options, warrants, rights or conversion
privileges owned by such person at said date which are exercisable within 60
days of March 1, 2010. Except as otherwise indicated, the persons
listed below have sole voting and investment power with respect to all shares of
our common stock owned by them, except to the extent such power may be shared
with a spouse.
Name and Address of
Beneficial Owner(3)
|
Title of Class
|
Amount and
Nature
of Beneficial
Ownership(1)
|
Percentage
of
Class(2)
|
|||||
Thomas
H. Hanna, Jr.
|
Common
Stock, $0.00001 par value
|
5,755,000
shares - Direct
|
27.9 | % | ||||
Dylan
Hundley
|
Common
Stock, $0.00001 par value
|
5,751,000
shares - Direct
|
27.9 | % | ||||
Kristie
Rubendunst
|
Common
Stock, $0.00001 par value
|
0
shares
|
0 | |||||
All
officers and directors as a group (3 persons)
|
Common
Stock, $0.00001 par value
|
11,506,000
shares
|
55.8 | % |
|
(1)
|
As
used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition of) with respect to the
security through any contract, arrangement, understanding, relationship or
otherwise, including a right to acquire such power(s) during the next 60
days. Unless otherwise noted, beneficial ownership consists of
sole ownership, voting and investment
rights.
|
35
|
(2)
|
There
were 20,629,000 shares of our common stock issued and outstanding on March
1, 2010.
|
|
(3)
|
The
address for each of the named beneficial owners of our common stock is c/o
Eastern Resources, Inc., 4 Park Avenue, Suite 16K, New York, NY
10016.
|
Securities
Authorized for Issuance Under Equity Compensation Plans
We have
not adopted any equity compensation plans since our inception.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
On April
17, 2007, Dylan Hundley entered into a memorandum of agreement with Buzz Kill,
Inc. pursuant to which Ms. Hundley agreed to introduce Buzz Kill to third
parties who may be interested in lending for, investing in or in any other way
financing all or a portion of the development and/or production of our film,
BuzzKill. Under
the agreement, Ms. Hundley is entitled to the following payments: (i) $40,000 in
finder’s fees, of which $20,000 has been paid and the remaining $20,000 will be
paid as deferred payment, (ii) $50,000 in deferred compensation for her producer
services and (iii) contingent compensation in an amount equal to 5% of the “net
proceeds” of the film.
On August
1, 2007, Mr. Hanna entered into a producer agreement with Buzz Kill, Inc.
pursuant to which he provided preparation, general production and
post-production services in connection with the film, BuzzKill. Mr.
Hanna rendered non-exclusive services commencing two weeks prior to the
scheduled starting date of principal photography until the “wrapping” of the
film. Mr. Hanna’s compensation under the agreement includes (a) an amount equal
5% of the actualized budget of the film, of which $25,000 has been paid and the
remaining $25,000 is due and payable, (b) $150,000 in deferred compensation and
(c) contingent compensation in an amount equal to the remaining percentage of
any “net proceeds” generated by the film after deducting all third party profit
participations. As of the date of this Annual Report, after deducting existing
third party profit participations, Mr. Hanna’s contingent compensation would be
approximately 14.25% of the “net proceeds” generated by the film. This
percentage may be reduced as we grant profit participation to other third
parties in connection with securing additional financing or distribution
arrangement for the film.
In June
2007, Mr. Hanna in an oral agreement made an interest free bridge loan to Buzz
Kill, Inc. in the amount of $100,000. As of December 31, 2009, the
balance on the loan was $40,000. The loan is payable on
demand.
In
February 2008, Mr. Hanna made an interest free loan to Buzz Kill, Inc. in the
amount of $2,241 to cover its operating expenses. This loan was also an oral
agreement. Mr. Hanna continues to personally finance the monthly
costs associated with the film which he hopes to recoup as production costs from
any distribution revenues we anticipate receiving.
In June
2008, Steven Kampmann, the director and co-writer of BuzzKill, Matt Smollon, the
co-writer of BuzzKill,
Adam Gottbetter, the executive producer of BuzzKill, and Mr. Hanna
provided funding in the total amount $6,063 to satisfy outstanding obligations
for editing services related to the film. This funding was an oral agreement and
is being treated as a non-interest loan, which will be repaid when we have
raised additional capital.
36
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Audit
Fees.
The
aggregate fees billed to us by our principal accountant for services rendered
during the fiscal years ended December 31, 2009 and 2008 are set forth in the
table below:
Fee Category
|
Fiscal year ended
December 31, 2009
|
Fiscal year ended
December 31, 2008
|
||||||
Audit
fees (1)
|
$ | 24,000 | $ | 40,000 | ||||
Audit-related
fees (2)
|
0 | 6,000 | ||||||
Tax
fees (3)
|
0 | 0 | ||||||
All
other fees (4)
|
0 | 0 | ||||||
Total
fees
|
$ | 24,000 | $ | 46,000 |
(1)
|
Audit
fees consist of fees incurred for professional services rendered for the
audit of consolidated financial statements, for reviews of our interim
consolidated financial statements included in our quarterly reports on
Form 10-QSB and for services that are normally provided in connection with
statutory or regulatory filings or
engagements.
|
(2)
|
Audit-related
fees consist of fees billed for professional services that are reasonably
related to the performance of the audit or review of our consolidated
financial statements, but are not reported under “Audit
fees.”
|
(3)
|
Tax
fees consist of fees billed for professional services relating to tax
compliance, tax planning, and tax
advice.
|
(4)
|
All
other fees consist of fees billed for all other
services.
|
Audit Committee’s
Pre-Approval Practice.
We do not
have an audit committee. Our board of directors performs the function
of an audit committee. Section 10A(i) of the Securities Exchange Act
of 1934, as amended, prohibits our auditors from performing audit services for
us as well as any services not considered to be audit services unless such
services are pre-approved by our audit committee or, in cases where no such
committee exists, by our board of directors (in lieu of an audit committee) or
unless the services meet certain de minimis standards.
37
PART
IV
ITEM
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-3
|
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and 2008
and for the period from Inception (March 15, 2007) to December 31,
2009
|
F-4
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) for the period
from Inception (March 15, 2007) to December 31, 2009
|
F-5
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and 2008
and for the period from Inception (March 15, 2007) to December 31,
2009
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
–
F-14
|
Financial
Statement Schedules
All
financial statement schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Exhibits
In
reviewing the agreements included as exhibits to this Form 10-K, please remember
that they are included to provide you with information regarding their terms and
are not intended to provide any other factual or disclosure information about
the Company or the other parties to the agreements. The agreements may contain
representations and warranties by each of the parties to the applicable
agreement. These representations and warranties have been made solely for the
benefit of the parties to the applicable agreement and:
|
•
|
should
not in all instances be treated as categorical statements of fact, but
rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate;
|
|
•
|
have
been qualified by disclosures that were made to the other party in
connection with the negotiation of the applicable agreement, which
disclosures are not necessarily reflected in the
agreement;
|
|
•
|
may
apply standards of materiality in a way that is different from what may be
viewed as material to you or other investors;
and
|
|
•
|
were
made only as of the date of the applicable agreement or such other date or
dates as may be specified in the agreement and are subject to more recent
developments.
|
38
Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Form 10-K and the
Company’s other public filings, which are available without charge through the
SEC’s website at http://www.sec.gov.
The
following exhibits are included as part of this report:
Exhibit No.
|
SEC
Report
Reference
No.
|
Description
|
||
3.1
|
3.1
|
Articles
of Incorporation of Registrant (1)
|
||
3.2
|
3.2
|
By-Laws
of Registrant (1)
|
||
10.1
|
10.1
|
Literary
Purchase Agreement, dated April 1, 2007, among Buzz Kill, Inc. and
Seasmoke, Inc. f/s/o Steven Kampmann and Matt Smollon (1)
|
||
10.2
|
10.2
|
Director
Agreement, dated April 13, 2007, between Buzz Kill, Inc. and Seasmoke,
Inc.
(1)
|
||
10.3
|
10.3
|
Memorandum
of Agreement, dated April 17, 2007, between Dylan Hundley and Buzz Kill,
Inc. (1)
|
||
10.4
|
10.4
|
Investment
Agreement, dated May 1, 2007, between Buzz Kill, Inc. and Eastern
Resources, Inc. (1)
|
||
10.5
|
10.5
|
Producer
Agreement, dated August 1, 2007, between Buzz Kill, Inc. and
Thomas Hanna (1)
|
||
10.6
|
10.9
|
Form
of 10% Note Series issued by Buzz Kill, Inc. (1)
|
||
10.7
|
*
|
January
29, 2010, 10% $70,000 Convertible Promissory Note of Registrant issued to
Paramount Strategy Corp.
|
||
14.1
|
14.1
|
Code
of Ethics (2)
|
||
21
|
*
|
List
of Subsidiaries
|
||
31.1
/ 31.2
|
*
|
Rule
13(a)-14(a)/15(d)-14(a) Certification of Principal Executive and Financial
Officer
|
39
Exhibit No.
|
SEC
Report
Reference
No.
|
Description
|
||
32.1
/ 32.2
|
*
|
Rule
1350 Certification of Chief Executive and Financial
Officer
|
(1) Filed
with the Securities and Exchange Commission on March 4, 2008 as an Exhibit,
numbered as indicated above, to Registrant’s Registration Statement on Form S-1
(Registration No. 333-149850), which exhibit is incorporated herein by
reference.
(2) Filed
with the Securities and Exchange Commission on March 31, 2009 as an Exhibit,
numbered as indicated above, to Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2009, which exhibit is incorporated herein by
reference.
* Filed
herewith.
40
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EASTERN
RESOURCES, INC.
|
|||
Dated: March
22, 2010
|
By:
|
/s/ Thomas H. Hanna, Jr.
|
|
Thomas
H. Hanna, Jr., President and
|
|||
Principal
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 22nd day of
March, 2010.
/s/
Thomas H. Hanna, Jr.
|
||
Thomas
H. Hanna, Jr., President, Principal Executive
Officer,
Principal Financial and Accounting Officer and
Director
|
||
/s/
Dylan Hundley
|
||
Dylan
Hundley, Director
|
||
/s/
Kristie Rubendunst
|
||
Kristie
Rubendunst, Director
|
41
PART
IV – FINANCIAL INFORMATION
ITEM
15. FINANCIAL STATEMENTS
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-3
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and 2008
and for the period from Inception (March 15, 2007) to December 31,
2009
|
F-4
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) for the period
from Inception (March 15, 2007) to December 31, 2009
|
F-5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and 2008
and for the period from Inception (March 15, 2007) to December 31,
2009
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7 – F-14
|
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
Eastern
Resources, Inc.
We have
audited the accompanying consolidated balance sheets of Eastern Resources, Inc.
and Subsidiary as of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders’ equity and cash flows for the years
ended December 31, 2009 and December 31, 2008 and from the period from Inception
(March 15, 2007) to December 31, 2009. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Accordingly we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of Eastern Resources, Inc. and Subsidiary
as of December 31, 2009 and 2008 and the results of their operations and their
cash flows for the year ended December 31, 2009, 2008, and for the period from
Inception (March 15, 2007) to December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred a net
loss of approximately $371,755 from March 15, 2007 (inception) to December 31,
2009. As a result, the current operations are not an adequate source of cash to
fund future operations. This issue among others raises substantial doubt about
the Company’s ability to continue as a going concern. Management's plans in
regard to this matter are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Sherb & Co., LLP
|
|
Sherb
& Co., LLP
|
|
Certified
Public Accountants
|
New York,
NY
March 18,
2010
F-2
EASTERN
RESOURCES INC. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
December 31, 2009
|
December 31, 2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | - | $ | 15,056 | ||||
TOTAL
CURRENT ASSETS
|
- | 15,056 | ||||||
Capitalized
film costs
|
1,271,611 | 1,271,611 | ||||||
TOTAL
ASSETS
|
$ | 1,271,611 | $ | 1,286,667 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 46,050 | $ | 11,532 | ||||
Loan
payable-stockholder
|
40,000 | 40,000 | ||||||
Compensation
payable
|
355,462 | 355,462 | ||||||
Convertible
debenture
|
47,395 | - | ||||||
Notes
payable – current
|
230,059 | - | ||||||
TOTAL
CURRENT LIABILITIES
|
718,966 | 406,994 | ||||||
Notes
payable – non-current
|
- | 208,422 | ||||||
TOTAL
LIABILITIES
|
718,966 | 615,416 | ||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Preferred
stock, $.001 par value, 10,000,000 shares authorized; none
issued
|
- | - | ||||||
Common
stock, $.001 par value, 300,000,000
shares authorized; 20,629,000 issued and outstanding at December
31, 2009 and 2008
|
20,629 | 20,629 | ||||||
Additional
paid in capital
|
903,771 | 903,771 | ||||||
Deficit
accumulated in the development stage
|
(371,755 | ) | (253,149 | ) | ||||
TOTAL
STOCKHOLDERS' EQUITY
|
552,645 | 671,251 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 1,271,611 | $ | 1,286,667 |
See notes
to the consolidated financial statements.
F-3
EASTERN
RESOURCES INC. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
March 15, 2007
|
||||||||||||
(Inception)
|
||||||||||||
Year Ended
|
Year Ended
|
to
|
||||||||||
December 31,
|
December 31,
|
December 31,
|
||||||||||
2009
|
2008
|
2009
|
||||||||||
Revenues
|
$ | - | $ | - | $ | - | ||||||
Operating
expenses:
|
||||||||||||
General
and administrative
|
116,214 | 101,609 | 373,386 | |||||||||
Total
operating expenses
|
116,214 | 101,609 | 373,386 | |||||||||
Net
loss before other income
|
(116,214 | ) | (101,609 | ) | (373,386 | ) | ||||||
Other
income (expense):
|
||||||||||||
Interest
expense
|
(2,395 | ) | - | (2,395 | ) | |||||||
Interest
income
|
3 | 2,331 | 4,026 | |||||||||
Net
loss
|
$ | (118,606 | ) | $ | (99,278 | ) | $ | (371,755 | ) | |||
Basic
earnings per share
|
$ | (0.01 | ) | $ | (0.00 | ) | ||||||
Weighted
average number of common shares outstanding - basic and
diluted
|
20,629,000 | 20,375,849 |
See notes
to the consolidated financial statements.
F-4
EASTERN
RESOURCES INC. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Common
stock
Shares
|
Common
stock
Amount
|
Additional
Paid-in
Capital
|
Deficit
Accumulated
During
Development
Stage
|
Stock
Subscription
Receivable
|
Total
Stockholders'
Equity
|
|||||||||||||||||||
Balance,
March 15, 2007 (Inception)
|
- | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||
Stock
issued to founders at par
|
11,500,000 | 11,500 | - | - | (11,500 | ) | - | |||||||||||||||||
Stock
issued for cash at $.10 per share
|
8,529,000 | 8,529 | 844,371 | - | - | 852,900 | ||||||||||||||||||
Net
loss
|
- | - | - | (153,871 | ) | - | (153,871 | ) | ||||||||||||||||
Balance,
December 31, 2007
|
20,029,000 | 20,029 | 844,371 | (153,871 | ) | (11,500 | ) | 699,029 | ||||||||||||||||
Stock
issued for cash at $.10 per share
|
600,000 | 600 | 59,400 | - | - | 60,000 | ||||||||||||||||||
Write-off
of subscriptions receivable
|
- | - | - | - | 11,500 | 11,500 | ||||||||||||||||||
Net
loss
|
- | - | - | (99,278 | ) | - | (99,278 | ) | ||||||||||||||||
Balance,
December 31, 2008
|
20,629,000 | 20,629 | 903,771 | (253,149 | ) | - | 671,251 | |||||||||||||||||
Net
loss
|
- | - | - | (118,606 | ) | - | (118,606 | ) | ||||||||||||||||
Balance, December
31, 2009
|
20,629,000 | $ | 20,629 | $ | 903,771 | $ | (371,755 | ) | $ | - | $ | 552,645 |
See notes
to the consolidated financial statements.
F-5
EASTERN
RESOURCES INC. AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Year
|
For the Year
|
Inception
|
||||||||||
Ending
|
Ending
|
(March 15, 2007) to
|
||||||||||
December 31, 2009
|
December 31, 2008
|
December 31, 2009
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
loss
|
$ | (118,606 | ) | $ | (99,278 | ) | $ | (371,755 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Increase
in film costs
|
- | (59,312 | ) | (1,276,220 | ) | |||||||
Increase
in capitalized interest
|
- | 4,609 | 33,694 | |||||||||
Increase
in accounts payable and accrued expenses
|
34,518 | 2,432 | 46,050 | |||||||||
Officer
stock compensation
|
- | 11,500 | 11,500 | |||||||||
Increase
in compensation payable
|
- | - | 355,462 | |||||||||
NET
CASH USED IN OPERATING ACTIVITIES
|
(84,088 | ) | (140,049 | ) | (1,201,269 | ) | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds
from loans payable
|
- | - | 160,000 | |||||||||
Proceeds
from loan payable-shareholder
|
- | - | 40,000 | |||||||||
Increase
in note payable accrued interest
|
21,637 | 19,337 | 40,974 | |||||||||
Proceeds
from convertible debenture
|
45,000 | - | 45,000 | |||||||||
Increase
in convertible debenture accrued interest
|
2,395 | - | 2,395 | |||||||||
Proceeds
from issuance of common stock
|
- | 60,000 | 912,900 | |||||||||
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
69,032 | 79,337 | 1,201,269 | |||||||||
DECREASE
IN CASH
|
(15,056 | ) | (60,712 | ) | - | |||||||
CASH-BEGINNING
FOR THE PERIOD
|
15,056 | 75,768 | - | |||||||||
CASH-END
FOR THE PERIOD
|
$ | - | $ | 15,056 | $ | - | ||||||
CASH
PAID FOR:
|
||||||||||||
$ | - | $ | - | |||||||||
Income
taxes
|
$ | - | $ | - |
See notes
to the consolidated financial statements.
F-6
Eastern
Resources, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
(A
Development Stage Company)
Note
1 – Organization, Nature of Operations and Basis of Presentation
Eastern
Resources, Inc. (the “Company”) was incorporated in the State of Delaware on
March 15, 2007. On that date the Company acquired Buzz Kill, Inc., for
11,500,000 common shares. The Company, through Buzz Kill, Inc., its wholly owned
subsidiary, completed production of a feature length major motion picture, and
plans to market it to distributors in the United States and abroad. The Company
plans to produce a wide range of independent films outside the traditional
studio system. The Company intends to distribute films for theatrical release,
and exploit methods of delivery worldwide. The Company intends to execute its
business plan through the acquisition of unique films from a broad spectrum of
independent writers, directors and producers. Each project will become an
independent production company, created as a subsidiary of Eastern Resources,
Inc. The Company plans to fund the projects and maintain ownership of the films
with the intent of building a film library with the rights to DVD, book and
other reproductive media for sale to the public.
Note
2 - Summary of Significant Accounting Policies
Principles of Consolidation -
The consolidated financial statements of the Company include those of the
Company and its wholly owned subsidiary, Buzz Kill, Inc. All significant
inter-company accounts and transactions have been eliminated in the
consolidation.
Use of Estimates - The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those
estimates.
Cash and Cash Equivalents -
The Company considers all highly liquid short term investments with a remaining
maturity of three months or less when purchased, to be cash
equivalents.
Capitalized Film Costs - Film
costs include all direct negative costs incurred in the physical production of
the film as well as allocated production overhead. Such costs include story
costs and scenario; compensation of cast, directors, producers and extras; set
construction and operations; wardrobe and accessories; sound synchronization;
location expenses and post production costs including music, special effects and
editing. Film costs are amortized based on the ratio of current period gross
revenues to estimated remaining ultimate revenues from all sources on an
individual production basis. Estimated ultimate revenues are revised
periodically and the carrying values of the films are evaluated for impairment.
Losses, if any, are provided in full.
F-7
Eastern
Resources, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
(A
Development Stage Company)
Note
2 - Summary of Significant Accounting Policies-Continued
As of
December 31, 2009 and 2008, the Company is not yet able to reasonably
estimate projected revenues; therefore the Company has not recorded any
amortization expense to date.
Fair Value of Financial
Instruments - The carrying amount reported in the balance sheet for cash
and cash equivalents, accounts payable and accrued expenses approximate fair
value because of the immediate or short term maturity of these financial
instruments.
Revenue Recognition - The
Company recognizes revenues from the sale or licensing arrangement of a film
upon delivery of a completed film or the commencement of a licensing period. The
Company had substantially completed film production at December 31, 2009 but
realized no revenues as of that date.
Advertising Costs -
Advertising costs are expensed as incurred. Expenditures for the year ended
December 31, 2009 and 2008 were insignificant.
Loss Per Common Share - Loss
per common share is computed using the weighted average number of shares
outstanding. Potential common shares includable in the computation of fully
diluted per share results are not presented in the financial statements as their
effect would be anti-dilutive.
Income Taxes - Income taxes
are accounted for in accordance with the provisions of FASB ASC Topic No. 740,
“Income Taxes”(formerly
SFAS No. 109, “Accounting for Income
Taxes”). Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amounts expected to be realized.
F-8
Eastern
Resources, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
(A
Development Stage Company)
Note
2 - Summary of Significant Accounting Policies-Continued
New
Accounting Pronouncements-
Accounting for Own-Share Lending
Arrangements in Contemplation of a Convertible Debt Issuance or Other Financing
- In October 2009, the FASB issued guidance for amendments to FASB
Emerging Issues Task Force on EITF Issue No. 09-1 “ Accounting for Own-Share
Lending Arrangements in Contemplation of a Convertible Debt Issuance or Other
Financing” ( Subtopic 470-20 ) “Subtopic”. This accounting standards update
establishes the accounting and reporting guidance for arrangements under which
own-share lending arrangements issued in contemplation of convertible debt
issuance. This Statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2009.
Earlier adoption is not permitted. Management believes this Statement
will have no impact on the consolidated financial statements of the Company once
adopted.
Consolidations – Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities
- In December 2009, the FASB issued guidance for Consolidations –
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities ( Topic 810 ). The amendments in this update are a
result of incorporating the provisions of SFAS No. 167, Amendments to FASB
Interpretation No. 46(R). The provisions of such Statement are effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after November 15, 2009. Earlier adoption is not permitted. The presentation and
disclosure requirements shall be applied prospectively for all periods after the
effective date. Management believes this Statement will have no impact on the
consolidated financial statements of the Company once adopted.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards could have a material effect on the accompanying
consolidated financial statements. As new accounting pronouncements are issued,
the Company will adopt those that are applicable under the
circumstances.
Note
3 - Going Concern
The
Company at present has insufficient funds to sustain the cash flows required to
meet the anticipated operating costs to be incurred in the next twelve months.
Management intends to sell additional equity and/or debt securities in the
future to supplement potential revenues. However, there can be no assurance that
the Company will be successful in raising significant additional funds. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-9
Eastern
Resources, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
(A
Development Stage Company)
Note
4 – Notes Payable
In 2007,
the Company issued 10% Subordinated Debenture Notes aggregating $160,000 payable
to four persons. The notes included accrued interest compounded monthly and
become due and payable on varying dates in the year 2010. The notes are
subordinated to monies payable to trade payables
and to the loan payable to Mr. Hanna, an officer and major
stockholder. Upon repayment of the notes and accrued interest the
Company agreed to pay the note holders an additional premium of 20% of the
original principal $32,000, which was recorded at present value of
$29,086. The note holder’s rights to receive the premium survive any
redemption of the notes. Such amount was calculated using 10% per annum
compounded monthly. In addition to the repayments of principal, accrued interest
and premium the note holders will be entitled to a 12% participation in the
film’s net proceeds as defined in the agreements.
At
December 31, 2009 and 2008, the Company recorded related accrued interest of
$70,059 and $48,422, respectively.
Note
5 - Loan Payable - Stockholder
In July
2007, the Company received a bridge loan of $100,000 from Mr. Hanna. Subsequent
repayments of $60,000 reduced the loan to $40,000 as of December 31, 2009. The
loan is unsecured, interest free and repayable on demand.
Note
6 - Subscriptions Receivable
The
Company issued 11,500,000 common shares in March 2007 to the Company’s founders.
The shares were valued at par ($.001 per share) thereby aggregating $11,500.
Such amount was written off as compensation expense during the year ended
December 31, 2008.
Note
7 – Convertible Debenture
On May 8,
2009, the Company entered into a securities purchase agreement with Milestone
Enhances Fund Ltd. (“Milestone” or “Holder”). Under the purchase
agreement, the Company issued to Milestone a convertible promissory note
(“Promissory Note”), convertible into the Company’s common stock, in the amount
of $45,000.
At any
time, subject to a written notice of conversion, the Holder may convert any
portion of the outstanding and unpaid principal and interest balance due on the
Promissory Note into the Company’s common shares at a conversion price to be
mutually determined by the Company and the Holder. Any conversion of
any portion of the Promissory Note shall be deemed to be a prepayment of
principal, without any penalty, and shall be credited against future payments of
principal in the order such payments become due or payable.
F-10
Eastern
Resources, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
(A
Development Stage Company)
Note
7 – Convertible Debenture-Continued
The
Promissory Note bears interest at the rate of 8.25% per annum and is payable at
maturity, November 8, 2010, together with any accrued and unpaid
interest. The Promissory Note may be prepaid by the Company at any
time without penalty. Both parties may, however, mutually agree to
extend the term of the Promissory Note beyond the maturity date. In the
event of default due to non-payment of principal and interest at maturity date,
the Holder would have the right to all legal remedies available for it
to pursue collection, and the Company shall bear all reasonable costs
of collection, including but not limited to attorney’s fees.
As of
December 31, 2009, the parties have not agreed to a conversion price on the
aforementioned Promissory Note.
At
December 31, 2009, the Company recorded accrued interest of $2,395 related to
the convertible debenture.
Note
8 – Compensation Payable
Compensation
payable of $355,462 as of December 31, 2009 and 2008, is derived from various
agreements entered into by the Company in April and August of
2007. The amounts payable by the Company have not changed from the
prior year and will not change until such time that the Company begins to
generate revenues from the film, Buzz Kill.
Below, is
a summary of the agreements:
(a)
|
On
April 17, 2007, Ms. Hundley entered into a memorandum agreement with the
Company pursuant to which Ms. Hundley agreed to introduce Buzz Kill to
third parties who may be interested in lending or investing or in any
other way financing all or a portion of the development and / or
production of our film, BuzzKill. Under the
agreement, Ms. Hundley is entitled to the following payments (i) $40,000
in finder’s fees, of which $20,000 is deferred, (ii) $50,000 in deferred
compensation for her producer services and (iii) contingent compensation
in an amount equal to 5% of the “net proceeds” of the
film.
|
F-11
Eastern
Resources, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
(A
Development Stage Company)
Note
8 – Compensation Payable-Continued
(b)
|
On
August 1, 2007, Mr. Hanna entered into a producer agreement with Buzz
Kill, Inc. pursuant to which Mr. Hanna will provide preparation,
production and post-production services in connection with the film, BuzzKill. Mr. Hanna’s
compensation under the agreement included (a) $50,000, of which $25,000
remains unpaid at December 31, 2008, (b) a deferral in the amount of
$150,000 and (c) the remaining “net proceeds” generated by the film after
deducting “off-the-top” of all third party profit
participations.
|
(c)
|
On
April 1, 2007, the Company agreed to purchase all rights, title and
interests in the screenplay (“BuzzKill”). The initial consideration was
$12,500 and a deferral of $25,462. The Company is contingently obligated
for 7% of the net proceeds. If the picture is released as a theatrical
motion picture and the box office receipts from exhibition in “North
America” reach or exceed $15,000,000, the Company will pay the seller
$25,000 and an additional $25,000 for each additional $15,000,000 in
receipts thereafter.
|
(d)
|
On
April 13, 2007, the Company engaged the services of a director for the
screenplay “BuzzKill”. Agreed upon
compensation amounted to $105,000, of which $20,000 was paid, $35,000 was
due at December 31, 2008 and $50,000 was deferred. Additional compensation
is payable at 5% of the net proceeds. If the picture is released as a
theatrical motion picture and box office receipts reach or exceed
$15,000,000, the Company will pay the director $25,000 and an additional
$25,000 for each $15,000,000 in receipts
thereafter.
|
At
December 31, 2009, unpaid compensation as reflected above is included in the
balance sheet as compensation payable and is as follows:
(a)
|
Ms.
Hundley, Vice President
|
$
|
70,000
|
||
(b)
|
Mr.
Hanna, President.
|
175,000
|
|||
(c)
|
Story
and author’s rights
|
25,462
|
|||
(d)
|
Director
|
85,000
|
|||
$
|
355,462
|
F-12
Eastern
Resources, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
(A
Development Stage Company)
Note
9- Income Taxes
The
Company accounts for income taxes under of FASB ASC Topic No. 740 (formerly SFAS
No. 109, “Accounting for
Income Taxes”), which requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the financial
statements and the tax basis of assets and liabilities, and for the expected
future tax benefit to be derived from tax losses and tax credit carry forwards.
This standard additionally requires the establishment of a valuation allowance
to reflect the likelihood of realization of deferred tax assets.
For the
year end December 31, 2009 and 2008 the benefit for income taxes differs from
the amounts computed by applying the statutory federal income tax rate to the
loss before provision for income taxes; the reconciliation is as
follows:
2009
|
2008
|
|||||||
Benefit
computed at statutory rate
|
$ | 47,442 | $ | 39,600 | ||||
Permanent difference
|
(- | ) | (4,600 | ) | ||||
Income
tax benefit not utilized
|
(47,442 | ) | (35,000 | ) | ||||
Net
income tax benefit
|
$ | - | $ | - |
The
Company had a net operating loss carry-forward for tax purposes of approximately
$246,000 and $364,447 at December 31, 2008 and 2009 which expires in the year
2028 and 2029. Listed below are the tax effects of the items related
to the Company’s net tax asset:
2009
|
2008
|
|||||||
Tax
benefit of net operating loss carry-forward
|
$ | 133,542 | $ | 86,100 | ||||
Valuation
allowance
|
(133,542 | ) | (86,100 | ) | ||||
Net
deferred tax asset recorded
|
$ | - | $ | - |
Note
10 - Issuance of Common and Preferred Stock
Authorized
capital stock consists of 300,000,000 shares of common stock with a par value of
$0.001 per share and 10,000,000 shares of preferred stock, with a par value of
$0.001 per share.
In
December 2007, the Company completed a private placement offering of 8,529,000
shares of common stock at a price of $0.10 per share for aggregate proceeds of
$852,900. In June 2008, the Company sold additional 600,000 shares of
our common stock to an institutional investor at a price of $0.10 per share for
gross proceeds of $60,000.
As of
December 31, 2009, there were 20,629,000 shares of common stock issued and
outstanding. No preferred stock shares have been issued.
F-13
Eastern
Resources, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
(A
Development Stage Company)
Note
11 - Subsequent Events
In
accordance with ASC 855, “Subsequent Events”, the Company evaluated subsequent
events after the balance sheet date of December 31, 2009 through March 18, 2010,
which is the date the financial statements were issued.
On
January 29, 2010, the Company issued to Paramount Strategy Corp. (“Paramount”) a
convertible promissory note (“Paramount Promissory Note”) amounting to
$70,000.
At any
time, subject to a written notice of conversion, Paramount may convert any
portion of the outstanding and unpaid principal and interest balance due on the
Paramount Promissory Note into the Company’s common shares at a conversion
price (the “Fixed Conversion Price”) of $0.10 per share. So long as
the Paramount Promissory Note is outstanding, if the Company issues shares of
its common stock at a price below the Fixed Conversion Price, the Fixed
Conversion Price shall be reduced to such other lower price. The
Fixed Conversion Price and number of shares to be issued upon conversion shall
also be subject to adjustment from time to time upon the happening of certain
other events, in particular in the event a merger or sale of the Company’s
assets, reclassification or change in the Company’s common stock, and in the
event of stock splits, combinations or dividends.
The
Paramount Promissory Note bears interest at the rate of 10% per annum and is
payable at its maturity on July 28, 2011, unless its term is mutually extended
by both parties. The Paramount Promissory Note may be prepaid by the
Company at any time without penalty. In the event of default due to
non-payment of principal and interest at maturity date, the Holder would have
the right to all legal remedies available for it to pursue
collection, and the Company shall bear all reasonable costs of collection,
including but not limited to attorney’s fees.
F-14