Attached files
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EX-5.1 - Platinum Studios, Inc. | v199293_ex5-1.htm |
EX-23.2 - Platinum Studios, Inc. | v199293_ex23-2.htm |
As filed with the Securities and
Exchange Commission on October 18, 2010
Registration No. 333-168125
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 1 TO
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
PLATINUM
STUDIOS, INC.
(Exact
name of Registrant as specified in its charter)
California
(State
or other jurisdiction of
incorporation
or organization)
|
2721
(Primary
Standard Industrial
Classification
Code Number)
|
20-5611551
(I.R.S.
Employer
Identification
Number)
|
2029
South Westgate Avenue
Los
Angeles, California 90025
(310)
807-8100
(Address, including zip code, and
telephone number, including
area
code, of Registrant's principal executive offices)
Scott
Mitchell Rosenberg
Chief
Executive Officer
Platinum
Studios, Inc.
2029
South Westgate Avenue
Los
Angeles, California 90025
(310)
807-8100
(Name, address, including zip code,
and telephone number, including
area
code, of agent for service)
Copies
to:
Christopher
H. Dieterich, Esq.
Dieterich
& Mazarei, LP
11835
West Olympic Blvd., Suite 1235E
Los
Angeles, California 90064
(310)
312-6888
Approximate
date of commencement of proposed sale to the public:
As
soon as practicable after the effective date of this Registration
Statement.
If any of
the securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933
check the following box: x
If this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated file, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated file" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
(Do
not check if a smaller reporting
company)
|
Smaller
reporting company x
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
|
Amount
to
be Registered (1)
|
Proposed Maximum
Offering Price
Per Share(2)
|
Proposed Maximum
Aggregate
Offering Price(3)
|
Amount
of
Registration Fee
|
||||||||||||
Common
Stock, $0.001 par value per share
|
41,000,000 | $ | 0.09 | $ | 3,690,000 | $ | 263.23 |
(1)
Pursuant to Rule 416 under the Securities Act, the shares being registered
hereunder include such indeterminate number of shares of common stock as may be
issuable with respect to the shares being registered hereunder as a result of
stock splits, stock dividends or similar transactions.
(2)
Estimated solely for the purpose of calculating the amount of the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, using the average of
the high and low prices as reported on the OTC Bulletin Board on June 15,
2010.
(3) Estimated
assuming that all 41,000,000 shares are sold at the same price. This
number of shares is limited by Rule 415, however the share prices may increase
over the life of the agreements and this registration, such that prices could
cumulate to $5,000,000 (the contractual limitation) if a large number of shares
are sold at significantly higher prices than currently exist.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Securities and Exchange
Commission acting pursuant to said section 8(a) may determine.
The information in this prospectus is
not complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
Subject
to Completion, Dated October18, 2010
Prospectus
41,000,000
Shares
Common
Stock
This
prospectus relates to the offer and resale of up to 41,000,000 shares of our
common stock, par value $0.0001 per share, by the selling stockholder, Dutchess
Opportunity Fund II, LP, or "Dutchess". Of such shares, (i) Dutchess has agreed
to purchase 41,000,000 pursuant to the investment agreement dated June 4, 2010,
between Dutchess and us, and (ii) NO shares were issued to Dutchess in
consideration for the investment. Subject to the terms and conditions of such
investment agreement, which is referred to in this prospectus as the "Investment
Agreement," we have the right to put up to $5,000,000 million in shares of our
common stock to Dutchess. This arrangement is sometimes referred to as an
"Equity Line." For more information on the selling stockholder, please see the
section of this prospectus entitled "Selling Stockholder".
We will
not receive any proceeds from the resale of these shares of common stock offered
by Dutchess. We will, however, receive proceeds from the sale of shares to
Dutchess pursuant to the Equity Line. When we put an amount of shares to
Dutchess, the per share purchase price that Dutchess will pay to us in respect
of such put will be determined in accordance with a formula set forth in the
Investment Agreement. Generally, in respect of each put, Dutchess will pay us a
per share purchase price equal to ninety-five percent (95%) of the daily volume
weighted average price of our common stock during the five (5) consecutive
trading day period beginning on the trading day immediately following the date
of delivery of the applicable put notice.
Dutchess
may sell the shares of common stock from time to time at the prevailing market
price on the Over-the Counter (OTC) Bulletin Board, or on an exchange if our
shares of common stock become listed for trading on such an exchange, or in
negotiated transactions. Dutchess is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") in connection with the
resale of our common stock under the Equity Line. For more information, please
see the section of this prospectus entitled "Plan of Distribution".
Our
common stock is quoted on the OTC Bulletin Board under the symbol "PDOS". The
last reported sale price of our common stock on the OTC Bulletin Board on
October 15, 2010 was $0.07 per share.
Investing
in the offered securities involves a high degree of risk, including those risks
set forth in the "Risk Factors" section of this prospectus, as well as those set
forth in any prospectus supplement.
We will
be responsible for all fees and expenses incurred in connection with the
preparation and filing of this registration statement, provided, however, we
will not be required to pay any underwriters' discounts or commissions relating
to the securities covered by the registration statement.
You
should read this prospectus and any prospectus supplement carefully before you
decide to invest. You should not assume that the information in this prospectus
is accurate as of any date other than the date on the front of this
document.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is October 18, 2010
2
TABLE
OF CONTENTS
Page
|
||
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
|
4
|
|
PROSPECTUS
SUMMARY
|
5
|
|
RISK
FACTORS
|
10
|
|
USE
OF PROCEEDS
|
17
|
|
SELLING
STOCKHOLDER
|
18
|
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
19
|
|
OUR
BUSINESS
|
20
|
|
PROPERTIES
|
28
|
|
LEGAL
PROCEEDINGS
|
28
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
29
|
|
MANAGEMENT
|
40
|
|
EXECUTIVE
COMPENSATION
|
43
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
44
|
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
|
46
|
|
DESCRIPTION
OF CAPITAL STOCK
|
47
|
|
PLAN
OF DISTRIBUTION
|
48
|
|
CHANGES
AND DISAGREEMENTS WITH
ACCOUNTANTS
|
49
|
|
LEGAL
MATTERS
|
49
|
|
EXPERTS
|
49
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
49
|
|
INDEX
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
50
|
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission. You should rely only on the information contained in
this prospectus or to which we have referred you. We have not authorized anyone
to provide you with information or to make any representation on behalf of the
Company that is different from that contained in this prospectus. You should not
rely on any unauthorized information or representation. This prospectus is an
offer to sell only the securities offered by this prospectus under circumstances
and in jurisdictions where it is lawful to do so. The information in this
prospectus is accurate only as of the date of this prospectus, regardless of the
date of delivery of this prospectus or of any sales of these securities. Our
business, financial condition, results of operations and prospects may have
changed since the date of this prospectus. This prospectus may be used only in
jurisdictions where it is legal to sell these securities.
3
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Some of
the statements contained or incorporated by reference in this prospectus are
"forward-looking statements". These statements are based on the current
expectations, forecasts, and assumptions of our management and are subject to
various risks and uncertainties that could cause our actual results to differ
materially from those expressed or implied by the forward-looking statements.
Forward-looking statements are sometimes identified by language such as
"believe," "may," "could," "estimate," "continue," "anticipate," "intend,"
"should," "plan," "expect," "appear," "future," "likely," "probably," "suggest,"
"goal," "potential" and similar expressions and may also include references to
plans, strategies, objectives, and anticipated future performance as well as
other statements that are not strictly historical in nature. The risks,
uncertainties, and other factors that could cause our actual results to differ
materially from those expressed or implied in this prospectus include, but are
not limited to, those noted under the caption "Risk Factors" beginning on page
13 of this prospectus. Readers should carefully review this information as well
the risks and other uncertainties described in other filings we may make after
the date of this prospectus with the Securities and Exchange
Commission.
Readers
are cautioned not to place undue reliance on forward-looking statements. They
reflect opinions, assumptions, and estimates only as of the date they were made,
and we undertake no obligation to publicly update or revise any forward-looking
statements in this prospectus, whether as a result of new information, future
events or circumstances, or otherwise.
4
PROSPECTUS
SUMMARY
This
summary highlights the information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all of the information that
you should consider before buying shares of our common stock. You should read
the entire prospectus and any prospectus supplements carefully, especially the
sections entitled "Caution Regarding Forward Looking Statements," "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," together with our financial statements and the related notes
included elsewhere in this prospectus and in any prospectus supplements related
thereto, before deciding to purchase shares of our common stock.
Platinum
Studios, Inc.
Depending
upon the context, the terms "Platinum Studios," "Company," "we," "our" and "us,"
refers to either Platinum Studios, Inc. alone, or Platinum Studios, Inc. and its
subsidiaries collectively.
Organizational
History
We were
formed as a California Limited Liability Company on November 20, 1996. On
September 15, 2006 we filed Articles of Incorporation with Statement of
Conversion to convert to a California stock corporation. The Plan of Conversion
provided for the issuance of an aggregate of 135,000,000 shares to the former
Members of the Limited Liability Company. The Company began trading on the
over-the-counter board effective January 11, 2008.
In July,
2008, the Company acquired Wowio, LLC for 21,000,000 shares of the Company’s
common stock. Wowio, LLC, an e-book distribution outlet, was purchased as part
of a multi-pronged approach to online content distribution.
As of
June 30, 2009, the Company consummated a sales of 100% of its interest in Wowio
to an affiliate of Brian Altounian, President and Chief Operating Officer of the
Company (“Altounian”), in exchange for a combination of forgiveness of
indebtedness to Altounian, assumption of existing Company indebtedness and WOWIO
liabilities in an approximate aggregate amount of $1,600,000 as well as an
ongoing royalty in 20% of Wowio revenues (reducible to 10% at a certain
threshold, in perpetuity).
In
December, 2008, the Company purchased Long Distance Films, Inc. (“LDF”) to
facilitate the financing and production of the film currently titled “Dead of
Night” (the Film”). LDF is the owner of the copyright in the Film and has
certain obligation and liabilities with respect to the financing, production and
distribution of Film, all of which obligations and liabilities are non-recourse
to the Company. LDF is a wholly-owned subsidiary of the
Company. No consideration was paid by the Company for the acquisition
of LDF.
Introduction
We are a
comics-based entertainment company. We own or control the rights to a
library of over 4,000 comic book characters, which we adapt and produce for
film, television and all other media. Our continually expanding library consists
of characters that have appeared in comics in 25 languages and in more than 50
countries. Our library of comics-based characters spans across multiple genres
and multiple target audiences. Not only have we developed many of our characters
in-house, but we have also aggregated content from several third-party comics
publishers, in many cases acquiring the rights to use these characters via all
media except print publishing. We believe that the size of our library
gives us a competitive edge over other comics-based libraries, as we will be
able to go to market quicker with new opportunities to exploit our
characters.
We seek
to be a leader in producing entertainment content for all platforms including
film, television, direct-to-home, publishing, and digital media based on comic
book characters providing new merchandising vehicles across all retail product
lines. By combining our character commercialization strategy with our
extensive storytelling, packaging, and corporate management abilities, we seek
to build a strategically diversified and profitable character-based
entertainment business.
We
believe our library has broader audience appeal than other comic character
companies whose libraries are comprised primarily of the traditional superhero
characters. Our library includes characters that span all story genres,
including science fiction, fantasy, horror, mystery, romance, comedy, crime,
action/adventure, and family. While our library includes superhero
characters, management believes this broad spectrum allows us to be protected by
any unforeseen downturn in audience reaction to any single
genre.
5
In
addition to a broad universe of more than 1,000 characters developed in-house,
we also acquired the rights to the characters and storylines of Italian-based,
SBE Publishing’s Horror/Sci-Fi Universe and French-based, Hexagon Comics. We
believe that this library gives us an established international audience for our
media exploitation plans. In addition to the international exploitation of these
properties, there are significant other benefits to our relationships with SBE
and Hexagon Comics, including providing us with the advantage of owning all
exploitation rights (other than print publishing rights) to content created,
without the burden of overhead to run extensive publishing entities, thus
providing us with a constant source of new material. As our publishing partners
expand their library, our character and story lists expand as well. Our
management believes that our strategy provides numerous synergies,
including:
·
|
Development
of individual character franchises by leveraging feature films, television
programming, Internet/wireless, licensees, promotional partners, and
advertisers.
|
·
|
Development
and introduction of new characters, planted spin-offs and tie-ins with
branded characters.
|
·
|
Reduced
marketing and promotions costs by cross marketing the characters through
different distribution media.
|
·
|
Interactive
feedback from various affiliated and co-branded online
destinations.
|
We
believe that our strategy will offer the ability to communicate with audiences
from around the world providing market analysis from fan, industry and creative
perspectives that gauge the appeal of new Characters and stories.
In
addition to creating and acquiring additional comic book and graphic novel
content, in 2008 we began to expand into content distribution with our initial
focus in the digital arena. In July, 2008, we acquired WOWIO, an e-book
distribution outlet, to go along with DrunkDuck.com, our user-generated content
creation website, as part of a multi-pronged approach to online content
distribution. It was management’s intent to utilize this outlet to distribute
digital versions of original properties from the Company’s library as well as
other properties from its publishing partners. This business plan for
WOWIO required an infusion of capital; however, due to a number of factors that
include 1) a global economic pull-back, impacting all industries, including the
online advertising market, and 2) an inherited liability to pay WOWIO publishers
royalties for the quarter immediately preceding the Company’s acquisition and
subsequent inability to pay off such obligation, the Company was unable to raise
such capital and as a result had to cease all marketing, promotional, and sales
activity for WOWIO. The Company kept WOWIO in a maintenance mode for
approximately 12 months until it was determined by management to focus its
limited resources on its core comic business and as of June 30, 2009, the
Company consummated a sales of 100% of its interest in WOWIO to an affiliate of
Brian Altounian, President and Chief Operating Officer of the Company
(“Altounian”), in exchange for a combination of forgiveness of indebtedness to
Altounian, assumption of existing Company indebtedness and WOWIO liabilities in
an approximate aggregate amount of $1,600,000 as well as an ongoing royalty in
20% of Wowio revenues (reducible to 10% at a certain threshold, in
perpetuity).
We have
only recently begun to fully exploit our library of characters. The first
ten years of our existence were spent acquiring and building our library.
Management believes that our success will depend in large part on the continued
shift from print to digital media as well as the ability to monetize that
shift. We intend to invest heavily in developing and marketing our library
of characters, primarily for the web and traditional media outlets, i.e. film
and television, with print as a secondary medium.
For the
fiscal year ended December 31, 2009, the Company had net revenues of $292,940
and a net loss of $3,384,822. For the six month period ended June 30,
2010, the Company had net revenues of $2,098,048 and a net loss of
$1,573,395.
In May
2009, the Company entered into an agreement with its CEO, Scott Mitchell
Rosenberg, for Mr. Rosenberg to loan the Company $500,000 for a term of one
year. This amount is in addition to the approximately $4 Million
previously loaned to the Company by Mr. Rosenberg. In exchange for
the additional loan of funds, Mr. Rosenberg required a security interest in all
of the assets of the Company, securing both the repayment of new funds as well as 50% of the
pre-existing debt, for a total of $2.4 million in secured debt held by Mr.
Rosenberg. In June, 2009, Mr. Rosenberg loaned the Company an
additional $225,000 which was secured by the assets of the Company as well as
securing an additional $1,125,000 of the remaining pre-existing debt. The
secured debt carries a term of 12 months and requires monthly interest payments
as well as certain affirmative and negative financial covenants. If
the Company is unable to raise additional outside funding, whether in the form
of equity or debt, the Company may be unable to avoid a default under Mr.
Rosenberg’s secured debt, triggering a right for Mr. Rosenberg to foreclose on
the assets of the Company to repay all of the secured debt.
6
Furthermore,
as discussed in the Auditor’s Report and Note 2 to the financial statements, the
Company has suffered recurring losses from operations which have resulted in an
accumulated deficit. According to the Company’s auditor, this raises
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2 to the financial statements for the years ended December 31,
2009 and 2008.
For a
complete description of our business, please see the section entitled "Our
Business".
Summary
Financial Data
Because
this is only a summary of our financial information, it does not contain all of
the financial information that may be important to you. Therefore, you should
carefully read all of the information in this prospectus and any prospectus
supplement, including the financial statements and their explanatory notes and
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," before making a decision to invest in our
common stock. The information contained in the following summary are derived
from our financial statements for the years ended December 31, 2009 and 2008 and
the six month period ended June 30, 2010.
Fiscal years ended December 31,
|
Six Months ended
|
|||||||||||
2009
|
2008
|
June 30, 2010
|
||||||||||
Consolidated
Statement of Operations Data:
|
||||||||||||
Net
revenues
|
$ | 292,940 | $ | 822,488 | $ | 2,098,048 | ||||||
Cost
of revenues
|
73,390 | 198,864 | 479,582 | |||||||||
Operating
expenses
|
1,929,151 | 4,808,320 | 1,414,585 | |||||||||
Operating
gain (loss)
|
(2,145,423 | ) | (10,774,097 | ) | (121,707 | ) | ||||||
Net
Loss
|
$ | (3,384,822 | ) | $ | (11,244,483 | ) | $ | (1,573,395 | ) | |||
Net
loss per share
|
$ | (0.01 | ) | $ | (0.05 | ) | $ | (0.01 | ) | |||
Basic
and diluted weighted average shares
|
266,455,863 | 226,541,917 | 279,219,105 |
As of December 31,
|
As of June 30,
|
|||||||||||
2009
|
2008
|
2010
|
||||||||||
Consolidated
Balance Sheet Data:
|
||||||||||||
Cash
and cash equivalents
|
$ | 152,067 | $ | 42,023 | $ | 1,951,038 | ||||||
Accounts
receivable
|
23,817 | 8,812 | 13,504 | |||||||||
Character
rights, net
|
45,652 | 136,956 | - | |||||||||
Film
Development Costs
|
11,492,135 | - | 12,481,846 | |||||||||
Total
assets
|
$ | 13,321,340 | $ | 547,607 | $ | 15,290,230 | ||||||
Total
shareholders’ deficit
|
$ | (8,098,511 | ) | $ | (9,033,621 | ) | $ | (8,813,369 | ) |
With our
current monthly expenses of between $200,000 to $250,000 and without taking into
account the proceeds which could be received as a result of our transaction with
Dutchess, the possibility exists that we will exhaust our operating capital by
October 31, 2010. However, we anticipate the securing of revenues
from current contracts that will provide enough operating capital for
approximately 12 months without having to raise more capital or access the
equity line.
7
As of
June 30, 2010, the Company has total current assets of $2,383,575 and total
current liabilities of $24,103,599.
Our
Principal Executive Offices
Our
principal executive offices are located at 2029 South Westgate Avenue, Los
Angeles, California 90025. Our telephone number is (310) 807-8100 and our
website address is www.platinumstudios.com. Information included or referred to
on our website is not a part of this prospectus.
Market
Data and Industry Information
We
obtained the market data and industry information contained in this prospectus
from internal surveys, estimates, reports and studies, as appropriate, as well
as from market research, publicly available information and industry
publications. Although we believe our internal surveys, estimates, reports,
studies and market research, as well as industry publications are reliable, we
have not independently verified such information, and as such, we do not make
any representation as to its accuracy.
Summary
of the Offering
This
prospectus relates to the resale of up to 41,000,000 shares of our common stock
by Dutchess. The Investment Agreement with Dutchess provides that Dutchess is
committed to purchase up to $5,000,000 of our common stock over the course of 36
months. We may draw on the facility from time to time, as and when we determine
appropriate in accordance with the terms and conditions of the Investment
Agreement. A maximum of 41,000,000 shares may be issued under the Equity Line at
per-share prices set at ninety-five percent (95%) of the daily volume weighted
average price (VWAP) of our common stock during the five (5) consecutive trading
day period beginning on the date of delivery of the applicable put notice (such
five-day period, the "Pricing Period").
The
Investment Agreement is further described below under the heading, "Investment
Agreement".
Shares of common stock
offered
by us
|
None. |
Shares
of common stock offered
by
the Selling
Stockholder
|
41,000,000
shares
|
Offering
Price
|
To
be determined by the prevailing market price for the shares at the time of
the sale or in negotiated transactions.
|
Use of
proceeds
|
We
will not receive any proceeds from the sale of shares by the selling
stockholder. However, we will receive proceeds from the Equity Line. See
"Use of Proceeds." We intend to use such proceeds for working capital,
reduction of indebtedness, acquisitions and other general corporate
purposes.
|
Risk
Factors
|
An
investment in our common stock is speculative and involves substantial
risks. You should read the "Risk Factors" section of this prospectus for a
discussion of certain factors to consider carefully before deciding to
invest in shares of our common stock.
|
Plan of
Distribution
|
The
shares of common stock covered by this prospectus may be sold by the
selling stockholder in the manner described under "Plan of
Distribution."
|
8
OTC
Bulletin Board Symbol
|
"PDOS"
|
Investment
Agreement
We
entered into the Investment Agreement with Dutchess on June 4,
2010. Pursuant to the Investment Agreement, Dutchess committed to
purchase up to $5,000,000 of our common stock, over the course of 36 months. The
aggregate number of shares issuable by us and purchasable by Dutchess under the
Investment Agreement is 100,000,000.
We may
draw on the facility from time to time, as and when we determine appropriate in
accordance with the terms and conditions of the Investment Agreement. The
maximum amount that we are entitled to put in any one notice is the greater of
(i) 200% of the average daily volume (U.S. market only) of the common stock for
the three (3) trading days prior to the date of delivery of the applicable put
notice, multiplied by the average of the closing prices for such trading days or
(ii) $100,000. The purchase price shall be set at ninety-five percent (95%) of
the VWAP of our common stock during the Pricing Period. However, if, on any
trading day during a Pricing Period, the daily VWAP of the common stock is lower
than the floor price specified by us in the put notice, then we reserve the
right, but not the obligation, to withdraw that portion of the put amount for
each such trading day during the Pricing Period, with only the balance of such
put amount above the minimum acceptable price being put to Dutchess. There are
put restrictions applied on days between the put notice date and the closing
date with respect to that particular put. During such time, we are not entitled
to deliver another put notice.
There are
circumstances under which we will not be entitled to put shares to Dutchess,
including the following:
• we will
not be entitled to put shares to Dutchess unless there is an effective
registration statement under the Securities Act to cover the resale of the
shares by Dutchess;
• we will
not be entitled to put shares to Dutchess unless our common stock continues to
be quoted on the OTC Bulletin Board, or becomes listed on a national securities
exchange;
• we will
not be entitled to put shares to Dutchess to the extent that such shares would
cause Dutchess's beneficial ownership to exceed 4.99% of our outstanding shares;
and
• we will
not be entitled to put shares to Dutchess prior to the closing date of the
preceding put.
The
Investment Agreement further provides that the Company and Dutchess are each
entitled to customary indemnification from the other for any losses or
liabilities we or it suffers as a result of any breach by the other of any
provisions of the Investment Agreement or our registration rights agreement with
Dutchess, or as a result of any lawsuit brought by a third-party arising out of
or resulting from the other party's execution, delivery, performance or
enforcement of the Investment Agreement or the registration rights
agreement.
The
Investment Agreement also contains representations and warranties of each of the
parties. The assertions embodied in those representations and warranties were
made for purposes of the Investment Agreement and are subject to qualifications
and limitations agreed to by the parties in connection with negotiating the
terms of the Investment Agreement. In addition, certain representations and
warranties were made as of a specific date, may be subject to a contractual
standard of materiality different from what a stockholder or investor might view
as material, or may have been used for purposes of allocating risk between the
respective parties rather than establishing matters as facts.
In
connection with the preparation of the Investment Agreement and the registration
rights agreement, we paid Dutchess a document preparation fee in the amount of
$10,000, and issued Dutchess no shares of common stock.
9
Registration
Rights Agreement
Pursuant
to the terms of a Registration Rights Agreement, dated June 4, 2010, between
Dutchess and us, we are obligated to file one or more registration statements
with the SEC to register the resale by Dutchess of shares of common stock issued
or issuable under the Investment Agreement. We must file with the SEC an initial
registration statement on Form S-1 of which this prospectus forms a part, in
order to access the credit line, covering the resale of the
41,000,000 shares of common stock which is equal to one-third (1/3) of our
current public float (where "public float" shall be derived by subtracting the
number of shares of common stock held by our officers, directors and
"affiliates" (as such term is defined in Rule 144(a)(1) of the 1933 Act) from
the total number of shares of our common stock then outstanding). After the
later of (i) sixty (60) days after the time that Dutchess shall have resold
substantially all of the shares registered for resale under the initial
registration statement, or (ii) six (6) months after the effective date of the
initial registration statement, we are obligated to register for resale another
portion of the credit line amount, utilizing available equity equal to one-third
(1/3) of our then outstanding public float. This registration process will
continue until such time as all of the dollar amounts available under the credit
line, using shares of common stock issuable under the Investment
Agreement, have been registered for resale on effective registration statements.
In no event will we be obligated to register for resale more than $5,000,000 in
value of shares of common stock, or 100,000,000 shares.
RISK
FACTORS
Your
investment in our common stock involves a high degree of risk. You should
consider the risks described below and the other information contained in this
prospectus carefully before deciding to invest in our common stock. If any of
the following risks actually occur, our business, financial condition and
operating results could be harmed. As a result, the trading price of our common
stock could decline, and you could lose a part or all of your
investment.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
WE HAVE A
LIMITED OPERATING HISTORY UPON WHICH YOU CAN BASE AN INVESTMENT
DECISION.
Our
company was formed on November 20, 1996 and has only recently begun to fully
exploit our library of characters. The first ten years of our existence
were spent acquiring and building our library. There can be no assurance
at this time that we will operate profitably or that we will have adequate
working capital to meet our obligations as they become due. Management
believes that our success will depend in large part on the continued shift from
print to digital media as well as the ability to monetize that shift. We
intend to invest heavily in developing and marketing our library of characters,
primarily for the web and traditional media outlets, i.e. film and television,
with print as a secondary medium. However, there can be no assurance that
such investments will yield the anticipated returns.
COMPETITION
FROM PROVIDERS OF SIMILAR PRODUCTS AND SERVICES COULD MATERIALLY ADVERSELY
AFFECT OUR REVENUES AND FINANCIAL CONDITION
The
industry in which we compete is a rapidly evolving, highly competitive and
fragmented market, which is based on consumer preferences and requires
substantial human and capital resources. We expect competition to intensify in
the future. There can be no assurance that we will be able to compete
effectively. We believe that the main competitive factors in the
entertainment, media and communications industries include effective marketing
and sales, brand recognition, product quality, product placement and
availability, niche marketing and segmentation and value propositions. They also
include benefits of one's company, product and services, features and
functionality, and cost. Many of our competitors are established, profitable and
have strong attributes in many, most or all of these areas. They may be able to
leverage their existing relationships to offer alternative products or services
at more attractive pricing or with better customer support. Other companies may
also enter our markets with better products or services, greater financial and
human resources and/or greater brand recognition. Competitors may continue to
improve or expand current products and introduce new products. We may be
perceived as relatively too small or untested to be awarded business relative to
the competition. To be competitive, we will have to invest significant resources
in business development, advertising and marketing. We may also have to
rely on strategic partnerships for critical branding and relationship leverage,
which partnerships may or may not be available or sufficient. We cannot assure
you that we will have sufficient resources to make these investments or that we
will be able to make the advances necessary to be competitive. Increased
competition may result in price reductions, reduced gross margin and loss of
market share. Failure to compete successfully against current or future
competitors could have a material adverse effect on the Company’s business,
operating results and financial condition.
THE
SPECULATIVE NATURE OF THE ENTERTAINMENT, MEDIA AND COMMUNICATIONS INDUSTRY MAY
RESULT IN OUR INABILITY TO PRODUCE PRODUCTS OR SERVICES THAT RECEIVE SUFFICIENT
MARKET ACCEPTANCE FOR US TO BE SUCCESSFUL.
10
Certain
segments of the entertainment, media and communications industry are highly
speculative and historically have involved a substantial degree of risk. For
example, if a property is optioned by a studio, the option may not get
exercised, or if exercised, a film may still not be made, or even if a film is
made, the success of a particular film, video game, program or recreational
attraction depends upon unpredictable and changing factors, including the
success of promotional efforts, the availability of alternative forms of
entertainment and leisure time activities, general economic conditions, public
acceptance and other tangible and intangible factors, many of which are beyond
our control. If we are unable to produce products or services that receive
sufficient market acceptance we may not generate sufficient revenues to maintain
our operations and our business will be unsuccessful.
CHANGES
IN TECHNOLOGY MAY REDUCE THE DEMAND FOR THE PRODUCTS OR SERVICES WE MAY OFFER
FOLLOWING A BUSINESS COMBINATION.
The
entertainment, media and communications industries are substantially affected by
rapid and significant changes in technology. These changes may reduce the demand
for certain existing services and technologies used in these industries or
render them obsolete. We cannot assure you that the technologies used by or
relied upon or produced by a target business with which we effect a business
combination will not be subject to such occurrence. While we may attempt to
adapt and apply the services provided by the target business to newer
technologies, we cannot assure you that we will have sufficient resources to
fund these changes or that these changes will ultimately prove successful. If we
are unable to respond to quickly to changes in technology our business will
fail.
WE MAY
NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS MODEL, WHICH IS SUBJECT TO
INHERENT UNCERTAINTIES.
Our
business model is predicated on our ability to control all of the rights
surrounding our IP in order to properly monetize and exploit each property in
the most appropriate medium. We cannot assure that there will be a large
enough audience for our IP or the media projects or merchandise based on them,
or that prospective customers will agree to pay the prices that we propose to
charge. In the event our customers resist paying the prices we set for our
products, our business, financial condition, and results of operations will be
materially and adversely affected.
MANY OF
OUR COMPETITORS ARE LARGER AND HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN
WE DO AND THOSE ADVANTAGES COULD MAKE IT DIFFICULT FOR US TO COMPETE WITH
THEM.
The
global media industry is competitive. There are a substantial number of
traditional and established print publishers, film studios, production companies
and internet media companies with which we compete directly and indirectly, many
of which have significantly greater financial resources, higher revenues, and
greater economies of scale than us. While we believe that we are unique in
our utilization of web-based comics as our primary publishing option, new
technologies may be developed in the future which will compete with our
publishing plan, and such technology may already be in development. We
will attempt to distinguish ourselves from our competitors, but there can be no
assurance that we will be able to penetrate the market. We believe that
our intellectual property is attractive to an online audience in light of the
recent worldwide trend to move publishing from print to electronic media.
Nevertheless, there is no assurance that we will compete successfully with
existing or future competitors in the film industry. If we are not successful in
competing with these traditional and established businesses we will be unable to
generate any revenues.
WE MAY BE
UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY FROM INFRINGEMENT BY
THIRD PARTIES.
Our
business plan is significantly dependent upon exploiting our intellectual
property. There can be no assurance that we will be able to control all of the
rights for all of our property or that some of the rights may not revert to
their original owners after the expiration of their respective option periods.
We may not have the resources necessary to assert infringement claims against
third parties who may infringe upon our intellectual property rights. Litigation
can be costly and time consuming and divert the attention and resources of
management and key personnel. We cannot assure you that we can adequately
protect our intellectual property or successfully prosecute potential
infringement of our intellectual property rights. Also, we cannot assure you
that others will not assert rights in, or ownership of, trademarks and other
proprietary rights of ours or that we will be able to successfully resolve these
types of conflicts to our satisfaction. Our failure to protect our intellectual
property rights may result in a loss of revenue and could materially adversely
affect our operations and financial condition.
OUR FILMS
MIGHT BE LESS SUCCESSFUL ECONOMICALLY THAN WE ANTICIPATE.
11
We cannot
predict the economic success of any of our films because the revenue derived
from the distribution of a film depends primarily upon its acceptance by the
public, which cannot be accurately predicted. The economic success of a film
also depends upon the public’s acceptance of competing films, critical reviews,
the availability of alternative forms of entertainment and leisure time
activities, piracy and unauthorized recording, transmission and distribution of
films, general economic conditions, weather conditions and other tangible and
intangible factors, none of which can be predicted with certainty. We expect to
release a limited number of films per year as part of our film slate. The
commercial failure of just one of those films could have a material adverse
effect on our results of operations in both the year of release and in the
future.
OUR FILMS
MIGHT BE MORE EXPENSIVE TO MAKE THAN WE ANTICIPATE.
We expect
that future financing which we may obtain will provide the capital required to
produce our film slate. Expenses associated with producing the films could
increase beyond projected costs because of a range of factors such as an
escalation in compensation rates of talent and crews working on the films or in
the number of personnel required to work on films, or because of creative
problems or difficulties with technology, special effects and equipment. In
addition, unexpected circumstances sometimes cause film production to exceed
budget.
WE MIGHT
BE DISADVANTAGED BY CHANGES OR DISRUPTIONS IN THE WAY FILMS ARE
DISTRIBUTED.
The
manner in which consumers access film content has undergone rapid and dramatic
change. Some ancillary means of distribution, such as the DVD market, have
gained importance, while others have faded. We cannot provide any assurance that
new distribution channels will be as profitable for the film industry as today’s
channels or that we will successfully exploit any new channels. We can also not
provide any assurance that current distribution channels, such as the DVD
market, will maintain their profitability. In addition, films and related
products are distributed internationally and are subject to risks inherent in
international trade including war and acts of terrorism, instability of foreign
governments or economies, fluctuating foreign exchange rates and changes in laws
and policies affecting the trade of movies and related products.
WE MIGHT
LOSE POTENTIAL SALES BECAUSE OF PIRACY OF FILMS AND RELATED
PRODUCTS.
With
technological advances, the piracy of films and related products has increased.
Unauthorized and pirated copies of our films will reduce the revenue generated
by those films and related products.
OUR
SUCCESS IS DEPENDENT UPON AUDIENCE ACCEPTANCE OF OUR ENTERTAINMENT CONTENT WHICH
IS DIFFICULT TO PREDICT
The
production and distribution of comic books, online publishing, television
programs, motion pictures and other entertainment content are inherently risky
businesses because the revenues we derive and our ability to distribute and
license rights to our content depend primarily upon its acceptance by the
public, which is difficult to predict. Audience tastes change frequently and it
is a challenge to anticipate what content will be successful at a certain point
in time. In addition, the commercial success of our content also depends
upon the quality and acceptance of competing programs, motion pictures and other
content available or released into the marketplace at or near the same time.
Other factors, including the availability of alternative forms of entertainment
and leisure time activities, general economic conditions, piracy, digital and
on-demand distribution and growing competition for consumer discretionary
spending may also affect the audience for our content. Furthermore, the
theatrical success of a feature film may impact not only the theatrical revenues
we receive but also those from other distribution channels, such as DVD sales,
pay television and sales of licensed consumer products. A poor theatrical
performance may also impact our negotiating strength with distributors and
retailers, resulting in less desirable product promotion. Consequently, reduced
public acceptance of our entertainment content has the ability to affect all of
our revenue streams and would have an adverse effect on our results of
operations.
WE MUST
RESPOND TO AND CAPITALIZE ON RAPID CHANGES IN CONSUMER BEHAVIOR RESULTING FROM
NEW TECHNOLOGIES AND DISTRIBUTION PLATFORMS IN ORDER TO REMAIN COMPETITIVE AND
EXPLOIT NEW OPPORTUNITIES
12
Technology
in the online and mobile arenas is changing rapidly. We must adapt to advances
in technologies, distribution outlets and content transfer and storage (legally
or illegally) to ensure that our content remains desirable and widely available
to our audiences while protecting our intellectual property interests. The
ability to anticipate and take advantage of new and future sources of revenue
from these technological developments will affect our ability to continue to
increase our revenue and expand our business. We may not have the right, and may
not be able to secure the right, to distribute some of our licensed content
across these, or any other, new platforms and must adapt accordingly. Similarly,
we also must adapt to changing consumer behavior driven by technological
advances such as video-on-demand and a desire for more short form and
user-generated and interactive content. These technological advances may impact
traditional distribution methods, such as reducing the demand for DVD product
and the desire to see motion pictures in theaters. If we cannot ensure that our
content is responsive to the lifestyles of our target audiences and capitalize
on technological advances, our revenues will decline which may cause us to
curtail operations.
A DECLINE
IN ADVERTISING EXPENDITURES COULD CAUSE OUR REVENUES AND OPERATING RESULTS TO
DECLINE SIGNIFICANTLY IN ANY GIVEN PERIOD OR IN SPECIFIC MARKETS
We
anticipate deriving revenues from the sale of advertising in print and on our
digital media outlets. A decline in advertising expenditures generally or in
specific markets could significantly adversely affect our revenues and operating
results in any given period. Declines can be caused by the economic prospects of
advertisers or the economy in general could alter current or prospective
advertisers’ spending priorities. Disasters, acts of terrorism, political
uncertainty or hostilities could lead to a reduction in advertising expenditures
as a result of economic uncertainty. Our advertising revenues may also be
adversely affected by changes in audience traffic, which advertisers rely upon
in making decisions to purchase advertising. A decrease in our advertising
revenues will adversely impact our results of operations.
WE COULD
BE ADVERSELY AFFECTED BY STRIKES AND OTHER UNION ACTIVITY
We and
our suppliers engage the services of writers, directors, actors and other
talent, trade employees and others who are subject to collective bargaining
agreements. If we or our suppliers are unable to renew expiring collective
bargaining agreements, certain of which are expiring in the next year or two, it
is possible that the affected unions could take action in the form of strikes or
work stoppages. Such actions, higher costs in connection with these agreements
or a significant labor dispute could adversely affect our business by causing
delays in the production, the release date or by reducing the profit margins of
our programming or feature films.
IF WE ARE
UNABLE TO OBTAIN ADDITIONAL FUNDING, OUR BUSINESS OPERATIONS WILL BE HARMED AND
IF WE DO OBTAIN ADDITIONAL FINANCING, OUR THEN EXISTING SHAREHOLDERS MAY SUFFER
SUBSTANTIAL DILUTION.
There is
no assurance that we will not incur debt in the future, that we will have
sufficient funds to repay any indebtedness or that we will not default on our
debt obligations, jeopardizing our business viability. We are continually
at risk of default on obligations to and on behalf of our secured creditors,
requiring ongoing funding, on a monthly basis, to avoid these
defaults. Furthermore, we may not be able to borrow or raise
additional capital in the future to meet our needs or to otherwise provide the
capital necessary to conduct our business. There can be no assurance that
financing will be available in amounts or on terms acceptable to us, if at all.
The inability to obtain additional capital will restrict our ability to grow and
may reduce our ability to continue to conduct business operations. If we are
unable to obtain additional financing, we will likely be required to curtail our
marketing and development plans and without adequate financing or revenue
generation, possibly cease our operations. Any additional equity financing may
involve substantial dilution to our then existing shareholders.
IF WE DO
NOT MAINTAIN THE CONTINUED SERVICE OF OUR EXECUTIVE OFFICERS, OUR BUSINESS
OPERATIONS MAY BE AFFECTED.
Our
success is substantially dependent on the performance of our executive officers
and key employees. Given our early stage of development, we are dependent
on our ability to retain and motivate high quality personnel. Although we
believe we will be able to engage qualified personnel for such purposes, an
inability to do so could materially adversely affect our ability to market,
sell, and enhance our products. The loss of one or more of our key
employees or our inability to hire and retain other qualified employees,
including but not limited to development staff, business development staff,
digital publishing staff and corporate office support staff, could have a
material adverse effect on our business.
WE MAY
INCUR UNINSURED LOSSES IN THE OPERATION OF OUR BUSINESS.
There is
no assurance that we will not incur uninsured liabilities and losses as a result
of the conduct of our business. We plan to maintain comprehensive
liability and property insurance at customary levels. We will also
evaluate the availability and cost of business interruption insurance.
However, should uninsured losses occur we may be unable to cover these losses
from our existing work capital which may cause us to incur significant
losses.
13
WE MAY
INCUR LIABILITIES THAT WE MIGHT BE UNABLE TO REPAY IN THE FUTURE
We may
incur liabilities with affiliated or unaffiliated lenders. These
liabilities would represent fixed costs, which would be required to be paid
regardless of the level of our business or profitability. Our current
liabilities as of June 30, 2010 were as follows: accounts payable of
$1,669,449, accrued expenses of $1,510,563, short-term notes payable of
$12,696,154, related party notes payable of $3,757,500 (plus $332,553 in accrued
interest), related party payable of $285,000, derivative liabilities of
$1,971,000, deferred revenue of $1,858,740 and capital lease obligations of
$22,640 for total current liabilities of $24,103,599. There is no
assurance that we will be able to pay all of our liabilities. Furthermore,
we are always subject to the risk of litigation from customers, suppliers,
employees, and others because of the nature of our business, including but not
limited to consumer lawsuits. Litigation can cause us to incur substantial
expenses and, if cases are lost, judgments, and awards can add to our costs. An
increase in our costs may cause us to increase the prices at which we charge our
customers which may lead to our customers to seek alternatives to our products.
In such event, our revenues will decrease and we may be forced to curtail our
operations.
THE
COMPANY HAS GRANTED A SECURITY INTEREST IN ALL OF ITS ASSETS TO SECURE DEBT
FINANCING WHICH THE COMPANY MAY DEFAULT UPON UNLESS SUBSTANTIAL ADDITIONAL
FINANCING IS RECEIVED BY THE COMPANY.
In May
2009, the Company entered into an agreement with its CEO, Scott Mitchell
Rosenberg, for Mr. Rosenberg to loan the Company $500,000 for a term of one
year. This amount is in addition to the approximately $4 Million
previously loaned to the Company by Mr. Rosenberg. In exchange for
the additional loan of funds, Mr. Rosenberg required a security interests in all
of the assets of the Company, securing both the repayment of new funds as well as 50% of the
pre-existing debt, for a total of $2.4 million in secured debt held by Mr.
Rosenberg. In June, 2009, Mr. Rosenberg loaned the Company an
additional $225,000 which was secured by the assets of the Company as well as
securing an additional $1,125,000 of the remaining pre-existing debt. The
secured debt carries a term of 12 months and requires monthly interest payments
as well as certain affirmative and negative financial covenants. If
the Company is unable to raise additional outside funding, whether in the form
of equity or debt, the Company may be unable to avoid a default under Mr.
Rosenberg’s secured debt, triggering a right for Mr. Rosenberg to foreclose on
the assets of the Company to repay all of the secured debt.
WE MAY
INCUR UNANTICIPATED COST OVERRUNS WHICH MAY SIGNIFICANTLY AFFECT OUR
OPERATIONS.
We may
incur substantial cost overruns in the development and enhancement of our
electronic comics, printed comics, and merchandise. Management is not
obligated to contribute capital to us. Unanticipated costs may force us to
obtain additional capital or financing from other sources if we are unable to
obtain the additional funds necessary to implement our business plan. There is
no assurance that we will be able to obtain sufficient capital to implement our
business plan successfully. If a greater investment is required in the
business because of cost overruns, the probability of earning a profit or a
return of the Shareholders’ investment will be diminished.
OUR
PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS WILL OWN A CONTROLLING INTEREST
IN OUR VOTING STOCK AND INVESTORS WILL NOT HAVE ANY VOICE IN OUR
MANAGEMENT.
Our
principal stockholders, officers and directors, in the aggregate, beneficially
own approximately 60% of our outstanding common stock. Our Chairman, Scott
Rosenberg and President and Chief Operating Officer, Brian Altounian
beneficially own approximately 130,240,455 and 22,953,255 shares of our
outstanding common stock, respectively. As a result, our principal stockholders,
officers and directors, acting together, have the ability to control
substantially all matters submitted to our stockholders for approval,
including:
·
|
election
of our board of directors;
|
·
|
removal
of any of our directors;
|
·
|
amendment
of our certificate of incorporation or bylaws; and
|
·
|
adoption
of measures that could delay or prevent a change in control or impede a
merger, takeover or other business combination involving
us.
|
14
As a
result of their ownership and positions, our principal stockholders, directors
and executive officers collectively are able to influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our principal stockholders, directors and executive officers, or
the prospect of these sales, could adversely affect the market price of our
common stock. Their stock ownership may discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which in
turn could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.
WE MAY
NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS
OR AT ALL.
We may be
required to raise additional funds, particularly if we are unable to generate
positive cash flow as a result of our operations. We estimate that
our capital requirements in the next six months will be approximately
$1,500,000. There can be no assurance that financing will be available in
amounts or on terms acceptable to us, if at all. The inability to obtain
additional capital may reduce our ability to continue to conduct business
operations. If we are unable to obtain additional financing, we will
likely be required to curtail our research and development plans. Any
additional equity financing may involve substantial dilution to our
then-existing shareholders.
BECAUSE
OF OUR DEPENDENCE ON A LIMITED NUMBER OF TRADITIONAL MEDIA OUTLETS, ANY
SIGNIFICANT REDUCTION IN DEALS WITH MAJOR FILM STUDIOS AND TELEVISION/CABLE
NETWORKS MAY IMPAIR OUR ABILITY TO OPERATE PROFITABLY.
Our
business to date has been dependent upon a small number of licensing
transactions with major studios and television/cable networks. For the years
ended December 31, 2009 and 2008, a very small number of transactions accounted
for a disproportionately large percentage of our revenue. As of December 31,
2009, transactions to three customers account for 67% of our
revenue. Three transactions accounted for the revenues from two of
the customers and an ongoing licensing from one of our properties accounted for
all of the revenues from the third customer. For the year ended
December 31, 2008, three (3) transactions, one to each of three customers
accounted for 71% of our revenue. The loss of or significant reduction in
transactions to any of these traditional media outlets could impair our ability
to operate profitably and that we may not be able to replace any decline in
revenue. The net revenue for the six months ended June 30, 2010 was
primarily purchased rights revenue from one customer as principle photography
initiated on one of the Company’s properties.
DUE TO
OUR HISTORY OF OPERATING LOSSES, OUR AUDITORS ARE UNCERTAIN THAT WE WILL BE ABLE
TO CONTINUE AS A GOING CONCERN.
Our
financial statements have been prepared assuming that we will continue as a
going concern. For the years ended December 31, 2009, December 31,
2008 and December 31, 2007, we had net losses of approximately $3.4 million,
$11.2 million and $5.2 million, respectively. For the six month
period ended June 30, 2010, we had a net loss of $1,573,395. The
independent auditors’ report issued in conjunction with the financial statements
for the year ended December 31, 2009 contains an explanatory paragraph
indicating that the foregoing matters raise substantial doubt about our ability
to continue as a going concern. We cannot guarantee that we can
generate net income, increase revenues or successfully expand our operation in
the future, and if we cannot do so, the company may not be able to survive and
any investment in the Company may be lost.
RISKS
RELATING TO OUR COMMON STOCK
BECAUSE
THERE IS A LIMITED MARKET IN OUR COMMON STOCK, STOCKHOLDERS MAY HAVE DIFFICULTY
IN SELLING OUR COMMON STOCK AND OUR COMMON STOCK MAY BE SUBJECT TO SIGNIFICANT
PRICE SWINGS.
There can
be no assurance that an active market for our Common Stock will develop. If an
active public market for our Common Stock does not develop, shareholders may not
be able to re-sell the shares of our Common Stock that they own and affect the
value of the Shares.
IF WE
FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM
THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL
OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN THE
SECONDARY MARKET.
15
Companies
trading on the Over-The-Counter Bulletin Board, such as we are seeking to
become, must be reporting issuers under Section 12 of the Securities Exchange
Act of 1934, as amended, and must be current in their reports under Section 13,
in order to maintain price quotation privileges on the OTC Bulletin Board. If we
fail to remain current on our reporting requirements, we could be removed from
the OTC Bulletin Board. As a result, the market liquidity for our securities
could be severely adversely affected by limiting the ability of broker-dealers
to sell our securities and the ability of stockholders to sell their securities
in the secondary market. In addition, we may be unable to get re-listed on the
OTC Bulletin Board, which may have an adverse material effect on our
Company.
OUR
COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC AND THE TRADING
MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
·
|
that
a broker or dealer approve a person's account for transactions in penny
stocks; and
|
·
|
the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
|
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
·
|
obtain
financial information and investment experience objectives of the person;
and
|
·
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
·
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
·
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
THE
EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS MAY HAVE A DILUTIVE EFFECT ON THE
PRICE OF OUR COMMON STOCK.
To the
extent that outstanding stock options and warrants are exercised, dilution to
our stockholders will occur. Moreover, the terms upon which we will be able to
obtain additional equity capital may be adversely affected, since the holders of
the outstanding options and warrants can be expected to exercise them at a time
when we would, in all likelihood, be able to obtain any needed capital on terms
more favorable to us than the exercise terms provided by the outstanding options
and warrants.
WE DO NOT
EXPECT TO PAY DIVIDENDS IN THE FUTURE; ANY RETURN ON INVESTMENT MAY BE LIMITED
TO THE VALUE OF OUR COMMON STOCK.
16
We do not
currently anticipate paying cash dividends in the foreseeable future. The
payment of dividends on our Common Stock will depend on earnings, financial
condition and other business and economic factors affecting it at such time as
the board of directors may consider relevant. Our current intention is to apply
net earnings, if any, in the foreseeable future to increasing our capital base
and development and marketing efforts. There can be no assurance that the
Company will ever have sufficient earnings to declare and pay dividends to the
holders of our Common Stock, and in any event, a decision to declare and pay
dividends is at the sole discretion of the our Board of Directors. If we do not
pay dividends, our Common Stock may be less valuable because a return on your
investment will only occur if its stock price appreciates.
RISKS RELATED TO THIS
OFFERING
WE ARE
REGISTERING THE RESALE OF A MAXIMUM OF 41,000,000 SHARES OF COMMON STOCK WHICH
MAY BE ISSUED TO DUTCHESS UNDER THE EQUITY LINE. THE RESALE OF SUCH SHARES BY
DUTCHESS COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
We are
registering the resale of a maximum of 41,000,000 shares of common stock under
the registration statement of which this prospectus forms a part. The sale of
these shares into the public market by Dutchess could depress the market price
of our common stock. As of August 15, 2010, there were 289,646,888 shares of our
common stock issued and outstanding. In total, we may issue up to 100,000,000
shares to Dutchess pursuant to the Equity Line, meaning that we are obligated to
file one or more registration statements covering the 59,000,000 shares not
covered by the registration statement of which this prospectus forms a part. The
sale of those additional shares into the public market by Dutchess could further
depress the market price of our common stock.
EXISTING
STOCKHOLDERS COULD EXPERIENCE SUBSTANTIAL DILUTION UPON THE ISSUANCE OF COMMON
STOCK PURSUANT TO THE EQUITY LINE.
Our
Equity Line with Dutchess contemplates our issuance of up to 41,000,000 shares
of our common stock to Dutchess, subject to certain restrictions and
obligations. If the terms and conditions of the Equity Line are satisfied, and
we choose to exercise our put rights to the fullest extent permitted and sell
100,000,000 shares of our common stock to Dutchess, our existing stockholders'
ownership will be diluted by such sales.
DUTCHESS
WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE FOR OUR COMMON STOCK UNDER
THE EQUITY LINE.
The
common stock to be issued to Dutchess pursuant to the Investment Agreement will
be purchased at a 5% discount to the volume weighted average price of our common
stock during the five consecutive trading day period beginning on the trading
day immediately following the date of delivery of a put notice by us to
Dutchess, subject to certain exceptions. Therefore, Dutchess has a financial
incentive to sell our common stock upon receiving the shares to realize the
profit equal to the difference between the discounted price and the market
price. If Dutchess sells the shares, the price of our common stock could
decrease.
WE MAY
NOT BE ABLE TO ACCESS SUFFICIENT FUNDS UNDER THE EQUITY LINE WHEN
NEEDED.
Our
ability to put shares to Dutchess and obtain funds under the Equity Line is
limited by the terms and conditions in the Investment Agreement, including
restrictions on when we may exercise our put rights, restrictions on the amount
we may put to Dutchess at any one time, which is determined in part by the
trading volume of our common stock, and a limitation on our ability to put
shares to Dutchess to the extent that it would cause Dutchess to beneficial own
more than 4.99% of our outstanding shares. In addition, we do not expect the
Equity Line to satisfy all of our funding needs, even if we are able and choose
to take full advantage of the Equity Line.
USE
OF PROCEEDS
We will
not receive any proceeds from the resale of our common stock offered by
Dutchess. However, we will receive proceeds from the sale of our common stock to
Dutchess pursuant to the Investment Agreement. The proceeds from our exercise of
the put option pursuant to the Investment Agreement will be used to support the
commercialization of our current and future product candidates, for general
working capital needs, for the reduction of indebtedness and for other purposes that
our board of directors, in its good faith, deems to be in our best
interest. More specifically, any proceeds received from our exercise
of the put option are expected be used for the following and will be applied in
this general order, subject to modification by the board of directors and
management:
17
1.
|
Past Tax
Liabilities
|
$ | 250,000 | ||
2.
|
Marketing
(annualized)
|
$ | 250,000 | ||
3.
|
Operations/Administration
|
$ | 1,800,000 | ||
4.
|
New business
initiatives
|
$ | 1,600,000 | ||
5.
|
Development
funds
|
$ | 1,100,000 | ||
Total
|
$ | 5,000,000 |
All net
proceeds from the sale of the common stock covered by this prospectus will go to
the selling stockholder. See "Selling Stockholder" and "Plan of Distribution"
described below.
SELLING
STOCKHOLDER
The
information provided in the table and discussions below has been obtained from
the selling stockholder. The table below identifies the selling stockholder and
shows the number of shares of common stock beneficially owned by it before and
after this offering, and the numbers of shares offered for resale by the selling
stockholder. Our registration of these shares does not necessarily mean that the
selling stockholder will sell all or any of their shares of common stock.
However, the "Shares Beneficially Owned After Offering" columns in the table
assume that all shares covered by this prospectus will be sold by the selling
stockholder and that no additional shares of common stock will be bought or sold
by the selling stockholder. No estimate can be given as to the number of shares
that will be held by the selling stockholder after completion of this offering
because the selling stockholder may offer some or all of the shares and, to our
knowledge, there are currently no agreements, arrangements or understanding with
respect to the sale of any of the shares. In addition, the selling stockholder
may have sold, transferred or otherwise disposed of, or may sell, transfer or
otherwise dispose of, at any time or from time to time since the date on which
it provided the information regarding the shares, all or a portion of the shares
of common stock beneficially owned in transactions exempt from the registration
requirements of the Securities Act.
The
following table sets forth the name of the selling stockholder, an if
applicable, the nature of any position, office, or other material relationship
which the selling stockholder has had, within the past three years, with us or
with any of our predecessors or affiliates, the amount of shares of our common
stock beneficially owned by the stockholder prior to the offering, the amount
being offered for the stockholder's account, the amount being offered for the
stockholder's account and the amount to be owned by such stockholder after
completion of the offering.
Shares Beneficially Owned
Prior to Offering (1)
|
Shares Being
Offered
Under this
|
Shares Beneficially
Owned After Offering (1)
|
||||||||||||||||||
Beneficial Owner
|
Shares
|
%
|
Prospectus(3)
|
Shares
|
%
|
|||||||||||||||
Dutchess
Opportunity Fund II, LP(2)
|
0 | 0 | 41,000,000 | 0 | 0 |
(1)
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated
by the Securities and Exchange Commission under the Exchange Act, and generally
includes voting or investment power with respect to securities. The number and
percentage of shares beneficially owned is determined in accordance with
Rule 13d-3 of the Exchange Act and is not necessarily indicative of
beneficial ownership for any other purpose. Applicable percentage ownership is
based on 289,646,889 shares of common stock outstanding as of July 14, 2010.
Except as otherwise noted, we believe that the stockholder named in the table
has sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by it, subject to applicable community property
laws.
(2)
Dutchess is a Delaware limited partnership. Michael Novielli and
Douglas H. Leighton are managing members of Dutchess Capital Management, II,
LLC, which is the General Partner of Dutchess Opportunity Fund II, with voting
and investment power over the shares.
18
(3)
Represents a portion of the 41,000,000 shares of common stock issuable by us and
purchaseable by Dutchess under the Investment Agreement equal to a maximum of
one-third (1/3) of our public float as of July 14, 2010. As of that date, our
public float was equal to 129,517,306 shares (where "public float" was derived
by subtracting the number of shares of common stock held by our officers,
directors and "affiliates" (as such term is defined in Rule 144(a)(1) of the
1933 Act) from the total number of shares of our common stock outstanding as of
July 14, 2010).
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock traded on the Over-the-Counter Bulletin Board under the symbol
"PDOS" from our initial public offering.
Holders
As of
October 15, 2010, there were approximately 400 holders of record of our common
stock. The number of record holders was determined from the records
of our transfer agent and does not include beneficial owner’s common stock whose
shares are held in the names of various securities brokers, dealers and
registered clearing agencies.
Price
Range
For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
High
|
Low
|
|||||||
Quarter
Ended (2008)
|
||||||||
March
31
|
$ | 0.21 | $ | 0.09 | ||||
June
30
|
$ | 0.175 | $ | 0.13 | ||||
September
30
|
$ | 0.155 | $ | 0.08 | ||||
December
31
|
$ | 0.08 | $ | 0.014 | ||||
Quarter
Ended (2009)
|
||||||||
March
31
|
$ | 0.085 | $ | 0.02 | ||||
June
30
|
$ | 0.065 | $ | 0.035 | ||||
September
30
|
$ | 0.11 | $ | 0.0385 | ||||
December
31
|
$ | 0.096 | $ | 0.046 | ||||
Quarter
Ended (2010)
|
||||||||
March
31
|
$ | 0.07 | $ | 0.045 | ||||
June
30
|
$ | 0.13 | $ | 0.05 |
The
transfer agent of our common stock is Computershare Limited, whose address is
250 Royall Street, Canton MA 02021. The phone number of the transfer agent
is (800) 962-4284.
Dividends
We have
not declared any dividends to date. We have no present intention of paying any
cash dividends on our common stock in the foreseeable future, as we intend to
use earnings, if any, to generate growth. The payment by us of dividends, if
any, in the future, rests within the discretion of our Board of Directors and
will depend, among other things, upon our earnings, our capital requirements and
our financial condition, as well as other relevant factors. There are no
restrictions in our articles of incorporation or bylaws that restrict us from
declaring dividends.
19
Recent
Sales of Unregistered Securities
In
September, 2009, the Company opened a Private Placement round offering up to
30,000,000 shares of common stock at an offer price of
$0.05/share. This round was completed on December 21st with
the Company selling 19,250,821 shares valued at $962,541 in cash and debt
conversion. This Private Placement was offered pursuant to Section
4(2) of the Securities Act of 1933 and Rule 506 promulgated
thereunder.
In March
2010, the Company issued to a consultant 183,000 shares of common stock for
$0.05/share which represented market value on the date of issuance totaling
$9,150. Related services represented a finders’ fee associated with the current
private placement with the value of the services charged to additional paid-in
capital.
In April
2010, the Company issued 15,143,924 in fulfillment of previously received common
stock subscriptions. The Company also issued 2,764,355 shares with a
value of $138,217 as payment for services and accrued wages. The
Company issued an additional 300,000 shares to Brian Altounian, the President of
the Company, with a value of $15,000 for salary due.
As of
June 30, 2010, the Company had sold 11,432,000 shares related to a private
placement offering valued at $571,625. The related shares had not been issued at
June 30, 2010 and accordingly, the $571,625 value of the shares sold has been
included in Common Stock Subscribed at June 30, 2010.
OUR
BUSINESS
Corporate
History
We were
formed as a California Limited Liability Company on November 20, 1996. On
September 15, 2006 we filed Articles of Incorporation with Statement of
Conversion to convert to a California stock corporation. The Plan of Conversion
provided for the issuance of an aggregate of 135,000,000 shares to the former
Members of the Limited Liability Company. The Company began trading on the
over-the-counter board effective January 11, 2008.
In July,
2008, the Company acquired Wowio, LLC for 21,000,000 shares of the Company’s
common stock. Wowio, LLC, an e-book distribution outlet, was purchased as part
of a multi-pronged approach to online content distribution.
As of
June 30, 2009, the Company consummated a sale of 100% of its interest in Wowio
to an affiliate of Brian Altounian, President and Chief Operating Officer of the
Company (“Altounian”), in exchange for a combination of forgiveness of
indebtedness to Altounian, assumption of existing Company indebtedness and WOWIO
liabilities in an approximate aggregate amount of $1,600,000 as well as an
ongoing royalty in 20% of WOWIO revenues (reducible to 10% at a certain
threshold, in perpetuity).
In
December, 2008, the Company purchased Long Distance Films, Inc. (LDF”) to
facilitate the financing and production of the film currently titled “Dead of
Night”. LDF is the owner of the copyright in the Film and has certain obligation
and liabilities with respect to the financing, production and distribution of
the Film, all of which obligations and liabilities are non-recourse to the
Company. LDF is a wholly-owned subsidiary of the Company. No
consideration was paid by the Company for the acquisition of Long Distance
Films, Inc.
Introduction
We are a
comics-based entertainment company. We own or control the rights to a
library of over 4,000 comic book characters, which we adapt and produce for
film, television and all other media. Our continually expanding library consists
of characters that have appeared in comics in 25 languages and in more than 50
countries. Our library of comics-based characters spans across multiple genres
and multiple target audiences. Not only have we developed many of our characters
in-house, but we have also aggregated content from several third-party comics
publishers, in many cases acquiring the rights to use these characters via all
media except print publishing. We believe that the size of our library
gives us a competitive edge over other comics-based libraries, as we will be
able to go to market quicker with new opportunities to exploit our
characters.
We seek
to be a leader in producing entertainment content for all platforms including
film, television, direct-to-home, publishing, and digital media based on comic
book characters providing new merchandising vehicles across all retail product
lines. By combining our character commercialization strategy with our
extensive storytelling, packaging, and corporate management abilities, we seek
to build a strategically diversified and profitable character-based
entertainment business.
We
believe our library has broader audience appeal than other comic character
companies whose libraries are comprised primarily of the traditional superhero
characters. Our library includes characters that span all story genres,
including science fiction, fantasy, horror, mystery, romance, comedy, crime,
action/adventure, and family. While our library includes superhero
characters, management believes this broad spectrum allows us to be protected by
any unforeseen downturn in audience reaction to any single
genre.
20
In
addition to a broad universe of more than 1,000 characters developed in-house,
we also acquired the rights to the characters and storylines of Italian-based,
SBE Publishing’s Horror/Sci-Fi Universe and French-based, Hexagon Comics. We
believe that this library gives us an established international audience for our
media exploitation plans. In addition to the international exploitation of these
properties, there are significant other benefits to our relationships with SBE
and Hexagon Comics, including providing us with the advantage of owning
exploitation rights (other than print publishing rights) to content created,
without the burden of overhead to run extensive publishing entities, thus
providing us with a constant source of new material. As our publishing partners
expand their library, our character and story lists expand as well. Our
management believes that our strategy provides numerous synergies,
including:
·
|
Development
of individual character franchises by leveraging feature films, television
programming, Internet/wireless, licensees, promotional partners, and
advertisers.
|
·
|
Development
and introduction of new characters, planted spin-offs and tie-ins with
branded characters.
|
·
|
Reduced
marketing and promotions costs by cross marketing the characters through
different distribution media.
|
·
|
Interactive
feedback from various affiliated and co-branded online
destinations.
|
We
believe that our strategy will offer the ability to communicate with audiences
from around the world providing market analysis from fan, industry and creative
perspectives that gauge the appeal of new Characters and stories.
In
addition to creating and acquiring additional comic book and graphic novel
content, in 2008 we began to expand into content distribution with our initial
focus in the digital arena. In July, 2008, we acquired WOWIO, an e-book
distribution outlet, to go along with DrunkDuck.com, our user-generated content
creation website, as part of a multi-pronged approach to online content
distribution. It was management’s intent to utilize this outlet to distribute
digital versions of original properties from the Company’s library as well as
other properties from its publishing partners. This business plan for
WOWIO required an infusion of capital; however, due to a number of factors that
include 1) a global economic pull-back, impacting all industries, including the
online advertising market, and 2) an inherited liability to pay WOWIO publishers
royalties for the quarter immediately preceding the Company’s acquisition and
subsequent inability to pay off such obligation, the Company was unable to raise
such capital and as a result had to cease all marketing, promotional, and sales
activity for WOWIO. The Company kept WOWIO in a maintenance mode for
approximately 12 months until it was determined by management to focus its
limited resources on its core comic business and as of June 30, 2009, the
Company consummated a sales of 100% of its interest in WOWIO to an affiliate of
Brian Altounian, President and Chief Operating Officer of the Company
(“Altounian”), in exchange for a combination of forgiveness of indebtedness to
Altounian, assumption of existing Company indebtedness and WOWIO liabilities in
an approximate aggregate amount of $1,600,000 as well as an ongoing royalty in
20% of Wowio revenues (reducible to 10% at a certain threshold, in
perpetuity).
Library
of Characters
Universe of Characters
|
Origins
|
# of Characters
|
||
SBE
Horror
|
Europe
|
422
(ongoing)
|
||
Hexagon
Comics
|
Europe
|
702
|
||
Platinum
Studios Macroverse
|
Worldwide
|
1,200
(ongoing)
|
||
Platinum
Studios Acquisitions
|
|
Worldwide
|
|
1,680
(ongoing)
|
SBE
Horror
This
library comprises of the following characters:
·
|
Characters:
422
|
Dylan Dog
acquired from SBE: 422 characters
Our rights: We have all
rights worldwide, not including print and some digital comic publishing
rights. The Company is in negotiations with Bonelli Editore to extend
the rights agreement.
21
Awesome
Comics/RIP Media
·
|
Characters:
404
|
Our rights: The
Company has an exclusive option to enter licensing of rights for agreements to
individual characters, subject to existing third party rights, within the RIP
Awesome Library of RIP Media, Inc., specific and only to those 404 Awesome
Comics characters currently owned and controlled by RIP Media, Inc, a schedule
of which has been provided to the Company. Rip Media, Inc is a related entity in
which Scott Rosenberg is a majority shareholder. Such licensing option includes
all rights worldwide, not including print and digital comic publishing rights.
The ownership of the intellectual property in its entirety, including copyright,
trademark, and all other attributes of ownership including but not limited to
additional material created after a license agreement from Rip Media to Platinum
Studios, Inc (and however disbursed thereafter) shall be, stay and remain that
of Rip Media in all documents with all parties, including the right to revoke
such rights upon breaches, insolvency of the Company or insolvency of the
licensee (s) or others related to exploitation of the intellectual property, and
Platinum is obligated to state same in all contracts. In some cases, there
are some other limitations on rights. Any licensing of rights from Rip Media to
the Company is contingent upon and subject to Platinum’s due diligence and
acceptance of Chain of Title. Currently, we have the above exclusive right to
enter into agreements related to the licensing of motion picture rights and
allied/ancillary rights until the date upon which Platinum Studios CEO, Scott
Mitchell Rosenberg is no longer the Company s CEO and Chairman of the Board and
holds at least 30% of the outstanding capital stock of the Company. Rip Media
Inc retains the right on the above characters to enter directly into agreements
to license rights, negotiate and sign option agreements with other parties in so
far as Platinum is made aware of the agreement prior to its signing, and that
there is economic participation to Platinum in a form similar to its agreement
with Rip Media in general, and that if there is a material to change to the
formula, that Platinum’s Board of Directors may require specific changes to the
proposed agreement such that it conforms with other licenses from Rip Media made
from January 1, 2010 forward. If the material change is cured, then Rip’s rights
to enter into an agreement, still subject to its financial arrangement with
Platinum, remain the same. We do not have access to other characters,
stories, rights (including trademarks, trade names, url’s) controlled by
Rosenberg or his related entities. In regards to new acquisitions, including
trademarks, Rip Media must present to Platinum, for Platinum’s acquisition, any
rights it desires to acquire, and may only acquire if Platinum does not choose
to acquire (within 5 business days of notice), however this acquisition
restriction on Rip Media does not apply to any properties or trademarks or
trade names or copyrights or rights of any kind that Scott Rosenberg or
any of his related entities or rights to entities he may own or acquire or
create that are, used to be, or could be related in any fashion to Malibu Comics
or Marvel Comics, including trademarks and trade names that may be acquired by
Rip Media or other Rosenberg entities due to expiration or abandonment by
Malibu, Marvel or other prior owners of marks from other comics or rights
related companies, or, such as with trademarks, marks that may be similar only
in name or a derivative of a name, which Rip has the unfettered right to acquire
and exploit without compensation to Platinum.
Hexagon
Library from Mosaic Multimedia
·
|
Characters:
702
|
Our rights: We have all
rights worldwide, not including print comic publishing rights, contingent on
verification of chain-of-title and European legal documentation (on completion
of paperwork, Platinum will have a long-term, exclusive option, with provision
to buy out all restrictions and third-party approvals). Currently, we have the
exclusive right to enter into agreements related to the licensing of motion
picture rights and allied/ancillary rights in perpetuity subject to payment
milestones. The agreement requires the formation of an LLC that is
co-owned by Mosaic Multimedia and Platinum Studios with Platinum Studios acting
as manager. The Company will move forward on formation of the LLC when it
appears likely that exploitation will occur on one
or more of the properties.
Recent
Developments
Print
Publishing
Platinum Studios Comics (an imprint of
the Company) has published over 50 comic books and graphic novels for
distribution thorough traditional domestic channels and is developing
international channels for worldwide print distribution.
22
Digital
Publishing
Since the
3rd
quarter of 2006, we have launched an online “e-commerce” store to sell
merchandise, comic books and other products (store.platinumstudios.com), an
online comics site to highlight the printed comics and graphic novels
(www.platinumstudioscomics.com), a mobile storefront for distribution of digital
content www.platinumstudiosmobile.com ), a web-comics site to host
the digital distribution of our printed comic material and as a resource for
independent comics creators to post new material (www.drunkduck.com) and we have
developed multiple destination sites for individual comic properties. This
digital publishing group has also created digital images that consumers can
download to their mobile phones and personal computers for wallpapers and
screensavers.
Filmed
Entertainment
We
currently have film and television development deals with several major film
producers and several major studios including: Disney (Unique), Universal, Paramount
and DreamWorks (Cowboys and
Aliens), DreamWorks (Atlantis Rising) and Sony
(untitled
project). Cowboys and Aliens production
schedule has not been officially set, but it is anticipated by DreamWorks to
commence something in the next 12 months if production moves
forward. In 2008, we entered into a co-production and distribution
deal with Hyde Park Entertainment for a feature film based on the Platinum
Studios-controlled property Dylan Dog: Dead of Night. We
closed the financing for this film on February 6, 2009, and we commenced
principal photography on February 26, 2009. We are currently in post-production
on Dead of Night and,
although there is currently no domestic distribution deal in place, the film is
guaranteed a minimum 800 screen release in the United States by Australian based
Omnilab PTY Ltd. The Company anticipates the film will be released
toward the end of 2010 or in 2011. We are currently in contract
negotiations on our first film from the Top Cow Entertainment comics library,
The Witchblade. We hope
to be in production on this film in the next 12 -24 months. In February 2009, we
announced a development deal with Sony Animation to produce a major animated
feature from Platinum’s library of characters and stories. A production schedule
has not been set.
Merchandise/Licensing
As of the
date of this Statement, we entered into Dylan Dog licensing
agreements with
Cartiere
Paolo Pigna S.p.A. (school supplies)
International
Tobacco Agency Srl (lighters)
Fatex de
La Ganga palmal (Male Apparel)
Global
Watch Industries, S.p.A. (wrist watches)
Infinite
Satue Srl. (collectibles)
Edibas
Stationery Srl (calendars)
In 2006,
we extended our branding philosophy to include our annual “The Comic Book
Challenge”, a competition that allows independent creators to pitch original
comic book ideas to a panel of live judges. The winning contestant gets a
publishing deal with revenue sharing across all distribution outlets. In
July 2007, we secured sponsorship arrangements with 5 corporations to underwrite
the event and expose the Company to a wide, international audience. In
subsequent years, we modified the structure of the contest in an attempt to
reach the largest comic creator audience possible. The contest has been
suspended in 2009 in order to reformat the structure again so the Company can
pursue a distribution partner over broadcast or cable television
networks.
In July,
2008, the Company signed a licensing agreement with Brash Entertainment to
produce a multi-platform console video game based on Cowboys & Aliens. Brash
paid the Company an advance of $250,000 for the exclusive rights. In December,
2008, the Company was notified that Brash Entertainment was ceasing operations
and the rights to Cowboys
& Aliens were returned to the Company without recourse. The Company
is actively pursuing partners to develop video games for this property as well
as Atlantis Rising, Dead of
Night and other titles.
Industry
Overview
The comic
book market is highly sought after by the entertainment industry for the purpose
of mining for new material. As proof of this appeal, two recent trade
articles have pinpointed the virtues of comics publishing as a credible source
of new material in Hollywood. Daily Variety and Hollywood Reporter have
each reported separately that the big moneymakers are fresh concepts and comic
books. “Among the better
averages were pics based on comic books: There were only 13 such films, and the
$2.8 billion total means that each comic book hit averaged a $215 million
gross. Which explains why Hollywood is so hot to film comic books.”
(“How to make box-office gold”, Marc Graser, Daily Variety
7/6/07).
23
It was
also reported in July, 2007 that UK-based sales, production and finance house
Intandem is embarking on a “new corporate strategy by acquiring a 5% stake in
Los Angeles-based comic book publisher Radical Publishing and sister movie
company Blatant Pictures, providing the company with another source of quality
commercial product for studios and top distributors.” (“Intandem has Radical
idea for content”, Stuart Kemp, Hollywood Reporter, 7/17/07). These
industry announcements all support our contention that comic-books and graphic
novel publishing is a viable source for multiple forms of media
exploitation.
The 2008
summer releases of comic-based feature films has resulted in one of the most
successful in US box office history. Between May 1 and August 15, 2008, 5
feature films based on comic books and graphic novels were released, namely
Iron Man, The Hulk, Wanted,
Hellboy2, and The Dark Knight. Iron Man became the first film in 2008 to
earn $300M in US domestic box office and as of February 20, 2009, the film has
grossed more than $580M worldwide (Box Office Mojo). The Dark Knight, the most
recent in a long line of Batman-based movies, is on track to become one of the
highest-grossing feature films of all time and as of February 20, 2009, its total
worldwide gross stands at over $1 BILLION. The Dark
Knight was the highest
grossing movie of 2008 in domestic box office and worldwide. It is also the
highest grossing comic book film of all time, beating previous record-holder
Spider-Man. Unadjusted for inflation, it is now
the third highest grossing film domestically of
all time with a total of $533 Million, as of June 30, 2010. This trend supports our contention
that comic books and graphic novels continue to be a leading source of original
source material from which Hollywood pulls.
Print
Publishing
Every
project we publish is designed for eventual adaptation to other media, including
film and television. Our core business model focuses on the exploitation
of our characters in all media. We license our characters and stories for
domestic and/or international comics publishing. In some cases, we produce
our own publications under the “Platinum Studios Comics” label, but we also have
agreements with other publishers and original copyright holders whereby our
agreement provides for these parties to continue publishing comic books,
generating new characters and stories which are added to our ever-growing
library of material. Under these agreements, the publisher retains the
publishing rights and generates ongoing serial publications, maintaining large
staffs within their publishing and distribution organizations to achieve these
goals. We benefit tremendously from this relationship as all new
characters and story lines generated from new publications are added to our
library, without the burden of carrying an entire publishing and distribution
staff. One such example of this arrangement is the Bonelli Publishing
library from Italy, which has been producing comic books in printed form for
over 50 years. Popular characters from the Bonelli library include Nathan Never, Legs Weaver and
Dylan Dog. Pursuant to
our agreement with Bonelli Publishing, characters which they develop are added
to our library.
Print
Publishing Schedule
Since the
successful launch of our inaugural graphic novel, Cowboys & Aliens, in
December, 2006, we published over 75 comic books and graphic novels for
distribution through traditional domestic channels. These titles have
all been published under the Platinum Studios Comics banner and they are sold
directly to comic book stores through the industry’s sole distributor, Diamond
Distribution. The writers and artists of these titles are hired on a
work-for-hire basis. In January 2008, we entered into a worldwide publishing
agreement deal with HarperCollins for our graphic novel Cowboys & Aliens,
currently in production at Universal and Dreamworks, and in March 2008, we
entered into a publishing agreement with The Random House Publishing Group, a
division of Random House, Inc, for our property Unique, currently in feature
film development at Disney Studios.
Distribution
Model
We
currently have four distribution channels to sell our print products: (1) direct
to comic book stores, (2) online, (3) traditional book retail stores, and (4)
international distributors.
All
products offered directly to the thousands of comic book retailers throughout
the United States must be listed through Diamond Comic Distributors.
Diamond was established in 1982 to provide comic book specialty retailers with
wholesale, non-returnable comic books and related merchandise. Diamond has a
vast network of strategically-located Distribution Centers throughout the
world.
24
For our
first year of publishing, we established a distribution agreement with Top Cow
Productions to list our titles in Diamond’s wholesale catalog for retail comic
book stores. By capitalizing on Top Cow Production’s long-standing relationship
with Diamond, we were able to procure better placement in this wholesale
catalog. While this was our primary distribution chain, however, we
recently established a direct contractual relationship with Diamond for the
listing of our properties, giving us more flexibility regarding the types and
number of products we offer to this direct market.
We also
distribute our products to consumers and retailers via our Web store and comic
book site (www.PlatinumStudiosComics.com). The site allows the comic book fan to
get a closer look at the books, the creators and sample artwork. We also
distribute our comic books and graphic novels through WOWIO, allowing online
readers to access the material online through a WOWIO reader, and via downloads
of the material in pdf form.
We also
distribute our products through established distribution companies, such as our
current individual licensing arrangements with Harper Collins and Random House,
who have agreed to distribute select properties in hardcover graphic novel form
to book stores and libraries.
Finally,
we have recently established relationships with international publishing
entities to distribute translated versions of our completed series of comic
books to over 100 countries throughout the world. These publishers
generally pay advances against sales royalties without charging for translations
and/or printing, making this distribution option a significant way to offset the
costs of the domestic distribution chain.
As a
comic publisher, we have discovered that there is little to no correlation
between the sales of printed comics and the revenues generated by the affiliated
media properties developed out of the underlying comic material. Men in Black, for example,
generated over $1Billion in worldwide box office between two movies but had
print sales of less than 5,000 per issue. Additionally, we have seen that
the distribution model for print can be considered fairly restrictive. Diamond
Distributors have recently raised the sales threshold for all print publishers,
eliminating re-orders beyond 60 days, further restricting access to a broader
print audience. Finally, the development expense for our print comics has,
historically, barely been covered by the subsequent revenues, and in many cases,
act as “loss leaders” for the launch of ancillary product streams. With the
above considerations, we have reduced our output of print comics to
approximately 5 – 10 titles per year, and we will most likely focus our future
efforts on printing just those titles that have a film, television, or video
game development agreement. For the other titles in our library, we will
restrict the distribution to a digital outlet, such as WOWIO and Drunk
Duck.
Digital
Publishing/Online Initiative
We have
established ourselves as a leader in comics-based entertainment, and continue to
build our already substantial library of characters and storylines. We are
currently pursuing a strategy to leverage our momentum in the entertainment
space and commercialize our intellectual property through the most viable media
outlets and channels, including the online content space.
Our
Digital Publishing/Online Initiative Division’s mission is to leverage our
library of intellectual property across multiple online channels and
distribution platforms, and create an online community for fans of comic-based
entertainment in all media. Revenues for this online initiative will be
derived from advertising, sponsorship, micro-transactions and intelligently
monetized through tie-ins, merchandise and other long-tail
strategies.
Online
Initiatives
The
Company is currently working with third parties as possible co-venturers to
create an immersive, online world that expands upon the Company’s library of
content and engages audiences through a variety of casual games and exclusive,
interactive content. Revenue from this initiative would be derived from a
variety of sources including ad revenue, micro-transactions and purchase of
digital content as well as physical merchandise.
Filmed
Entertainment: Feature Films
We are
aggressively pursuing a multi-pronged approach to create feature
films:
·
|
Licensing
characters and stories to third-party producers and/or affiliated major
studios for production
|
·
|
Secure
outside financing to produce our own individual films or slates of
films
|
25
Licensing
Deals
Some
examples of our current projects with major studios based on previously
unbranded characters include:
·
|
Unique (Disney) - Based
on a comic book series released in early 2007, Disney acquired the film
rights to this project, although development on the project continues, no
production schedule has been set.
|
·
|
Cowboys & Aliens
(Dreamworks/Paramount/Imagine/Universal) – Effective June 2007, Dreamworks
optioned our property for development and production for joint
distribution through Paramount and Universal with Imagine Entertainment as
a producing partner. Following its separation from Paramount, the new
Dreamworks is pursuing the development of the project, while Paramount
maintains a right to co-finance. Production began in mid-June 2010 and is
scheduled to be released by Universal Pictures on July 29, 2011 in North
America and internationally by Paramount
Pictures.
|
·
|
Atlantis Rising
(Dreamworks/Paramount/Imagine/Universal) – In June, 2007, Dreamworks
agreed to option our property for development and
production.
|
·
|
Sony Animation Development
Deal – In February 2009, the Company announced a development deal
with Sony Animation to produce a “hybrid” feature film (containing both
animated and live-action elements), based on Platinum-owned
characters
|
Production
Slate Financing
As an
alternative to licensing properties to studios, independent financing
arrangements are becoming more prevalent in the entertainment industry.
While there are many ways to finance films, one of the options is to create an
Intellectual Property-Backed Securitization vehicle to facilitate the funding
efforts. The structure is designed to (1) isolate the Intellectual
Property assets needed for the production and exploitation of theatrically
released films into a bankruptcy-remote vehicle, thus protecting the financial
integrity of the Company from potential adverse performance of the picture
slate, and (2) mitigate the performance risk across a number of films through
structural credit enhancements.
The vast
majority of issuance by dollar volume has occurred in the film industry because
film catalogs represent large, predictable assets with clearly defined
historical cash flows and relatively little variance. Similarly, future flows
transactions backed by film catalogs tend to show less volatility as the film
industry has followed the same pattern for many years where a few blockbusters
(perhaps 5% of the total releases) finance the rest of the releases. This “all
or nothing” type of economics, where the few hits pay for the many flops, works
well for slates because the catalogs behave like a portfolio of assets whose
diversification smoothes the volatility of revenues.
We are
currently in contract negotiations on our first film from Top Cow comics
library, The
Witchblade. We hope to be in production on this film sometime
in the next 12 – 24 months. We are always seeking out opportunity for
other slate opportunities such as direct-to-home video slate and genre-specific,
low-budget slates.
In
January 2008, we entered into a co-production and distribution deal with Hyde
Park Entertainment for a feature film based on the Platinum Studios’-controlled
property, Dylan Dog: Dead of
Night. Funding for the film closed in February 2009, we commenced
principal photography on February 26, 2009 and completely principal photography
in May, 2009. We are currently in post-production on Dead of Night and, although
there is currently no domestic distribution deal in place, the film is
guaranteed a minimum 800 screen release in the United States. The
Company anticipates the film will be released toward the end of 2010 or in
2011.
Filmed
Entertainment: Television
In
television, we intend to (1) continue our strategy of licensing our characters
and stories to third-party producers for sale to broadcast and cable television
networks: and (2) secure third-party financing to produce our own specials and
series.
Licensing
Deals
We are
currently working with several well-known producing partners in order to help
bring other characters to the small screen. As with the normal business flow in
the entertainment industry, projects constantly move up and down priority lists
at networks based on a number of variables such as programming mix, audience
taste, etc.
26
Some
examples of our current projects with major studios based on previously
unbranded characters include:
Gunplay (Fox21) – Fox
Television’s production entity, Fox 21 has agreed to option The Comic Book
Challenge 2007 winner for development into a cable television show.
Indestructible Man (Fox21) –
In July 2009, Fox21 optioned our original property for development into a cable
series.
Merchandise/Licensing
We
recognize a targeted merchandising and licensing strategy can produce
significant revenues from characters who build their audience / fan base through
any form of media exploitation – feature film, television, home video/DVD,
print, online, wireless and gaming. We will seek to develop relationships with
category leaders to help secure more retail support, increase the distribution
of its products, and make us a key franchise for our licensees.
Licensees
recognize the potential that comic based properties afford them in diversifying
their retail mix with lines for multiple characters within one story, and, in so
doing, expanding the potential consumer audience interested in their
merchandise. It is not uncommon for a major theatrical release in the comic to
film genre to secure over 50 licensees for an array of products, from action
figures, games and trading cards, to party supplies, costumes, furniture, and
packaged foods.
The
opportunities within the merchandising and licensing arena for us are equally as
wide ranging, including toys/games, collectibles, apparel, and numerous consumer
goods. We will pursue opportunities via the following
channels:
·
|
General
merchandising agreements with third parties in each major territory where
films, television and new media will be
released.
|
·
|
Collectible
merchandising: cultivating the worldwide collector market by allowing
licensees in other countries to break with the normal tradition of
shipping only within their territory. In these agreements, we will allow
such licensees to ship product to special retailers who have partnership
arrangements with the Company. These items will carry a double royalty:
the original royalty from the licensee and the additional royalty from the
retailer allowed to carry the
material.
|
·
|
The
licensing of the Characters for customized advertising campaigns and/or
media purchase campaigns.
|
·
|
Leveraging
individual partners and licensees’ efforts together globally and locally
to create critical mass, including promotions, contests, and third-party
advertising on radio, television and new
media.
|
·
|
The
leveraging of our relationships with hundreds of comic book publishers and
distributors worldwide for the distribution of the Characters in print
form.
|
Video
Game Licensing
Whenever
possible, we have made it a normal course of business to reserve interactive
game rights for our properties. When licensing our properties to studios and
networks, we negotiate to maintain control of the video game rights or, at the
very least, the game rights for the “classic” intellectual property. We will
establish publishing and distribution relationships with producers and other
industry leaders in the game industry and we will act as creative co-producer to
create either console games, handheld device games, online casual games and/or
mobile games. In July, 2008, we executed a license, and separate producer,
agreement, for the console game for Cowboys & Aliens with
Brash Entertainment. Subsequently, Brash filed for cessation of operations and
returned the rights back to the Company and we are currently searching for a
replacement publishing partner. We are also actively seeking game deals for
Atlantis Rising, and
Dead of Night, both of
which are in development and production, respectively, for feature
films.
Collectibles
Merchandising Strategy
Our
collectible merchandising strategy will be an important area for income and
branding. The collectible markets worldwide will be developed through the
combination of an online and offline merchandising model. We will
establish merchandise-licensing arrangements that enable individual licensees’
ability to sell merchandise outside their territories through our distribution
partners. Where licensees traditionally cannot cross borders to sell products
available within their own licensed territories, we will establish a global
capability for individual territory merchandise licensees to make their product
available worldwide over our website (including co-branded and syndicated
versions of the website).
27
Merchandise
Licensing Industry
According
to License Magazine,
character-based licensed products – which include entertainment, television and
movie characters - generated more than $39B at retail in 2003. Licensed toy
lines in the character category alone were just over $5.6B that same
year. (NPD Group/FunWorld). Top
action properties, including Spider-Man, Buffy the Vampire Slayer ,
The X-Men , Hercules, and Star Wars, have built
lucrative licensing programs across all product categories. In fact, franchises
such as Teenage Mutant Ninja
Turtles, Star Wars Episode I, Toy Story, and even Barney have garnered over $1
billion sales each in the U.S. alone. We are looking to expand our
merchandise lines in ways that benefit our franchises beyond current licensing
agreements.
Merchandise
licensing can include various products including sporting goods, apparel, home
furnishings, stationery, packaged goods, books, and more, but the largest
segment in this industry is toys. In the toy business, companies like
Mattel and Hasbro may develop their own core brands that include characters and
storylines to drive and support their toy lines. Often they look to third
parties, including entertainment studios, video game companies, and book authors
& publishers to bring popular storylines and characters to their
products.
Through
co-ventures, direct manufacturing, and merchandise licensing, we hope to expand
our franchises into a tactile world that extends consumers
relationships with the characters and stories that they know and
love.
EMPLOYEES
We
currently employ 6 full-time and 2 part-time employees. We have not experienced
any work stoppages and we consider relations with our employees to be
good.
Properties
Our
offices are located at 2029 South Westgate Avenue, Los Angeles, California
90025, and consist of approximately 3,412 square feet. We entered into a three
year lease for our offices which requires payments of $7,848 per month for the
period from June 15, 2010 through June 30, 2011, $8,083 per month for the period
from July 1, 2011 through June 30, 2012, and $8,326 per month for the period
from July 1, 2012 through June 15, 2013. Our lease expires on June 15,
2013.
Legal
Proceedings
Transcontinental Printing v.
Platinum. On or about July 2, 2009, Transcontinental Printing, a New York
corporation, filed suit against the Company in Superior Court, County of Los
Angeles (Case No. SC103801) alleging that the Company failed to pay for certain
goods and services provided by Transcontinental in the total amount of $106,593.
The Company has entered into a settlement agreement, paying approximately
$92,000, which includes interest and legal fees, over an extended period of
time.
Harrison Kordestani v. Platinum.
Harrison Kordestani was a principal of Arclight Films, with whom the
Company had entered into a film slate agreement. One of the properties that had
been subject to the slate agreement was “Dead of Night.” Arclight fired Mr.
Kordestani and subsequently released Dead of Night from the slate agreement. In
late January 2009, Mr. Krodestani had an attorney contact the Company as well as
its new partners who were on the verge of closing the financing for the “Dead of
Night.” Mr. Kordestani, through his counsel, claimed he was entitled to
reimbursement for certain monies invested in the film while it had been subject
to the Arclight slate agreement. Mr. Krodestani’s claim was wholly without merit
and an attempt to force an unwarranted settlement because he knew we were about
to close a deal. We responded immediately through outside counsel and asserted
that he was engaging in extortion and the company would pursue him vigorously if
he continued to try and interfere with our deal. The company has not heard
anything further from Mr. Kordestani but will vigorously defend any suit that
Mr. Kordestani attempts to bring.
Rustemagic v. Rosenberg &
Platinum Studios. On or about June 30, 2009, Ervin Rustemagic filed suit
against the Company and its Chairman, Scott Rosenberg, in the California
Superior Court for the County of Los Angeles (Case No. BC416936) alleging that
the Company (and Mr. Rosenberg) breached an agreement with Mr. Rustemagic
thereby causing damages totaling $125,000. According to the Complaint, Mr.
Rustemagic was to receive 50% of producer fees” paid in connection with the
exploitation of certain comics-based properties. Rustemagic claims that he
became entitled to such fees and was never paid. The Company and Rosenberg deny
that Rustemagic is entitled to the gross total amount of money he is seeking.
The matter has now been removed to arbitration.
28
Douglass Emmett v. Platinum Studios.
On August 20, 2009, Douglas Emmett 1995, LLC filed an Unlawful Detainer
action against the Company with regard to the office space currently occupied by
the Company. The suit was filed in the California Superior Court, County of Los
Angeles, (Case No. SC104504) and alleged that the Company had failed to make
certain lease payments to the Plaintiff and was, therefore, in default of its
lease obligations. The Plaintiff prevailed on its claims at trial and,
subsequently, on October 14, 2009 entered into a Forbearance Agreement with the
Company pursuant to which Douglas Emmett agreed to forebear on moving forward
with eviction until December 31, 2009, if the Company agreed to pay to Douglas
Emmett 50% of three month’s rent, in advance, for the months of October,
November and December 2009. As of January 1, 2010, the Company was required to
pay to Douglas Emmett the sum of $466,752 to become current under the existing
lease or face immediate eviction and judgment for that amount. The
Company moved to a new leasehold in June, 2010 and is currently in negotiations
with Douglas Emmett to settle the outstanding debt.
With
exception to the litigation disclosed above, we are not currently a party to,
nor is any of our property currently the subject of, any additional pending
legal proceeding that will have a material adverse effect on our business, nor
are any of our directors, officers or affiliates involved in any proceedings
adverse to our business or which have a material interest adverse to our
business.
Reports
We make
available free of charge through our website, www.platinumstudios.com, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or to be furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC. Any information that is included on or linked to our Internet site is
not a part of this report or any registration statement that incorporates this
report by reference.
You may
also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, NE, Washington, DC 20549, on official business
days during the hours of 10:00 am to 3:00 pm. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
You
should read the following discussion of our financial condition and results of
operations together with our financial statements and related notes included
elsewhere in this prospectus. This discussion may contain forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements due to
known and unknown risks, uncertainties and other factors, including those risks
discussed under "Risk Factors" and elsewhere in this prospectus.
Forward-looking
Statements
Some of
the information in this prospectus contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as "may," "expect," "anticipate," "believe,"
"estimate" and "continue," or similar words. You should read statements that
contain these words carefully because they:
·
|
discuss
our future expectations;
|
·
|
contain
projections of our future results of operations or of our financial
condition; and
|
·
|
state
other "forward-looking"
information.
|
We
believe it is important to communicate our expectations. However, there may be
events in the future that we are not able to accurately predict or over which we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk
Factors."
29
GENERAL
We are a
comics-based entertainment company. We own orcontrol the rights to a
library of over 4,000 of comic book characters, which we adapt and produce for
film, television and all other media. Our library contains characters in a full
range of genre and styles. With deals in place with film studios and media
players, our management believes we are positioned to become a leader in the
creation of new content across all media.
We are
focused on adding titles and expanding our library with the primary goal of
creating new franchise properties and characters. In addition to in-house
development and further acquisitions, we are developing content with
professionals outside the realm of comic books. We have teamed up with
screenwriters, producers, directors, movie stars, and novelists to develop
entertainment content and potential new franchise properties. We believe
our core brand offers a broader range of storylines and genres than the
traditional superhero-centric genre. Management believes this approach is
maintained with Hollywood in mind, as the storylines offer the film industry
fresh, high-concept brandable content as a complimentary alternative to
traditional super hero storylines.
Over the
next several years, we are working to become the leading independent comic book
commercialization producer for the entertainment industry across all platforms
including film, television, direct-to-home, publishing, and digital media,
creating merchandising vehicles through all retail product lines. Our
management believes this will allow us to maximize the potential and value of
our owned content creator relationships and acquisitions, story development and
character/franchise brand-building capabilities while keeping required capital
investment relatively low.
We derive
revenues from a number of sources in each of the following areas: Print
Publishing, Digital Publishing, Filmed Entertainment, and
Merchandise/Licensing.
Set forth
below is a discussion of the financial condition and results of operations of
Platinum Studios, Inc. (the “Company”, “we”, “us,” and “our”) for the twelve
months ended December 31, 2009 and 2008. The following discussion should
be read in conjunction with the information set forth in the consolidated
financial statements and the related notes thereto appearing elsewhere in this
report.
RESULTS
OF CONSOLIDATED OPERATIONS
YEAR
ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED DECEMBER 31,
2008
NET
REVENUE
Net
revenue for the year ended December 31, 2009 was $292,940 compared to $822,488
for the year ended December 31, 2008. Currently the Company derives
most of its revenue from options to purchase rights, the purchase of rights to
properties and first look deals. This type of revenue can vary significantly
between quarters and years. In previous years, the Company also
derived revenues from comic book publishing. The decrease in revenues
from 2008 to 2009 of approximately $530,000 was related to a decrease in rights
and option fees for filmed entertainment of $120,000, a decrease in
merchandising licensing revenues of $276,000, a decrease in comic book
publishing revenues of $85,000 and a decrease in miscellaneous revenues of
$49,000.
EXPENSES
Cost of
revenues
For the
year ended December 31, 2009, cost of revenues was $73,390 compared to $198,864
for the year ended December 31, 2008. The decrease is primarily due to the
elimination of printed comic books due to cash conservation
initiatives.
Operating
expenses
Operating
expenses decreased $2,879,169 or approximately 59% for the year ended December
31, 2009 to $1,929,151, as compared to $4,808,320 for the year ended December
31, 2008. The decrease was due to reductions in advertising costs, payroll and
contractor costs as the Company has worked to streamline its business model to
conserve cash while making the necessary expenditures to ensure the growth of
the company.
Research
and development
Research
and development costs decreased $329,362 or 63% for the year ended December 31,
2009 to $196,688, as compared to $526,050 for the year ended December 31, 2008.
The decrease was primarily due to decreased artwork expense and consulting
fees.
30
Impairment
of intangibles
For the year ended December 31, 2009,
impairment of intangibles was $0 as compared to $2,499,380 for the year ended
December 31, 2008. This decrease was due wholly to the impairment
taken against the goodwill for the WOWIO asset during 2008. With the
reduction in online advertising and a negative EBITDA for the entity on its own,
the Company took the most conservative approach to the impairment issue by
reducing the amount of goodwill, effectively reducing the value of the asset to
zero.
Stock
option expense
Stock option expense was $85,766 for
the year ended December 31, 2009 as compared to $3,387,796 for the year ended
December 31, 2008. This decrease was due to the issuance of stock to
employees from the stock option plan in the first quarter of 2008. The majority
of the options vested at the time of the grant, resulting in a significant
non-cash expense during 2008. The expense for 2009 was related to
current year vesting on the options issued during 2008. The Company
does not expect to incur significant stock option expense in future
years.
Depreciation
and amortization
For the
year ended December 31, 2009 depreciation and amortization was $153,368 compared
to $176,175 for the year ended December 31, 2008. The decrease is related fixed
assets becoming fully depreciated during the year.
Gain on
settlement of debt
The
Company recorded a gain on settlement of debt of $453,451 for the twelve months
ended December 31, 2009. This net gain was primarily due to the final
payment to the Wowio former partners through the issuance of common stock,
partially offset by losses incurred in the settlement of accounts payable and
notes payable through the issuance of common stock.
Loss on
derivative liability
The
Company recorded a loss on derivative liability of $267,000 for the twelve
months ended December 31, 2009. The derivative liability, recorded in connection
with new debts payable to the Company’s CEO during 2009, is re-valued at each
reporting date with changes in value being recognized as part of current
earnings.
Interest
expense
For the
year ended December 31, 2009 interest expense was $1,373,755 compared to
$403,009 for the year ended December 31, 2008. The increase is primarily related
to amortization of debt discount recorded as interest expense in connection with
new debts payable to the Company’s CEO during 2009.
As a
result of the foregoing, the net loss decreased by $7,859,661 for the year ended
December 31, 2009, to $3,384,822, as compared to $11,244,483 for
2008. Approximately $5,801,000 of the decrease was attributable to
decrease in losses taken on intangible assets and stock option
issuances. Operating expense and research and development expense
contributed to the decrease in net loss by approximately
$3,208,000. These decreases were offset by increases in interest and
loss on derivative liability of approximately $1,237,000.
LIQUIDITY
AND CAPITAL RESOURCES
Net cash
used in operations during the twelve months ended December 31, 2009 was
$971,048, primarily due to the net loss of the company.
Net cash
used by investing activities was $13,998,455 for the year ended December 31,
2009, primarily related to the Dead of Night production
costs.
Net cash
provided by financing activities was $15,079,547 for the year ended December 31,
2009, primarily related to the financing for the Dead of Night
production.
At
December 31, 2009 the Company had cash balances of $152,067 and a restricted
cash balance of $127,890. Restricted cash will be used in the
production of the film Dead of
Night. The Company will issue additional equity and may
consider debt financing to fund future growth opportunities and support
operations. Although the Company believes its unique intellectual content offers
the opportunity for significantly improved operating results in future quarters,
no assurance can be given that the Company will operate on a profitable basis in
2010, or ever, as such performance is subject to numerous variables and
uncertainties, many of which are out of the Company’s control.
31
We have
reduced our overhead expenses and are negotiating with creditors to reduce or
eliminate our current debt load. We have focused our efforts on business
development and sales, thus creating greater opportunity for revenues from new
film/television projects. We believe that revenues this year will be close
to $2.5 Million, a majority of which will come from the acquisition fee we
expect to receive from Dreamworks Studio for the start of production of the
Cowboys & Aliens film project. We are actively taking control of many
of the merchandising elements for this project, securing greater financial
return for the company. We are also seeking a smaller office space to
accommodate a smaller staff, thus lowering our rent obligation. Mr.
Rosenberg has been willing to defer interest payments when there is little to no
cash flow to support them and will continue to do so until our cash situation
stabilizes. All other material obligations might be reduced or eliminated
with access to these sources of capital.
MARKET
RISKS
We
conduct our operations in primary functional currencies: the United States
dollar, the British pound and the Australian dollar. Historically, neither
fluctuations in foreign exchange rates nor changes in foreign economic
conditions have had a significant impact on our financial condition or results
of operations. We currently do not hedge any of our foreign currency exposures
and are therefore subject to the risk of exchange rate fluctuations. We invoice
our international customers primarily in U.S. dollars, except in the United
Kingdom and Australia, where we invoice our customers primarily in British
pounds and Australian dollars, respectively. In the future we anticipate billing
certain European customers in Euros, though we have not done so to
date.
We are
exposed to foreign exchange rate fluctuations as the financial results of
foreign subsidiaries are translated into U.S. dollars in consolidation and as
our foreign currency consumer receipts are converted into U.S. dollars. Our
exposure to foreign exchange rate fluctuations also arises from payables and
receivables to and from our foreign subsidiaries, vendors and customers. Foreign
exchange rate fluctuations did not have a material impact on our financial
results for the years ended December 31, 2009 and 2008.
Financial
instruments which potentially subject us to concentrations of credit risk
consist principally of cash and cash equivalents and trade accounts receivable.
We place our cash and cash equivalents with high credit quality institutions to
limit credit exposure. We believe no significant concentration of credit risk
exists with respect to these investments.
Concentrations
of credit risk with respect to trade accounts receivable are limited due to the
wide variety of customers who are dispersed across many geographic
regions.
GOING
CONCERN
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred
significant losses which have resulted in an accumulated deficit of $25,668,295
as of June 30, 2010. The Company plans to seek additional financing
in order to execute its business plan, but there is no assurance the Company
will be able to obtain such financing on terms favorable to the Company or at
all. These items raise substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial statements
do not include any adjustments to reflect the possible future effects related to
recovery and classification of assets, or the amounts and classifications of
liabilities that might result from the outcome of this uncertainty.
OFF-BALANCE
SHEET ARRANGEMENTS
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
32
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Recently
issued accounting pronouncements – In June 2009, the FASB issued guidance under
Accounting Standards Codification (“ASC”) Topic 105, “Generally Accepted
Accounting Principles” (SFAS No. 168, The FASB Accounting Standards Codification
TM and the Hierarchy of Generally Accepted Accounting
Principles). This guidance establishes the FASB ASC as the single
source of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC
under authority of the federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants. SFAS 168 and the ASC are effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The ASC supersedes all existing non-SEC
accounting and reporting standards. All other non-grandfathered,
non-SEC accounting literature not included in the ASC has become
non-authoritative. Following SFAS 168, the FASB will no longer issue
new standards in the form of Statements, FSP’s, or EITF
Abstracts. Instead, the FASB will issue Accounting Standards Updates,
which will serve only to update the ASC, provide background information about
the guidance, and provide the basis for conclusions on the change(s) in the
ASC. We adopted ASC 105 effective for our financial statements issued
as of September 30, 2009. The adoption of this guidance did not have
an impact on our financial statements but will alter the references to
accounting literature within the consolidated financial statements.
REVENUE
RECOGNITION
Revenue
from the licensing of characters and storylines (“the properties”) owned by the
Company are recognized when the earnings process is complete. This is considered
to have occurred when persuasive evidence of an agreement between the customer
and the Company exists, when the properties are made available to the licensee
and the Company has satisfied its obligations under the agreement, when the fee
is fixed or determinable and when collection is reasonably assured. The Company
derives its licensing revenue primarily from options to purchase rights, the
purchase of rights to properties and first look deals. For options that contain
non-refundable minimum payment obligations, revenue is recognized ratably over
the option period, provided all the criteria for revenue recognition have been
met. Revenue received under first look deals is recognized ratably
over the first look period, which varies by contract provided all the criteria
for revenue recognition have been met. For licenses requiring material
continuing involvement or performance based obligations, by the Company, the
revenue is recognized as and when such obligations are fulfilled. The Company
records as deferred revenue any licensing fees collected in advance of
obligations being fulfilled or if a licensee is not sufficiently creditworthy,
the Company will record deferred revenue until payments are received. License
agreements typically include reversion rights which allow the Company to
repurchase property rights which have not been used by the studio (the buyer) in
production within a specified period of time as defined in the purchase
agreement. The cost to repurchase the rights is generally based on the costs
incurred by the studio to further develop the characters and story
lines.
CHARACTER
DEVELOPMENT COSTS
Character
development costs consist primarily of costs to acquire properties from the
creator, development of the property using internal or independent writers and
artists, and the registration of a property for a trademark or copyright. These
costs are capitalized in the year incurred if the Company has executed a
contract or is negotiating a revenue generating opportunity for the property. If
the property derives a revenue stream that is estimable, the capitalized costs
associated with the property are expensed as revenue is recognized. If the
Company determines there is no determinable market for a property, it is deemed
impaired and is written off.
PURCHASED
INTANGIBLE ASSETS AND LONG-LIVED ASSETS
Intangible
assets are capitalized at acquisition costs and intangible assets with definite
lives are amortized on the straight-line basis. The Company periodically reviews
the carrying amounts of intangible assets and property. Long-lived assets, such
as property and equipment, and purchased intangibles subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, the impairment charge to be recognized is measured by the
excess of the carrying amount over the fair value of the asset.
ADVERTISING
COSTS
Advertising
costs are expensed the later of when incurred or when the advertisement is first
run. For the years ended December 31, 2009 and 2008, advertising expenses were
$0 and $48,080, respectively.
RESEARCH
AND DEVELOPMENT
Research
and development costs, primarily character development costs and design not
associated with an identifiable revenue opportunity, are charged to operations
as incurred. For the years ended December 31, 2009 and 2008, research and
development expenses were $196,688 and $526,050, respectively.
33
INCOME
TAXES
At
December 31, 2009, the Company had net loss carry forwards available to offset
future taxable income, if any, of approximately $10,800,000, which will begin to
expire in 2019. The utilization of the net operating loss carryforwards is
dependent on tax laws in effect at the time the net operating loss carryforwards
can be utilized. The Tax Reform Act of 1986 significantly limits the annual
amount that can be utilized for certain of these carry forwards as a result of
the change in ownership.
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in the tax laws and rates on the date of
enactment.
The
Company recognizes tax benefits from uncertain positions if it is "more likely
than not" that the position is sustainable, based upon its technical merits. The
initial measurement of the tax benefit is the largest amount of tax benefit that
is greater than 50 percent likely of being realized upon ultimate settlement
with a taxing authority having full knowledge of all relevant
information.
The
Company, as a matter of policy, would record any interest and penalties
associated with uncertain tax positions as a component of income tax expense in
its statement of operations. There are no penalties accrued as of
December 31, 2009, as the Company has significant net operating loss carry
forwards, even if certain of the Company’s tax positions were disallowed, it is
not foreseen that the Company would have to pay any taxes in the near future.
Consequently, the Company does not calculate the impact of interest or penalties
on amounts that might be disallowed.
DERIVATIVE
INSTRUMENTS
Platinum
Studios entered into a Credit Agreement on May 6, 2009, with Scott Rosenberg in
connection with the issuance of two secured promissory notes and an unsecured
promissory note. Two warrants were issued to Scott Rosenberg in connection with
the issuance of various promissory notes as of May 6, 2009 and June 3,
2009.
A
description of the notes is as follows:
May 6, 2009 Secured Debt -
The May 6, 2009 Secured Debt has an aggregate principal amount of $2,400,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The May 6, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the May 6,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on May 6, 2010. The original
principal amount of $2,400,000 is to be repaid upon the expiration of the notes
on May 6, 2010. The Company may prepay the notes at any time. The May 6, 2009
Secured Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default. In connection with this debt
the Company also issued warrants to purchase 25,000,000 shares of the Company’s
common stock for $0.048 per share.
June 3, 2009 Secured Debt -
The June 3, 2009 Secured Debt has an aggregate principal amount of $1,350,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.038. The June 3, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on June 3, 2010. The original
principal amount of $1,350,000 is to be repaid upon the expiration of the notes
on June 3, 2010. The Company may prepay the notes at any time. The June 3, 2009
Secured Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default. In connection with this debt
the Company also issued warrants to purchase 14,062,500 shares of the Company’s
common stock for $0.038 per share.
June 3, 2009 Unsecured Debt -
The June 3, 2009 Unsecured Debt has an aggregate principal amount of $544,826,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The June 3, 2009 Unsecured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Unsecured Debt bears interest at the rate of ten percent per annum. The
Company is required to make payments of $29,687 per month. The monthly payments
are to be applied first to interest and second to principal. The remaining
principal amount is to be repaid upon the expiration of the note on June 3,
2010. The Company may prepay the note at any time. The June 3, 2009 Unsecured
Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default.
34
In
determining the fair market value of the embedded derivatives, we used
discounted cash flows analysis. We also used a binomial option pricing model to
value the warrants issued in connection with these debts. The Company determined
the fair value of the embedded derivatives to be $715,904 and the fair value of
the warrants to be $934,000. These embedded derivatives have been accounted for
as a debt discount that will be amortized over the one year life of the
notes. Amortization of the debt discount has resulted in a $920,816
increase to interest expense for twelve months ended December 31,
2009.
A
description of the Warrants is as follows:
1) The
May 6, 2009 warrant entitles the holder to purchase up to 25,000,000 shares of
the Company’s common stock at a price of $0.048 per share. The May 6, 2009
warrant is exercisable up until May 6, 2019. The May 6, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
2) The
June 3, 2009 warrant entitles the holder to purchase up to 14,062,500 shares of
the Company’s common stock at a price of $0.038 per share. The June 3, 2009
warrant is exercisable up until June 3, 2019. The June 3, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
In
determining the fair market value of the Warrants, we used the binomial model
with the following significant assumptions: exercise price $0.038 –
$0.048, trading prices $0.04 - $0.08, expected volatility 115.6% - 116.2%,
expected life of 60 months, dividend yield of 0.00% and a risk free rate of 3.2%
- 3.56%. The fair value of these warrants has been recorded as part of the debt
discount as discussed above as well as being recognized as a derivative
liability. The derivative liability is re-valued at each reporting date with
changes in value being recognized as part of current earnings. This re-valuation
resulted in a loss of $267,000 during the twelve months ended December 31,
2009.
RECENTLY
ISSUED ACCOUNTING STANDARDS
The FASB
issued guidance under Accounting Standards Update ("ASU") No. 2010-06, "Fair
Value Measurements and Disclosures". The ASU requires certain new disclosures
and clarifies two existing disclosure requirements. The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009. We do
not expect the adoption of this guidance to have a material impact on our
financial statements.
The FASB
issued guidance under Accounting Standards Update (“ASU”) No. 2010-08,
“Technical Corrections to Various topics. The ASU eliminates certain
inconsistencies and outdate provisions and provides needed
clarifications. The changes are generally nonsubstantive nature and
will not result in pervasive changes to current practice. However,
the amendments that clarify the guidance on embedded derivatives and hedging
(ASU Subtopic 815-15) may cause a change in the application of the
Subtopic. The clarifications of the guidance on embedded derivatives
and hedging (Subtopic 815-15) are effective for fiscal years beginning after
December 15, 2009.
RESULTS
OF CONSOLIDATED OPERATIONS – THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2010
COMPARED TO THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
(UNAUDITED)
Net
Revenue
Net
revenue for the three and six months ended June 30, 2010 was $2,065,365 and
$2,098,048, respectively, as compared to $86,523 and $156,091 for the three and
six months ended June 30, 2009. Currently the Company derives most of its
revenue from options to purchase rights, the purchase of rights to properties
and first look deals. This type of revenue can vary significantly between
quarters and years. The net revenue for the three and six months
ended June 30, 2010 was primarily purchased rights revenue from one customer as
principle photography initiated on one of the Company’s
properties. The net revenue for the three and six months ended June
30, 2009 primarily represented purchased rights revenue from two
customers.
35
Cost
of revenues
For the
three and six months ended June 30, 2010, costs of revenue were $478,499 and
$479,582, respectively as compared to $10,000 for the three and six months ended
June 30, 2009. The increase is primarily due to participation fees to a related
party, RIP Media, Inc. as discussed in the related party transactions
footnote.
Operating
expenses
Operating
expenses increased $318,878 or 64% for the three months ended June 30, 2010 to
$814,461 as compared to $495,583 for the three months ended June 30,
2009. The increase was primarily related to increases of $19,000 in
moving expense, $70,000 in rent expense, $40,000 in legal expense, $205,000 in
consulting fees and $75,000 in write down of a prepaid option. These
increases were offset by decreases in salary of $62,000 and audit fees of
$33,000.
Operating
expenses increased $377,814 or 36% for the six months ended June 30, 2010 to
$1,414,585 as compared to $1,036,771 for the six months ended June 30,
2009. The increase was primarily related to increases of $19,000 in
moving expense, $98,000 in rent expense, $249,000 in legal expense, $152,000 in
consulting fees and $75,000 in write down of a prepaid option. These
increases were offset by decreases in salary and benefits of $176,000 and
accounting and audit fees of $44,000.
Research
and development
Research
and development costs increased $27,583 or 59% and $53,894 or 63% for the three
and six months ended June 30, 2010, respectively. This increase was
due to increased salaries and one additional employee added to the development
group.
Stock
option expense
Stock
option expense for the three and six months ended June 30, 2010 was $64,622 and
$108,695 respectively, as compared to $0 and $100,947 for the three and six
months ended June 30, 2009. The expense for the three months ended June 30, 2010
was related to new option grants compared to $0 for the three months ended June
30, 2009. While stock option expense for the six months ended June
30, 2010 increased $7,748 to $108,695 as compared to $100,947 for the six months
ended June 30, 2009, $64,622 of the expense was related to new options
granted. The decrease on stock option vesting expense for options
already granted is due to forfeitures during the six months ended June 30,
2010.
Depreciation
and amortization
For the
three and six months ended June 30, 2010 depreciation and amortization was
$34,639 and $77,951, respectively as compared to $38,403 and $81,395 for the
three and six months ended June 30, 2009.
Gain
on disposition of assets
Gain on
disposition of assets for the three and six months ended June 30, 2010 was
$194,020 as compared to $0 for the three months ended June 30,
2009. The gain for the three and six months ended June 30, 2010 was
primarily related to receipt of funds for the sale of the Company’s
Drunkduck.com website to a related party.
36
Gain
(loss) on settlement of debt
The
company recorded a gain on settlement of debt of $82,457 for the three and six
months ended June 30, 2010 as compared to a loss of $30,642 for the three months
ended June 30, 2009 and a gain of $481,968 for the six months ended June 30,
2009. The gain for the three and six months ended June 30, 2010 was primarily
related to the settlement of leases in default. The gain for the six
months ended June 30, 2009 was due to the final payment issued to the Wowio
former partners. This transaction was paid in stock.
Loss
on derivative liability
The
Company recorded a loss on derivative liability of $1,060,000 and $770,000 for
the three and six months ended June 30, 2010, respectively. The derivative
liability, recorded in connection with debts payable to the Company’s CEO during
the three months ended June 30, 2009, is re-valued at each reporting date with
changes in value being recognized as part of current earnings.
Interest
expense
For the
three and six months ended June 30, 2010, interest expense was $380,578 and
$958,165, respectively as compared to $267,470 and $349,298 for the three and
six months ended June 30, 2009. The increase is primarily related to
amortization of debt discount recorded as interest expense in connection with
debts payable to the Company’s CEO during 2009.
As a
result of the foregoing, the net loss decreased by $262,399 for the three months
ended June 30, 2010 to $565,666 and increased by $490,891 for the six months
ended June 30, 2010 to $1,573,395 as compared to the same periods in
2009.
LIQUIDITY
AND CAPITAL RESOURCES (UNAUDITED)
Net cash
provided by operations during the six months ended June 30, 2010 was
$1,015,847.
Net cash
provided by investing activities was $240,115 for the six months ended June 30,
2010, primarily due to cash receipts related to the sale of the Company’s Drunk
Duck website.
Net cash
provided by financing activities was $543,009 for the six months ended June 30,
2010, primarily attributed to financing secured for the production of the film
“Dead of Night” and issuance of common stock.
At June
30, 2010 the Company had cash balances of $1,951,038 and a restricted cash
balance of $54,133. Restricted cash will be used in the production of the film
“Dead of Night”. The Company will issue additional equity and may consider debt
financing to fund future growth opportunities and support operations. Although
the Company believes its unique intellectual content offers the opportunity for
significantly improved operating results in future quarters, no assurance can be
given that the Company will operate on a profitable basis in 2010, or ever, as
such performance is subject to numerous variables and uncertainties, many of
which are out of the Company’s control.
We have
reduced our overhead expenses and are negotiating with creditors to reduce or
eliminate our current debt load. We have focused our efforts on business
development and sales, thus creating greater opportunity for revenues from new
film/television projects. We are actively taking control of many of the
merchandising elements for this project, securing greater financial return for
the company. We have moved to a smaller office space to accommodate a
smaller staff, thus lowering our rent obligation. Mr. Rosenberg has been
willing to defer interest payments when there is little to no cash flow to
support them and will continue to do so until our cash situation
stabilizes. Mr. Rosenberg has also agreed to defer his salary for the
fourth quarter of 2010. All other material obligations might be reduced or
eliminated with access to these sources of capital.
37
MARKET
RISKS
We
conduct our operations in primary functional currencies: the United States
dollar, the British pound and the Australian dollar. Historically, neither
fluctuations in foreign exchange rates nor changes in foreign economic
conditions have had a significant impact on our financial condition or results
of operations. We currently do not hedge any of our foreign currency exposures
and are therefore subject to the risk of exchange rate fluctuations. We invoice
our international customers primarily in U.S. dollars, except in the United
Kingdom and Australia, where we invoice our customers primarily in British
pounds and Australian dollars, respectively. In the future we anticipate billing
certain European customers in Euros, though we have not done so to
date.
We are
exposed to foreign exchange rate fluctuations as our foreign currency consumer
receipts are converted into U.S. dollars. Our exposure to foreign exchange rate
fluctuations also arises from payables and receivables to and from our foreign
vendors and customers. Foreign exchange rate fluctuations did not have a
material impact on our financial results in the six months ended June 30, 2010
or in the years ended December 31, 2009 and 2008.
Financial
instruments which potentially subject us to concentrations of credit risk
consist principally of cash and cash equivalents and trade accounts receivable.
We place our cash and cash equivalents with high credit quality institutions to
limit credit exposure. We believe no significant concentration of credit risk
exists with respect to these investments.
Concentrations
of credit risk with respect to trade accounts receivable are limited due to the
wide variety of customers who are dispersed across many geographic
regions.
GOING
CONCERN
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred
significant losses which have resulted in an accumulated deficit of $25,668,295
as of June 30, 2010. The Company plans to seek additional financing
in order to execute its business plan, but there is no assurance the Company
will be able to obtain such financing on terms favorable to the Company or at
all. These items raise substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial statements
do not include any adjustments to reflect the possible future effects related to
recovery and classification of assets, or the amounts and classifications of
liabilities that might result from the outcome of this uncertainty.
OFF-BALANCE
SHEET ARRANGEMENTS
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
REVENUE
RECOGNITION. Revenue from the licensing of characters and storylines (“the
properties”) owned by the Company are recognized in accordance with FASB
guidance where revenue is recognized when the earnings process is complete. This
is considered to have occurred when persuasive evidence of an agreement between
the customer and the Company exists, when the properties are made available to
the licensee and the Company has satisfied its obligations under the agreement,
when the fee is fixed or determinable and when collection is reasonably
assured.
The
Company derives its licensing revenue primarily from options to purchase rights,
the purchase of rights to properties and first look deals. For options that
contain non-refundable minimum payment obligations, revenue is recognized
ratably over the option period, provided all the criteria for revenue
recognition have been met. Option fees that are applicable to the purchase price
are deferred and recognized as revenue at the later of the expiration of the
option period or in accordance with the terms of the purchase agreement. Revenue
received under first look deals is recognized ratably over the first look
period, which varies by contract provided all the criteria for revenue
recognition have been met.
For
licenses requiring material continuing involvement or performance based
obligations, by the Company, the revenue is recognized as and when such
obligations are fulfilled.
The
Company records as deferred revenue any licensing fees collected in advance of
obligations being fulfilled or if a licensee is not sufficiently creditworthy,
the Company will record deferred revenue until payments are
received.
38
License
agreements typically include reversion rights which allow the Company to
repurchase property rights which have not been used by the studio (the buyer) in
production within a specified period of time as defined in the purchase
agreement. The cost to repurchase the rights is generally based on the costs
incurred by the studio to further develop the characters and story
lines.
CHARACTER
DEVELOPMENT COSTS. Character development costs consist primarily of costs to
acquire properties from the creator, development of the property using internal
or independent writers and artists, and the registration of a property for a
trademark or copyright. These costs are capitalized in the year
incurred if the Company has executed a contract or is negotiating a revenue
generating opportunity for the property. If the property derives a
revenue stream that is estimable, the capitalized costs associated with the
property are expensed as revenue is recognized. If the Company determines there
is no determinable market for a property, it is deemed impaired and is written
off.
PURCHASED
INTANGIBLE ASSETS AND LONG-LIVED ASSETS. Intangible assets are capitalized at
acquisition costs and intangible assets with definite lives are amortized on the
straight-line basis. The Company periodically reviews the carrying
amounts of intangible assets and property. Long-lived assets, such as
property and equipment, and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, the impairment charge to be recognized is measured by the
excess of the carrying amount over the fair value of the asset.
ADVERTISING
COSTS. Advertising costs are expensed the later of when incurred or when the
advertisement is first run. For the three and six months ended June
30, 2010 and 2009, advertising expenses were $0.
RESEARCH
AND DEVELOPMENT. Research and development costs, primarily character development
costs and design not associated with an identifiable revenue opportunity, are
charged to operations as incurred. For the three and six months ended
June 30, 2010, research and development expenses were $74,709 and $138,942,
respectively. For the three and six months ended June 30, 2009,
research and development expenses were $447,126 and $85,048,
respectively.
INCOME
TAXES. From the time the Company incorporated on September 15, 2006, the Company
has accounted for income taxes using the liability method, whereby deferred tax
assets and liability account balances are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company was subject to an
annual minimum tax of $800 and a fee based on gross receipts in California from
inception through September 14, 2006.
DERIVATIVE
INSTRUMENTS. Platinum Studios entered into a Credit Agreement on May 6, 2009,
with Scott Rosenberg in connection with the issuance of two secured promissory
notes and an unsecured promissory note. Two warrants were issued to Scott
Rosenberg in connection with the issuance of various promissory notes as of May
6, 2009 and June 3, 2009.
A
description of the notes is as follows:
May 6, 2009 Secured Debt -
The May 6, 2009 Secured Debt has an aggregate principal amount of $2,400,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The May 6, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the May 6,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on May 6, 2010. The original
principal amount of $2,400,000 is to be repaid upon the expiration of the notes
on May 6, 2010. The note was subsequently extended thru August 31,
2010. The May 6, 2009 Secured Debt has the following features that
can be considered to be embedded derivatives: (i) the conversion feature of the
notes, (ii) a holder’s right to force a redemption of the Notes upon an event of
default, and, (iii) the increased interest rate upon an event of default. In
connection with this debt the Company also issued warrants to purchase
25,000,000 shares of the Company’s common stock for $0.048 per
share.
39
June 3, 2009 Secured Debt -
The June 3, 2009 Secured Debt has an aggregate principal amount of $1,350,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.038. The June 3, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on June 3, 2010. The original
principal amount of $1,350,000 is to be repaid upon the expiration of the notes
on June 3, 2010. The note was subsequently extended thru August 31, 2010. The
Company may prepay the notes at any time. The June 3, 2009 Secured Debt has the
following features that can be considered to be embedded derivatives: (i) the
conversion feature of the notes, (ii) a holder’s right to force a redemption of
the Notes upon an event of default, and, (iii) the increased interest rate upon
an event of default. In connection with this debt the Company also issued
warrants to purchase 14,062,500 shares of the Company’s common stock for $0.038
per share.
June 3, 2009 Unsecured Debt -
The June 3, 2009 Unsecured Debt has an aggregate principal amount of $544,826,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The June 3, 2009 Unsecured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Unsecured Debt bears interest at the rate of ten percent per annum. The
Company is required to make payments of $29,687 per month. The monthly payments
are to be applied first to interest and second to principal. The remaining
principal amount is to be repaid upon the expiration of the note on June 3,
2010. The Company may prepay the note at any time. The June 3, 2009 Unsecured
Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default. The note balance
was paid in full on April 1, 2010.
In
determining the fair market value of the embedded derivatives, we used
discounted cash flows analysis. We also used a binomial option pricing model to
value the warrants issued in connection with these debts. The Company determined
the fair value of the embedded derivatives to be $715,904 and the fair value of
the warrants to be $934,000. These embedded derivatives have been accounted for
as a debt discount that will be amortized over the one year life of the
notes. Amortization of the debt discount has resulted in a $263,888
and $729,088 increase to interest expense for the three and six months ended
June 30, 2010, respectively.
A
description of the Warrants is as follows:
1) The
May 6, 2009 warrant entitles the holder to purchase up to 25,000,000 shares of
the Company’s common stock at a price of $0.048 per share. The May 6, 2009
warrant is exercisable up until May 6, 2019. The May 6, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
2) The
June 3, 2009 warrant entitles the holder to purchase up to 14,062,500 shares of
the Company’s common stock at a price of $0.038 per share. The June 3, 2009
warrant is exercisable up until June 3, 2019. The June 3, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
In
determining the fair market value of the Warrants, we used the binomial model
with the following significant assumptions: exercise price $0.038 –
$0.048, trading prices $0.01 - $0.08, expected volatility 124.4%, expected life
of 60 months, dividend yield of 0.00% and a risk free rate of 3.59%. The fair
value of these warrants has been recorded as part of the debt discount as
discussed above as well as being recognized as a derivative liability. The
derivative liability is re-valued at each reporting date with changes in value
being recognized as part of current earnings. This revaluation for the three and
six months ended June 30, 2010 resulted in a loss of $1,060,000 and $770,000,
respectively.
MANAGEMENT
The
following table sets forth information about our executive officers, key
employees and directors as of March 31, 2010.
Name
|
Age
|
Position
|
||
Scott
Mitchell Rosenberg
|
48
|
Chairman
& Chief Executive Officer
|
||
Brian
Kenneth Altounian
|
46
|
President,
Chief Operating Officer and Director, Principal Financial
Officer
|
||
Jill
Zimmerman
|
48
|
Director
|
||
Mark
Canton
|
61
|
Director
|
40
Scott Rosenberg has been our
Chairman and Chief Executive Officer since September 15, 2006 and Mr. Rosenberg
served as the Chairman and Chief Executive Officer of Platinum Studios, LLC, our
predecessor, since November 1996. Mr. Rosenberg established Platinum
Studios, LLC in 1996 following a career in the comic book industry. As founder
and head of Malibu Comics, Rosenberg produced the Men In Black comic book,
which he took to Sony to become a billion-dollar film franchise. At Malibu,
Rosenberg developed agrass-roots marketing approach, reaching out directly to
fans, retailers, and press to allow Malibu to be distributed alongside top
industry players at a fraction of what the major companies spent—notably, in the
pre-Internet age, without the opportunities and advantages provided by the web.
Malibu’s marketing and ability to create and develop new characters and new
ideas led to a bidding war to acquire the company, and in 1994 Malibu was bought
by Marvel Comics. Mr. Rosenberg holds an undergraduate degree from the
University of Denver.
Brian Altounian has been our
Chief Operating Officer since June 2005 and was appointed to serve as President
and Director in September 2006. Mr. Altounian's background includes business
development, finance, operations and administration and he has applied those
skills to a variety of start-ups, Fortune 100 companies, and public and private
organizations. Mr. Altounian has worked in the entertainment and high-tech
industries, the bread and butter of Los Angeles' commercial
culture.
From May,
2005 through mid-January, 2008, he sat on the Board of Directors of Cereplast,
Inc. (CERP.OTC), a manufacturer of proprietary bio-based, renewable plastics,
where he has also served as the Audit Committee Chairman. From August,
2004 through June, 2006, he sat on the Board of Directors of Machine Talker
(MTKN.OTC), which has created a breakthrough technology in smart security
wireless networks. From May, 2003 through June, 2006, he sat as Chairman
of the Board of Directors of XsunX, Inc. (XSNX.OTC), a developer of
revolutionary thin film photovoltaic solar cell technology. His experience is in
the area of developing corporate infrastructure and assisting early-stage
companies to execute on their business plans and grow, often through the access
of capital through the public equity markets and from December, 2003 through
June, 2007, he has provided advisory support to a number of these early-stage
technology companies such as Warp9 (WNYN.OTC), Imaging3, Inc. (IMGG.OTC),
BioSolar, Inc (BSRC.OTC), Carbon Sciences, Inc. (CABN.OTC) and Origin Oil, Inc.
(OOIL.OTC). His first foray in the high-tech space came as Executive Vice
President of Main Course Technologies, a wireless applications developer which
he co-founded in January 2000 and ran until May, 2003.
Mr.
Altounian spent 12 years in the entertainment industry with a consulting
practice, advising entertainment companies in the areas of finance,
administration, operations and business development. His clients have included
Disney Interactive, Two Oceans Entertainment Group, The Santa Barbara Grand
Opera Association, International Documentary Association, In-Finn-Ity
Productions and many others. He also held senior management positions
in-house at Lynch Entertainment, a television production company where he held
the position of Vice President, Finance from January 1998 through December
1999; Time Warner Interactive, a CD-ROM and interactive game company where
he served as Vice President, Finance from July, 1995 – May, 1996; National
Geographic Television, serving as Finance Director for this documentary film
production company, specifically for the National Geographic Specials for the
NBC Television Network from July, 1992 – June, 1996; and from 1987 through June,
1992, as Business Services Manager for WQED, the country’s first community-owned
Public Television stations where he oversaw the finances and operations for
numerous television documentary series.
Most
recently, he was Consulting Producer on Random 1, a reality
television series that debuted in November 2005 on the A&E Network and
Executive Producer on the documentary feature film Lost in Woonsocket .
Mr. Altounian also recently founded a non-profit media organization, Lost &
Found in America, Inc., where he currently sits as Chairman of the Board for
this company that creates media projects that support local community-based
non-profit groups serving underserved segments of the US
population.
Mr.
Altounian holds an MBA from Pepperdine University and an undergraduate degree
from UCLA.
Jill M. Zimmerman has been a
director since September 16, 2006. Since May 2005, Ms. Zimmerman has
served as a Vice President at the Alford Group, a consulting firm based in
Evanston, Illinois. Ms. Zimmerman previously served as a Crisis Program
Supervisor and Director of Development at Alternatives, Inc. a not-for profit
corporation from November 1994 through May 2005. Ms. Zimmerman holds a Bachelor
of Arts from the University of California at Santa Barbara and a Masters degree
from the University of Chicago.
41
Mark Canton became a director
on May 10, 2010. In 1985, Mr. Canton
became President of Worldwide Theatrical Production. In 1991, Mr. Canton joined
Sony Pictures Entertainment’s Columbia Pictures as Chairman of the Board of
Directors. By 1994, he became Chairman of the Columbia TriStar Motion
Picture Companies with all creative, operational, and management responsibility
for Columbia Pictures, Triumph Films, Sony Pictures Classics, SPE’s
international theatrical operations and Columbia TriStar’s strategic motion
picture alliances. During his time at Sony, the company released such
films as: A Few Good Men,
Groundhog Day, In the Line of Fire, Bram Stoker’s Dracula, Bad Boys, The Net,
The Professional, The Fifth Element, Jumanji, Sense and Sensibility, Legends of
the Fall, The Mirror Has Two Faces, A League of Their Own, Fly Away Home,
Sleepless in Seattle, Poetic Justice, The Age of Innocence, Little Women, The
Remains of the Day, The
People vs. Larry Flynt, As Good As it Gets, Jerry Maguire, My Best Friend’s
Wedding, Anaconda, Air and Force One. In
addition, Mr. Canton initiated I Know What You Did Last Summer,
Starship Troopers, Zorro, Godzilla, and Stepmom.
In 1997,
Mr. Canton returned to Warner Bros. to create his own production entity, The
Canton Company. The Canton Company produced Jack Frost, Get Carter, and
Red
Planet.
In 2002,
Mr. Canton joined Artists Production Group as a partner, Chairman and
CEO. In December 2003, he launched Atmosphere Entertainment MM, an
entrepreneurial venture to develop, produce and finance theatrical motion
picture and television programming. Mr. Canton is presently
developing new television projects at HBO, ABC, CBS, TNT and
Lifetime.
A native
of New York, Canton is a 1971 UCLA graduate (magna cum laude) and a member of
UCLA’s National Honor Society for American Studies. In addition to serving on
the UCLA Board of Councilors and the Deans Advisory Board for the School of
Theatre, Film, and Television, he was Vice Chairman of the Board of Directors of
the American Film Institute and Founder and Chairman Emeritus of AFI’s Third
Decade Council.
SIGNIFICANT
EMPLOYEES
Dan
Forcey, Vice President, Content Development
Mr.
Forcey has served as Platinum’s Vice President of Content Development since
January of 2007. Prior to that, he served as Platinum’s Communications
Manager from December of 2002, coordinating their public relations efforts and
managing multiple websites for the company, including the corporate site
platinumstudios.com, the fan portal, jeremiahportal.com, and the Unique
Experience alternative reality game.
For the
past 10 years, Mr. Forcey has worked across the United States and Canada as a
stuntman, fight choreographer, and teacher of movement and stage combat and is
an expert in fencing and swordfighting. Mr. Forcey 's stunt work includes
multiple television shows and feature films both in the U.S. and abroad,
including Oscar-nominated movies like Master and Commander: The Far Side
of the World , Flags of
Our Fathers, and Letters from Iwo
Jima. From 1997 through 2002, Mr. Forcey has held faculty
positions at York University, the Centre for Indigenous Theatre, the University
of Southern California, Cal State University, Long Beach, Cal Poly Pomona, and
the Cerritos Center for the Performing Arts. During his various tenures, he has
instructed students in acting, movement for actors, stage combat and
clowning.
On 1996,
Mr. Forcey graduated cum laude from the University of Southern California with
an undergraduate degree in theatre with a minor in philosophy. Mr.
Forcey graduated Magna cum laude from York University while receiving his
graduate degree in acting and movement, writing his master's thesis on the use
of the British quarterstaff.
42
EXECUTIVE
COMPENSATION
The
following table sets forth the compensation paid or accrued by us to our Chief
Executive Officer and President and Chief Operating Officer and each of our
other officers whose compensation exceeded $100,000 for each of the Company’s
last two completed fiscal years.
Name and
Principal
Position
|
Year
|
Salary ($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in
Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation ($)
|
Total ($)
|
|||||||||||||||||||||||||
Scott Mitchell
|
2009
|
$ | 550,000 | - | - | - | - | - | - | $ | 550,000 | |||||||||||||||||||||||
Rosenberg,
|
2008
|
$ | 300,000 | - | - | - | - | - | - | $ | 300,000 | |||||||||||||||||||||||
CEO
(1)
|
2007
|
$ | 300,000 | - | - | - | - | - | - | $ | 300,000 | |||||||||||||||||||||||
Brian
K.
|
2009
|
$ | 180,000 | - | - | - | - | - | - | $ | 180,000 | |||||||||||||||||||||||
Altounian,
|
2008
|
$ | 300,000 | - | $ | 787,500 | $ | 886,505 | - | - | - | $ | 1,974,005 | |||||||||||||||||||||
President/COO
|
2007
|
$ | 300,000 | - | - | - | - | - | - | $ | 300,000 | |||||||||||||||||||||||
- | - | - | - | - | - |
(1)
$300,000 of Mr. Rosenberg’s 2007 and $75,000 of his 2008 salary was
deferred.
(2)
$300,000 of Mr. Altounian’s 2007 and $75,000 of his 2008 salary was
deferred.
Outstanding
Equity Awards at Fiscal Year-End Table.
The
following table sets forth information with respect to grants of options to
purchase our common stock to the named executive officers at December 31,
2009.
43
Option Awards
|
Stock Awards
|
|||||||||||||||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
($)
|
|||||||||||||||||||||||||||
Scott
Mitchell
Rosenberg
|
-0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||||||||
Brian
Altounian
|
7,965,000 | -0- | -0- | $ | 0.10 |
January 8, 2018
|
-0- | -0- | -0- | -0- |
Director
Compensation
The
following table sets forth with respect to the named directors, compensation
information inclusive of equity awards and payments made for the fiscal year
ended December 31, 2009.
Name (a)
|
Fees
Earned or
Paid in
Cash ($)
(b)
|
Stock Awards
($) (c)
|
Option
Awards ($)
(d)
|
Non-Equity
Incentive
Plan
Compensation
($) (e)
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
(f)
|
All Other
Compensation
($) (g)
|
Total ($) (h)
|
|||||||||||||||||||||
Scott
Mitchell Rosenberg
|
-0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||
Brian
Altounian
|
-0- | -0- | -0- | -0- | -0- | -0- | -0- | |||||||||||||||||||||
Jill
Zimmerman
|
-0- | -0- | -0- | -0- | -0- | -0- | -0- |
EMPLOYMENT
AGREEMENTS
We
currently have no employment agreements with our executive
officers.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of June 30, 2010, the number of shares and
percent of our common stock beneficially owned by:
·
|
all
directors and nominees, naming
them,
|
·
|
our
executive officers,
|
44
·
|
our
directors and executive officers as a group, without naming them,
and
|
·
|
persons
or groups known by us to own beneficially 5% or more of our common
stock:
|
We
believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by
them.
A person
is deemed to be the beneficial owner of securities that can be acquired by him
within 60 days from July 14, 2010 upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are exercisable
within 60 days of June 30, 2010 have been exercised and converted.
Title of Class
|
Name of
Beneficial Owner
|
Number of Shares
Beneficially Owned
|
Percent of Total
|
|||||||
Common
Stock
|
Scott
Rosenberg (1)
|
131, 134,455 | 51.0 | % | ||||||
Common
Stock
|
Brian
Altounian (2)
|
20,755,455 | 7.73 | % | ||||||
Common
Stock
|
Jill
Zimmerman (3)
|
500,000 | * | |||||||
Common
Stock
|
Helene
Pretsky (4)
|
8,453,869 | 3.2 | % | ||||||
Common
Stock
|
All
Executive Officers and Directors as a Group (3 persons )
|
160,843,779 | 61.9 | % |
*Less
than one percent.
(1)
|
Includes
135,000 shares of common stock beneficially owned by Pamela Rosenberg, the
wife of Scott Rosenberg. Mr. Rosenberg disclaims beneficial ownership of
these shares. Also includes 16,875,000 shares held by the Scott
Mitchell Rosenberg GRIT, of which Mr. Rosenberg is the Trustee. Mr.
Rosenberg, as a creditor of the Company, has warrants (to acquire
39,062,500 shares) and convertible notes ($4,294,826 in face value,
without interest) which have exercise and conversion prices ranging from
$0.038 to $0.048 per share and which are essentially immediately
exercisable.
|
(2)
|
Includes
6,750,000 shares previously owned by Brian Altounian as well as 5,250,000
shares of restricted stock granted January 9, 2008 under the Company’s
2007 Employee Incentive Program and 7,965,000 options granted on January
9, 2008 under the Company’s 2007 Employee Incentive Program which are
fully vested and presently
exercisable.
|
(3)
|
Jill
Zimmerman was granted 500,000 options on January 9, 2008 under the
Company’s 2007 Employee Incentive Program, which are fully vested and
presently exercisable.
|
(4)
|
Includes
2,000,000 shares of restricted stock granted January 9, 2008 under the
Company’s 2007 Employee Incentive Program and 6,000,000 options granted on
January 9, 2008 under the Company’s 2007 Employee Incentive Program which
are fully vested and presently exercisable and an additional 453,869
shares of stock issued between September and November 2009 under the
Company’s 2007 Employee Incentive
Program.
|
45
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The
Company has an exclusive option to enter licensing of rights for agreements to
individual characters, subject to existing third party rights, within the RIP
Awesome Library of RIP Media, Inc., specific and only to those 404 Awesome
Comics characters currently owned and controlled by RIP Media, Inc, a schedule
of which has been provided to the Company. Rip Media, Inc is a related entity in
which Scott Rosenberg has an economic interest. Such licensing option includes
all rights worldwide, not including print and digital comic publishing rights.
The ownership of the intellectual property in its entirety, including copyright,
trademark, and all other attributes of ownership including but not limited to
additional material created after a license agreement from Rip Media to Platinum
Studios, Inc (and however disbursed thereafter) shall be, stay and remain that
of Rip Media in all documents with all parties, including the right to revoke
such rights upon breaches, insolvency of the Company or insolvency of the
licensee (s) or others related to exploitation of the intellectual property, and
Platinum is obligated to state same in all contracts. In some cases, there
are some other limitations on rights. Any licensing of rights from Rip Media to
the Company is contingent upon and subject to Platinum’s due diligence and
acceptance of Chain of Title. Currently, we have the above exclusive right to
enter into agreements related to the licensing of motion picture rights and
allied/ancillary rights until the date upon which Platinum Studios CEO, Scott
Mitchell Rosenberg is no longer the Company s CEO and Chairman of the Board and
holds at least 30% of the outstanding capital stock of the Company. Rip Media
Inc retains the right on the above characters to enter directly into agreements
to license rights, negotiate and sign option agreements with other parties in so
far as Platinum is made aware of the agreement prior to its signing, and that
there is economic participation to Platinum in a form similar to its agreement
with Rip Media in general, and that if there is a material to change to the
formula, that Platinum’s Board of Directors may require specific changes to the
proposed agreement such that it conforms with other licenses from Rip Media made
from January 1, 2010 forward. If the material change is cured, then Rip’s rights
to enter into an agreement, still subject to its financial arrangement with
Platinum, remain the same. We do not have access to other characters,
stories, rights (including trademarks, trade names, url’s) controlled by
Rosenberg or his related entities. In regards to new acquisitions, including
trademarks, Rip Media must present to Platinum, for Platinum’s acquisition, any
rights it desires to acquire, and may only acquire if Platinum does not choose
to acquire (within 5 business days of notice), however this acquisition
restriction on Rip Media does not apply to any properties or trademarks or
trade names or copyrights or rights of any kind that Scott Rosenberg or
any of his related entities or rights to entities he may own or acquire or
create that are, used to be, or could be related in any fashion to Malibu Comics
or Marvel Comics, including trademarks and trade names that may be acquired by
Rip Media or other Rosenberg entities due to expiration or abandonment by
Malibu, Marvel or other prior owners of marks from other comics or rights
related companies, or, such as with trademarks, marks that may be similar only
in name or a derivative of a name, which Rip has the unfettered right to acquire
and exploit without compensation to Platinum.
Scott
Mitchell Rosenberg is attached and credited at his election as producer or
executive producer, without offset, to provide production consulting
services to the Company’s Customers (Customer) (including but not limited to
production companies, studios, financiers and any company related to filmed
entertainment or audio visual productions) on all audio visual productions
through Scott Mitchell Rosenberg Productions (another related entity which
is often, in the entertainment industry, referred to as a “loan-out” company)
wholly owned or controlled by Scott Mitchell Rosenberg or related entities.
Rosenberg’s right is absolute and not subject to restriction or offset by
Company. Often, at the time the Company enters into an agreement with a
Customer, a separate contract is entered into between the related entity and the
Customer. In addition, consulting services regarding development of characters
and storylines may also be provided to the Company by this related entity.
Revenue would be paid directly to the related entity by the
Customer.
At
December 31, 2005, we owed RIP Media $20,000 in uncollateralized loans.
During 2006, we repaid in full the $20,000 uncollateralized loans received
during 2004. At December 31, 2007 we owed RIP Media $10,000 in uncollateralized
loans. During 2008, we repaid $8,595 in uncollateralized loans received during
2007. These loans accrued interest at 5% for the years ended December 31, 2009,
2008, 2007, 2005 and 6% for the year ended December 31, 2006,
respectively.
During
2008, Scott Mitchell Rosenberg loaned the company an additional $196,998 to help
fund operations.
During
2008 the Company repaid $82,827 in loans previously provided by Brian Altounian.
At December 31, 2008 the remaining balance for these loans was $78,172. At
December 31, 2008, we owed $193,079 to Brian Altounian for consulting services
provided prior to his employment. At June 30, 2009, we owed
$795,000 to Brian Altounian for a combination of loans, consulting services and
accrued salary. In connection with the acquisition by an affiliate of
Mr. Altounian of 100% interest in the Company’s subsidiary, WOWIO, LLC, on June
30, 2009, Mr. Altounian executed a release of all such amounts owed to him by
the Company as of such date as partial consideration for the purchase of
WOWIO.
For the
nine months ended September 30, 2009, Scott Rosenberg loaned the Company an
additional $1,103,534 to help fund operations. The Company entered
into a Credit Agreement on May 6, 2009, with Rosenberg in connection with the
issuance of two secured promissory notes and an unsecured promissory note. Two
warrants were issued to Rosenberg in connection with the issuance of various
promissory notes as of May 6, 2009 and June 3, 2009. The advances in
2009 increased Rosenberg’s security interest held in the Company’s assets to
approximately $3,750,000. These transactions were:
46
May 6, 2009 Secured Debt -
The May 6, 2009 secured debt has an aggregate principal amount of $2,400,000, is
convertible into shares of the Company’s common stock at a conversion price of
$0.048 and bears interest at the rate of eight percent per annum. The original
principal amount of $2,400,000 is to be repaid upon the expiration of the notes
on May 6, 2010. The Company may prepay the notes at any time. In connection with
this debt the Company also issued ten-year warrants to purchase 25,000,000
shares of the Company’s common stock for $0.048 per share.
June 3, 2009 Secured Debt -
The June 3, 2009 secured debt amounted to an aggregate principal amount of
$1,350,000, is convertible into shares of the Company’s common stock at a
conversion price of $0.038 and bears interest at the rate of eight percent per
annum. The original principal amount of $1,350,000 is to be repaid upon the
expiration of the notes on June 3, 2010 but may be prepaid at any
time. In connection with this debt the Company also issued ten-year
warrants to purchase 14,062,500 shares of the Company’s common stock for $0.038
per share.
June 3, 2009 Unsecured Debt -
The remaining debts due Rosenberg are unsecured in an aggregate principal amount
of $544,826, are convertible into shares of the Company’s common stock at a
conversion price of $0.048 and bear interest at the rate of eight percent per
annum. The Company is required to make payments of $29,687.50 per month on this
unsecured debt. The monthly payments are to be applied first to interest and
second to principal. The remaining principal amount is to be repaid upon the
expiration of the note on June 3, 2010. The Company may prepay the note at any
time.
The
exercise price and the number of shares underlying the warrants is subject to
anti-dilution adjustments from time to time if the Company issues common stock
at below the exercise price at that time for the warrants.
DESCRIPTION
OF CAPITAL STOCK
Our
authorized capital stock consists of 500,000,000 shares of Common Stock, $0.0001
par value per share, of which 290,859,614 shares were issued and outstanding as
of October 14, 2010.
The
holders of Common Stock are entitled to one vote for each share held of record
on all matters to be voted on by the stockholders. The holders of Common Stock
are entitled to receive dividends ratably, when, as and if declared by the Board
of Directors, out of funds legally available therefore. In the event of a
liquidation, dissolution or winding-up of our business, the holders of Common
Stock are entitled to share equally and ratably in all assets remaining
available for distribution after payment of liabilities.
The
holders of shares of Common Stock, as such, have no conversion, preemptive, or
other subscription rights and there are no redemption provisions applicable to
the Common Stock. According to the Company’s counsel, Dieterich & Mazarei,
and as explained in their consent attached as an exhibit hereto, all of the
outstanding shares of Common Stock are, and the Common Stock offered hereby,
when issued will be, validly issued, fully paid and non-assessable.
We have
never paid any cash dividends on our Common Stock and do not anticipate paying
any cash dividends in the foreseeable future. We intend to retain future
earnings to fund ongoing operations and future capital requirements of our
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant.
Transfer
agent and registrar
The
transfer agent of our common stock is Computershare Limited, whose address is
250 Royall Street, Canton MA 02021. The phone number of the transfer agent
is (800) 962-4284.
47
PLAN
OF DISTRIBUTION
The
purpose of this prospectus is to permit the selling stockholder to offer and
resell up to 41,000,000 shares of our common stock at such times and at such
places as it chooses. To the extent required, we may amend and supplement this
prospectus from time to time to describe a specific plan of distribution. The
decision to sell any shares offered pursuant to this prospectus is within the
sole discretion of the selling stockholder. If the selling
stockholder were eligible to immediately acquire all of the shares to which it
would be entitled pursuant to the terms of the agreement, the selling
shareholder would be able to receive 66,666,667 shares (estimated using a price
of $0.075 per share), however, those shares which are not subject to this
registration statement could not be sold publicly without the benefit of an
exemption from registration such as Rule 144.
The
distribution of the common stock by the selling stockholder may be effected from
time to time in one or more transactions. Any of the common stock may be offered
for sale, from time to time, by the selling stockholder at prices and on terms
then obtainable, at fixed prices, at prices then prevailing at the time of sale,
at prices related to such prevailing prices, or in negotiated transactions at
negotiated prices or otherwise. The common stock may be sold by one or more of
the following:
• On the
OTC Bulletin Board or any other national common stock exchange or automated
quotation system on which our common stock is traded, which may involve
transactions solely between a broker-dealer and its customers which are not
traded across an open market and block trades.
• Through
one or more dealers or agents (which may include one or more underwriters),
including, but not limited to:
• Block
trades in which the broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this prospectus.
•
Purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this prospectus.
•
Ordinary brokerage transactions.
•
Transactions in which the broker solicits purchasers.
•
Directly to one or more purchasers.
• A
combination of these methods.
Dutchess
and any broker-dealers who act in connection with the sale of its shares are
"underwriters" within the meaning of the Securities Act, and any discounts,
concessions or commissions received by them and profit on any resale of the
shares as principal may be deemed to be underwriting discounts, concessions and
commissions under the Securities Act. Because the selling stockholder is an
"underwriter" within the meaning of the Securities Act, it will be subject to
the prospectus delivery requirements of the Securities Act, including Rule 172
thereunder.
The
selling stockholder or its underwriters, dealers or agents may sell the common
stock to or through underwriters, dealers or agents, and such underwriters,
dealers or agents may receive compensation in the form of discounts or
concessions allowed or reallowed. Underwriters, dealers, brokers or other agents
engaged by the selling stockholder may arrange for other such persons to
participate. Any fixed public offering price and any discounts and concessions
may be changed from time to time. Underwriters, dealers and agents who
participate in the distribution of the common stock may be deemed to be
underwriters within the meaning of the Securities Act, and any discounts or
commissions received by them or any profit on the resale of shares by them may
be deemed to be underwriting discounts and commissions thereunder. The proposed
amounts of the common stock, if any, to be purchased by underwriters and the
compensation, if any, of underwriters, dealers or agents will be set forth in a
prospectus supplement.
Unless
granted an exemption by the SEC from Regulation M under the Exchange Act, or
unless otherwise permitted under Regulation M, the selling stockholder will not
engage in any stabilization activity in connection with our common stock, will
furnish each broker or dealer engaged by the selling stockholder and each other
participating broker or dealer the number of copies of this prospectus required
by such broker or dealer, and will not bid for or purchase any common stock of
our or attempt to induce any person to purchase any of the common stock other
than as permitted under the Exchange Act.
48
We will
not receive any proceeds from the sale of these shares of common stock offered
by the selling stockholder. We shall use our reasonable efforts to prepare and
file with the SEC such amendments and supplements to the registration statement
and this prospectus as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of the common stock covered by the registration statement for
the period required to effect the distribution of such common
stock.
We are
paying certain expenses (other than commissions and discounts of underwriters,
dealers or agents) incidental to the offering and sale of the common stock to
the public. If we are required to update this prospectus during such period, we
may incur additional expenses in excess of the amount estimated above. We have
agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act and the
Exchange Act, subject to certain exceptions.
In order
to comply with certain state securities laws, if applicable, the common stock
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In certain states the shares of common stock may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied
with.
CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS
None.
LEGAL
MATTERS
Selected
legal matters with respect to the validity of the securities offered by this
prospectus will be passed upon for us by Dieterich & Mazarei, Los Angeles,
California.
EXPERTS
The
financial statements as of and for the years ended December 31, 2009 and 2008,
included in this prospectus have been audited by HJ Associates &
Consultants, LLP, an independent registered public accounting firm, as stated in
their report appearing herein. Such financial statements have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We are
subject to the information and periodic reporting requirements of the Securities
Exchange Act of 1934 and in accordance therewith file reports, proxy statements
and other information with the SEC. Such reports, proxy statements, other
information and a copy of the registration statement may be inspected by anyone
without charge and copies of these materials may be obtained upon the payment of
the fees prescribed by the SEC, at the Public Reference Room maintained by
the SEC at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. You may obtain
information on the operation of this public reference room by calling
1-800-SEC-0330. The Registration Statement, including all exhibits and schedules
and amendments, has been filed with the SEC through the Electronic Data
Gathering Analysis and Retrieval system and is available to the public from the
SEC's web site at http://www.sec.gov.
49
PLATINUM
STUDIOS, INC.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page
|
|
Audited
Annual Financial Statements of Platinum Studios, Inc.
|
|
Report
of Independent Registered Public Accounting Firm
|
51
|
Balance
Sheets at December 31, 2009 and 2008
|
52
|
Statements
of Operations for the Years Ended December 31, 2009 and
2008
|
53
|
Statements
of Stockholders' Deficit for the Years Ended December 31, 2009 and
2008
|
54
|
Statements
of Cash Flows for the Years Ended December 31, 2009 and
2008
|
55
|
Notes
to Financial Statements
|
57
|
Unaudited
Quarterly Financial Statements of Platinum Studios, Inc.
|
|
Balance
Sheets at June 30, 2010 and December 31, 2009
|
74
|
Statements
of Operations for the Six Months Ended June 30, 2010 and
2009
|
76
|
Statements
of Cash Flows for the Six Months Ended June 30, 2010 and
2009
|
77
|
Notes
to Financial Statements
|
78
|
50
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors
Platinum
Studios, Inc.
Los
Angeles, California
We have
audited the accompanying consolidated balance sheets of Platinum Studios, Inc.
and subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for each of the
two years in the period ended December 31, 2009. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. 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 financial position of Platinum Studios, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting
principles.
We were
not engaged to examine management's assessment of the effectiveness of Platinum
Studios, Inc.'s internal control over financial reporting as of December 31,
2009, included in the accompanying Form 10-K and, accordingly, we do not express
an opinion thereon.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
which have resulted in an accumulated deficit. This raises
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ HJ
Associates & Consultants, LLP
HJ
Associates & Consultants, LLP
Salt Lake
City, Utah
March 31,
2010
51
PLATINUM
STUDIOS, INC.
CONSOLIDATED
BALANCE SHEETS
December 31, 2009
|
December 31, 2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 152,067 | $ | 42,023 | ||||
Restricted
cash
|
127,890 | - | ||||||
Accounts
receivable, net
|
23,817 | 8,812 | ||||||
Prepaid
expenses
|
156,132 | 78,777 | ||||||
Other
current assets
|
863,234 | 881 | ||||||
Total
current assets
|
1,323,140 | 130,493 | ||||||
Property
and equipment, net
|
122,295 | 197,540 | ||||||
Film
development costs
|
11,492,135 | - | ||||||
Web
sites
|
40,000 | 40,000 | ||||||
Character
rights, net
|
45,652 | 136,956 | ||||||
Deposits
and other
|
298,118 | 42,618 | ||||||
Total
assets
|
$ | 13,321,340 | $ | 547,607 | ||||
LIABILITIES AND SHAREOLDERS'
DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,324,780 | $ | 1,213,686 | ||||
Accrued
expenses and other current liabilities
|
1,325,304 | 1,969,607 | ||||||
Deferred
revenue
|
1,681,653 | - | ||||||
Short
term notes payable
|
12,541,105 | 1,091,092 | ||||||
Due
former Wowio partners, payable in common stock
|
- | 1,050,000 | ||||||
Related
party payable
|
- | 206,231 | ||||||
Related
party notes payable, net of debt discount
|
3,103,973 | 1,766,909 | ||||||
Warrant
derivative liability
|
1,201,000 | - | ||||||
Accrued
interest - related party notes payable
|
182,003 | 118,846 | ||||||
Capital
leases payable, current
|
48,406 | 54,873 | ||||||
Total
current liabilities
|
21,408,224 | 7,471,244 | ||||||
Long
term notes payable
|
- | 2,049,951 | ||||||
Capital
leases payable, non-current
|
11,627 | 60,033 | ||||||
Total
liabilities
|
21,419,851 | 9,581,228 | ||||||
Shareholders'
Deficit:
|
||||||||
Common
stock, $.0001 par value; 500,000,000 shares authorized; 271,255,629 and
255,819,266 issued and outstanding,
respectively
|
27,126 | 25,582 | ||||||
Common
stock subscribed
|
732,196 | - | ||||||
Additional
paid in capital
|
15,237,067 | 11,650,875 | ||||||
Accumulated
deficit
|
(24,094,900 | ) | (20,710,078 | ) | ||||
Total
shareholders' deficit
|
(8,098,511 | ) | (9,033,621 | ) | ||||
Total
liabilities and shareholders' deficit
|
$ | 13,321,340 | $ | 547,607 |
The
accompanying footnotes are an integral part of these consolidated financial
statements
52
PLATINUM
STUDIOS, INC.
CONSOLIDATED
STATEMENTS OPERATIONS
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
revenue
|
$ | 292,940 | $ | 822,488 | ||||
Costs
and expenses:
|
||||||||
Cost
of revenues (excluding depreciation expense)
|
73,390 | 198,864 | ||||||
Operating
expenses
|
1,929,151 | 4,808,320 | ||||||
Research
and development
|
196,688 | 526,050 | ||||||
Impairment
of intangibles
|
- | 2,499,380 | ||||||
Stock
option expense
|
85,766 | 3,387,796 | ||||||
Depreciation
and amortization
|
153,368 | 176,175 | ||||||
Total
costs and expenses
|
2,438,363 | 11,596,585 | ||||||
Operating
loss
|
(2,145,423 | ) | (10,774,097 | ) | ||||
Other
income (expense):
|
||||||||
Other
income
|
- | 272 | ||||||
Gain
(loss) on disposition of assets
|
259 | (55,298 | ) | |||||
Gain
(loss) on settlement of debt
|
453,451 | (12,351 | ) | |||||
Loss
on valuation of derivative liability
|
(267,000 | ) | ||||||
Interest
expense
|
(1,373,755 | ) | (403,009 | ) | ||||
Total
other income (expense):
|
(1,187,045 | ) | (470,386 | ) | ||||
Loss
before provision for income taxes
|
(3,332,468 | ) | (11,244,483 | ) | ||||
Provision
for income taxes
|
- | - | ||||||
Loss
from continuing operations
|
(3,332,468 | ) | (11,244,483 | ) | ||||
Loss
from discontinued operations
|
(52,354 | ) | - | |||||
Net
loss
|
$ | (3,384,822 | ) | $ | (11,244,483 | ) | ||
Basic
and diluted loss per share:
|
||||||||
Loss
from continuing operations
|
$ | (0.01 | ) | $ | (0.05 | ) | ||
Loss
from discontinued operations
|
(0.00 | ) | - | |||||
Net
loss per share
|
$ | (0.01 | ) | $ | (0.05 | ) | ||
Basic
and diluted weighted average shares
|
266,455,863 | 226,541,917 |
The
accompanying footnotes are an integral part of these consolidated financial
statements
53
PLATINUM
STUDIOS, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ DEFICIT
Two Years
Ended December 31, 2009
Common
Stock Shares
|
Common
Stock
Amount
|
Common
Stock
Subscribed
|
Additional
Paid-
In
Capital
|
Retained
Deficit
|
Total
|
|||||||||||||||||||
Balance
at December 31, 2007
|
201,255,825 | $ | 20,126 | $ | - | $ | 3,750,782 | $ | (9,465,595 | ) | $ | (5,694,687 | ) | |||||||||||
Common
stock issued for cash in private placement at $0.15 and $0.08 per share,
$0.0001 par value
|
9,513,734 | 951 | - | 1,422,609 | - | 1,423,560 | ||||||||||||||||||
Common
stock issued for debt and accounts payable conversion at fair value of
shares issued
|
9,819,491 | 982 | - | 869,994 | - | 870,976 | ||||||||||||||||||
Fair
value of options issued for services
|
- | - | - | 2,198,425 | - | 2,198,425 | ||||||||||||||||||
Common
stock issued for services from $0.03 to $0.15 per share
|
21,230,216 | 2,123 | - | 2,220,465 | - | 2,222,588 | ||||||||||||||||||
Common
stock issued for the acquisition of Wowio,LLC
|
14,000,000 | 1,400 | - | 1,188,600 | - | 1,190,000 | ||||||||||||||||||
Net
loss
|
- | - | - | - | (11,244,483 | ) | (11,244,483 | ) | ||||||||||||||||
Balance
at December 31, 2008
|
255,819,266 | 25,582 | - | 11,650,875 | (20,710,078 | ) | (9,033,621 | ) | ||||||||||||||||
Common
stock issued for cash in private placement at $0.05 per share, $0.0001 par
value
|
2,466,667 | 247 | - | 119,753 | - | 120,000 | ||||||||||||||||||
Common
stock issued for debt and accounts payable conversion at fair value of
shares issued
|
3,797,879 | 380 | - | 263,936 | - | 264,316 | ||||||||||||||||||
Common
stock subscribed for cash in private placement at $0.05 per
share.
|
- | - | 732,196 | - | - | 732,196 | ||||||||||||||||||
Common
stock issued for the acquisition of Wowio,LLC
|
7,000,000 | 700 | - | 559,930 | - | 560,630 | ||||||||||||||||||
Equity
adjusment for sale of Wowio, LLC
|
- | - | - | 1,720,216 | - | 1,720,216 | ||||||||||||||||||
Value
of equity instruments issued in connection with convertible notes
payable
|
- | - | - | 715,904 | - | 715,904 | ||||||||||||||||||
Fair
value of options issued for services
|
- | - | - | 88,266 | - | 88,266 | ||||||||||||||||||
Common
stock issued for services from $0.04 to $0.07 per share
|
2,171,817 | 217 | - | 118,187 | - | 118,404 | ||||||||||||||||||
Net
loss
|
- | - | - | - | (3,384,822 | ) | (3,384,822 | ) | ||||||||||||||||
Balance
at December 31, 2009
|
271,255,629 | $ | 27,126 | $ | 732,196 | $ | 15,237,067 | $ | (24,094,900 | ) | $ | (8,098,511 | ) |
The
accompanying footnotes are an integral part of these consolidated financial
statements
54
PLATINUM
STUDIOS, INC.,
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$ | (3,384,822 | ) | $ | (11,244,483 | ) | ||
Adjustments
to reconcile net loss to net cash from operating
activities:
|
||||||||
Depreciation
|
64,022 | 84,870 | ||||||
Amortization
|
91,304 | 91,305 | ||||||
(Gain)
Loss on diposal of assets
|
(259 | ) | 55,298 | |||||
Impairment
expense
|
- | 2,641,524 | ||||||
(Gain)
Loss on settlement of debt
|
(453,451 | ) | 12,351 | |||||
Equity
instruments issued for services
|
202,759 | 4,421,013 | ||||||
Amortization
of debt discount
|
920,816 | - | ||||||
Loss
on valuation of derivative liability
|
267,000 | - | ||||||
Decrease
(increase) in operating assets:
|
||||||||
Increase
in restricted cash
|
(127,891 | ) | - | |||||
Accounts
receivable
|
(15,005 | ) | 55,883 | |||||
Inventories
|
- | 4,230 | ||||||
Prepaid
expenses and other current assets
|
(343,225 | ) | 25,966 | |||||
Increase
(decrease) in operating liabilities:
|
||||||||
Accounts
payable and related party payables
|
426,376 | 1,038,371 | ||||||
Bank
overdraft
|
- | (89,665 | ) | |||||
Accrued
expenses
|
468,860 | 685,237 | ||||||
Accrued
interest
|
77,598 | 136,918 | ||||||
Deferred
revenue
|
834,870 | (100,000 | ) | |||||
Net
cash flows used in operating activities
|
(971,048 | ) | (2,181,182 | ) | ||||
Cash
flows from investing activities
|
||||||||
Investment
in property and equipment
|
(2,956 | ) | (4,260 | ) | ||||
Investment
in film development costs
|
(13,995,499 | ) | - | |||||
Net
cash flows used in investing activities
|
(13,998,455 | ) | (4,260 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
from non-related loans
|
14,390,341 | 742,869 | ||||||
Proceeds
from related party loans
|
1,366,561 | 315,368 | ||||||
Payments
on non-related party loans
|
(142,843 | ) | (91,422 | ) | ||||
Payments
on related party loans
|
(1,353,160 | ) | (136,558 | ) | ||||
Payments
on capital leases
|
(22,102 | ) | (30,797 | ) | ||||
Issuance
of common stock, net of offering costs
|
840,750 | 1,423,560 | ||||||
Net
cash flows provided by financing activities
|
15,079,547 | 2,223,020 | ||||||
Net
increase/(decrease) in cash
|
110,044 | 37,578 | ||||||
Cash,
at beginning of year
|
42,023 | 4,445 | ||||||
Cash,
at end of period
|
$ | 152,067 | $ | 42,023 |
The
accompanying footnotes are an integral part of these consolidated financial
statements
55
PLATINUM
STUDIOS, INC.,
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 76,359 | $ | 156,527 | ||||
Cash
paid for taxes
|
$ | - | $ | 800 | ||||
Equity
instrument issued for debt discount
|
$ | 1,649,904 | $ | - | ||||
Warrant
derivative liability
|
$ | (934,000 | ) | $ | - | |||
Non-cash
financing activities related to the acquisition and sale of Wowio,
LLC
|
$ | 1,720,216 | $ | 3,150,000 | ||||
Non-cash
financing activities related to the conversion of debt
|
$ | - | $ | 2,060,976 | ||||
Stock
issued as payments of notes payable, accounts payable and accrued
interest
|
$ | 840,303 | $ | - |
The
accompanying footnotes are an integral part of these consolidated financial
statements
56
PLATINUM
STUDIOS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
(1)
Description of business
Nature of operations – The
Company controls a library consisting of more than 5,600 characters and is
engaged principally as a comics-based entertainment company adapting characters
and storylines for production in film, television, publishing and all other
media.
Platinum
Studios, LLC was formed and operated as a California limited liability company
from its inception on November 20, 1996 through September 14, 2006. On September
15, 2006, Platinum Studios, LLC filed with the State of California to convert
Platinum Studios, LLC into Platinum Studios, Inc., (“the Company”, “Platinum”) a
California corporation. This change to the Company structure was made
in preparation of a private placement memorandum and common stock offering in
October, 2006 (Note 12).
On
December 10, 2008, the Company purchased Long Distance Films, Inc. to facilitate
the financing and production of the film currently titled “Dead of
Night”. Long Distance Films, Inc. has no assets, liabilities or
equity other than 100 shares of common stock wholly owned by Platinum Studios,
Inc. No consideration was paid by the Company for the acquisition of Long
Distance Films, Inc.
(2) Going
concern
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred significant losses
which have resulted in an accumulated deficit of $24,094,900 as of December 31,
2009. The Company plans to seek additional financing in order to execute its
business plan, but there is no assurance the Company will be able to obtain such
financing on terms favorable to the Company or at all. These items raise
substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects related to recovery and classification of assets, or
the amounts and classifications of liabilities that might result from the
outcome of this uncertainty.
(3)
Summary of significant accounting policies
Reclassifications – Certain
prior year amounts have been reclassified in order to conform to the current
year’s presentation.
Revenue recognition - Revenue
from the licensing of characters and storylines (“the properties”) owned by the
Company are recognized in accordance with FASB guidance where revenue is
recognized when the earnings process is complete. This is considered to have
occurred when persuasive evidence of an agreement between the customer and the
Company exists, when the properties are made available to the licensee and the
Company has satisfied its obligations under the agreement, when the fee is fixed
or determinable and when collection is reasonably assured.
The
Company derives its licensing revenue primarily from options to purchase rights,
the purchase of rights to properties and first look deals. For options that
contain non-refundable minimum payment obligations, revenue is recognized
ratably over the option period, provided all the criteria for revenue
recognition have been met. Option fees that are applicable to the purchase price
are deferred and recognized as revenue at the later of the expiration of the
option period or in accordance with the terms of the purchase agreement. Revenue
received under first look deals is recognized ratably over the first look
period, which varies by contract provided all the criteria for revenue
recognition under SAB 104 have been met.
For
licenses requiring material continuing involvement or performance based
obligations, by the Company, the revenue is recognized as and when such
obligations are fulfilled.
The
Company records as deferred revenue any licensing fees collected in advance of
obligations being fulfilled or if a licensee is not sufficiently creditworthy,
the Company will record deferred revenue until payments are
received.
License
agreements typically include reversion rights which allow the Company to
repurchase property rights which have not been used by the studio (the buyer) in
production within a specified period of time as defined in the purchase
agreement. The cost to repurchase the rights is generally based on the costs
incurred by the studio to further develop the characters and story
lines.
57
Use of estimates - The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
Cash and cash equivalents –
The Company considers all highly liquid investment securities with an original
maturity date of three months or less to be cash equivalents.
Concentrations of risk -
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of uninsured cash balances. The Company maintains
its cash balances with what management believes to be a high credit quality
financial institution. At times, balances within the Company’s cash accounts may
exceed the Federal Deposit Insurance Corporation (FDIC) limit of
$250,000.
During
the years ended December 31, 2009 and 2008, the Company had customer revenues
representing a concentration of the Company’s total revenues. In 2009 three
customers represented approximately 67% of total revenues. In 2008, three
customers represented approximately 71% of total revenues.
Derivative Instruments –
Platinum Studios entered into a Credit Agreement on May 6, 2009, with
Scott Rosenberg, the Company’s CEO and Chairman, in connection with the issuance
of two secured promissory notes and an unsecured promissory note. Two warrants
were issued to Scott Rosenberg in connection with the issuance of various
promissory notes as of May 6, 2009 and June 3, 2009.
A
description of the notes is as follows:
May 6, 2009 Secured Debt -
The May 6, 2009 Secured Debt has an aggregate principal amount of $2,400,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The May 6, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the May 6,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on May 6, 2010. The original
principal amount of $2,400,000 is to be repaid upon the expiration of the notes
on May 6, 2010. The Company may prepay the notes at any time. The May 6, 2009
Secured Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default. In connection with this debt
the Company also issued warrants to purchase 25,000,000 shares of the Company’s
common stock for $0.048 per share.
June 3, 2009 Secured Debt -
The June 3, 2009 Secured Debt has an aggregate principal amount of $1,350,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.038. The June 3, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on June 3, 2010. The original
principal amount of $1,350,000 is to be repaid upon the expiration of the notes
on June 3, 2010. The Company may prepay the notes at any time. The June 3, 2009
Secured Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default. In connection with this debt
the Company also issued warrants to purchase 14,062,500 shares of the Company’s
common stock for $0.038 per share.
June 3, 2009 Unsecured Debt -
The June 3, 2009 Unsecured Debt has an aggregate principal amount of $544,826,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The June 3, 2009 Unsecured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Unsecured Debt bears interest at the rate of ten percent per annum. The
Company is required to make payments of $29,687.50 per month. The monthly
payments are to be applied first to interest and second to principal. The
remaining principal amount is to be repaid upon the expiration of the note on
June 3, 2010. The Company may prepay the note at any time. The June 3, 2009
Unsecured Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default.
58
In
determining the fair market value of the embedded derivatives, we used
discounted cash flows analysis. We also used a binomial option pricing model to
value the warrants issued in connection with these debts. The Company determined
the fair value of the embedded derivatives to be $715,904 and the fair value of
the warrants to be $934,000 as of June 30, 2009. The embedded derivatives have
been accounted for as a debt discount that will be amortized over the one year
life of the notes. Amortization of the debt discount has resulted in
a $920,816 increase to interest expense for the twelve months ended December 31,
2009.
A
description of the Warrants is as follows:
1) The
May 6, 2009 warrant entitles the holder to purchase up to 25,000,000 shares of
the Company’s common stock at a price of $0.048 per share. The May 6, 2009
warrant is exercisable up until May 6, 2019. The May 6, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
2) The
June 3, 2009 warrant entitles the holder to purchase up to 14,062,500 shares of
the Company’s common stock at a price of $0.038 per share. The June 3, 2009
warrant is exercisable up until June 3, 2019. The June 3, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
In
determining the fair market value of the Warrants, we used the binomial model
with the following significant assumptions: exercise price $0.038 –
$0.048, trading prices $0.01 - $0.08, expected volatility 124.4%, expected life
of 60 months, dividend yield of 0.00% and a risk free rate of 3.59%. The fair
value of these warrants has been recorded as part of the debt discount as
discussed above as well as being recognized as a derivative liability. The
derivative liability is re-valued at each reporting date with changes in value
being recognized as part of current earnings. This revaluation for the twelve
months ended December 31, 2009 resulted in a loss of $267,000.
Depreciation - Depreciation is
computed on the straight line method over the following estimated useful
lives:
Fixed
assets Useful Lives
Furniture
and fixtures
|
7
years
|
Computer
equipment
|
5
years
|
Office
equipment
|
5
years
|
Software
|
3
years
|
Leasehold
improvements
|
Shorter
of lease term or useful economic
life
|
Character development costs -
Character development costs consist primarily of costs to acquire properties
from the creator, development of the property using internal or independent
writers and artists, and the registration of a property for a trademark or
copyright. These costs are capitalized in the year incurred if the Company has
executed a contract or is negotiating a revenue generating opportunity for the
property. If the property derives a revenue stream that is estimable, the
capitalized costs associated with the property are expensed as revenue is
recognized.
If the
Company determines there is no determinable market for a property, it is deemed
impaired and is written off.
Fair Value of Financial
Instruments – The carrying values of cash on hand, receivables, payables
and accrued expenses approximate their fair value due to the short period to
maturity of these instruments.
Film development costs – Film
development costs includes the unamortized costs of completed films and films in
production. The capitalized costs include all direct production and
financing costs, capitalized interest and production overhead. The
costs of the film productions are amortized using the
individual-film-forecast-method, whereby the costs are amortized and
participations and residual costs are accrued in proportion that current year’s
revenues bears to managements’ estimate of ultimate revenue at the beginning of
the current year expected to be recognized from exploitation, exhibition or sale
of the film. Ultimate revenue includes estimates over a period not to
exceed ten years following the date of initial release.
Film
development costs are stated at the lower of amortized cost or estimated fair
value. The valuation of the film development costs are reviewed on a
title by title basis, when an event or change in circumstances indicates the
fair value of the film is less than the unamortized cost. The fair
value of the film is determined using managements’ future revenue and cost
estimates in an undiscounted cash flow approach. Additional
amortization is recorded in an amount by which unamortized costs exceed the
estimated fair value of the film. Estimates of future revenue involve
measurement uncertainty and it is therefore possible that reductions in the
carry costs of film development costs may be required as a consequence of
changes in managements’ future revenue estimates.
59
The
Company considers all or part of the film development costs to be a current
asset if during the next twelve months, based on managements’ assessment of
ultimate revenue, all or part of film development costs will be amortized using
the individual-film-forecast-method.
Purchased intangible assets and
long-lived assets – Intangible assets are capitalized at acquisition
costs and intangible assets with definite lives are amortized on the
straight-line basis. The Company periodically reviews the carrying amounts of
intangible assets and property. Long-lived assets, such as property
and equipment, and purchased intangibles subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, the impairment charge to be recognized is measured by the excess of the
carrying amount over the fair value of the asset. On July 15, 2008, Platinum
Studios, Inc. purchased Wowio, LLC an on-line distributor of e-books. Wowio,
LLC, is an online source for downloading digital books and comics. Due to market
conditions and cash flow constraints, the Company considered all Wowio, LLC
intangible assets to be fully impaired. This resulted in expense of $2,499,880
during 2008.
Advertising costs -
Advertising costs are expensed the later of when incurred or when the
advertisement is first run. For the years ended December 31, 2009 and 2008,
advertising expenses were $0 and $48,080, respectively.
Research and development -
Research and development costs, primarily character development costs and design
not associated with an identifiable revenue opportunity, are charged to
operations as incurred. For the years ended December 31, 2009 and 2008, research
and development expenses were $196,688 and $526,050, respectively.
Income taxes – Deferred taxes
are provided on a liability method whereby deferred tax assets are recognized
for deductible temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in the tax laws and rates on the date of enactment.
Net income/(loss) per share –
Basic income per share is computed by dividing net income (loss) available to
common stockholders by the weighted average number of shares of common stock
outstanding during the periods, excluding shares subject to repurchase or
forfeiture. Diluted income per share increases the shares outstanding for the
assumption of the vesting of restricted stock and the exercise of dilutive stock
options and warrants, using the treasure stock method, unless the effect is
anti-dilutive.
Recently issued accounting
pronouncements – The FASB issued guidance under Accounting Standards
Update ("ASU") No. 2010-06, "Fair Value Measurements and Disclosures". The ASU
requires certain new disclosures and clarifies two existing disclosure
requirements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009. We do not expect the adoption of this
guidance to have a material impact on our financial statements.
The FASB
issued guidance under Accounting Standards Update (“ASU”) No. 2010-08,
“Technical Corrections to Various topics. The ASU eliminates certain
inconsistencies and outdate provisions and provides needed
clarifications. The changes are generally nonsubstantive nature and
will not result in pervasive changes to current practice. However,
the amendments that clarify the guidance on embedded derivatives and hedging
(ASU Subtopic 815-15) may cause a change in the application of the
Subtopic. The clarifications of the guidance on embedded derivatives
and hedging (Subtopic 815-15) are effective for fiscal years beginning after
December 15, 2009.
(4)
Property and equipment
Property
and equipment are recorded at cost. The cost of repairs and maintenance are
expensed when incurred, while expenditures refurbishments and improvements that
significantly add to the productive capacity or extend the useful life of an
asset are capitalized. Upon asset retirement or disposal, any resulting gain or
loss is included in the results of operations.
60
December 31, 2009
|
December 31, 2008
|
|||||||
Property
and equipment, cost:
|
||||||||
Office
equipment
|
$ | 13,207 | $ | 13,207 | ||||
Furniture
and fixtures
|
118,140 | 118,140 | ||||||
Computer
equipment
|
149,387 | 172,240 | ||||||
Software
|
93,149 | 93,149 | ||||||
Leasehold
improvements
|
20,557 | 20,557 | ||||||
394,440 | 417,293 | |||||||
Less
accumulated depreciation
|
(272,145 | ) | (219,753 | ) | ||||
Net
property and equipment
|
$ | 122,295 | $ | 197,540 |
For the
year ended December 31, 2009 and 2008, property and equipment at cost includes
assets acquired under capital leases of $261,290 and $273,150, respectively.
Depreciation expense charged to operations for the year ended December 31, 2009
and 2008 were $62,064 and $84,870.
(5) Due
to related party
December 31, 2009
|
December 31, 2008
|
|||||||
Other
employee - Unreimbursed business expenses payable
|
$ | - | $ | 2,355 | ||||
S.
Rosenberg - Unreimbursed business expenses payable
|
- | 10,797 | ||||||
B.Altounian
- Consulting prior to employment
|
- | 193,079 | ||||||
$ | - | $ | 206,231 |
61
(6)
Short-term and long-term debt
Short-term debt
|
December 31,
2009
|
December 31,
2008
|
||||||
Loan
payable to officer - uncollateralized; payable in monthly installments of
interest only at 5%. Due upon demand.
|
$ | - | $ | 78,173 | ||||
Loan
payable to officer - uncollateralized; payable in monthly installments of
principal and interest at varying rates. At December 31, 2009
and December 31, 2008, the interest rates were 0% and 27.17%,
respectively. Due upon demand.
|
- | 429,856 | ||||||
Loan
payable to officer - uncollateralized; interest only at 5%. Due upon
demand.
|
1,404 | 1,405 | ||||||
Loan
payable to 3rd party - uncollateralized; payable in annual installments of
interest only at 6%. Due upon demand
|
- | 17,498 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
100,000 | 100,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
- | 28,888 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
25,000 | 25,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
- | 50,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due July 1, 2010.
|
253,283 | 236,926 | ||||||
Bank
line of credit - uncollateralized; payable in monthly installments of
interest only at 7.5%.
|
50,000 | 50,000 |
62
(6)
Short-term and long-term debt (continued)
Short-term debt
|
December 31,
2009
|
December 31,
2008
|
||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
28,328 | 25,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
10,000 | 10,000 | ||||||
Loan
payable to 3rd party - uncollateralized; bearing interest of 10%. Due upon
demand.
|
- | 50,000 | ||||||
Loan
payable to officer - uncollateralized; principal includes interest accrued
at variable interest rates. At December 31, 2009 and December
31, 2008 the interest rate was 5.0%. The loans are due on
demand.
|
- | 1,257,475 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
10,000 | 10,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
- | 25,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
89,780 | 89,780 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
- | 35,500 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
- | 37,500 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
300,000 | 300,000 |
63
(6)
Short-term and long-term debt (continued)
Short-term debt
|
December 31,
2009 |
December 31,
2008 |
||||||
Loan
payable to officer - The interest rate is 8.00%. Balance plus accrued
interest is due June 3, 2010.
|
1,350,000 | - | ||||||
Loan
payable to officer - payable in monthly installments of $29,688 per month.
The interest rate is 8.00%. Balance due June 3, 2010.
|
81,657 | - | ||||||
Loan
payable to officer - The interest rate is 8.00%. Balance plus accrued
interest is due May 6, 2010.
|
2,400,000 | - | ||||||
Standard
Chartered Bank note payable of $13,365,000 loan collateralized by all
rights in the sales agency agreement and the distribution agreement in
connection with the film "Dead of Night". Interest rate of Libor plus 2%,
due April 1, 2011 at the latest.
|
10,945,932 | - | ||||||
Omnilab
Pty Ltd - 10% funded of gap investment of $4,850,000 for production "Dead
of Night," to be recovered from gross receipts in North
America. Interest rate of 4.09%, due April 1, 2011 at the
latest.
|
485,000 | - | ||||||
DON
Tax Credits, LLC - collateralized by the Louisiana motion picture
investor, tax credits issued by the State of Louisiana and by the Parish
of Jefferson, Louisiana. Interest rate of 7%. Due October 1,
2009.
|
243,782 | - | ||||||
Discounts
on related party debt
|
(729,088 | ) | ||||||
Total
short-term debt
|
15,645,078 | 2,858,001 | ||||||
less:
related party notes payable, net of discounts
|
3,103,973 | 1,766,909 | ||||||
Total
short-term notes payable
|
$ | 12,541,105 | $ | 1,091,092 |
64
(6)
Short-term and long-term debt (continued)
Long-term debt
|
December 31,
2009
|
December 31,
2008
|
||||||
Loan
payable to officer - uncollateralized; payable in monthly installments of
interest only at variable interest rates. At June 30, 2009 and December
31, 2008, the interest rates were 4.90%. Due June 30,
2010.
|
$ | - | $ | 749,874 | ||||
Loan
payable to officer - uncollateralized; payable in monthly installments of
interest only at variable interest rates. At December 31, 2008
the interest rates was 5.09%.
|
- | 1,300,077 | ||||||
Long-term
debt
|
- | 2,049,951 | ||||||
less
current portion
|
- | - | ||||||
Total
long-term debt
|
$ | - | $ | 2,049,951 | ||||
Total
short-term and long-term debt
|
$ | 15,645,078 | $ | 4,907,952 |
The
following summarizes future cash payment obligations:
Years Ending December 31,
|
||||
2010
|
$ | 15,645,078 | ||
2011
|
- | |||
2012
|
- | |||
2013
|
- | |||
2014
|
- | |||
Thereafter
|
- | |||
Total
short-term and long-term debt obligations
|
$ | 15,645,078 |
(7)
Operating and capital leases
The
Company has entered into operating leases having expiration dates through 2011
for real estate and various equipment needs, including office facilities,
computers, office equipment and a vehicle.
On July
10, 2006, the Company entered into an operating agreement for the lease of real
property located in Los Angeles, California. The agreement has a five
year term, commencing September 1, 2006 and ending August 31, 2011. The Company
is currently in default of its lease agreement and is negotiating new lease
terms.
Rent
expense under non-cancelable operating leases were $371,837 and $321,252 for the
years ended December 31, 2009 and 2008, respectively.
The
Company has various non-cancelable leases for computers, software, and
furniture, at a cost of $264,248 and $273,150 at December 31, 2009 and 2008,
respectively. The capital leases are secured by the assets which
cannot be freely sold until the maturity date of the
lease. Accumulated amortization for equipment under capital leases
totaled $174,569 and 139,271 at December 31, 2009 and 2008,
respectively. The Company is currently in default on the majority of
its lease agreements and as a result, all future payments are immediately due.
The Company is negotiating new lease terms.
At
December 31, 2009, future minimum rental payments required under non-cancelable
capital leases that have initial or remaining terms in excess of one year are as
follows:
65
Years
Ending December 31,
|
Capital Leases
|
|||
2010
|
$ | 42,262 | ||
2011
|
22,719 | |||
2012
|
- | |||
Thereafter
|
- | |||
Total
minimum obligations
|
64,981 | |||
Less
amounts representing interest
|
4,948 | |||
Present
value of net minimum obligations
|
60,033 | |||
Less
current portion
|
48,406 | |||
Long-term
portion
|
$ | 11,627 |
(8)
Commitments and Contingencies
During
2004, the Company entered into an agreement with Top Cow Productions, Inc. to
acquire certain rights in and to certain comic books, related characters,
storylines and intellectual property (the properties). The current agreement
period expires on June 30, 2010. The Company has the right to extend the
agreement for an additional twelve month period for an additional $350,000 and
has pre-paid $75,000 toward this extended period. If the Company enters into
production on a particular property, additional fees based on a percentage of
the adjusted gross revenue resulting from the production, as defined in the
agreement, will be due to the owner. The agreement is collateralized by a
security interest in and to all rights licensed or granted to the Company under
this agreement including the right to receive revenue. The current agreement
period cost of $350,000 is included in Other Assets on the balance sheet and is
being amortized on a straight-line basis beginning in 2006 when the rights
became available for exploitation.
As of
December 31, 2009, eight unsecured short term notes totaling $776,661 have
exceeded their maturity date, are due upon demand, and could be considered in
default. The Company is currently negotiating with the note holders to extend
the maturity dates of these notes.
The
Company’s legal proceeds are as follows:
Michael Tierney v. Platinum.
On or about March 16, 2009, a former employee of the Company filed a suit
against the Company in Superior Court of California, County of Los Angeles (Case
No. BC409739) alleging, among other things, wrongful termination, fraudulent
inducement, defamation, violation of California Labor Code. No specific damages
had been pleaded. This former employee was terminated for cause as a result of
grossly negligent/intentional misrepresentation of contractual relations with
third parties in marketing materials. The misrepresentations caused the company
to lose a potential deal with a particularly well-known comics website. On
December 8, 2009, the Company attended a court-ordered mediation at which the
Company entered into a binding settlement agreement that disposes of the entire
case. Pursuant to the settlement agreement, the Company has agreed to
issue an aggregate of 340,000 of restricted stock to plaintiff and plaintiff’s
attorney and to pay plaintiff $12,500 due in one year.
Transcontinental Printing v.
Platinum. On or about July 2, 2009, Transcontinental Printing, a New York
corporation, filed suit against the Company in Superior Court, County of Los
Angeles (Case No. SC103801) alleging that the Company failed to pay for certain
goods and services provided by Transcontinental in the total amount of $106,593.
The Company believes that Transcontinental failed to mitigate damages and,
therefore, the amount owed is in dispute, The Company will diligently
pursue a settlement with this plaintiff but there can be no guarantee that such
a settlement can be reached. This case is currently set to go to trial on March
26, 2010.
Harrison Kordestani v. Platinum.
Harrison Kordestani was a principal of Arclight Films, with whom the
Company had entered into a film slate agreement. One of the properties that had
been subject to the slate agreement was “Dead of Night.” Arclight fired Mr.
Kordestani and subsequently released Dead of Night from the slate agreement. In
late January 2009, Mr. Krodestani had an attorney contact the Company as well as
its new partners who were on the verge of closing the financing for the “Dead of
Night.” Mr. Kordestani, through his counsel, claimed he was entitled to
reimbursement for certain monies invested in the film while it had been subject
to the Arclight slate agreement. Mr. Krodestani’s claim was wholly without merit
and an attempt to force an unwarranted settlement because he knew we were about
to close a deal. We responded immediately through outside counsel and asserted
that he was engaging in extortion and the company would pursue him vigorously if
he continued to try and interfere with our deal. The company has not heard
anything further from Mr. Kordestani but will vigorously defend any suit that
Mr. Kordestani attempts to bring.
66
Doubleclick, Inc. v. Platinum.
On February 19, 2009, a lawsuit was filed by Doubleclick, Inc. against
the Company in the Supreme Court of the State of New York. The claim is
basically a breach of contract claim. The contract at issue was a three-year
agreement to provide ad serving services, requiring a minimum $3,500/month
payment with no termination clause. The employee who executed the agreement
without having counsel review it is no longer with the Company. Between February
and June 2008, the Company attempted to negotiate an “out” without luck. The
service was far too expensive and the Company could no longer afford it and
stopped using it around June/July 2008. Doubleclick is seeking approximately
$118,000, plus interest and late fees for the balance of the contract. The
Company has engaged outside counsel, Jeffrey Reina with the law firm of LIPSITZ
GREEN SCIME CAMBRIA LLP in Buffalo, NY to handle this matter. On October 18,
2009, the Company entered into a settlement agreement whereby it agreed to pay
to Doubleclick the sum of $37,500 no later than February 18, 2010 to settle the
lawsuit; pursuant to the settlement agreement, the Company also entered into a
Confession of Judgment whereby Judgment shall be entered against the Company for
the full amount of the lawsuit of $133,390 in the event the Company does not
make full payment of the settlement amount by February 18,
2010. Doubleclick agreed on an additional reduction of $5,000 in the
amount due if paid earlier. On February 2, 2010, the Company paid
Doubleclick $32,500 as payment in full on the settlement.
Paul Franz v. WOWIO, LLC and
Platinum. A lawsuit was filed against WOWIO and the Company by Paul
Franz, a former consultant to WOWIO, asserting that WOWIO had breached its
payment obligations under a consulting agreement. On September 2, 2009, WOWIO,
which was no longer owned by the Company as of such date, entered into a
Settlement and Release Agreement with Paul Franz, whereby Paul Franz released
the Company and WOWIO from all liability and dismissed the lawsuit with
prejudice.
TBF Financial Inc. v.
Platinum. On or about August 20, 2009, TB Financial, Inc. filed suit
against the Company in the Superior Court of California, County of Los Angeles
(Case No. BC420336) alleging that the Company breached a written lease agreement
for computer equipment and seeking damages of $42,307 plus interest at a rate of
ten percent (10%) per annum from July 7, 2008. On November 19, 2009, TB
Financial filed a Request for Default against the Company; however, the Company
turned the matter over to Company counsel to oppose any requests for
default. On February 24, 2010, a default judgment was entered against
the Company in the amount of $51,506.12 and the Company received a request for
Writ of Execution on March 1, 2010. The Company’s outside counsel is
filing the necessary motion to attempt to set aside the judgment. If
we are successful in such set aside motion, the Company will aggressively pursue
a settlement of these claims.
Rustemagic v. Rosenberg &
Platinum Studios. On or about June 30, 2009, Ervin Rustemagic filed suit
against the Company and its President, Scott Rosenberg, in the California
Superior Court for the County of Los Angeles (Case No. BC416936) alleging that
the Company (and Mr. Rosenberg) breached an agreement with Mr. Rustemagic
thereby causing damages totaling $125,000. According to the Complaint, Mr.
Rustemagic was to receive 50% of producer fees paid in connection with the
exploitation of certain comics-based properties. Rustemagic claims that he
became entitled to such fees and was never paid. The Company and Rosenberg deny
that Rustemagic is entitled to the gross total amount of money he is seeking.
The matter has now been removed to arbitration.
Douglass Emmet v. Platinum Studios
On August 20, 2009, Douglas Emmet 1995, LLC filed an Unlawful Detainer
action against the Company with regard to the office space currently occupied by
the Company. The suit was filed in the California Superior Court, County of Los
Angeles, (Case No. SC104504) and alleged that the Company had failed to make
certain lease payments to the Plaintiff and was, therefore, in default of its
lease obligations. The Plaintiff prevailed on its claims at trial and,
subsequently, on October 14, 2009 entered into a Forbearance Agreement with the
Company pursuant to which Douglas Emmet agreed to forebear on moving forward
with eviction until December 31, 2009, if the Company agreed to pay to Douglas
Emmet 50% of three month’s rent, in advance, for the months of October, November
and December 2009. As of January 1, 2010, the Company was required to pay to
Douglas Emmet the sum of $466,752 to become current under the existing lease or
face immediate eviction and judgment for that amount. Prior to January 1, 2010,
Douglas Emmet agreed to a month-to-month situation where Platinum pays 50% of
its rent at the beginning of the month and the landlord holds back on eviction
and enforcement of judgment while they evaluated whether they will consider
negotiating a new lease with the Company that would potentially demise some of
the Company’s current officer space back to the landlord as well as potentially
forgive some of the past due rent. There can be no guarantee that the Company
will be able to negotiate such a deal with the landlord and therefore, may be
required to find new office space as well as suffer the entry of judgment for
the full amount owed under the existing lease.
67
With
exception to the litigation disclosed above, we are not currently a party to,
nor is any of our property currently the subject of, any additional pending
legal proceeding that will have a material adverse effect on our business, nor
are any of our directors, officers or affiliates involved in any proceedings
adverse to our business or which have a material interest adverse to our
business.
(9)
Wowio, LLC
On July
15, 2008, Platinum Studios, Inc. purchased Wowio, LLC an on-line distributor of
e-books. Under the terms of the Agreement the Company acquired from the Members
of Wowio, LLC 100% of the membership interests of WOWIO for a total purchase
price of $3,150,000 payable in shares of common stock of the Company. Under the
terms of the Agreement, the number of shares of Common Stock issued on a
particular payment date will be calculated by dividing one third of the purchase
price by the average closing trading price of a share of the Common Stock for
the five trading days immediately prior to such payment date, with a minimum
price of $0.15 per share. On July 16, 2008, 7,000,000 shares were issued to the
former members of Wowio, LLC representing one third of the total purchase price.
One-third of the shares were issued on the three-month anniversary of the
closing date and one-third of the shares were issued during the three months
ended March 31, 2009.
Wowio,
LLC, is a leading online source for downloading digital books and comics. This
acquisition was intended to continue the expansion of Platinum Studios’ global
digital media distribution strategy.
The total
basis of Wowio, LLC’s contributed assets and liabilities as of the closing date
of the purchase was allocated to the estimated fair value of assets acquired and
liabilities assumed as set forth in the following table:
Cash
|
$ | 33,823 | ||
Equipment
|
13,950 | |||
Liabilities
assumed
|
(415,376 | ) | ||
Total
consideration
|
$ | (367,603 | ) |
The
purchase of Wowio, LLC resulted in the recording of $2,499,380 in goodwill. At
December 31, 2008 it was determined that this asset was fully impaired and the
full amount was expensed.
On June
30, 2009 the Company sold Wowio, LLC to related parties for the assumption of an
aggregate of $1,636,064 in debt owed by the Company and an additional $1,513,936
to be paid via a royalty of 20% of gross revenues generated by Wowio Penn, its
successors and assigns, after which the royalty rate would decrease to 10%, and
remain at 10% in perpetuity. See note 15, discontinued operations, for a
discussion of the impact of the sale on current operations.
(10)
Related party transactions
The
Company has an exclusive option to enter licensing/acquisition of rights
agreements for individual characters, subject to existing third party rights,
within the RIP Awesome Library of RIP Media, Inc., a related entity in which
Scott Rosenberg is a majority shareholder.
Scott
Mitchell Rosenberg also provides production consulting services to the Company’s
customers (production companies) through Scott Mitchell Rosenberg Productions
(another related entity) wholly owned by Scott Mitchell Rosenberg. At the time
the Company enters into a purchase agreement with a production company, a
separate contract may be entered into between the related entity and the
production company. In addition, consulting services regarding development of
characters and storylines may also be provided to the Company by this related
entity. Revenue would be paid directly to the related entity by the
production company.
For the
twelve months ended December 31, 2009, Scott Mitchell Rosenberg loaned the
company an additional $1,103,534 to help fund operations.
For the
twelve months ended December 31, 2009, the Company repaid $71,675 in loans and
interest on loans provided by Brian Altounian.
68
The
Company entered into a Credit Agreement on May 6, 2009, with Scott Rosenberg in
connection with the issuance of two secured promissory notes and an unsecured
promissory note. Two warrants were issued to Scott Rosenberg in connection with
the issuance of various promissory notes as of May 6, 2009 and June 3,
2009.
A
description of the notes is as follows:
May 6, 2009 Secured Debt -
The May 6, 2009 Secured Debt has an aggregate principal amount of $2,400,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The May 6, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the May 6,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on May 6, 2010. The original
principal amount of $2,400,000 is to be repaid upon the expiration of the notes
on May 6, 2010. The Company may prepay the notes at any time. The May 6, 2009
Secured Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default. In connection with this debt
the Company also issued warrants to purchase 25,000,000 shares of the Company’s
common stock for $0.048 per share.
June 3, 2009 Secured Debt -
The June 3, 2009 Secured Debt has an aggregate principal amount of $1,350,000,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.038. The June 3, 2009 Secured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Secured Debt bears interest at the rate of ten percent per annum. Interest
is payable upon the expiration of the notes on June 3, 2010. The original
principal amount of $1,350,000 is to be repaid upon the expiration of the notes
on June 3, 2010. The Company may prepay the notes at any time. The June 3, 2009
Secured Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default. In connection with this debt
the Company also issued warrants to purchase 14,062,500 shares of the Company’s
common stock for $0.038 per share.
June 3, 2009 Unsecured Debt -
The June 3, 2009 Unsecured Debt has an aggregate principal amount of $544,826,
and is convertible into shares of the Company’s common stock at a conversion
price of $0.048. The June 3, 2009 Unsecured Debt bears interest at the rate of
eight percent per annum. Upon the occurrence of an event of default, the June 3,
2009 Unsecured Debt bears interest at the rate of ten percent per annum. The
Company is required to make payments of $29,687.50 per month. The monthly
payments are to be applied first to interest and second to principal. The
remaining principal amount is to be repaid upon the expiration of the note on
June 3, 2010. The Company may prepay the note at any time. The June 3, 2009
Unsecured Debt has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s right to
force a redemption of the Notes upon an event of default, and, (iii) the
increased interest rate upon an event of default.
In
determining the fair market value of the embedded derivatives, we used
discounted cash flows analysis. We also used a binomial option pricing model to
value the warrants issued in connection with these debts. The Company determined
the fair value of the embedded derivatives to be $715,904 and the fair value of
the warrants to be $934,000 as of June 30, 2009. The embedded derivatives have
been accounted for as a debt discount that will be amortized over the one year
life of the notes. Amortization of the debt discount has resulted in
a $920,816 increase to interest expense for the twelve months ended December 31,
2009.
A
description of the Warrants is as follows:
1) The
May 6, 2009 warrant entitles the holder to purchase up to 25,000,000 shares of
the Company’s common stock at a price of $0.048 per share. The May 6, 2009
warrant is exercisable up until May 6, 2019. The May 6, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
2) The
June 3, 2009 warrant entitles the holder to purchase up to 14,062,500 shares of
the Company’s common stock at a price of $0.038 per share. The June 3, 2009
warrant is exercisable up until June 3, 2019. The June 3, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
69
In
determining the fair market value of the Warrants, we used the binomial model
with the following significant assumptions: exercise price $0.038 –
$0.048, trading prices $0.01 - $0.08, expected volatility 124.4%, expected life
of 60 months, dividend yield of 0.00% and a risk free rate of 3.59%. The fair
value of these warrants has been recorded as part of the debt discount as
discussed above as well as being recognized as a derivative liability. The
derivative liability is re-valued at each reporting date with changes in value
being recognized as part of current earnings. This revaluation for the twelve
months ended December 31, 2009 resulted in a loss of $267,000.
(11)
Shareholders equity
On July
1, 2007, the Board of Directors approved the cancellation/conversion of
$1,720,857 in debt due to Scott Mitchell Rosenberg consisting of $1,625,000 in
principal and $95,857 of accrued interest through conversion of the debt into
17,208,575 shares of common stock of the Company valued at $0.10 per share. In
addition, Mr. Rosenberg received a warrant to purchase 243,750 additional shares
of common stock for his agreement to accept this offer from the Company rather
than demanding repayment of the debt amount.
Effective
July 12, 2007, the Company obtained board approval of an incentive plan under
which equity incentives would be granted to officers, employees, non-employee
directors and consultants of the Company. The board further resolved
for 45,000,000 shares of the Company’s common stock, $0.0001 par value, be
reserved for issuance in accordance with the requirements of this plan. During
2008 the Company granted 7,950,000 shares of restricted common stock to
employees and consultants. The Company also granted 13,965,000 in options to
executive management.
During
2008, the Company issued 9,513,764 for cash in private placement, 9,819,491
shares for debt and accounts payable conversion, 21,230,216 for services and
14,000,000 for the purchase of Wowio, LLC.
On
February 20, 2009 the Company opened a Private Placement round, offering up to
30,000,000 shares of common stock at an offer price of
$0.05/share. The Company sold 1,300,000 shares for a total of $65,000
under this offering. In September, 2009, the Company opened a Private
Placement round offering up to 30,000,000 shares of common stock at an offer
price of $0.05/share. This round was completed on December 21st with
the Company selling 19,250,821 shares valued at $962,541 in cash and debt
conversion.
On
February 25, 2009, the Company issued the final payment of 7,000,000 shares to
the former members of Wowio, LLC in accordance with the Wowio, LLC purchase
agreement. These shares were valued at $560,000.
(12)
Stock Compensation
Warrants
and options outstanding at December 31, 2009 are summarized as
follows:
70
Outstanding
|
Exercisable
|
|||||||||||||||||||
Number
Outstanding
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable
|
Weighted
Average
Exercise Price
|
||||||||||||||||
Warrants
outstanding, December 31, 2008
|
2,896,100 | 2.00 | $ | 0.10 | 2,896,100 | $ | 0.10 | |||||||||||||
Granted
|
39,062,500 | 1.49 | 0.05 | 39,062,500 | 0.05 | |||||||||||||||
Warrants
outstanding, December 31, 2009
|
41,958,600 | 1.78 | $ | 0.10 | 41,958,600 | $ | 0.10 | |||||||||||||
As
of December 31, 2009, no warrants have been exercised.
|
||||||||||||||||||||
Options
outstanding December 31, 2008
|
21,247,500 | 6.25 | $ | 0.10 | 20,634,583 | $ | 0.10 | |||||||||||||
Granted
|
2,261,385 | - | 0.05 | 2,261,385 | 0.05 | |||||||||||||||
Exercised
|
(489,600 | ) | - | (0.05 | ) | (489,600 | ) | (0.05 | ) | |||||||||||
Forfeited
|
(3,934,285 | ) | - | (0.10 | ) | (3,859,178 | ) | (0.10 | ) | |||||||||||
Options
outstanding December 31, 2009
|
19,085,000 | 6.25 | $ | 0.10 | 18,547,190 | $ | 0.10 |
(13)
Income Taxes
The
provision (benefit for income taxes differs from the amount computed by applying
the statutory federal income tax rate to loss before income taxes as follows at
December 31:
2009
|
2008
|
|||||||
Book
loss
|
$ | (1,320,080 | ) | $ | (4,439,148 | ) | ||
Other
|
23,462 | 4,191 | ||||||
M
& E
|
414 | 3,415 | ||||||
Stock
for wages
|
- | 239,036 | ||||||
Loss
on derivative valuation
|
104,130 | - | ||||||
Impairment
- Goodwill
|
- | 992,254 | ||||||
Accrued
expenses
|
47,101 | 150,028 | ||||||
Options
and warrants expense
|
33,449 | 1,344,955 | ||||||
Related
party payable
|
36,113 | - | ||||||
Deferred
revenues
|
319,183 | - | ||||||
Amortization
of debt discount
|
359,118 | - | ||||||
Change
in valuation allowance
|
397,110 | 1,705,269 | ||||||
$ | - | $ | - |
Deferred
income tax assets (liabilities) are comprised of the following as of December
31:
71
2009
|
2008
|
|||||||
Net
operating loss
|
$ | 4,223,605 | $ | 3,826,495 | ||||
Related
party accruals
|
223,081 | 186,968 | ||||||
Accrued
expenses
|
58,652 | 143,382 | ||||||
Deferred
revenues
|
319,183 | - | ||||||
Valuation
allowance
|
(4,824,521 | ) | (4,156,845 | ) | ||||
$ | - | $ | - |
At
December 31, 2009, the Company had net loss carry forwards available to offset
future taxable income, if any, of approximately $10,800,000, which will begin to
expire in 2019. The utilization of the net operating loss carryforwards is
dependent on tax laws in effect at the time the net operating loss carryforwards
can be utilized. The Tax Reform Act of 1986 significantly limits the annual
amount that can be utilized for certain of these carry forwards as a result of
the change in ownership.
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in the tax laws and rates on the date of
enactment.
The
Company recognizes tax benefits from uncertain positions if it is "more likely
than not" that the position is sustainable, based upon its technical merits. The
initial measurement of the tax benefit is the largest amount of tax benefit that
is greater than 50 percent likely of being realized upon ultimate settlement
with a taxing authority having full knowledge of all relevant
information.
The
Company, as a matter of policy, would record any interest and penalties
associated with uncertain tax positions as a component of income tax expense in
its statement of operations. There are no penalties accrued as of
December 31, 2009, as the Company has significant net operating loss carry
forwards, even if certain of the Company’s tax positions were disallowed, it is
not foreseen that the Company would have to pay any taxes in the near future.
Consequently, the Company does not calculate the impact of interest or penalties
on amounts that might be disallowed.
The
Company has not filed any income tax returns for the years ended December 31,
2006, 2007, 2008 and 2009. The following table summarizes the open
tax years for each major jurisdiction:
Jurisdiction
|
Open Tax
Years
|
|
Federal
|
2006
- 2009
|
|
California
|
2006
- 2009
|
|
Louisiana
|
2009
|
As the
Company has significant net operating loss carry forwards, even if certain of
the Company’s tax positions were disallowed, it is not foreseen that the Company
would have to pay any taxes in the near future. Consequently, the Company does
not calculate the impact of interest or penalties on amounts that might be
disallowed.
72
(14) Film
Development Costs
Film
development costs includes the unamortized costs of completed films and films in
production. The capitalized costs include all direct production and
financing costs, capitalized interest and production overhead. The
costs of the film productions are amortized using the
individual-film-forecast-method, whereby the costs are amortized and
participations and residual costs are accrued in proportion that current year’s
revenues bears to managements’ estimate of ultimate revenue at the beginning of
the current year expected to be recognized from exploitation, exhibition or sale
of the film. Ultimate revenue includes estimates over a period not to
exceed ten years following the date of initial release.
Film
development costs are stated at the lower of amortized cost or estimated fair
value. The valuation of the film development costs are reviewed on a
title by title basis, when an event or change in circumstances indicates the
fair value of the film is less than the unamortized cost. The fair
value of the film is determined using managements’ future revenue and cost
estimates in an undiscounted cash flow approach. Additional
amortization is recorded in an amount by which unamortized costs exceed the
estimated fair value of the film. Estimates of future revenue involve
measurement uncertainty and it is therefore possible that reductions in the
carry costs of film development costs may be required as a consequence of
changes in managements’ future revenue estimates.
On
December 10, 2008, the Company purchased Long Distance Films, Inc. to facilitate
the financing and production of the film currently titled “Dead of Night”. Long
Distance Films, Inc. has no assets, liabilities or equity other than 100 shares
of common stock wholly owned by Platinum Studios, Inc. Additionally, Long
Distance Films had recorded no revenue or expenses. As consideration for this
acquisition the Company closed a financing arrangement to provide funding for
the production of “Dead of Night”.
As of
December 31, 2009, all of the film development costs are related to the “Dead of
Night” production. Based on management’s assessment of ultimate
revenue and anticipated release date of the film, $9,380,257 of total film
development of $11,492,135 will be amortized during 2010.
(15)
Subsequent events
On
January 20th, 2010,
the Company filed an S-1 related to the offer and resale of up to 41,000,000
shares of our common stock, par value $0.001 per share, by the selling
stockholder, Dutchess Opportunity Fund II, LP, or "Dutchess". Of such shares,
(i) Dutchess has agreed to purchase 41,000,000 pursuant to the investment
agreement dated June 4, 2010, between Dutchess and us, and (ii) NO shares were
issued to Dutchess in consideration for the investment. Subject to the terms and
conditions of such investment agreement, we have the right to put up to
$5,000,000 million in shares of our common stock to Dutchess. This
arrangement is sometimes referred to as an Equity Line.
We will
not receive any proceeds from the resale of these shares of common stock offered
by Dutchess. We will, however, receive proceeds from the sale of shares to
Dutchess pursuant to the Equity Line. When we put an amount of shares to
Dutchess, the per share purchase price that Dutchess will pay to us in respect
of such put will be determined in accordance with a formula set forth in the
Investment Agreement. Generally, in respect of each put, Dutchess will pay us a
per share purchase price equal to ninety-five percent (95%) of the daily volume
weighted average price of our common stock during the five (5) consecutive
trading day period beginning on the trading day immediately following the date
of delivery of the applicable put notice.
Dutchess
may sell the shares of common stock from time to time at the prevailing market
price on the Over-the Counter (OTC) Bulletin Board, or on an exchange if our
shares of common stock become listed for trading on such an exchange, or in
negotiated transactions. Dutchess is an underwriter within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") in connection with the
resale of our common stock under the Equity Line.
73
PLATINUM
STUDIOS, INC
CONSOLIDATED
BALANCE SHEETS
June
30, 2010
|
December
31, 2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,951,038 | $ | 152,067 | ||||
Restricted
cash
|
54,133 | 127,890 | ||||||
Accounts
receivable, net
|
13,504 | 23,817 | ||||||
Prepaid
expenses
|
22,883 | 156,132 | ||||||
Other
current assets
|
342,017 | 863,234 | ||||||
Total
current assets
|
2,383,575 | 1,323,140 | ||||||
Property
and equipment, net
|
63,100 | 122,295 | ||||||
Film
development costs
|
12,481,846 | 11,492,135 | ||||||
Assets
held for sale
|
20,800 | 40,000 | ||||||
Character
rights, net
|
- | 45,652 | ||||||
Deposits
and other
|
340,909 | 298,118 | ||||||
Total
assets
|
$ | 15,290,230 | $ | 13,321,340 |
The
accompanying footnotes are an integral part of these consolidated financial
statements.
74
PLATINUM
STUDIOS, INC
CONSOLIDATED
BALANCE SHEETS (continued)
June
30, 2010
|
December
31, 2009
|
|||||||
(Unaudited)
|
||||||||
LIABILITIES AND SHAREOLDERS'
DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,669,449 | $ | 1,324,780 | ||||
Accrued
expenses and other current liabilities
|
1,510,563 | 1,325,304 | ||||||
Deferred
revenue
|
1,858,740 | 1,681,653 | ||||||
Short
term notes payable
|
12,696,154 | 12,541,105 | ||||||
Related
party payable
|
285,000 | - | ||||||
Related
party notes payable, net of debt discount
|
3,757,500 | 3,103,973 | ||||||
Warrant
derivative liability
|
1,971,000 | 1,201,000 | ||||||
Accrued
interest - related party notes payable
|
332,553 | 182,003 | ||||||
Capital
leases payable, current
|
22,640 | 48,406 | ||||||
Total
current liabilities
|
24,103,599 | 21,408,224 | ||||||
Capital
leases payable, non-current
|
- | 11,627 | ||||||
Total
liabilities
|
24,103,599 | 21,419,851 | ||||||
Commitments
and Contingencies
|
||||||||
Shareholders'
Deficit:
|
||||||||
Common
stock, $.0001 par value; 500,000,000 shares authorized; 289,646,888 and
271,255,629 issued and outstanding, respectively
|
28,965 | 27,126 | ||||||
Common
stock subscribed
|
571,625 | 732,196 | ||||||
Additional
paid in capital
|
16,254,336 | 15,237,067 | ||||||
Accumulated
deficit
|
(25,668,295 | ) | (24,094,900 | ) | ||||
Total
shareholders' deficit
|
(8,813,369 | ) | (8,098,511 | ) | ||||
Total
liabilities and shareholders' deficit
|
$ | 15,290,230 | $ | 13,321,340 |
The
accompanying footnotes are an integral part of these consolidated financial
statements.
75
PLATINUM
STUDIOS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
revenue
|
$ | 2,065,365 | $ | 86,523 | $ | 2,098,048 | $ | 156,091 | ||||||||
Costs
and expenses:
|
||||||||||||||||
Cost
of revenues (excluding depreciation expense)
|
478,499 | 10,000 | 479,582 | 10,000 | ||||||||||||
Operating
expenses
|
814,461 | 495,583 | 1,414,585 | 1,036,771 | ||||||||||||
Research
and development
|
74,709 | 47,126 | 138,942 | 85,048 | ||||||||||||
Stock
option expense
|
64,622 | - | 108,695 | 100,947 | ||||||||||||
Depreciation
and amortization
|
34,639 | 38,403 | 77,951 | 81,395 | ||||||||||||
Total
costs and expenses
|
1,466,930 | 591,112 | 2,219,755 | 1,314,161 | ||||||||||||
Operating
gain (loss)
|
598,435 | (504,589 | ) | (121,707 | ) | (1,158,070 | ) | |||||||||
Other
income (expense):
|
||||||||||||||||
Gain
on disposition of assets
|
194,020 | - | 194,020 | - | ||||||||||||
Gain
(loss) on settlement of debt
|
82,457 | (30,642 | ) | 82,457 | 481,968 | |||||||||||
Loss
on valuation of derivative liability
|
(1,060,000 | ) | - | (770,000 | ) | - | ||||||||||
Interest
expense
|
(380,578 | ) | (267,470 | ) | (958,165 | ) | (349,298 | ) | ||||||||
Bad
debt expense
|
- | (4,750 | ) | - | (4,750 | ) | ||||||||||
Total
other income (expense):
|
(1,164,101 | ) | (302,862 | ) | (1,451,688 | ) | 127,920 | |||||||||
Income
(loss) before provision for income taxes
|
(565,666 | ) | (807,451 | ) | (1,573,395 | ) | (1,030,150 | ) | ||||||||
Provision
for income taxes
|
- | - | - | - | ||||||||||||
Loss
from continuing operations
|
(565,666 | ) | (807,451 | ) | (1,573,395 | ) | (1,030,150 | ) | ||||||||
Loss
from discontinued operations
|
- | (20,614 | ) | - | (52,354 | ) | ||||||||||
Net
loss
|
$ | (565,666 | ) | $ | (828,065 | ) | $ | (1,573,395 | ) | $ | (1,082,504 | ) | ||||
Basic
and diluted loss per share:
|
||||||||||||||||
Loss
from continuing operations
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||
Loss
from discontinued operations
|
- | (0.00 | ) | - | (0.00 | ) | ||||||||||
Net
loss per share
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||
Basic
and diluted weighted average shares
|
287,060,884 | 267,823,934 | 279,219,105 | 263,625,904 |
The
accompanying footnotes are an integral part of these consolidated financial
statements
76
PLATINUM
STUDIOS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$ | (1,573,395 | ) | $ | (1,082,504 | ) | ||
Adjustments
to reconcile net loss to net cash provided (used) from operating
activities:
|
||||||||
Depreciation
|
32,299 | 37,702 | ||||||
Amortization
|
45,652 | 45,652 | ||||||
Gain
on diposal of assets
|
(194,020 | ) | - | |||||
Gain
on settlement of debt
|
(82,457 | ) | (481,968 | ) | ||||
Equity
instruments issued for services
|
217,290 | 175,101 | ||||||
Amortization
of debt discount
|
729,088 | 156,560 | ||||||
Loss
on valuation of derivative liability
|
770,000 | - | ||||||
Decrease
(increase) in operating assets:
|
||||||||
Restricted
cash
|
73,758 | (784,660 | ) | |||||
Accounts
receivable
|
10,313 | (9,446 | ) | |||||
Film
development costs
|
(948,403 | ) | (12,854,448 | ) | ||||
Prepaid
expenses and other current assets
|
611,675 | (374,322 | ) | |||||
Increase
(decrease) in operating liabilities:
|
||||||||
Accounts
payable and related party payables
|
712,127 | 96,056 | ||||||
Accrued
expenses
|
284,283 | 402,242 | ||||||
Accrued
interest
|
150,550 | 51,974 | ||||||
Deferred
revenue
|
177,087 | 66,667 | ||||||
Net
cash flows provided (used) in operating activities
|
1,015,847 | (14,555,394 | ) | |||||
Cash
flows from investing activities
|
||||||||
Proceeds
from sales of property and equipment and intangibles
|
249,800 | - | ||||||
Investment
in property and equipment
|
(9,685 | ) | (2,956 | ) | ||||
Net
cash flows used in investing activities
|
240,115 | (2,956 | ) | |||||
Cash
flows from financing activities
|
||||||||
Proceeds
from non-related loans
|
899,118 | 13,965,898 | ||||||
Proceeds
from related party loans
|
7,500 | 1,103,534 | ||||||
Payments
on non-related party loans
|
(785,377 | ) | (22,313 | ) | ||||
Payments
on related party loans
|
(83,062 | ) | (514,809 | ) | ||||
Payments
on capital leases
|
(82,644 | ) | (9,598 | ) | ||||
Issuance
of common stock, net of offering costs
|
587,474 | 65,000 | ||||||
Net
cash flows provided by financing activities
|
543,009 | 14,587,712 | ||||||
Net
increase in cash
|
1,798,971 | 29,362 | ||||||
Cash,
at beginning of year
|
152,067 | 42,023 | ||||||
Cash,
at end of period
|
$ | 1,951,038 | $ | 71,385 |
Six Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 71,064 | $ | 48,986 | ||||
Cash
paid for taxes
|
$ | - | $ | - | ||||
Equity
instrument issued for debt discount
|
$ | - | $ | 1,649,000 | ||||
Warrant
derivative liability
|
$ | - | $ | 934,000 | ||||
Non-cash
financing activities related to the acquisition of Wowio,
LLC
|
$ | - | $ | 1,625,804 | ||||
Stock
issued as payments of notes payable, accounts payable and accrued
interest
|
$ | 53,773 | $ | 731,145 |
The
accompanying footnotes are an integral part of these consolidated financial
statements
77
PLATINUM
STUDIOS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2010
(UNAUDITED)
(
1 )
|
Description of
business
|
Nature of operations – The
Company controls a library consisting of more than 5,000 characters and is
engaged principally as a comics-based entertainment company adapting characters
and storylines for production in film, television, publishing and all other
media.
Platinum
Studios, LLC was formed and operated as a California limited liability company
from its inception on November 20, 1996 through September 14, 2006. On September
15, 2006, Platinum Studios, LLC filed with the State of California to convert
Platinum Studios, LLC into Platinum Studios, Inc., (“the Company”, “Platinum”) a
California corporation. This change to the Company structure was made
in preparation of a private placement memorandum and common stock offering in
October, 2006 (Note 12).
On
December 10, 2008, the Company purchased Long Distance Films, Inc. to facilitate
the financing and production of the film currently titled “Dead of
Night”. Long Distance Films, Inc. has no assets, liabilities or
equity other than 100 shares of common stock wholly owned by Platinum Studios,
Inc. No consideration was paid by the Company for the acquisition of Long
Distance Films, Inc.
(
2 )
|
Basis of financial
statement presentation and
consolidation
|
|
The
accompanying unaudited financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles for interim financial statements and with the instructions to
Form 10-Q and Article 10 of Regulation S-X, promulgated by the Securities
and Exchange Commission (the “SEC”). Accordingly, they do not include all
of the information and disclosures required by United States generally
accepted accounting principles for complete financial statements. The
consolidated financial statements include the financial condition and
results of operations of our wholly-owned subsidiary, Long Distance Films,
Inc. and its two wholly-owned subsidiaries Dead Of Night Investment
Company, LLC and Dead Of Night Production Company, LLC. Intercompany
balances and transactions have been eliminated in consolidation. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the fiscal
year. The financial statements should be read in conjunction
with the Company’s December 31, 2009 financial statements and accompanying
notes included in the Company’s Annual Report on Form 10-K (the “Annual
Report”). All terms used but not defined elsewhere herein have
the meanings ascribed to them in the Annual
Report.
|
|
The
balance sheet at December 31, 2009 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by United States generally accepted accounting
principles for complete financial
statements.
|
78
(
3 )
|
Going
concern
|
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred
significant losses which have resulted in an accumulated deficit of $25,668,295
as of June 30, 2010. The Company plans to seek additional financing
in order to execute its business plan, but there is no assurance the Company
will be able to obtain such financing on terms favorable to the Company or at
all. These items raise substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial statements
do not include any adjustments to reflect the possible future effects related to
recovery and classification of assets, or the amounts and classifications of
liabilities that might result from the outcome of this uncertainty.
(
4 )
|
Summary of significant
accounting policies
|
|
Reclassifications –
Certain prior year amounts have been reclassified in order to conform to
the current year’s presentation.
|
Revenue recognition - Revenue
from the licensing of characters and storylines (“the properties”) owned by the
Company are recognized in accordance with FASB guidance where revenue is
recognized when the earnings process is complete. This is considered to have
occurred when persuasive evidence of an agreement between the customer and the
Company exists, when the properties are made available to the licensee and the
Company has satisfied its obligations under the agreement, when the fee is fixed
or determinable and when collection is reasonably assured. The
Company derives its licensing revenue primarily from options to purchase rights,
the purchase of rights to properties and first look deals. For options that
contain non-refundable minimum payment obligations, revenue is recognized
ratably over the option period, provided all the criteria for revenue
recognition have been met. Option fees that are applicable to the purchase price
are deferred and recognized as revenue at the later of the expiration of the
option period or in accordance with the terms of the purchase agreement. Revenue
received under first look deals is recognized ratably over the first look
period, which varies by contract provided all the criteria for revenue
recognition have been met.
For
licenses requiring material continuing involvement or performance based
obligations, by the Company, the revenue is recognized as and when such
obligations are fulfilled.
The
Company records as deferred revenue any licensing fees collected in advance of
obligations being fulfilled or if a licensee is not sufficiently creditworthy,
the Company will record deferred revenue until payments are
received.
License
agreements typically include reversion rights which allow the Company to
repurchase property rights which have not been used by the studio (the buyer) in
production within a specified period of time as defined in the purchase
agreement. The cost to repurchase the rights is generally based on the costs
incurred by the studio to further develop the characters and story
lines.
|
Use of estimates - The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
|
79
|
Cash and cash
equivalents – The Company considers all highly liquid investment
securities with an original maturity date of three months or less to be
cash equivalents.
|
|
Restricted cash – These
funds are related to the draws on a production loan for “Dead of Night”
and can only be used for production expenses related to this
film.
|
|
Concentrations of risk -
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of uninsured cash
balances. The Company maintains its cash balances with what
management believes to be a high credit quality financial institution. At
times, balances within the Company’s cash accounts may exceed the Federal
Deposit Insurance Corporation (FDIC) limit of $250,000. During
the three and ended June 30, 2010 and 2009, the Company had customer
revenues representing a concentration of the Company’s total revenues. For
the three and six months ended June 30, 2010, one customer represented
approximately 99% of total revenues. For the three and six
months ended June 30, 2009, one customer represented approximately 92% of
total revenues.
|
|
Derivative Instruments –
Platinum Studios entered into a Credit Agreement on May 6, 2009,
with Scott Rosenberg in connection with the issuance of two secured
promissory notes and an unsecured promissory note. Two warrants were
issued to Scott Rosenberg in connection with the issuance of various
promissory notes as of May 6, 2009 and June 3,
2009.
|
|
A
description of the notes is as
follows:
|
|
May 6, 2009 Secured
Debt - The May 6, 2009 Secured Debt has an aggregate principal
amount of $2,400,000, and is convertible into shares of the Company’s
common stock at a conversion price of $0.048. The May 6, 2009 Secured Debt
bears interest at the rate of eight percent per annum. Upon the occurrence
of an event of default, the May 6, 2009 Secured Debt bears interest at the
rate of ten percent per annum. Interest is payable upon the expiration of
the notes on May 6, 2010. The original principal amount of $2,400,000 is
to be repaid upon the expiration of the notes on May 6,
2010. The note was subsequently extended thru August 31,
2010. The May 6, 2009 Secured Debt has the following features
that can be considered to be embedded derivatives: (i) the conversion
feature of the notes, (ii) a holder’s right to force a redemption of the
Notes upon an event of default, and, (iii) the increased interest rate
upon an event of default. In connection with this debt the Company also
issued warrants to purchase 25,000,000 shares of the Company’s common
stock for $0.048 per share.
|
|
June 3, 2009 Secured
Debt - The June 3, 2009 Secured Debt has an aggregate principal
amount of $1,350,000, and is convertible into shares of the Company’s
common stock at a conversion price of $0.038. The June 3, 2009 Secured
Debt bears interest at the rate of eight percent per annum. Upon the
occurrence of an event of default, the June 3, 2009 Secured Debt bears
interest at the rate of ten percent per annum. Interest is payable upon
the expiration of the notes on June 3, 2010. The original principal amount
of $1,350,000 is to be repaid upon the expiration of the notes on June 3,
2010. The note was subsequently extended thru August 31,
2010. The Company may prepay the notes at any time. The June 3,
2009 Secured Debt has the following features that can be considered to be
embedded derivatives: (i) the conversion feature of the notes, (ii) a
holder’s right to force a redemption of the Notes upon an event of
default, and, (iii) the increased interest rate upon an event of default.
In connection with this debt the Company also issued warrants to purchase
14,062,500 shares of the Company’s common stock for $0.038 per
share.
|
80
|
June 3, 2009 Unsecured
Debt - The June 3, 2009 Unsecured Debt has an aggregate principal
amount of $544,826, and is convertible into shares of the Company’s common
stock at a conversion price of $0.048. The June 3, 2009 Unsecured Debt
bears interest at the rate of eight percent per annum. Upon the occurrence
of an event of default, the June 3, 2009 Unsecured Debt bears interest at
the rate of ten percent per annum. The Company is required to make
payments of $29,687 per month. The monthly payments are to be applied
first to interest and second to principal. The remaining principal amount
is to be repaid upon the expiration of the note on June 3, 2010. The
Company may prepay the note at any time. The June 3, 2009 Unsecured Debt
has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s
right to force a redemption of the Notes upon an event of default, and,
(iii) the increased interest rate upon an event of default. The
note balance was paid in full on April 1,
2010.
|
|
In
determining the fair market value of the embedded derivatives, we used
discounted cash flows analysis. We also used a binomial option pricing
model to value the warrants issued in connection with these debts. The
Company determined the fair value of the embedded derivatives to be
$715,904 and the fair value of the warrants to be $934,000 as of June 30,
2009. The embedded derivatives have been accounted for as a debt discount
that will be amortized over the one year life of the
notes. Amortization of the debt discount has resulted in a
$263,888 and $729,088 increase to interest expense for the three and six
months ended June 30, 2010,
respectively.
|
|
A
description of the Warrants is as
follows:
|
1)
The May 6, 2009 warrant entitles the holder to purchase up to 25,000,000
shares of the Company’s common stock at a price of $0.048 per share. The May 6,
2009 warrant is exercisable up until May 6, 2019. The May 6, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant are subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
2)
The June 3, 2009 warrant entitles the holder to purchase up to 14,062,500
shares of the Company’s common stock at a price of $0.038 per share. The June 3,
2009 warrant is exercisable up until June 3, 2019. The June 3, 2009 warrant
shall expire and no longer be exercisable upon a change in control. The exercise
price and the number of shares underlying the warrant are subject to
anti-dilution adjustments from time to time if the Company issues common stock
at below the exercise price at that time for the warrants.
|
In
determining the fair market value of the Warrants, we used the binomial
model with the following significant assumptions: exercise
price $0.038 – $0.048, trading prices $0.01 - $0.08, expected volatility
124.4%, expected life of 60 months, dividend yield of 0.00% and a risk
free rate of 3.59%. The fair value of these warrants has been recorded as
part of the debt discount as discussed above as well as being recognized
as a derivative liability. The derivative liability is re-valued at each
reporting date with changes in value being recognized as part of current
earnings. This revaluation for the three and six months ended June 30,
2010 resulted in a loss of $1,060,000 and $770,000,
respectively.
|
81
|
Depreciation -
Depreciation is computed on the straight-line method over the following
estimated useful lives:
|
Fixed assets
|
Useful Lives
|
Furniture
and fixtures
|
7
years
|
Computer
equipment
|
5
years
|
Office
equipment
|
5
years
|
Software
|
3
years
|
Leasehold
improvements
|
Shorter
of lease term or useful economic
life
|
|
Character development
costs - Character development costs consist primarily of costs to
acquire properties from the creator, development of the property using
internal or independent writers and artists, and the registration of a
property for a trademark or copyright. These costs are
capitalized in the year incurred if the Company has executed a contract or
is negotiating a revenue generating opportunity for the
property. If the property derives a revenue stream that is
estimable, the capitalized costs associated with the property are expensed
as revenue is recognized.
|
If the
Company determines there is no determinable market for a property, it is deemed
impaired and is written off.
Fair Value of Financial
Instruments – The carrying values of cash on hand, receivables, payables
and accrued expenses approximate their fair value due to the short period to
maturity of these instruments.
Film development costs – Film
development costs includes the unamortized costs of completed films and films in
production. The capitalized costs include all direct production and
financing costs, capitalized interest and production overhead. The
costs of the film productions are amortized using the
individual-film-forecast-method, whereby the costs are amortized and
participations and residual costs are accrued in proportion that current year’s
revenues bears to managements’ estimate of ultimate revenue at the beginning of
the current year expected to be recognized from exploitation, exhibition or sale
of the film. Ultimate revenue includes estimates over a period not to
exceed ten years following the date of initial release.
Film
development costs are stated at the lower of amortized cost or estimated fair
value. The valuation of the film development costs are reviewed on a
title by title basis, when an event or change in circumstances indicates the
fair value of the film is less than the unamortized cost. The fair
value of the film is determined using managements’ future revenue and cost
estimates in an undiscounted cash flow approach. Additional
amortization is recorded in an amount by which unamortized costs exceed the
estimated fair value of the film. Estimates of future revenue involve
measurement uncertainty and it is therefore possible that reductions in the
carry costs of film development costs may be required as a consequence of
changes in managements’ future revenue estimates.
|
Purchased intangible assets and
long-lived assets – Intangible assets are capitalized at
acquisition costs and intangible assets with definite lives are amortized
on the straight-line basis. The Company periodically reviews
the carrying amounts of intangible assets and property. Long-lived assets,
such as property and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the estimated
undiscounted future cash flows expected to be generated by the asset. If
the carrying amount of an asset exceeds its estimated future cash flows,
the impairment charge to be recognized is measured by the excess of the
carrying amount over the fair value of the
asset.
|
82
|
Advertising costs -
Advertising costs are expensed the later of when incurred or when the
advertisement is first run. For the three and six months ended
June 30, 2010 and 2009, advertising expenses were
$0.
|
Research and development -
Research and development costs, primarily character development costs and design
not associated with an identifiable revenue opportunity, are charged to
operations as incurred. For the three and six months ended June 30,
2010, research and development expenses were $74,709 and $138,942,
respectively. For the three and six months ended June 30, 2009,
research and development expenses were $447,126 and $85,048,
respectively.
Income taxes – Deferred taxes
are provided on a liability method whereby deferred tax assets are recognized
for deductible temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in the tax laws and rates on the date of enactment.
Net income/(loss) per share –
Basic income per share is computed by dividing net income (loss) available to
common stockholders by the weighted average number of shares of common stock
outstanding during the periods, excluding shares subject to repurchase or
forfeiture. Diluted income per share increases the shares outstanding for the
assumption of the vesting of restricted stock and the exercise of dilutive stock
options and warrants, using the treasure stock method, unless the effect is
anti-dilutive.
Recently issued accounting
pronouncements – The FASB issued guidance under Accounting Standards
Update ("ASU") No. 2010-06, "Fair Value Measurements and Disclosures". The ASU
requires certain new disclosures and clarifies two existing disclosure
requirements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009. We do not expect the adoption of this
guidance to have a material impact on our financial statements.
The FASB
issued guidance under Accounting Standards Update (“ASU”) No. 2010-08,
“Technical Corrections to Various topics. The ASU eliminates certain
inconsistencies and outdate provisions and provides needed
clarifications. The changes are generally nonsubstantive nature and
will not result in pervasive changes to current practice. However,
the amendments that clarify the guidance on embedded derivatives and hedging
(ASU Subtopic 815-15) may cause a change in the application of the
Subtopic. The clarifications of the guidance on embedded derivatives
and hedging (Subtopic 815-15) are effective for fiscal years beginning after
December 15, 2009.
On
February 24, 2010, the FASB issued Accounting Standards Update (ASU) 2010-09,
Amendments to Certain Recognition and Disclosure Requirements. The amendments to
the FASB Accounting Standards Codification (TM) (ASC) 855, Subsequent Events,
included in the ASU make a number of changes to the existing requirements of ASC
855. The amended guidance was effective on its issuance date, except that the
use of the issued date by conduit bond obligors will be effective for interim or
annual periods ending after June 15, 2010. As a result of the amendments, SEC
filers that file financial statements after February 24, 2010 are not required
to disclose the date through which subsequent events have been
evaluated.
83
( 5 )
|
Property
and equipment
|
|
Property
and equipment are recorded at cost. The cost of repairs and maintenance
are expensed when incurred, while expenditures refurbishments and
improvements that significantly add to the productive capacity or extend
the useful life of an asset are capitalized. Upon asset
retirement or disposal, any resulting gain or loss is included in the
results of operations.
|
June 30, 2010
|
||||||||
(Unaudited)
|
December 31, 2009
|
|||||||
Property
and equipment, cost:
|
||||||||
Office
equipment
|
$ | 5,818 | $ | 13,207 | ||||
Furniture
and fixtures
|
78,335 | 118,140 | ||||||
Computer
equipment
|
76,102 | 149,387 | ||||||
Software
|
74,251 | 93,149 | ||||||
Leasehold
improvements
|
5,200 | 20,557 | ||||||
239,706 | 394,440 | |||||||
Less
accumulated depreciation
|
(176,606 | ) | (272,145 | ) | ||||
Net
property and equipment
|
$ | 63,100 | $ | 122,295 |
(
6 )
|
Character
Rights
|
Character
rights are recorded at cost. On June 12, 2008, the Company received a valuation
of its intellectual property which consists of a library of comic characters.
The valuation provides that the fair market value exceeds the Company’s
cost. The Top Cow rights agreement expired in June,
2010. The Company continues to have rights on certain projects that
are in development for an additional year and potentially beyond if certain
milestones are achieved.
84
(
7 )
|
Short-term and
long-term debt
|
Short-term debt
|
June 30, 2010
(Unaudited)
|
December 31,
2009
|
||||||
Loan
payable to officer - uncollateralized; interest only at 5%. Due upon
demand.
|
$ | - | $ | 1,405 | ||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
100,000 | 100,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
25,000 | 25,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due July 1, 2010.
|
239,177 | 253,283 | ||||||
Bank
line of credit - uncollateralized; payable in monthly installments of 5%
of principal plus interest
|
43,708 | 50,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
28,328 | 28,328 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
10,000 | 10,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
10,000 | 10,000 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
63,983 | 89,780 | ||||||
Loan
payable to shareholder - uncollateralized; payable in monthly installments
of interest only at 12%. Due upon demand.
|
300,000 | 300,000 |
85
(
7 )
|
Short-term and
long-term debt (continued)
|
Short-term debt
|
June 30, 2010
(Unaudited)
|
December 31,
2009
|
||||||
Loan
payable to unrelated party, non interest bearing and due on
demand
|
200,000 | - | ||||||
Loan
payable to related party - uncollateralized; payable in monthly
installments of interest only at 8%. Due upon demand.
|
7,500 | - | ||||||
Loan
payable to officer - The interest rate is 8.00%. Balance plus accrued
interest is due August 31, 2010.
|
1,350,000 | 1,350,000 | ||||||
Loan
payable to officer - payable in monthly installments of $29,688 per month.
The interest rate is 8.00%. Balance due June 3, 2010.
|
- | 81,657 | ||||||
Loan
payable to officer - The interest rate is 8.00%. Balance plus accrued
interest is due August 31, 2010.
|
2,400,000 | 2,400,000 | ||||||
Standard
Chartered Bank note payable of $13,365,000 loan collateralized by all
rights in the sales agency agreement and the distribution agreement in
connection with the film "Dead of Night". Interest rate of Libor plus 2%,
due April 1, 2011 at the latest.
|
11,190,958 | 10,945,932 | ||||||
Omnilab
Pty Ltd - 10% funded of gap investment of $4,850,000 for production "Dead
of Night," to be recovered from gross receipts in North
America. Interest rate of 4.09%, due April 1, 2011 at the
latest.
|
485,000 | 485,000 | ||||||
DON
Tax Credits, LLC - collateralized by the Louisiana motion picture
investor, tax credits issued by the State of Louisiana and by the Parish
of Jefferson, Louisiana. Interest rate of 7%. Due October 1,
2009.
|
- | 243,782 | ||||||
Discounts
on related party debt
|
- | (729,088 | ) | |||||
Total
short-term debt
|
16,453,654 | 15,645,079 | ||||||
less:
related party notes payable, net of discounts
|
3,757,500 | 3,103,974 | ||||||
Total
short-term notes payable
|
$ | 12,696,154 | $ | 12,541,105 |
86
(
8 )
|
Operating and capital
leases
|
|
The
Company has entered into operating leases having expiration dates through
2011 for real estate and various equipment needs, including office
facilities, computers, office equipment and a
vehicle.
|
On July
10, 2006, the Company entered into an operating agreement for the lease of real
property located in Los Angeles, California. The agreement has a five
year term, commencing September 1, 2006 and ending August 31, 2011. The Company
is currently in default of its lease agreement and has abandoned the leasehold
as of June 30, 2010.
On May
18,
2010, the Company entered into an operating agreement for the lease of
real property located in Los Angeles, CA. The agreement has a three
year term commencing on June 15, 2010 and ending on June 15, 2013.
Rent
expense under non-cancelable operating leases was $99,802 and $184,807 for the
three and six months ended June 30, 2010, respectively.
The
Company has various non-cancelable leases for computers, software, and
furniture, at a cost of $195,434 and $264,248 at June 30, 2010 and December 31,
2009, respectively. The capital leases are secured by the assets
which cannot be freely sold until the maturity date of the lease. Accumulated
amortization for equipment under capital lease totaled $146,146 and $174,569 at
June 30, 2010 and December 31, 2009, respectively. The Company is currently in
default on a majority of its lease agreements and as a result, all future
payments are immediately due. The Company is negotiating settlements on the
leases in default.
At June
30, 2010, future minimum rental payments required under non-cancelable capital
leases that have initial or remaining terms in excess of one year are as
follows:
Years Ending December 31,
|
Capital Leases
|
|||
2010
|
$ | 12,000 | ||
2011
|
12,000 | |||
2012
|
- | |||
Thereafter
|
- | |||
Total
minimum obligations
|
24,000 | |||
Less
amounts representing interest
|
1,360 | |||
Present
value of net minimum obligations
|
22,640 | |||
Less
current portion
|
- | |||
Long-term
portion
|
$ | 22,640 |
(
9 )
|
Commitments and
Contingencies
|
As of
June 30, 2010, eight unsecured short term notes totaling $776,488 have exceeded
their maturity date, are due upon demand, and could be considered in default.
The Company is currently negotiating with the note holders to extend the
maturity dates of these notes.
87
The
Company’s legal proceeds are as follows:
Transcontinental Printing v.
Platinum. On or about July 2, 2009, Transcontinental Printing, a New York
corporation, filed suit against the Company in Superior Court, County of Los
Angeles (Case No. SC103801) alleging that the Company failed to pay for certain
goods and services provided by Transcontinental in the total amount of $106,593.
The Company believes that Transcontinental failed to mitigate damages and,
therefore, the amount owed is in dispute. The Company settled the
suit agreeing to pay $92,000 plus interest at 10% per annum with a payment
schedule of $2,000 per month for five months and then increasing to $10,000 per
month until paid in full. The company has made all scheduled payments
to date.
Harrison Kordestani v. Platinum.
Harrison Kordestani was a principal of Arclight Films, with whom the
Company had entered into a film slate agreement. One of the properties that had
been subject to the slate agreement was “Dead of Night.” Arclight fired Mr.
Kordestani and subsequently released Dead of Night from the slate agreement. In
late January 2009, Mr. Krodestani had an attorney contact the Company as well as
its new partners who were on the verge of closing the financing for the “Dead of
Night.” Mr. Kordestani, through his counsel, claimed he was entitled to
reimbursement for certain monies invested in the film while it had been subject
to the Arclight slate agreement. Mr. Krodestani’s claim was wholly without merit
and an attempt to force an unwarranted settlement because he knew we were about
to close a deal. We responded immediately through outside counsel and asserted
that he was engaging in extortion and the company would pursue him vigorously if
he continued to try and interfere with our deal. The company has not heard
anything further from Mr. Kordestani but will vigorously defend any suit that
Mr. Kordestani attempts to bring.
TBF Financial Inc. v.
Platinum. On or about August 20, 2009, TB Financial, Inc. filed suit
against the Company in the Superior Court of California, County of Los Angeles
(Case No. BC420336) alleging that the Company breached a written lease agreement
for computer equipment and seeking damages of $42,307 plus interest at a rate of
ten percent (10%) per annum from July 7, 2008. On November 19, 2009, TB
Financial filed a Request for Default against the Company; however, the Company
turned the matter over to Company counsel to oppose any requests for
default. On February 24, 2010, a default judgment was entered against
the Company in the amount of $51,506 and the Company received a request for Writ
of Execution on March 1, 2010. On May 19, 2010, the Company settled
with TBF Financial for $30,000 with three payments of $1,000 due on May 19, 2010
and June and July 15, 2010 with a final payment of $27,000 on July 31,
2010. The Company has made all scheduled payments to
date.
Rustemagic v. Rosenberg &
Platinum Studios. On or about June 30, 2009, Ervin Rustemagic filed suit
against the Company and its President, Scott Rosenberg, in the California
Superior Court for the County of Los Angeles (Case No. BC416936) alleging that
the Company (and Mr. Rosenberg) breached an agreement with Mr. Rustemagic
thereby causing damages totaling $125,000. According to the Complaint, Mr.
Rustemagic was to receive 50% of producer fees paid in connection with the
exploitation of certain comics-based properties. Rustemagic claims that he
became entitled to such fees and was never paid. The Company and Rosenberg deny
that Rustemagic is entitled to the gross total amount of money he is seeking.
The matter has now been removed to arbitration.
88
Douglass Emmet v. Platinum Studios
On August 20, 2009, Douglas Emmet 1995, LLC filed an Unlawful Detainer
action against the Company with regard to the office space currently occupied by
the Company. The suit was filed in the California Superior Court, County of Los
Angeles, (Case No. SC104504) and alleged that the Company had failed to make
certain lease payments to the Plaintiff and was, therefore, in default of its
lease obligations. The Plaintiff prevailed on its claims at trial and,
subsequently, on October 14, 2009 entered into a Forbearance Agreement with the
Company pursuant to which Douglas Emmet agreed to forebear on moving forward
with eviction until December 31, 2009, if the Company agreed to pay to Douglas
Emmet 50% of three month’s rent, in advance, for the months of October, November
and December 2009. As of January 1, 2010, the Company was required to pay to
Douglas Emmet the sum of $466,752 to become current under the existing lease or
face immediate eviction and judgment for that amount. Prior to January 1, 2010,
Douglas Emmet agreed to a month-to-month situation where Platinum pays 50% of
its rent at the beginning of the month and the landlord holds back on eviction
and enforcement of judgment while they evaluated whether they will consider
negotiating a new lease with the Company that would potentially demise some of
the Company’s current officer space back to the landlord as well as potentially
forgive some of the past due rent. As of June 30, 2010, the Company has
abandoned the leasehold and moved to new offices.
With
exception to the litigation disclosed above, we are not currently a party to,
nor is any of our property currently the subject of, any additional pending
legal proceeding that will have a material adverse effect on our business, nor
are any of our directors, officers or affiliates involved in any proceedings
adverse to our business or which have a material interest adverse to our
business.
(
10 )
|
Film Development
Costs
|
Film
development cost includes the unamortized costs of completed films and films in
production. The capitalized costs include all direct production and
financing costs, capitalized interest and production overhead. The
costs of the film productions are amortized using the
individual-film-forecast-method, whereby the costs are amortized and
participations and residual costs are accrued in proportion that current year’s
revenues bears to managements’ estimate of ultimate revenue at the beginning of
the current year expected to be recognized from exploitation, exhibition or sale
of the film. Ultimate revenue includes estimates over a period not to
exceed ten years following the date of initial release.
Film
development costs are stated at the lower of amortized cost or estimated fair
value. The valuation of the film development costs are reviewed on a
title by title basis, when an event or change in circumstances indicates the
fair value of the film is less than the unamortized cost. The fair
value of the film is determined using managements’ future revenue and cost
estimates in an undiscounted cash flow approach. Additional
amortization is recorded in an amount by which unamortized costs exceed the
estimated fair value of the film. Estimates of future revenue involve
measurement uncertainty and it is therefore possible that reductions in the
carry costs of film development costs may be required as a consequence of
changes in managements’ future revenue estimates.
On
December 10, 2008, the Company purchased Long Distance Films, Inc. to facilitate
the financing and production of the film currently titled “Dead of Night”. Long
Distance Films, Inc. has no assets, liabilities or equity other than 100 shares
of common stock wholly owned by Platinum Studios, Inc. Additionally, Long
Distance Films had recorded no revenue or expenses. As consideration for this
acquisition the Company closed a financing arrangement to provide funding for
the production of “Dead of Night”.
As of
June 30, 2010, all of the film development costs are related to the “Dead of
Night” production. Based on management’s assessment of ultimate
revenue and anticipated release date of the film, the total film development
cost of $12,481,846 will be amortized during 2011.
89
(
11 )
|
Related party
transactions
|
The
Company has an exclusive option to enter licensing of rights for agreements to
individual characters, subject to existing third party rights, within the RIP
Awesome Library of RIP Media, Inc., specific and only to those 404 Awesome
Comics characters currently owned and controlled by RIP Media, Inc, a schedule
of which has been provided to the Company. Rip Media, Inc is a related entity in
which Scott Rosenberg is a majority shareholder. Such licensing option includes
all rights worldwide, not including print and digital comic publishing rights.
The ownership of the intellectual property in its entirety, including copyright,
trademark, and all other attributes of ownership including but not limited to
additional material created after a license agreement from Rip Media to Platinum
Studios, Inc (and however disbursed thereafter) shall be, stay and remain that
of Rip Media in all documents with all parties, including the right to revoke
such rights upon breaches, insolvency of the Company or insolvency of the
licensee (s) or others related to exploitation of the intellectual property, and
Platinum is obligated to state same in all contracts. In some cases, there
are some other limitations on rights. Any licensing of rights from Rip Media to
the Company is contingent upon and subject to Platinum’s due diligence and
acceptance of Chain of Title. Currently, we have the above exclusive right to
enter into agreements related to the licensing of motion picture rights and
allied/ancillary rights until the date upon which Platinum Studios CEO, Scott
Mitchell Rosenberg is no longer the Company s CEO and Chairman of the Board and
holds at least 30% of the outstanding capital stock of the Company. Rip Media
Inc retains the right on the above characters to enter directly into agreements
to license rights, negotiate and sign option agreements with other parties in so
far as Platinum is made aware of the agreement prior to its signing, and that
there is economic participation to Platinum in a form similar to its agreement
with Rip Media in general, and that if there is a material to change to the
formula, that Platinum’s Board of Directors may require specific changes to the
proposed agreement such that it conforms with other licenses from Rip Media made
from January 1, 2010 forward. If the material change is cured, then Rip’s rights
to enter into an agreement, still subject to its financial arrangement with
Platinum, remain the same. We do not have access to other characters,
stories, rights (including trademarks, trade names, url’s) controlled by
Rosenberg or his related entities. In regards to new acquisitions, including
trademarks, Rip Media must present to Platinum, for Platinum’s acquisition, any
rights it desires to acquire, and may only acquire if Platinum does not choose
to acquire (within 5 business days of notice), however this acquisition
restriction on Rip Media does not apply to any properties or trademarks or
trade names or copyrights or rights of any kind that Scott Rosenberg or
any of his related entities or rights to entities he may own or acquire or
create that are, used to be, or could be related in any fashion to Malibu Comics
or Marvel Comics, including trademarks and trade names that may be acquired by
Rip Media or other Rosenberg entities due to expiration or abandonment by
Malibu, Marvel or other prior owners of marks from other comics or rights
related companies, or, such as with trademarks, marks that may be similar only
in name or a derivative of a name, which Rip has the unfettered right to acquire
and exploit without compensation to Platinum. For the six months
ended June 30, 2010, RIP Media, Inc. earned $475,000 under this arrangement of
which $190,000 was paid in cash and $285,000 was accrued.
Scott
Mitchell Rosenberg is attached and credited at his election as producer or
executive producer, without offset, to provide production consulting
services to the Company’s Customers (Customer) (including but not limited to
production companies, studios, financiers and any company related to filmed
entertainment or audio visual productions) on all audio visual productions
through Scott Mitchell Rosenberg Productions (another related entity which
is often, in the entertainment industry, referred to as a “loan-out” company)
wholly owned or controlled by Scott Mitchell Rosenberg or related entities.
Rosenberg’s right is absolute and not subject to restriction or offset by
Company. Often, at the time the Company enters into an agreement with a
Customer, a separate contract is entered into between the related entity and the
Customer. In addition, consulting services regarding development of characters
and storylines may also be provided to the Company by this related entity.
Revenue would be paid directly to the related entity by the
Customer.
90
|
The
Company entered into a Credit Agreement on May 6, 2009, with Scott
Rosenberg in connection with the issuance of two secured promissory notes
and an unsecured promissory note. Two warrants were issued to Scott
Rosenberg in connection with the issuance of various promissory notes as
of May 6, 2009 and June 3, 2009. During the six months ended
June 30, 2010, the Company made principle payments to Scott Rosenberg on
the unsecured debt in the amount of
$73,266.
|
|
A
description of the notes is as
follows:
|
|
May 6, 2009 Secured
Debt - The May 6, 2009 Secured Debt has an aggregate principal
amount of $2,400,000, and is convertible into shares of the Company’s
common stock at a conversion price of $0.048. The May 6, 2009 Secured Debt
bears interest at the rate of eight percent per annum. Upon the occurrence
of an event of default, the May 6, 2009 Secured Debt bears interest at the
rate of ten percent per annum. Interest is payable upon the expiration of
the notes on May 6, 2010. The original principal amount of $2,400,000 is
to be repaid upon the expiration of the notes on May 6, 2010. The note was
subsequently extended thru August 31, 2010. The May 6, 2009
Secured Debt has the following features that can be considered to be
embedded derivatives: (i) the conversion feature of the notes, (ii) a
holder’s right to force a redemption of the Notes upon an event of
default, and, (iii) the increased interest rate upon an event of default.
In connection with this debt the Company also issued warrants to purchase
25,000,000 shares of the Company’s common stock for $0.048 per
share.
|
|
June 3, 2009 Secured
Debt - The June 3, 2009 Secured Debt has an aggregate principal
amount of $1,350,000, and is convertible into shares of the Company’s
common stock at a conversion price of $0.038. The June 3, 2009 Secured
Debt bears interest at the rate of eight percent per annum. Upon the
occurrence of an event of default, the June 3, 2009 Secured Debt bears
interest at the rate of ten percent per annum. Interest is payable upon
the expiration of the notes on June 3, 2010. The original principal amount
of $1,350,000 is to be repaid upon the expiration of the notes on June 3,
2010. The note was subsequently extended thru August 31, 2010. The Company
may prepay the notes at any time. The June 3, 2009 Secured Debt has the
following features that can be considered to be embedded derivatives: (i)
the conversion feature of the notes, (ii) a holder’s right to force a
redemption of the Notes upon an event of default, and, (iii) the increased
interest rate upon an event of default. In connection with this debt the
Company also issued warrants to purchase 14,062,500 shares of the
Company’s common stock for $0.038 per
share.
|
|
June 3, 2009 Unsecured
Debt - The June 3, 2009 Unsecured Debt has an aggregate principal
amount of $544,826, and is convertible into shares of the Company’s common
stock at a conversion price of $0.048. The June 3, 2009 Unsecured Debt
bears interest at the rate of eight percent per annum. Upon the occurrence
of an event of default, the June 3, 2009 Unsecured Debt bears interest at
the rate of ten percent per annum. The Company is required to make
payments of $29,687.50 per month. The monthly payments are to be applied
first to interest and second to principal. The remaining principal amount
is to be repaid upon the expiration of the note on June 3, 2010. The
Company may prepay the note at any time. The June 3, 2009 Unsecured Debt
has the following features that can be considered to be embedded
derivatives: (i) the conversion feature of the notes, (ii) a holder’s
right to force a redemption of the Notes upon an event of default, and,
(iii) the increased interest rate upon an event of default. The
note balance was paid in full on April 1,
2010.
|
91
|
In
determining the fair market value of the embedded derivatives, we used
discounted cash flows analysis. We also used a binomial option pricing
model to value the warrants issued in connection with these debts. The
Company determined the fair value of the embedded derivatives to be
$715,904 and the fair value of the warrants to be $934,000 as of June 30,
2009. The embedded derivatives have been accounted for as a debt discount
that will be amortized over the one year life of the
notes. Amortization of the debt discount has resulted in a
$263,888 and $729,088 increase to interest expense for the three and six
months ended June 30, 2010,
respectively.
|
|
A
description of the Warrants is as
follows:
|
1)
The May 6, 2009 warrant entitles the holder to purchase up to 25,000,000 shares
of the Company’s common stock at a price of $0.048 per share. The May 6, 2009
warrant is exercisable up until May 6, 2019. The May 6, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
2)
The June 3, 2009 warrant entitles the holder to purchase up to
14,062,500 shares of the Company’s common stock at a price of $0.038 per share.
The June 3, 2009 warrant is exercisable up until June 3, 2019. The June 3, 2009
warrant shall expire and no longer be exercisable upon a change in control. The
exercise price and the number of shares underlying the warrant is subject to
anti-dilution adjustments from time to time if the Company issues common stock
at below the exercise price at that time for the warrants.
|
In
determining the fair market value of the Warrants, we used the binomial
model with the following significant assumptions: exercise
price $0.038 – $0.048, trading prices $0.01 - $0.08, expected volatility
124.4%, expected life of 60 months, dividend yield of 0.00% and a risk
free rate of 3.59%. The fair value of these warrants has been recorded as
part of the debt discount as discussed above as well as being recognized
as a derivative liability. The derivative liability is re-valued at each
reporting date with changes in value being recognized as part of current
earnings. This revaluation for the three and six months ended June 30,
2010 resulted in a loss of $1,060,000 and $770,000,
respectively.
|
In June,
2010, the Company consummated a sale of its Drunkduck.com website to an
affiliate of Brian Altounian, President and Chief Operating Officer of the
Company. The sale includes all components of the website, all
copyrights, trade secrets, trademarks, trade names and all material contracts
related to the website’s operations. The selling price totaled
$1,000,000 comprised of $500,000 in cash and $500,000 in future royalties. The
Company has already received $240,000 of the cash proceeds. The
balance of the cash proceeds is due as follows: $25,000 on July 9, 2010, $35,000
on August 13, 2010 and $200,000 by October 28, 2010. The Company will
also receive payments equal to ten percent of Net Revenues generated from the
website until the $500,000 of royalties is received. The Company
retains partial ownership until the total selling price has been
received.
(
12 )
|
Shareholders
equity
|
In March
2010, the Company issued to a consultant 183,000 shares of common stock for
$0.05/share which represented market value on the date of issuance totaling
$9,150. Related services represented a finders’ fee associated with the current
private placement with the value of the services charged to additional paid-in
capital.
92
In April
2010, the Company issued 15,143,924 in fulfillment of previously received common
stock subscriptions. The Company also issued 2,764,355 shares with a
value of $138,217 as payment for services and accrued wages. The
Company issued an additional 300,000 shares to Brian Altounian, the President of
the Company, with a value of $15,000 for salary due.
As of
June 30, 2010, the Company had sold 11,432,000 shares related to a private
placement offering valued at $571,625. The related shares had not been issued at
June 30, 2010 and accordingly, the $571,625 value of the shares sold has been
included in Common Stock Subscribed at June 30, 2010.
(
13 )
|
Common
stock equivalents
|
Warrants and options outstanding at
June 30, 2010 are summarized as follows:
Outstanding
|
Exercisable
|
|||||||||||||||||||
Number
Outstanding
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||||||||||
Warrants
outstanding, December 31, 2009
|
41,958,600 | 1.78 | $ | 0.10 | 41,958,600 | $ | 0.10 | |||||||||||||
Granted
|
- | - | - | - | - | |||||||||||||||
Warrants
outstanding, June 30, 2010
|
41,958,600 | 1.78 | $ | 0.10 | 41,958,600 | $ | 0.10 | |||||||||||||
As
of June 30, 2010, no warrants have been exercised.
|
||||||||||||||||||||
Options
outstanding December 31, 2009
|
19,085,000 | 6.25 | $ | 0.10 | 18,547,190 | $ | 0.10 | |||||||||||||
Granted
|
2,000,000 | 4.03 | 0.06 | 1,700,000 | 0.06 | |||||||||||||||
Forfeited
|
(100,000 | ) | - | (0.10 | ) | (500,000 | ) | (0.10 | ) | |||||||||||
Options
outstanding June 30, 2010
|
20,985,000 | 6.03 | $ | 0.10 | 19,747,190 | $ | 0.10 |
(
14 )
|
Income
taxes
|
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in the tax laws and rates on the date of
enactment.
The
Company recognizes tax benefits from uncertain positions if it is "more likely
than not" that the position is sustainable, based upon its technical merits. The
initial measurement of the tax benefit is the largest amount of tax benefit that
is greater than 50 percent likely of being realized upon ultimate settlement
with a taxing authority having full knowledge of all relevant
information.
93
The
Company, as a matter of policy, would record any interest and penalties
associated with uncertain tax positions as a component of income tax expense in
its statement of operations. There are no penalties accrued as of
June 30, 2010, as the Company has significant net operating loss carry forwards,
even if certain of the Company’s tax positions were disallowed, it is not
foreseen that the Company would have to pay any taxes in the near future.
Consequently, the Company does not calculate the impact of interest or penalties
on amounts that might be disallowed.
(
15 )
|
Subsequent
events
|
Subsequent
to June 30, 2010, the Company received subscriptions to purchase 1,470,000
shares of common stock for a total of $73,500 under a Private
Placement. In July, 2010, the Company made the final payment of
$27,000 on the TBF Financial, Inc. settlement.
94
COMMON
STOCK
PROSPECTUS
Through
and including November 12, 2010 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other
Expenses of Issuance and Distribution
The
following table sets forth expenses in connection with the issuance and
distribution of the securities being registered. All amounts shown are
estimated, except the SEC registration fee.
SEC
registration fee
|
$ | 115 | ||
Legal
fees and expenses
|
5,000 | |||
Accountants'
fees and expenses
|
5,000 | |||
Miscellaneous
fees
|
1,000 | |||
Total
|
11,115 |
Item
14. Indemnification of Directors and
Officers
Our
By-laws, as amended, provide to the fullest extent permitted by California law,
our directors or officers shall not be personally liable to us or our
shareholders for damages for breach of such director's or officer's fiduciary
duty. The effect of this provision of our By-laws, as amended, is to eliminate
our right and our shareholders (through shareholders' derivative suits on behalf
of our company) to recover damages against a director or officer for breach of
the fiduciary duty of care as a director or officer (including breaches
resulting from negligent or grossly negligent behavior), except under certain
situations defined by statute. We believe that the indemnification provisions in
our By-laws, as amended, are necessary to attract and retain qualified persons
as directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
“Act” or “Securities Act”) may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In May, 2007, the Company entered into
indemnification agreements with each of the Officers and Directors of the
Corporation individually.
95
Item
15. Recent
Sales of Unregistered Securities
The
following is a summary of transactions by us within the past three years
involving sales of our securities that were not registered under the Securities
Act. Each offer and sale was exempt from registration under either Section 4(2)
of the Securities Act or Rule 506 under Regulation D of the Securities Act
because (i) the securities were offered and sold only to accredited investors;
(ii) there was no general solicitation or general advertising related to the
offerings; (iii) each investor was given the opportunity to ask questions and
receive answers concerning the terms of and conditions of the offering and to
obtain additional information; (iv) the investors represented that they were
acquiring the securities for their own account and for investment; and (v) the
securities were issued with restrictive legends.
On
February 20, 2009 the Company opened a Private Placement round, offering up to
30,000,000 shares of common stock at an offer price of
$0.05/share. As of April 1, 2009, the Company had sold 1,300,000
shares for a total of $65,000.
In
September 2009, the Company opened a Private Placement round offering up to
30,000,000 shares of common stock at an offer price of $0.05 per
share. This round was completed on December 21, 2009 with the Company
selling 19,250,821 shares valued at $962,541 in cash and debt
conversion.
Item
16. Exhibits and
Financial Statement Schedules
The
exhibits set forth under the caption “Exhibit Index” below are included in this
filing and incorporated by reference. The financial statement
schedules have been omitted because they are not applicable, not required, or
the information is included in the consolidated financial statements or notes
thereto.
Item
17. Undertakings
The
undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To
include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
ii. To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
iii. To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
96
2. That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
4. That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this Registration Statement on Form S-1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Los Angeles, State
of California, on October 18, 2010.
PLATINUM
STUDIOS, INC.
|
||
By:
|
/s/ Scott Mitchell
Rosenberg
|
|
Name:
|
Scott
Mitchell Rosenberg
|
|
Title:
|
Chief
Executive Officer
|
97
POWER
OF ATTORNEY
We, the
undersigned officers and directors of Platinum Studios, Inc., do hereby
constitute and appoint Scott Mitchell Rosenberg and Brian Altounian, and each of
them individually, our true and lawful attorney-in-fact and agent with full
power of substitution and re-substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, or any related
registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
on Form S-1 has been signed below by the following persons in the
capacities and on the dates indicated.
Name
|
Title
|
Date
|
||
/s/
Scott
Mitchell Rosenberg
|
Chief
Executive Officer and Chairman
|
October
18, 2010
|
||
Scott
Mitchell Rosenberg
|
(Principal
Executive Officer)
|
|||
/s/
Brian
Altounian
|
President, Chief Operating Officer, Principal
|
October
18, 2010
|
||
Brian
Altounian
|
Financial
& Accounting Officer and Director
(Principal
Financial and Accounting Officer)
|
|||
/s/
Jill
Zimmerman
|
Director
|
October
18, 2010
|
||
Jill
Zimmerman
|
||||
/s/
Mark Canton
|
Director
|
October
18, 2010
|
||
Mark
Canton
|
98
EXHIBIT
INDEX
Exhibit
Number
|
Description
of Exhibit
|
|
5.1
|
Opinion
of Legal Counsel, Dieterich & Mazarei
|
|
10.17
|
Investment
Agreement between Platinum Studios, Inc. and Dutchess Opportunity Fund,
II, LP, dated June 4, 2010*
|
|
10.18
|
Registration
Rights Agreement between Platinum Studios, Inc. and Dutchess Opportunity
Fund, II, LP, dated June 4, 2010*
|
|
23.1
|
Consent
of Dieterich & Mazarei (Legal Counsel) (included in Exhibit
5.1)
|
|
23.2
|
Consent
of Auditor
|
*filed
with the Company’s Form 8-K on June 11, 2010
99