SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
FOR
ANNUAL AND TRANSITIONAL REPORTS UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
(MARK
ONE)
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR
FISCAL YEAR ENDED DECEMBER 31, 2005
[
]
TRANSITION REPORT PURSUANT TO SECTION 13 OR
SECTION
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION
FILE NUMBER: 000-30785
CAMELOT
ENTERTAINMENT GROUP, INC.
(EXACT
NAME OF SMALL BUSINESS REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
52-2195605
(State
or
other jurisdiction (I.R.S. Employer
of
incorporation or organization) Identification No.)
CAMELOT
ENTERTAINMENT GROUP, INC.
2020
Main
Street, Suite 990
Irvine,
California 92614
(Address
of principal executive offices) (Zip Code)
(949)
777-1080
Registrant's
telephone number, including area code
SECURITIES
REGISTERED UNDER SECTION 12(B) OF THE ACT:
NONE
SECURITIES
REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
(TITLE
OF
CLASS)
COMMON
STOCK, PAR VALUE $0.001
Check
whether the issuer (1) filed all reports required to be filed by
Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter
period that the registrant was required to file such reports), and (2)
has
been
subject to such filing requirements for the past 90 days.
Yes
[X]
No [ ]
Check
if
no disclosure of delinquent filers in response to Item 405 of
Regulation
S-B is contained in this form, and no disclosure will be contained,
to
the
best of registrant's knowledge, in definitive proxy or information
statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment
to this Form 10-KSB. [X]
The
approximate aggregate market value of 20,841,935Common Stock shares held by
non-affiliates of the Registrant, based on 93,649,589 total outstanding shares
less 72,807,654 shares held by affiliates for a total
of
20,841,935 non-affiliated shares at a market price of $.037, was $771,152 as
of
December 31, 2005. Total market value of all outstanding shares was $3,465,035
as of December 31, 2005.
On
December 31, 2005, the Registrant had outstanding 93,649,589 shares
of
Common
Stock,
$0.001 par value.
The
Registrant's revenues for the year ended December 31, 2005 were $0.
DOCUMENTS
INCORPORATED BY REFERENCE: SEE ITEM 13
TABLE
OF
CONTENTS
FORM
10-KSB ANNUAL REPORT
FISCAL
YEAR ENDED DECEMBER 31, 2005
ITEM
F-1
Financial Statements with Footnotes
Signatures
Exhibits
Exhibit
31
Exhibit
32
THIS
REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND WITHIN THE MEANING
OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE
SUBJECT TO THE "SAFE HARBOR" CREATED BY THOSE SECTIONS. THESE FORWARD-LOOKING
STATEMENTS INCLUDE BUT ARE NOT LIMITED TO STATEMENTS CONCERNING OUR BUSINESS
OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY, REVENUES,
EXPENSES OR OTHER FINANCIAL ITEMS; AND STATEMENTS CONCERNING ASSUMPTIONS MADE
OR
EXCEPTIONS AS TO ANY FUTURE EVENTS, CONDITIONS, PERFORMANCE OR OTHER MATTERS
WHICH ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE FEDERAL
SECURITIES LAWS. ALL STATEMENTS, OTHER THAN HISTORICAL FINANCIAL INFORMATION,
MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVES", "PLANS",
"ANTICIPATES", "EXPECTS", AND SIMILAR EXPRESSIONS HEREIN ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO
RISKS, UNCERTAINTIES, AND OTHER FACTORS, WHICH WOULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. FORWARD-LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "FACTORS THAT
MAY
AFFECT FUTURE RESULTS," AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED
IN
THE COMPANY'S OTHER SEC FILINGS.
Business
Development
Background
of the Company
Camelot
Entertainment Group, Inc., a Delaware corporation (the "Company") is in the
business of developing, producing, marketing and distributing motion pictures.
Originally incorporated to provide support, organization and restructuring
services to development stage companies, between October 12, 1999 (“Inception”)
and March 31, 2003, the Company's activities consisted of developing its
business plan, raising capital, business plan implementation, recruiting a
management team and entering into new ventures and alliances with affiliates.
On
March 31, 2003, the Company’s management established a new business model for
the Company, resulting in the Company pursuing the development, production,
marketing and distribution of motion pictures. Since Inception, the Company
has
been in the development stage.
From
inception to December 31, 2005, the Company has had minimal revenues of $59,000
and has expensed 2005 operating costs and preferred stock issuances in the
amount of $4,500,141 resulting in a cumulative net loss of $11,824,859
(including $224,000 in total other income/expense). Historically, the Company
has had nominal cash resources and has been largely dependent on the direct
financial support from a few shareholders, directors and officers along with
limited revenue to pay for cash expenditures. In addition, the Company has
been
dependent on its officers, directors and certain key vendors accepting
restricted common stock for their services.
In
March
2003, the Company reached an agreement with The Corporate Solution, Inc., a
Nevada based business consulting firm, resulting in Robert P. Atwell, President
of The Corporate Solution, becoming President and Chief Executive Officer of
the
Company and Albert Golusin becoming Chief Financial Officer. Former President
Rounsevelle Schaum and Director Jane Olmstead elected to remain on the Company's
Board of Directors. All other directors and committee members either resigned
or
their term expired. On December 1, 2004, Al Golusin resigned as Chief Financial
Officer and Jane Olmstead was appointed as interim Chief Financial Officer.
George Jackson was appointed new Chief Financial Officer in April 2005. During
the first quarter of 2006, Mike Ellis was appointed Chief Operating Officer
and
HK Dyal resigned as director of Camelot Entertainment Group, Inc.
With
the
new management team in place, the Company reached an agreement with Eagle
Consulting Group, Inc., a Nevada based consulting firm (“Eagle”), on March 28,
2003, to provide operational funding for the Company. At the time of the
agreement, Eagle’s President was Tamara Atwell, wife of Company President Robert
P. Atwell. Subsequent to the agreement with Eagle, Robert P. Atwell became
President of Eagle. In exchange for twenty percent (20%)of the Company’s
outstanding common stock on a non-dilutive, continuing basis until the Company
could secure additional financing from another source, Eagle agreed to provide
funding for the Company’s annual audit, quarterly filings, accounts payable and
other ongoing expenses including office, phones, business development, legal
and
accounting fees.
The
Company's new management team put into motion a plan to refine the Company’s
scope and direction while restructuring the overall business framework to
encompass a more diversified business model. As a result, during the second
quarter of 2004, the Company changed its name to Camelot Entertainment Group,
Inc.
Mission
Statement
The
Company’s mission is to establish a presence in the motion picture industry by
developing, producing, marketing and distributing high quality, low budget
motion pictures utilizing new technologies while combining the efficiencies
realized by studios of the early and mid 1900s with the artistic focus and
diversity of today's independent productions.
The
Business Model for Camelot Entertainment Group, Inc.
The
new
management team developed a new business model for implementation during 2004
and continued to enhance its model during 2005. The plan attempts to combine
the
efficiencies realized by studios of the early 1900s, with the artistic focus
and
diversity of today's independent productions. Using this approach, the Company
believes the risk-reward relationship facing the typical film project can be
dramatically shifted. Three key ingredients of the business model are financial
transparency, full-time annualized employment and employee revenue/stock
ownership.
For
example, whereas a typical film pushes artists and directors to rush development
and production in hopes of conserving cash, the Camelot model extends the
pre-production cycle substantially to reduce costs while simultaneously
increasing quality. Similarly, whereas a low-budget picture is severely limited
by the types of postproduction technology used, due to budget constraints,
Camelot intends to invest directly in top of the line technology, spreading
the
costs over a minimum 12 original motion pictures each year. The goal is to
develop the ability to consistently produce films with the look, feel and
artistic content of multi-million dollar pictures, for a fraction of the cost.
We
believe that only a fraction of the writers, directors, actors and other film
production personnel actively seeking motion picture projects are successful
in
any given year. Similarly, we believe that only a small fraction of films in
production in any given year will actually be released and an even smaller
percentage will generate profits. As a result, it is our opinion that
independent filmmakers are often willing to go to great lengths to get a picture
made, sacrificing not only their current standard of living, but also their
claim to potential profits made by the film. Despite these concessions,
relatively few succeed. Our business model is intended to overcome these
obstacles for writers, producers, directors, actors and other personnel that
wish to actively participate in original motion picture projects and are willing
to accept incentive and stock based compensation for a portion of their efforts,
while still receiving full ompensation and benefits.
We
believe that our plan to create our motion pictures should succeed because
our
management team has worked extensively in all phases of motion picture
production. In addition, we are actively seeking to bolster our management
team
with executives who have extensive experience in not only motion picture
production, distribution and marketing, but also in television and other related
fields. This combined experience led our management team to a number of beliefs
upon which our business model for creating our product is founded. These key
views are:
|
·
|
The
manner in which development and pre-production activities are managed
can
have the largest impact on the quality, creative content and the
cost of
creating a motion picture.
|
|
·
|
There
are a number of factors that make it difficult for most production
companies to invest large amounts of time and a proportionally large
share
of a motion picture’s overall budget into development and pre-production
activities.
|
|
·
|
The
factors that make it difficult for many motion picture projects to
invest
a major share of a film’s time and financial resources into development
and pre-production activities may have created a pervasive business
culture that emphasizes moving projects towards principal photography
too
quickly.
|
|
·
|
A
very small percentage of all writers that want to have their screenplays
become completed motion picture projects will ever realize this ambition.
|
|
·
|
A
very small percentage of all directors will participate in principal
photography in any given year.
|
|
·
|
The
percentage of qualified actors that never have the opportunity to
participate in a completed original motion picture that is released
commercially is substantial.
|
|
·
|
There
are large periods of unemployment for many individuals involved in
motion
picture production.
|
We
believe that these observations suggest that the capacity to create motions
pictures, in terms of employable professionals, is far higher than the current
demand of existing film production companies for these services. However, we
also believe that growth in motion picture consumption worldwide has created
increased demand for original motion pictures in general. As a result, we
anticipate that the underemployed, or unemployed, directors, writers and other
film professionals could help fill a void for low cost, quality original motion
picture production, given the right mix of incentives and business structure.
Successfully
creating such low cost, but relatively high quality pictures might result in
a
higher per picture financial return and a lower breakeven point for each film
produced. Also, by distributing these pictures primarily through in-house
distribution professionals, the per picture return might be increased even
further, enabling more motion pictures to be produced by us annually and thereby
diversifying the risk associated with any single film project. These beliefs
form the foundation for our planned business model and strategy.
Recent
Developments
During
2004 and 2005, we began the process of implementing our business plan, including
beginning the critical process of taking the initial steps which hopefully
will
result in us securing funding for the Company and our projects. Upon completion
of our initial formal business plan, we began the process of preparing our
funding documents, including the private placement memorandum and registration
statement. Once these documents are finalized, they will be filed with the
Securities and Exchange Commission (“SEC”) and various state regulatory
agencies. We plan to commence the funding process during 2006. During 2005
we
have purchased scripts at a cost of $18,800 and continued to pursue other
business development projects. In addition, we have expanded our scope of
operations that will hopefully result in significant progress during
2006.
In
order
to successfully implement our business model, we will need to secure the
necessary financing. If we are unable to do so, we may not be able to sustain
operations. The specific amount and types of funding we will be seeking will
be
finalized by the time we commence the filing of our documents with the SEC
and
the state agencies.
In
addition, we will be exploring funding options with various international
resources currently being developed by our management team. There can be no
assurance that any of these potential resources will ever be realized, or that
any of them will participate in any funding of our Company and our projects.
The
international regions currently being explored include Europe, specifically
Germany and the United Kingdom, and the Far East, specifically China.
Our
corporate operating structure continued to evolve during 2004 and 2005, with
shareholders approving the acquisition of three new subsidiaries, Camelot Films,
Inc., a Nevada corporation, Camelot Films, Inc., a California corporation,
and
Camelot Films, Inc., a Delaware corporation. Each of these corporations did
become wholly owned subsidiaries of our Company during 2005. None of the
corporations have current operations, assets or liabilities. Each newly acquired
subsidiary will handle a specific area of our business model, including, but
not
limited to, production services, marketing, distribution and our new family
film
division.
We
also
decided during 2004 to establish a family film division which would be dedicated
to developing, producing, marketing and distributing specifically family films
domestically and internationally. Craig Kitchens was named the new president
of
this division during the first quarter of 2005. This business named Ferris
Wheel
Films, Inc. and was incorporated in the state of Nevada in the second quarter
of
2005, which is a wholly owned subsidiary of Camelot Entertainment Group, Inc.
The business model for this new division is similar to our base business model.
Fiscal
year 2004 also saw us explore the possibility of setting up European operations
in order to better facilitate potential funding and production opportunities
in
Europe. The first step in this process was to be the retention of a business
consultant to represent us at the Berlin Film Festival during the first quarter
of 2005. In the second quarter of 2005, we formed Camelot Distribution Group,
Inc. and hired Chris Davis International, Inc. to consult with us and help
develop our international film distribution subsidiary. Camelot Distribution
Group, Inc. was incorporated in Nevada in the second quarter of 2005 and is
also
a wholly owned subsidiary of Camelot Entertainment Group, Inc.
We
also
continued to interview potential entertainment law firms to represent us
specifically on entertainment legal issues that will arise as we continue to
implement our business model. In the first quarter of 2005 we retained Manatt,
Phelps and Phillips, a well established and respected entertainment law firm
to
represent Camelot Entertainment Group, Inc. and all of our subsidiaries. We
paid
them a $10,000 retainer in the first quarter of 2005 and have not needed to
use
many of their services to date and as of December 31, 2005 have a retainer
balance of $7,615.
In
addition, we continued to interview potential public relation firms during
2004.
In the first quarter of 2005, Insignia Public Relations and Media Strategies
was
hired to spearhead our marketing campaign for the Cannes Film Festival. Insignia
has also done other marketing and public relations work for the company during
this year.
As
part
of our plan to enhance our management team, industry veteran Michael Ellis
was
hired during the first quarter of 2006 as the Chief Operating Officer of Camelot
Entertainment Group, Inc. He was also appointed to our Board of
Directors.
Business
of Issuer
Principal
Products or Services and Their Markets
We
intend
to engage in the development, production, marketing and distribution of original
motion pictures. Our objective is to develop, produce, market and distribute
12
pictures annually. Our initial plans call for a slate of 36 pictures, with
a
total cash investment of $15,000,000 for the slate. We plan to operate on an
annual budget basis, allocating expenses over the planned 12 pictures we expect
to produce annually. By utilizing production teams that will be hired on an
annual basis, our cost allocation per film project is reduced significantly,
in
some cases by 30 to 40 per cent. The elements of our annual budget will include
cash, deferments, corporate contributions and utilization of our common stock.
Each picture is expected to have a 12 month production cycle, including 6 months
of pre-production, 2 months of physical production and 4 months of
post-production. Our plan is to market and distribute all of our pictures
ourselves through our Camelot Distribution subsidiary, thereby keeping as much
control as possible over the revenues generated by our productions.
Cash
Component
Our
plan
is to raise sufficient capital to finance our first sixteen months of
operations, production and distribution activities, the time period management
feels it will take for us to realize ongoing revenues substantial enough to
maintain monthly operating, production and distribution expenses. We plan to
file a SB-2 registration statement during the second or third quarter of 2006.
We will not be able to commence our plan to develop, produce, market and
distribute 12 pictures annually until we have raised the necessary capital.
In
the event we are unable to secure this funding on a timely basis, our ability
to
implement our plan would be jeopardized. See “Risk Factors”.
Deferment
Component
A
majority of line items in the budgets will have a deferment component. In
addition to cash payments, each individual and vendor would receive a deferment,
or delayed payment, which we anticipate to pay out of revenues generated by
our
films. By fully disclosing all financial elements connection with the pictures,
which we call financial transparency, we believe that the deferment component
can become a trusted and reliable source of payment for our employees and
vendors.
Corporate
Contribution Component
We
anticipate providing each film produced by us certain items in the budget that
normally would have to be either rented or purchased from a third party vendor.
These “in-kind” contributions may include cameras, lights, grip and electrical
equipment, vehicles, legal and accounting services, certain executive producer
and producer services, production and location offices and other goods and
services to be determined on a film by film basis.
Common
Stock Component
We
plan
to issue every individual working on our films shares of our common stock as
part of their compensation package or vendor contract. We anticipate that this
common stock component will enhance each individual or vendor’s consideration to
such an extent that these individuals and entities will continue to work with
us
within the parameters of our budget model.
Key
Components of the Production Process
The key components of motion picture production are generally viewed as
consisting of development, pre-production, production or principal photography,
post-production, marketing and distribution. While these terms are used in
similar ways by many major studios and independent productions, the relative
resources of the parties involved in producing an original motion picture have
a
meaningful impact on both the scale and scope of the specific activities these
components are comprised of. For example, in a major studio production, the
post-production phase may include use of numerous special effects professionals
and companies, composers and music editors, in addition to other personnel.
This
is in contrast to many independent productions that might be able to fit a
music
editor into their budget, but may not be able to afford hiring a composer to
create an original score, much less an orchestra to perform and record the
score. Similarly, many independent productions might not be able to afford
hiring a leading special effects company for months at a time, but may be able
to fit some stock special effects footage into a production or hire an editor
that also has some experience with editing special effects. As our business
model depends to a large extent on our ability to efficiently mitigate some
of
these differences, our description of the motion picture production process
includes certain references to our perception of differences between major
studio productions and independent productions.
Development
In
general, the development phase of motion picture production begins with
converting a concept or literary work into a script. In certain cases, a
completed script, or screenplay, may already exist, and require a studio or
independent producer to acquire rights to the script. Such rights could be
an
outright purchase of a literary work or an option to purchase the literary
work
or script. In the case of a major studio, the next steps in the development
phase of a motion picture could often involve developing a budget, getting
contingent commitments from talent such as directors and cast members, and
assessing the overall creative potential of the project. Independent productions
generally conduct similar activities; the key difference is often that an
independent producer has substantially less financial and human resources with
which to execute these activities. As a result, certain independent productions
must seek external financing from private investment sources to enable shaping
the motion picture concept into an attractive package that could hopefully
result in raising additional funds needed to actually produce the motion
picture.
In
the case of studios and independent production companies, their staffs actively
seek and participate on the acquisition of completed scripts or developing
scripts into motion picture projects, usually with either in-house producers
or
non-affiliated producers who specific projects they desire to produce. Once
the
screenplay or story rights have been secured, talent is lined up, a budget
and
production schedule has been created, the package is presented to
decision-makers at the studio or independent production company that either
approves the project, or “greenlights” the project, or declines the project. If
the project is approved, it moves into the pre-production phase.
The decision whether to “greenlight,” or proceed with production of, a film is a
diligent process that typically involves numerous key executives of a major
studio, in contrast to an independent company where possibly the entire process
might be handled by just one person. Generally, the production division presents
projects to a committee comprised of the heads of a studio’s production,
distribution, home entertainment, international, legal and finance departments.
In this process, scripts are discussed for both artistic merit and commercial
viability. The committee considers the entire package, including the script,
the
talent that may be attached or pursued and the production division’s initial
budget. They also discuss talent and story elements that could make the product
more successful. Next, the heads of domestic and international distribution
prepare estimates of projected revenues and the costs of marketing and
distributing the film. The studio’s finance and legal professionals review all
of the projections, and the committee decides whether the picture is worth
pursuing by balancing the risk of a production against its potential for
financial success. The studio may seek to mitigate the financial risk associated
with film production by negotiating co-production agreements, pre-selling
international distribution rights and capitalizing on government subsidies
and
tax credits. In addition, a studio might attempt to minimize its production
exposure by structuring deals with talent that provide for them to participate
in the financial success of the motion picture in exchange for reducing up-front
payments.
Pre-Production
In
general, the pre-production phase of motion picture production involves
executing binding engagements of creative personnel, scouting and securing
locations for principal photography, firming up the filming schedule and budget,
and taking all other steps necessary to facilitate actual filming during the
production, or principal photography, phase.
Production/Principal
Photography
Principal
photography, or production, is the phase where actual filming of the motion
picture takes place. The actors, producers, directors, staff, locations and
equipment that were engaged and planned for in the pre-production phase must
be
brought together to create the primary film footage that should enable a
meaningful creative work to be edited into a quality finished product. While
the
planning that took place during the pre-production phase is a critical success
factor, a large amount of uncertainties exist that can positively, or
negatively, impact outcomes of the production phase. For example, weather may
cause delays in the shooting schedule, talent may become injured or sick and
the
director may not be able to extract the quality of performances desired from
actors. In the case of a major studio production, access to capital may enable
more resources to be deployed to mitigate these risks. In the case of an
independent production, these uncontrollable factors may be more likely to
result in the failure to complete a motion picture of the quality envisioned
during the pre-production phase.
Post-Production
Following
the last date of principal photography, the film footage produced during that
phase enters the post-production phase. Post-production is the phase where
the
film footage captured in the production phase is enhanced and edited into a
form
that should, hopefully, strike a cord with the target audience upon release
of
the completed motion picture. This phase includes activities such as adding
voices as needed, opticals, music, special effects, soundtracks, and even
additional film footage. These elements must be brought together symbiotically,
to create a completed negative ready to be converted into release prints. This
phase has a substantial impact on how an audience perceives the work that was
performed during the principal photography phase. For instance, although the
performances of actors and directors may have been excellent during the
principal photography phase, if the sound, sequence of visuals and events are
not brought together in the proper manner, the end result may not be
artistically or commercially viable. For major studios, hiring the best
available consultants, editors or other parties to remedy, at least partially,
such an outcome can often mitigate such an event. Few independent productions
can access such resources without exceeding the projected revenues required
to
deliver a potential return to their investors.
The
Motion Picture Industry
The
motion picture industry consists of two principal activities: production and
distribution. Production involves the development, financing and production
of
feature-length motion pictures. Distribution involves the promotion and
exploitation of motion pictures throughout the world in a variety of media,
including theatrical exhibition, home entertainment, television and other
ancillary markets.
The
U.S.
motion picture industry can be divided into major studios and independent
companies, with the major studios accounting for a large majority of the number
of theatrical releases. The major studios are The Walt Disney Company (including
Buena Vista, Touchstone and Miramax Films), Paramount Pictures Corporation
(including Dreamworks), Sony Pictures Entertainment, Inc. (including Columbia
Pictures and MGM), Twentieth Century Fox Film Corp., NBC Universal (including
Universal Studios and Universal Focus) and Warner Bros. (including Turner,
New
Line Cinema and Castle Rock Entertainment). The major studios are typically
large diversified corporations that have strong relationships with creative
talent, exhibitors and others involved in the entertainment industry, and have
global film production and distribution capabilities.
HOME
Historically,
the major studios have produced and distributed the majority of high grossing
theatrical motion pictures released annually in the United States. In addition,
most of the studios have created or accumulated substantial and valuable motion
picture libraries that generate significant revenues. These revenues can provide
the major studios with a stable source of earnings that partially offsets the
variations in the financial performance of their current motion picture releases
and other aspects of their motion picture operations.
The
independent companies generally have more limited production and distribution
capabilities than do the major studios. While certain independent companies
may
produce as many films as a major studio in any year, independent motion pictures
typically have lower negative costs and are not as widely released as motion
pictures produced and distributed by the major studios. Additionally, the
independent companies may have limited or no internal distribution capability
and may rely on the major studios for distribution and financing. The one
exception to this has been Lions Gates Films, a major independent that continued
to experience significant growth during 2005.
According
to the Motion Picture Association of America, the motion picture industry
continues to experience significant growth worldwide over the past decade,
although certain aspects of the industry have flattened out in recent years.
Since
1991, box office has been steadily increasing and has grown by almost $6 billion
over the past 20 years. After a record breaking year in 2002 which saw the
box
office numbers increase 13.2% over 2001 to $9.52 billion, the U.S. Box Office
continued its momentum, grossing a record breaking $9.54 billion in 2004, a
5%
increase over a solid $9.49 billion in 2003. In 2005, U.S. Box Office fell
slightly to $8.99 billion, its lowest total since $8.41 billion in 2001 Global
box office remained steady at over $23 billion, just shy of the all time high
in
2004 of $25 billion and 46% higher than the 2000 mark of $16 billion.
The
number of movies released remains on a growth trajectory, with total releases
topping another all time high of 563 versus 528 in 2004, a growth rate of 7%.
A
major component of the annual box office was the performance of blockbusters,
which remained comparable to prior years in total box office. A new all time
high was set in 2005, with eight movies grossing over $200 million, three more
than in 2004, and five more than 2000, a great milestone for the industry.
12
movies grossed between 100 and 199 million dollars each, while 36 films grossed
between 50 and 99 million dollars each. In total, 56 films grossed in excess
of
$50 million dollars during 2005, compared to 64 films which grossed more than
$50 million dollars in 2004.
However,
U.S. theater admissions continued to decrease, with 1.4 billion tickets sold
in
2005, down from 1.54 billion sold in 2004, which represents a 8.7% decline.
Nonetheless, movies drew more people than theme parks and sporting events
combined, with theme parks selling 334 million tickets and sporting events
selling 134.5 million tickets.
U.S.
Box
Office continued its success with a strong slate of movies released in the
summer of 2005, with summer box office receipts reaching $4.49 billion, up
21%
compared to summer 2003. Close to half of 2005’s box office gross can be
attributed to summer releases.
Between
1953 and 2004, a span of 51 years, the U.S. Box Office has gone from $1.34
billion in gross receipts in 1953 to the all time high of $9.54 billion in
2004.
In
2004,
611 films were produced for theatrical release with only 483 films released
during the year. In 2003, only 593 films were produced and only 473 films were
released theatrically. The average new release earned $20 million at the U.S.
Box Office in 2004, as compared to $20.7 million in 2003. Of the 483 films
released in 2004, 475 were new releases, while 8 were reissued films. In 2003,
of the 473 films released, 459 were new releases with 14 films being
reissued.
Worldwide
Box Office decreased 7.9% from last year, racking up $23.24 billion in gross
receipts. The decrease follows an increase in 2004 which was attributed to
box
office growth in the international market, which was up 47% after reaching
the
$10 billion mark for the first time in 2003. International box office continued
to benefit from a weak US dollar and strong box office showings from both local
and US product.
All
of
the international regions saw double-digit growth in 2004. Europe, the Middle
East and Africa saw an increase of 53%. Asia-Pacific saw an increase of 44%.
Latin America’s theatrical market increased 14%. Europe, the Middle East and
Africa comprised more than half of the $15.7 billion international box office,
accounting for 54% of the total with $8.53 billion in receipts. Asia-Pacific
box
office finished strong with $5.4 billion in 2004. These trends were expected
to
level off in 2005.
U.S.
admissions decreased 8.7% to 1.4 billion in 2005 when compared to 1.54 billion
in 2004, both years in the wake of 2002’s record 1.64 billion admissions;
however 2004 remains the third highest admissions figure of all time, and almost
49 million tickets ahead of 2001.
Worldwide
admissions in 2004 increased 11% over 2003 to a record 9.6 billion, breaking
the
previous record of 9.1 billion admissions in 2002. The growth comes from the
international market, which experienced a strong year at the box office with
admissions increasing 13% over 2003. Worldwide admissions in 2005 are expected
to level off when compared to 2004.
The
number of theatrical screens in the U.S. increased 2.2% to 36,594 in 2004.
This
follows a 3.7% increase in screens between 2003 and 2002. Of the 36,594 screens
in the U.S., 35,993 were indoor screens, while 601 were drive-in screens.
Digital
screens continued their rapid growth in 2004 with the number of worldwide
digital screens climbing 80% to 328 screens. To put this number of digital
screens in a better perspective, in 1999 there were 12 digital screens
worldwide.
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Between
1987 and 2004, gross domestic box office revenues more than doubled,
to a
record $9.54 billion in 2004 from $4.3 billion in 1987.
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The
increase in gross domestic box office revenue from 2001 to 2002,
an
increase of 13.2%, was the largest such growth experienced in the
industry
in over 20 years. 2003 domestic gross held strong, dipping 3% from
the
record 2002 domestic gross of $9.52 billion, only to be outperformed
in
2004 with the record $9.54 billion, a 5% increase over 2003.
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In
the past decade, admissions have increased nearly 20%, up 244 million.
In
2002, motion picture theatrical attendance in the United States grew
at
the fastest rate since 1957, increase from 1.487 billion admissions
in
2001 to 1.639 billion admissions in 2002, a 10.2% increase. Admissions,
like gross domestic box office, held strong in 2003, with 1.57 billion
admissions, dipping slightly in 2004 with 1.54 billion admissions.
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Admissions
have shown a steady growth over the past decade, with an average
increase
of 2% per year, despite the many choices in entertainment options.
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In
2004, the number of moviegoers reached its highest point in five
years.
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For
the past eight years, each U.S. resident attended an average of at
least 5
movies per year. In 2004, the average was 5.2, up from 4.4 in 1985.
In
2003, the average was 5.4. Admissions per capita reached an all time
high
of 5.7 in 2002.
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The
average annual admission price for 2005 was $6.41, up 3.2% over the
previous year.
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The
average box office revenue for a new film release was $15.4 million
in
2005, compared to $20 million in 2004 and $20.7 million in 2003.
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Of
the 549 films released theatrically in 2005, 194 were released by
the
major studios. 355 were released by all others.
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Between
1968 and 2005, 58% of the top grossing films released theatrically
were
rated “R”, 21% were rated “PG”, 12% were rated “PG-13”, 7% were rated “G”
and 2% were rated “NC-17/X”.
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In
2005, 60% of the top grossing films were rated PG-13, 10% were rated
R,
25% were rated PG and 5% were rated G. In 2003, 60% of the top grossing
films were rated PG-13, 20% were rated R, 15% were rated PG and 5%
were
rated G.
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The
average budget of a major studio film in 2005 was $60 million. In
1983,
the average was $11.9 million. The average marketing budget was $36.2
million in 2005, a 5.2% increase when compared to 2004. In 1983,
the
average was $5.2 million.
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The
total average cost to produce and launch a studio film in 2005 was
$96.2
million compared to $96.8 million in 2004. This represents a 0.6%
decrease. In 1983, the total average cost to produce and launch a
studio
film was $17.1 million.
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Between
1993 and 1999, the average budget of a studio film increased 97.7%,
from
$29.9 million in 1993 to $51.5 million in 1999.
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The
average budget of a major studio subsidiary/classic or
specialty/independent type film (i.e. Fox Searchlight, New Line,
Fine
Line, Miramax, Sony Pictures Classics, Lions Gate etc.) in 2005 was
$23.5
million, contributing to a 6.4% decrease in combined negative and
marketing costs when compared to 2004. The average cost in 2003 was
$46.9
million, a 154.9% increase over the 1999 average of $18.4 million
and a
37.7% increase over 2002’s average of $34 million. The average marketing
budget was $15.2 million in 2005.The average marketing budget was
$11.4
million in 2004. The average marketing budget was $14.7 million in
2003.
In 1999, the average was $6.5 million.
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The
total average cost to produce and launch a major studio subsidiary
or
specialty/independent type film in 2005 was $37.8 million, the lowest
since 2000’s average of $31.6 million. In 1999, the total average cost to
produce and launch a major studio subsidiary or specialty/independent
type
film was $24.9 million.
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Between
1980 and 2004, there was a 108% increase in the total number of screens.
There was a 157% increase in the number of indoor screens and an
83%
decrease in the number of drive-in screens.
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Between
2000 and 2004, the total number of theaters in the U.S. decreased
by 2.1%.
Between 1994 and 2004 the total number of theaters in the U.S. increased
by 38%.
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In
2004, there were 6,012 total theaters in the U.S. 5,620 were indoor
theaters, 392 were drive-in theaters. In 1980, there were 17,590
total
theaters, with 14,029 indoor and 3,561 drive-in theaters.
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In
2004, 39% of the screens were miniplexes (2 to 7 screens), 27% were
single
screen, 25% were multiplexes (8 to 15 screens) and 9% were megaplexes
(16
or more screens).
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In
2004, preliminary estimates show a total of 367,900 employees in
the U.S.
motion picture industry and associated fields. Of that number, 198,300
are
involved in production and services, with 141,000 in the theater
and
video/DVD rental sector and 28,600 employed in related fields.
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Between
1990 and 2004, the number of cable and satellite television channels
increased 372% from 60 cable channels in 1990 to 324 cable and satellite
channels in 2004.
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Total
rental and sell-through of motion picture video DVDs to dealers in
the
United States increased from 729.9 million units in 2002 to 1,462.2
billion in 2004, an increase of 83.6%, reflecting the continued growth
in
DVD use by consumers. Since 2000, this sector has seen an increase
of 677%
in DVD sales to dealers.
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Total
sales of motion picture video cassettes to dealers in the United
States
decreased from 293.6 million in 2003 to 148.7 million in 2004, a
49.4%
decrease, also reflecting the continuing growth in DVD use by consumers.
This follows a 39% decrease between 2003 and 2002.
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There
are currently over 40,000 titles available on DVD. In 1999, there
were
5,000.
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In
2004, 19,999,913 DVD players were purchased by retailers, a 9.1%
decrease
from 2003, when 21,994,389 were purchased.
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In
2004, 37,000,000 DVD players were sold to U.S. consumers, an increase
of
9.8% over 2003, when 33,700,000 were sold.
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The
average price of a DVD title in 2004 was $20.52. In 1999 the average
was
$25.53.
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Factory
sales of digital TV sets and displays continue to rise, with 3.9
million
units sold in 2003, compared to 2.5 million units sold in 2002. The
average unit has dropped in price from $2,433 in 1999 to $1,441 in
2003.
Total sales in 2003 reached $6.149 billion.
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In
the U.S., of the 111.3 million homes accounted for in 2004, 109.6
million,
or 98.4%, have television. Of the 109.6 million homes that have
television, 65.4 million, or 59.7%, have DVD players. That represents
an
increase of 40.1% over 2003, and 403% increase since 2000. In comparison,
68.4 million homes have internet access. 29 million homes have broadband
services.
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73.9
million homes, or 67.5% of the 109.6 million homes with television,
have
basic cable. That represents an increase of .1% over 2003. 35.1 million
have pay cable services, a decrease of 12.2% from 2003. According
to the
FCC, as of January 2004, the average subscriber paid $14.45 per month
for
basic cable and $45.32 per month for expanded basic, or pay, cable.
36.8
million of these homes have set-top boxes that can be tracked to
an exact
location in the home.
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Preliminary
reports show that at the end of 2004, 27.7 million homes subscribed
to
digital cable, a 14.5% increase over 2003. 22.2 million homes have
satellite service, a 14.6% increase.
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Video
on Demand (“VOD”), an advanced pay-per-view programming service which
enables viewers to order and watch movies on demand and to pause,
rewind
or fast-forward them, according to 2004 preliminary numbers, is available
in 16.9 million households, or approximately 15.4% of homes with
televisions. VOD consumer spending is projected at $337.2 million
for
2004, compared to $202.4 million in 2003. According to Adams Media
Research, the average VOD price was $3.87.
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Despite
the attractiveness this growth suggests, the motion picture business remains
a
very risky industry. Studios and independent producer’s must be able to finance
a project, complete production, execute a successful distribution strategy,
obtain favorable press and compete with an unknown quantity of competing
releases. These are just some of the factors that impact the commercial success
or failure of a film project.
The
Industry Process
Motion
Picture Production
The
production of a motion picture begins with the screenplay adaptation of a
popular novel or other literary work acquired by the producer of the motion
picture or the development of an original screenplay based upon a story line
or
scenario conceived or acquired by the producer. In the development phase, the
producer may seek production financing and tentative commitments from a
director, the principal cast members and other creative personnel. A proposed
production schedule and budget are prepared. At the end of this phase, the
decision is made whether or not to “greenlight,” or approve for production, the
motion picture.
After
greenlighting, pre-production of the motion picture begins. In this phase,
the
producer engages creative personnel to the extent not previously committed,
finalizes the filming schedule and production budget, obtains insurance or
self
insures and secures completion guaranties, if necessary. Moreover, the producer
establishes filming locations, secures any necessary studio facilities and
stages and prepares for the start of actual filming.
HOME
Principal
photography, or the actual physical principal production and filming of the
screenplay, generally extends on the average from 4 to 16 weeks, with some
schedules extending out as much as 52 weeks, depending upon such factors as
budget, location, weather and complications inherent in the screenplay.
Following completion of principal photography, the motion picture enters what
is
typically referred to as post-production. In this phase, the motion picture
is
edited, opticals, dialogue, music and any special effects are added, and voice,
effects and music soundtracks and pictures are synchronized. This results in
the
production of the negative from which release prints of the motion picture
are
made. Major studios and independent film companies hire editors, composers
and
special effects technicians on the basis of their suitability for a particular
picture.
The
production and marketing of theatrical motion pictures at the studio level
requires substantial capital. The costs of producing and marketing motion
pictures have increased substantially in recent years. These costs may continue
to increase in the future at rates greater than normal inflation, thereby
increasing the costs to us of our motion pictures. Production costs and
marketing costs are generally rising at a faster rate than increases in either
domestic admissions to movie theaters or admission ticket prices, leaving all
producers of motion pictures more dependent on other media, such as home
entertainment, television, and foreign markets.
Motion
Picture Distribution
The
distribution of a motion picture involves the licensing of the picture for
distribution or exploitation in various markets, both domestically and
internationally, pursuant to a release pattern. These markets include theatrical
exhibition, non-theatrical exhibition (which includes airlines, hotels and
armed
forces facilities), home entertainment (including rental and sell-through of
video and DVD), presentation on television (including pay-per-view, pay,
network, syndication and basic cable) and marketing of the other rights in
the
picture and underlying literary property, which may include publishing,
merchandising and soundtracks. The domestic and international markets generally
follow the same release pattern, with the starting date of the release in the
international market varying from being concurrent with the domestic theatrical
release to being as long as nine months afterwards. A motion picture typically
is distributed by a major studio or one or more distributors that acquire rights
from a studio or other producer in one or more markets or media or a combination
of the foregoing.
Both
major studios and independent film companies often acquire pictures for
distribution through a customary industry arrangement known as a “negative
pickup,” under which the studio or independent film company agrees before
commencement of or during production to acquire from a production company all
domestic rights, and in some cases some or all of the foreign rights, to a
film
upon completion of production, and also acquire completed films, as well as
all
associated obligations.
Cost
Structure
General
In
the
motion picture industry, the largest component of the cost of producing a motion
picture generally is the negative cost, which includes the “above-the-line”
and
“below-the-line”
costs
of
producing the film. Above-the-line costs are costs related to the acquisition
of
picture rights and the costs associated with the producer, the director, the
writer and the principal cast. Below-the-line costs are the remaining costs
involved in producing the picture, such as film studio rental, principal
photography, sound and editing.
Distribution
expenses consist primarily of the costs of advertising and preparing release
prints. The costs of advertising associated with a major domestic theatrical
motion picture release are significant and typically involve national and target
market media campaigns, as well as public appearances of a film’s stars. These
advertising costs are separate from the advertising costs associated with other
domestic distribution channels and the international market.
The
major
studios generally fund production costs from cash flow generated by motion
picture and related distribution activities or bank and other financing methods.
The independent production companies typically use a plethora of creative
financing techniques to fund production. Over the past decade, expenses in
the
motion picture industry have increased rapidly as a result of increased
production costs and distribution expenses. Additionally, each of the major
studios must fund substantial overhead costs, consisting primarily of salaries
and related costs of the production, distribution and administrative staffs,
as
well as facilities costs and other recurring overhead. Independent production
companies, while usually not faced with major overhead costs, nevertheless
have
to function outside the studio system and as a result in many cases they do
not
have access to the studio structure, which can make the process of getting
a
specific film made more difficult and, in some isolated instances, more
expensive.
Collective
Bargaining Agreements
Feature
films produced by the major studios and independent production companies in
the
United States generally employ actors, writers and directors who are members
of
the Screen Actors Guild, Writers Guild of America and Directors Guild of
America, respectively, pursuant to industry-wide collective bargaining
agreements. The collective bargaining agreement with the Writers Guild of
America was set to expire on May 1, 2004 and the collective bargaining agreement
with the Screen Actors Guild was set to expire on June 30, 2004. Negotiations
for new agreements with the Screen Actors Guild and with the Writers Guild
of
America are expected to be fully completed in 2005. The Directors Guild of
America collective bargaining agreement expires on June 30, 2005. Many
productions also employ members of a number of other labor organizations
including, without limitation, the International Alliance of Theatrical and
Stage Employees and the International Brotherhood of Teamsters. The collective
bargaining agreement with Teamsters Local 399, which represents significant
numbers of persons within the motion picture industry, expires on July 31,
2004
and the collective bargaining agreement with the International Alliance of
Theatrical and Stage Employees expires on July 31, 2006. A strike by one or
more
of the unions that provide personnel essential to the production of motion
pictures could delay or halt our ongoing production activities. Such a halt
or
delay, depending on the length of time involved, could cause delay or
interruption in our release of new motion pictures and thereby could adversely
affect our potential future cash flow and revenues.
Industry
Compensation Arrangements
Most
of
the creative and production personnel that work on a movie are short-term
employees or "for
hire" contractors
who are compensated for their services at a predetermined rate. It is also
customary in the motion picture industry to pay contingent compensation over
and
above these fees to certain key employees and contractors.
Three
customary contingent compensation arrangements in the industry include:
1.
Fixed Deferrals
Key
creative personnel, including the director, producer, writer and actors, often
negotiate fixed deferral payments of flat fees tied to a film's financial
returns. This is a major component of our business model.
2.
Residual Payments
The
principal collective bargaining organizations for personnel within the movie
industry are: the Directors Guild of America, or DGA; the Writer's Guild of
America, or WGA; the Screen Actors Guild, or SAG; the American Federation of
Musicians, or AFM; and the International Alliance of Theatrical Stage Employees,
or IATSE. When a movie producer involves members of these organizations in
a
film, they are required to comply with certain residual payment obligations.
These obligations are set forth in agreements between these organizations and
the AMPTP (which represents the major studios) and provide that a percentage
of
a film's gross revenues in certain markets must be paid to these organizations
for the benefit of their members. As an example, SAG currently requires payment
of between 4.5% and 5.4% of the gross revenue attributable to videocassette
exploitation and 3.6% of television exploitation, with no residuals due for
theatrical exploitation. We may be required to accrue and pay standard residual
payments based on the collective bargaining agreements associated with one
of
our creative teams. These residual payments are based upon gross revenues in
certain markets and may therefore, depending upon our distribution arrangements,
reduce our revenues in various markets and release windows.
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3.
Profit Participations
The
last
form of contingent compensation is a "profit
participation" ,
which
entitles the recipient to additional compensation based on the financial
performance of a particular motion picture. Granting profit participation to
certain key creative personnel is common for both larger studio films as well
as
smaller independent films. For independent movies, this form of contingent
compensation is critical to attract quality creative personnel who work for
less
upfront compensation than they otherwise might receive on a larger, more costly
movie. By paying this contingent compensation, producers are able to attract
these high quality creative personnel while simultaneously reducing the upfront
costs.
Profit
Participations Are Typically "Gross" or "Net"
Gross
profit participation, granted in extremely rare cases where the importance
of
the actor or director is critical, is calculated based on gross revenues before
any costs (such as, distribution fees, financing costs and other corporate
costs) are deducted.
Net
profit participation is far more common, and is the arrangement we plan to
use
in order to pay a portion of the contingent compensation. Net profit
participation is calculated based on net revenues after deducting certain costs
of a film, including distribution fees, financing costs and general corporate
expenses.
Thus,
a
gross profit participation receives a percentage of the first dollar received
by
a film before any costs are deducted, while a net profit participation receives
a percentage of revenue remaining after certain costs are deducted. It is the
industry standard that the producers retain any remaining percentages in the
net
participation pool.
Our
planned contingent compensation arrangements require performance of duties
under
applicable contracts and can be forfeited in the event of non-performance or
other circumstances. In the instance of forfeiture, this compensation could
be
granted to other persons who make up the production or management team.
Distribution
Methods of the Products or Services
Marketing
and Distribution
The
key
components of motion picture distribution include licensing the film for
exploitation in the United States and internationally, marketing the film to
and
working with exhibitors, promoting the film to and working with members of
the
entertainment press and marketing the film to the general public. The
distribution process involves additional complexities and uncertainties beyond
those incurred in producing the motion picture, along with the related capital
requirements. As a result, most independent productions rely on agreements
with
the distribution arms of major studios, sales agents engaged to market the
film
to a distributor, independent distributors, or a similar partnership arrangement
that essentially engages the distribution expertise of a third party to get
their production to market.
One
of
the major roles of a distributor, in addition to their relationships with
theatrical and non-theatrical outlets, is the ability of these parties to
measure the expected demand for a given motion picture. This is a critical
function, because ideally such assessment should help determine an effective
advertising and print budget for the project. A motion picture release print
is
the media that in most cases is used by exhibitors and theaters to present
the
motion picture to their patrons. The projected demand for a film project can
directly influence the number of prints made, which is important because each
print is rather costly. Similarly, the number and types of geographic locations,
or markets, the film could be released in normally influences the mix and cost
of advertising expenditures. According to the MPAA, the average print and
advertising costs per release per member, as reported by the MPAA, totaled
$36.2
million. Combining this total with the $60 million reported average MPAA member
costs to produce film, or motion picture negative, results in an average
production and distribution cost of $96.2 million. When one considers that
the
average box office revenue per release for these members was only $37.3 million,
and for all new releases the average was $15.4 million, the financial risks
of
distributing and producing a motion picture should become clearer. Very few
independent productions have direct access to such capital, making their
reliance on distributors and distribution partners essential.
In
general, an independent production attempts to enter into an agreement with
a
sales agent, or distributor, by which the distributor plans to market the film
to outlets and consumers. The amount of the distributor’s fee, and therefore the
amount of remaining profits, if any, is largely dependent on the films
anticipated gross receipts, and how contract terms define the gross receipts.
As
a result, such fees can vary greatly depending on the nature of the distribution
contract as well as the scale and timing of gross receipts. Under some
arrangements fees can be as low as 12.5%, in others 35%, or even higher.
In
most
cases, the distributor offers to pay for prints and advertising, sparing the
independent production these up front, fixed costs and the associated risk.
However, as the film generates gross receipts, the distributor has the ability
to offset the percentage of such receipts otherwise payable to the independent
production by the amount expended for prints and advertisements until the
distributor has recouped such amount. Such arrangements are sometimes referred
to as a net agreement, or net deal. In other cases, an independent production
may negotiate to receive its share of the proceeds as gross receipts
materialize. Under this type of arrangement, the distributor might still pay
for
prints and advertising, but might take a higher share of the gross receipts
than
otherwise payable under a net agreement.
Foreign
Distribution
Foreign
distribution is generally taken care of by a distributor which coordinates
worldwide sales in all territories and media. Overseas film sales companies
rely
on local subdistributors to physically deliver the motion picture and related
marketing materials and to collect revenues from local exhibitors and other
local distributors of the film. Typically, the territorial rights for a specific
medium such as television exhibition are sold for a "cycle"
of
approximately seven years to fifteen years, and in some cases even longer,
after
which the rights become available for additional cycles.
Foreign
distribution is normally handled in one of the following ways:
1.
Sales
Agency Representation. A Sales Agent undertakes to represent and license a
motion picture in all markets and media on a best-efforts basis, with no
guarantees or advances, for a fee ranging from 12.5% to 25%, and typically
for a
term ranging from seven to fifteen years.
2.
Distribution. A distributor may provide the producer of the film a guarantee
of
a portion of the budget of the project. This guarantee may be in the form of
a
bank commitment to the producer, secured by license agreements with foreign
licensees, which is used by the producer to finance the production.
Typically,
a distributor would receive a distribution fee ranging from 12.5% to 35% over
a
term ranging from 15 years to perpetuity. In addition, the distributor may
negotiate, or otherwise acquire, a profit participation in the film project.
Once
the
rights to a picture are obtained (either as sales agent or distributor with
minimum guarantee), the distributor then seeks to license its rights to
subdistributors in the territories for which it has acquired distribution
rights. In general, the grant of rights to the subdistributors includes all
media in their respective territories other than satellite, although satellite
is included in some subdistributors' territories.
The
subdistributor in each territory generally pays for its distribution rights
with
a down payment at the time the contract is executed with the balance due upon
delivery of the picture to the subdistributor. In some cases, payments may
be
extended over a longer period of time, especially when the production does
not
live up to the expectations of the subdistributor. Delivery normally occurs
upon
the distributor’s acceptance of the master negative and its obtaining access to
certain items necessary for the distribution of the film. In some instances,
the
subdistributors' obligations for the payment due on delivery can be secured
by a
letter of credit.
Most
films are sold either directly to a buyer that has a pre-existing relationship
with the distributor, or at one of the several film markets that take place
throughout the world. Although there are a number of film markets each quarter,
historically, major sales take place primarily at the MIF in Cannes, France
each
May and at the American Film Market in Los Angeles, each November.
In
general, after cash advances to a subdistributor, if any, are recouped, the
distributor applies the distribution receipts from its subdistributors first
to
the payment of commissions due to the distributor, then second to the recovery
of certain distribution expenses, then to the reimbursement of the distributor
for its minimum guarantee or advance, if any, and then finally any remaining
distribution receipts are shared by the distributor and the producer according
to the percentages negotiated in the agreement between the distributor and
the
producer.
Status
of any Publicly Announced New Product or Service
On
April
12, 2004, we announced plans for our new business model, including the procedure
through which we changed our name and officially became Camelot Entertainment
Group, Inc.
Competitive
Business Conditions and the Small Business Issuer’s Competitive Position in the
Industry and Methods of Competition
Competitive
Strengths
To
achieve our goals of being a leading independent producer and distributor of
feature films, we plan to exploit our competitive advantages, which we believe
includes our experience in developing, preparing, producing, finishing,
marketing and distributing low budget, independent films utilizing a unique
and
efficient business model that attempts to minimize costs while maximizing
quality and ultimately attracting the broadest possible consumer base for our
productions. We believe that once our initial slate of pictures begins to reach
market, our reputation and ability to produce and distribute quality films
at
the lowest possible price while at the same time maximizing economic potential
for all those working with us should make us an attractive place for independent
filmmakers, whether new or experienced, whether young or old.
Our
disciplined approach to the development, preparation, production,
post-production, marketing and distribution of feature film content should
hopefully enable us to establish and maintain a distinct competitive advantage.
By seeking to minimize the financial risks often associated with film
production, marketing and distribution by negotiating co-production agreements,
pre-selling international distribution rights, capitalizing on government
subsidies and tax credits, structuring efficient production schedules and
crafting agreements with key talent attracted to the films we develop and
produce, we plan to provide a unique environment where independent film can
flourish, albeit in a fiscally responsible manner. In each production, we plan
to attempt to minimize our financial exposure by structuring deals with talent
that provide for their participation in the financial success of the motion
picture in exchange for reduced up-front payments. Although the steps that
we
take to manage these risks may, in some cases, limit the potential revenues
of a
particular project, we believe that our approach to the motion picture business
creates operating and financial stability for us.
Competition
We
face
competition from companies within the entertainment business and from
alternative forms of leisure entertainment, such as travel, sporting events,
outdoor recreation and other cultural activities. We compete with the major
studios, numerous independent motion picture and television production
companies, television networks and pay television systems for the acquisition
of
literary and film properties, the services of performing artists, directors,
producers and other creative and technical personnel and production financing.
In addition, our motion pictures compete for audience acceptance and exhibition
outlets with motion pictures produced and distributed by other companies. As
mentioned above, we compete with major domestic film studios which are
conglomerate corporations with assets and resources substantially greater than
ours, including several specialty or classic divisions.
We
compete with major film studios and their classic divisions including:
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The
Walt Disney Company, including Miramax;
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Paramount
Pictures Corporation, including Dreamworks;
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Universal
Pictures, including Universal Focus;
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Sony
Pictures Entertainment, including MGM and Sony Pictures Classics;
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Twentieth
Century Fox, including Fox Searchlight; and
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Warner
Brothers Inc., including New Line Cinema.
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Predicting the success of a motion picture is difficult and highly subjective,
as it is not possible to accurately predict audience acceptance of a particular
motion picture. Our strategy is to assemble a creative team, screenplay and
cast
that we believe has the potential for commercial success. In order to evaluate
our potential to obtain distribution and appeal to an audience, we will attempt
to use the following criteria: an exceptional story, compelling character roles,
recognizable actors and actresses, an established and respected director,
experienced producer, and a relatively low production budget.
The
success of any of our motion pictures is dependent not only on the quality
and
acceptance of a particular picture, but also on the quality and acceptance
of
other competing motion pictures released into the marketplace at or near the
same time. The number of films released by our competitors, particularly the
other major film studios, in any given period may create an oversupply of
product in the market, thereby potentially reducing our share of gross box
office admissions and making it more difficult for our films to succeed.
With
respect to our domestic theatrical releasing operations, a substantial majority
of the motion picture screens in the United States typically are committed
at
any one time to films distributed nationally by the major film studios, which
generally buy large amounts of advertising on television and radio and in
newspapers and can command greater access to available screens. Although some
movie theaters specialize in the exhibition of independent, specialized motion
pictures and art-house films, there is intense competition for screen
availability for these films as well. Given the substantial number of motion
pictures released theatrically in the United States each year, competition
for
exhibition outlets and audiences is intense.
Competition
is also intense in supplying motion pictures and other programming for the
pay
television, syndicated television and home video markets. Numerous organizations
with which we expect to compete with that also distribute to the pay television,
syndicated television and home video markets have significantly greater
financial and other resources than us.
In
addition, there also have been rapid technological changes over the past fifteen
years. Although technological developments have resulted in the creation of
additional revenue sources from the licensing of rights with respect to new
media, these developments also have resulted in increased popularity and
availability of alternative and competing forms of leisure time entertainment
including pay/cable television programming and home entertainment equipment
such
as DVD’s, videocassettes, interactive games and computer/Internet use.
The entertainment industry in general, and the motion picture industry in
particular, are continuing to undergo significant changes, primarily due to
these technological developments. For example, as motion pictures begin to
be
distributed using emerging technologies such as digital delivery, the Internet
and online services, the ability to protect intellectual property rights in
motion pictures could be threatened by advances in technology that enable
digital piracy. This is because digital formats currently do not contain
mechanisms for tracking the source or ownership of digital content. As a result,
users may be able to download and distribute unauthorized or “pirated” copies of
copyrighted motion pictures over the Internet. In addition, there could be
increased proliferation of devices capable of making unauthorized copies of
motion pictures. As long as pirated content is available to download digitally,
many consumers may choose to digitally download such pirated motion pictures
rather than paying for legitimate motion pictures. Digital piracy of our films
may adversely impact the gross receipts received from the exploitation of such
films. Due to this rapid growth of technology and with it, piracy, as well
as
shifting consumer tastes and the popularity and availability of other forms
of
entertainment, it is impossible to predict the overall effect these factors
could have on the potential revenue and profitability of feature-length motion
pictures.
Majors
and the Independents
The major studios, which historically have produced and distributed the vast
majority of high-grossing theatrical motion pictures released annually in the
United States, are typically large, diversified corporations that have strong
relationships with creative talent, television broadcasters and channels,
Internet service providers, movie theater owners and others involved in the
entertainment industry. The major studios also typically have extensive national
or worldwide distribution organizations and own extensive motion picture
libraries. Motion picture libraries, consisting of motion picture copyrights
and
distribution rights owned or controlled by a film company, can be valuable
assets capable of generating revenues from worldwide commercial exploitation
in
existing media and markets, and potentially in future media and markets
resulting from new technologies and applications.
The major studios also may own or be affiliated with companies that own other
entertainment related assets such as music and merchandising operations and
theme parks. The major studios' motion picture libraries and other entertainment
assets may provide a stable source of earnings which can offset the variations
in the financial performance of their new motion picture releases and other
aspects of their motion picture operations.
During the past 15 years, independent production and distribution companies,
many with financial and other ties to the major studios, have played an
important role in the production and distribution of motion pictures for the
worldwide feature film market.
These
companies include:
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Miramax
Films Corporation, now owned by The Walt Disney Company, which produced
Chicago
,
The
Hours, Gangs of New York, Scary Movie ,
the Scream
film
series, Shakespeare
in Love and
Chocolat
;
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New
Line Cinema Corporation/Fine Line Features, now owned by AOL/Time
Warner,
which produced the Lord
of the Rings series,
the Austin
Powers films,
The
Mask, Teenage Mutant Ninja Turtles and
the Nightmare
on Elm Street series;
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U.S.A
Films (formerly October Films and now owned by Vivendi/Universal),
which
produced Traffic,
Secrets & Lies and
Breaking
the Waves together
with Gramercy Pictures, which produced Dead
Man Walking and
Fargo
,
is part of U.S.A Films and U.S.A Network;
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As
a result of consolidation in the domestic motion picture industry, a number
of
previously independent producers and distributors have been acquired or are
otherwise affiliated with major studios. However, there are also a large number
of other production and distribution companies that produce and distribute
motion pictures that have not been acquired or become affiliated with the major
studios.
These
companies include:
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Lion's
Gate Films, which produced and distributed Narc,
Frailty, Monster's Ball and
American
Psycho ;
and its newly acquired subsidiary, Artisan Entertainment Inc., which
distributed Boat
Trip, National Lampoon's Van Wilder and
The
Blair Witch Project .
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The
Weinstein Company, recently formed by the Weinstein brothers, who
formerly
controlled and founded Mirimax.
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In
contrast to the major studios, independent production and distribution companies
generally produce and distribute fewer motion pictures and do not own production
studios, national or worldwide distribution organizations, associated businesses
or extensive film libraries which can generate gross revenues sufficient to
offset overhead, service debt or generate significant cash flow.
The
motion picture industry is a world-wide industry. In addition to the production
and distribution of motion pictures in the United States, motion picture
distributors generate substantial revenues from the exploitation of motion
pictures internationally. In recent years, there has been a substantial increase
in the amount of filmed entertainment revenue generated by U.S. motion picture
distributors from foreign sources.
International
revenues of motion picture distributors from filmed entertainment grew from
approximately $1.1 billion in 1990 to approximately $10.86 billion in 2003.
This
growth has been due to a number of factors, including the general worldwide
acceptance of and demand for motion pictures produced in the United States,
the
privatization of many foreign television industries, growth in the number of
foreign households with videocassette and DVD players and growth in the number
of foreign theater screens.
Many
countries and territories, such as Australia, Canada, China, France, Germany,
Hong Kong, India, Italy, Japan, Russia, Spain and the United Kingdom have
substantial indigenous film industries. As in the United States, in a number
of
these countries the film industry, and in some cases, the entertainment
industry, in general, is dominated by a small number of companies that maintain
large and diversified production and distribution operations.
However,
like in the United States, in most of these countries, there are also smaller,
independent, motion picture production and distribution companies. Foreign
distribution companies not only distribute motion pictures produced in their
countries or regions but also films licensed or sub-licensed from United States
production companies and distributors.
In
addition, film companies in many foreign countries produce films not only for
local distribution, but also for export to other countries, including the United
States. While some foreign language films and foreign English-language films
appeal to a wide U.S. audience, most foreign language films distributed in
the
United States are released on a limited basis because they draw a specialized
audience.
The
Smaller Independents
Independent
production companies generally avoid incurring overhead costs as substantial
as
those incurred by the major studios by hiring creative and other production
personnel and retaining the other elements required for pre-production,
principal photography and post-production activities on a picture-by-picture
basis.
As
a
result, these companies do not own sound stages and related production
facilities, and, accordingly, do not have the fixed payroll, general
administrative and other expenses resulting from ownership and operation of
a
studio.
Independent
production companies also may finance their production activities on a
picture-by-picture basis. Sources of funds for independent production companies
include bank loans, pre-licensing of distribution rights, foreign government
subsidies, equity offerings and joint ventures. Independent production companies
generally attempt to obtain all or a substantial portion of their financing
of a
motion picture prior to commencement of principal photography, at which point
substantial production costs begin to be incurred and require payment.
As
part
of obtaining financing for its films, an independent production company often
is
required by its lenders and distributors who advance production funds to obtain
a completion bond or production completion insurance from an acceptable
completion guarantor which names the lenders and applicable distributors as
beneficiaries. The guarantor assures the completion of the particular motion
picture on a certain date.
If
the
motion picture cannot be completed for the agreed upon budgeted cost, the
completion guarantor is obligated to pay the additional costs necessary to
complete the picture by the agreed upon delivery date. If the completion
guarantor fails to timely complete and deliver the motion picture on or before
the agreed upon delivery date, the completion guarantor is required to pay
the
lenders and distributor, if applicable, an amount equal to the aggregate amount
the lenders and distributor have loaned or advanced to the independent producer.
HOME
In
connection with the production and distribution of a motion picture, major
studios and independent production companies generally grant contractual rights
to actors, directors, screenwriters, owners of rights and other creative and
financial contributors to share in net revenues from a particular motion
picture. Except for the most sought-after talent, these third-party
participations are generally payable after all distribution fees, marketing
expenses, direct production costs and financing costs are recovered in full.
The
Guilds
Major
studios and independent film companies in the United States typically incur
obligations to pay residuals to various guilds and unions including the Screen
Actors Guild, the Directors Guild of America and the Writers Guild of America.
Residuals are payments required to be made on a picture-by-picture basis by
the
motion picture producer to the various guilds and unions arising from the
exploitation of a motion picture in markets other than the primary intended
market. Residuals are calculated as a percentage of the gross revenues derived
from the exploitation of the picture in these ancillary markets.
The
guilds and unions typically obtain a security interest in all of the producer's
rights in the motion picture being exploited to ensure satisfaction of the
residuals obligation. This security interest usually is subordinate to the
security interest of the lenders financing the production cost of the motion
picture and the completion bond company guaranteeing completion of the motion
picture.
Under
a
producer's agreement with the guilds and unions, the producer may transfer
the
obligation to pay the residuals to a distributor if the distributor assumes
the
obligation to make the residual payment. If the distributor does not assume
those obligations, the producer is obligated to pay those residuals.
Intellectual
Property
We
regard
trademarks as valuable assets and believe that trademarks are an important
factor in marketing our products. To that extent, we have filed a trademark
application for Camelot Films, our feature film production division. We expect
to receive a permanent trademark for Camelot Films during early 2005.
Copyright
protection is a serious problem in the videocassette and DVD distribution
industry because of the ease with which cassettes and DVDs may be duplicated.
In
the past, certain countries permitted video pirating to such an extent that
many
companies did not consider these markets viable for distribution. Our management
believes that with new technology, including anti-piracy technology we expect
to
license in the near future, the problem should be less critical in the future.
In the event it is necessary, we could initiate legal action to enforce
copyright protection.
The
Completion Bond
In
order
to minimize the risk of budget overruns and to add an additional level of
protection for us, a completion bond, also known as a completion guaranty,
is
expected to be required for each production. A completion bond is a form of
insurance which provides that, should the producers of a film run into
significant problems completing the film, the bond company would:
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advance
any sums in excess of the budget required to complete and deliver
the
film;
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complete
and deliver the film itself; or
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shut-down
the production and repay the financier all monies spent thus far
to
produce the film.
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In
addition to ensuring that the film is completed within budget, the bond company
should also be responsible for ensuring that the film is delivered within a
pre-determined schedule, follows the script and is technically suitable for
exhibition in theaters. The bond company usually places certain restrictions
and
limitations on us to ensure that the production is following a pre-determined
schedule. For example, the completion bond agreement normally contains a cash
flow schedule that sets forth the timing and amounts of cash advances required
to finance production of the film. We expect to be required to deposit funds
in
a specific production account in accordance with this cash flow schedule.
Fees
for
the completion bond are normally paid out of a particular’s film budget. These
fees, or premiums, can range anywhere from 2.5% to 6% of a specific budget.
When
higher rates are charged, it usually reflects the level of risk involved with
a
film as determined by the bond company. In most cases, if a high fee is charged
initially, the agreement with the bond company will normally contain a rebate
provision that kicks in if the bond is not called. We plan to negotiate with
a
completion bond company to insure our entire slate of films, which will
hopefully minimize the costs while standardizing the production requirements
as
deemed applicable by the bond company.
The
completion bond company could have the right to take over a production if they
determine that the film is significantly behind schedule or over budget, or
that
the production is otherwise not proceeding in a satisfactory manner. This could
include the right to replace any member of the production team. The involvement
of the completion bond company comes to an end when the film is delivered,
or
production monies are refunded, in accordance with the terms and conditions
of
the specific completion bond.
In
order
to receive a completion bond from a reputable company, we normally have to
submit a budget, script, shooting schedule and other production elements for
their analysis and approval. Typically, a completion bond cannot be issued
until
all material aspects of the production have been determined, such as final
locations, cast and crew. These aspects are normally determined throughout
the
pre-production phase.
A
completion bond is usually subject to a number of important limitations and
normally does not reimburse us for losses that result from certain occurrences,
including, but not limited to, distribution expenses; residual payments due
to
creative guilds, such as the Screen Actors Guild; gross or net profit
participations granted as contingent compensation to actors or production
personnel; elements of the film that are not included in the approved
screenplay, budget or production schedule; insolvency; illegal or fraudulent
acts; violation of any collective bargaining agreements; failure to obtain
any
necessary rights to use copyrighted works, such as music; failure to obtain
required insurance coverage; failure to fulfill any conditions required by
cast
members that causes them to abandon their commitment to the film; currency
fluctuations in the event the film is produced in another country, such as
Canada; natural disasters; acts of war; or other force majeure events.
Sources
and Availability of Raw Materials and the Names of Principal Suppliers
Once
we
begin production, we plan to utilize a number of raw materials contained in
such
items such as props, make-up, wardrobe, electrical supplies and equipment,
construction supplies and equipment, as well as materials from almost every
industry. These raw materials are readily available from a wide range of sources
and suppliers throughout the world. We plan to identify principal suppliers
once
we begin the production process.
Dependence
on One or a Few Major Customers
We
do not
depend on any one customer at this stage of our development. As we plan to
market and distribute our films directly to the public, we should not be
dependent on one or a few major customers, rather we should be entirely
dependent on the willingness of the public to purchase our entertainment
product.
HOME
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
Contracts
The
Company plans to copyright and own all motion pictures that it makes. This
should result in the Company building a library of its own product over time.
Need
for any Government Approval of Principal Products or Services
Distribution
rights to motion pictures are granted legal protection under the copyright
laws
of the United States and most foreign countries. These laws provide substantial
civil and criminal sanctions for unauthorized duplication and exhibition of
motion pictures. Motion pictures, musical works, sound recordings, art work,
still photography and motion picture properties are separate works subject
to
copyright under most copyright laws, including the United States Copyright
Act
of 1976, as amended. We are aware of reports of extensive unauthorized
misappropriation of videocassette rights to motion pictures which may include
motion pictures distributed by us. Motion picture piracy is an industry-wide
problem. The Motion Picture Association of America, an industry trade
association, operates a piracy hotline and investigates all reports of such
piracy. Depending upon the results of investigations, appropriate legal action
may be brought by the owner of the rights. Depending upon the extent of the
piracy, the Federal Bureau of Investigation may assist in these investigations
and related criminal prosecutions.
Motion
picture piracy is also an international problem. Motion picture piracy is
extensive in many parts of the world, including South America, Asia including
Korea, China and Taiwan, the countries of the former Soviet Union and other
former Eastern bloc countries. In addition to the Motion Picture Association,
the Motion Picture Export Association, the American Film Marketing Association
and the American Film Export Association monitor the progress and efforts made
by various countries to limit or prevent piracy. In the past, these various
trade associations have enacted voluntary embargoes of motion picture exports
to
certain countries in order to pressure the governments of those countries to
become more aggressive in preventing motion picture piracy. In addition, the
United States government has publicly considered trade sanctions against
specific countries that do not prevent copyright infringement of United States
produced motion pictures. We cannot assure you that voluntary industry embargoes
or United States government trade sanctions will be enacted. If enacted, these
actions could impact the amount of revenue that we realize from the
international exploitation of motion pictures depending upon the countries
subject to and the duration of such action. If not enacted or if other measures
are not taken, the motion picture industry as a whole, and our business in
particular, may continue to lose an indeterminate amount of revenues as a result
of motion picture piracy.
The
Code
and Ratings Administration of the Motion Picture Association assigns ratings
indicating age-group suitability for theatrical distribution of motion pictures.
We plan to submit our motion pictures for these ratings. In certain
circumstances, motion pictures that we plan to submit for rating might receive
restrictive ratings, including, in some circumstances, the most restrictive
rating which prohibits theatrical attendance by persons below the age of
seventeen. Unrated motion pictures, or motion pictures receiving the most
restrictive rating, may not be exhibited in certain movie theaters or in certain
locales, thereby potentially reducing the total revenues generated by these
films. United States television stations and networks, as well as foreign
governments, impose additional restrictions on the content of motion pictures
which may restrict in whole or in part theatrical or television exhibition
in
particular territories. In 1997, the major broadcast networks and the major
television production companies implemented a system to rate television
programs. This television rating system has not had a material adverse effect
on
the motion pictures distributed by us. However, the possibility exists that
the
sale of theatrical motion pictures for broadcast on domestic free television
may
become more difficult because of potential advertiser unwillingness to purchase
advertising time on television programs that are rated for limited audiences.
We
cannot assure you that current and future restrictions on the content of motion
pictures may not limit or adversely affect our ability to exploit certain motion
pictures in particular territories and media.
United
States television stations and networks as well as foreign governments impose
content restrictions on motion pictures that may restrict in whole or in part
exhibition on television or theaters in a particular territory. There can be
no
assurance that such restrictions will not limit or alter our ability to exhibit
certain motion pictures in such media or markets or that the cost to edit a
particular motion picture would be prohibitive, thereby eliminating a possible
revenue source for the motion picture.
Effect
of Existing or Probable Governmental Regulations on the Business
We
expect
to be subject to various federal, state and local laws, rules and regulations
affecting our affiliates and operations. We and each of our potential partners
may be subject to various licensing regulation and reporting requirements by
numerous governmental authorities which may include Internet (domestic and
worldwide) oversight regulations, production, manufacturing, OSHA, securities,
banking, insurance, building, land use, industrial, environmental protection,
health and safety and fire agencies in the state or municipality in which each
business is located. Difficulties in obtaining or failures to obtain the
necessary approvals, licenses or registrations, and unforeseen changes in
government regulations directly affecting the Internet could delay or prevent
the development or operation of a given business.
In
1994,
the U.S. was unable to reach agreement with its major international trading
partners to include audiovisual works, such as television programs and motion
pictures, under the terms of the World Trade Organization. The failure to
include audiovisual works under GATT allows many countries (including members
of
the European Union, which currently consists of Austria, Belgium, Denmark,
Germany, Greece, Finland, France, Ireland, Italy, Luxembourg, The Netherlands,
Portugal, Spain, Sweden and the United Kingdom) to continue enforcing quotas
that restrict the amount of U.S. produced product which may be aired on
television in such countries. The European Union Council of Ministers has
adopted a directive requiring all member states of the European Union to enact
laws specifying that broadcasters must reserve, where practicable, a majority
of
their transmission time (exclusive of news, sports, game shows and advertising)
for European works. The directive must be implemented by appropriate legislation
in each member country. Under the directive, member states remain free to
require broadcasters under their jurisdiction to comply with stricter rules.
Several countries (including France, Italy and Korea) also have quotas on the
theatrical exhibition of motion pictures.
In
addition, France requires that original French programming constitute a required
portion of all programming aired on French television. These quotas generally
apply only to television programming and not to theatrical exhibition of motion
pictures, but quotas on the theatrical exhibition of motion pictures could
also
be enacted in the future. We cannot assure you that additional or more
restrictive theatrical or television quotas will not be enacted or that
countries with existing quotas will not more strictly enforce such quotas.
Additional or more restrictive quotas or more stringent enforcement of existing
quotas could materially and adversely affect our business by limiting our
ability to fully exploit our rights in motion pictures internationally and,
consequently, to assist or participate in the financing of these motion
pictures.
Privacy
Issues
Both
Congress and the Federal Trade Commission are considering regulating the extent
to which companies should be able to use and disclose information they obtain
online from consumers. If any regulations are enacted, Internet companies may
find some marketing activities restricted. Also, the European Union has directed
its member nations to enact much more stringent privacy protection laws than
are
generally found in the United States and has threatened to prohibit the export
of some personal data to United States companies if similar measures are not
adopted. Such a prohibition could limit the growth of foreign markets for United
States Internet companies. The Department of Commerce is negotiating with the
Federal Trade Commission to provide exemptions from the European Union
regulations, but the outcome of these negotiations is uncertain.
Effects
of Government Regulations on Business Government Regulation and Legal
Uncertainties
In
the
United States and most countries in which we plan to conduct our major
operations, we are not currently subject to direct regulation other than
pursuant to laws applicable to businesses generally. Adverse changes in the
legal or regulatory environment relating to the interactive online services,
venture formation and Internet industry in the United States, Europe, Japan
or
elsewhere could have a material adverse effect on our business, financial
condition and operating results. A number of legislative and regulatory
proposals from various international bodies and foreign and domestic governments
in the areas of telecommunication regulation, access charges, encryption
standards, content regulation, consumer protection, intellectual property,
privacy, electronic commerce, and taxation, among others, are now under
consideration. We are unable at this time to predict which, if any, of such
proposals may be adopted and, if adopted, whether such proposals would have
an
adverse effect on our business, financial condition and operating results.
As
Internet commerce continues to grow, the risk that federal, state or foreign
agencies could adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services, increases. It is possible that
legislation could expose companies involved in electronic commerce to liability,
which could limit the growth of electronic commerce generally. Legislation
could
dampen the growth in Internet usage and decrease its acceptance as a
communications and commercial medium. If enacted, these laws, rules or
regulations could limit the market for our services.
HOME
Research
and Development Activities
Our
research and development activities include preparing to implement our business
model, acquisition of scripts, development of scripts, and all other aspects
of
the development process relating to the development, pre-production, production,
post-production, marketing and distribution of feature films. We estimate that
approximately forty per cent of management’s time has been spent conducting
research and development activities during the past two years. In addition,
we
have been expanding our research and development activities to include initial
preparations for our studio project.
Costs
and Effects of Compliance with Environmental Laws
As
a
provider of incubation, research, vertical marketing and market index services
for development stage businesses through December 31, 2004, we did not incur
any
compliance issues with environmental laws. As a producer and distributor of
feature films, it is possible that during the physical production stage we
may
have to comply with certain environmental laws, depending in part on where
the
productions are filmed and what type of equipment, vehicles and props are
utilized. The specific costs associated to compliance with environmental laws
are unknown at this time. However, in the event we would be required to absorb
additional costs on any given film that was not anticipated, these costs could
have a material adverse effect on the budget of a film and the additional costs
that might be incurred in order to comply with environmental laws and
regulations could force us to alter or otherwise change the production schedule.
This could cause a film to go over budget, cause delays and disrupt the entire
production process, resulting in cost overruns that might be difficult to recoup
once the film is distributed.
Number
of Total Employees and Number of Full Time Employees
As
of
December 31, 2005, we had a two staff members, both of whom are officers of
our
company, who spent fifty to eighty per cent of their time on matters relating
to
our company. We also have six additional staff members who spent anywhere from
ten to fifty per cent of their time on matters relating to our business. The
Atwell Group, Inc. is the full time employer of these additional staff members.
None of our executive officers or other personnel currently receive cash
compensation from our Company for their services. As of the first quarter of
2006, Michael Ellis was hired as Chief Operating Officer and works full time
for
Camelot Entertainment Group, Inc.
Risk
Factors
Risks
Related To Our Business
We
have an Accumulated Deficit and we have no History of Operations as a Motion
Picture Company
We
have
incurred losses in each operating period since our inception. Operating losses
may continue, which could adversely affect financial results from operations
and
stockholder value, and there is a risk that we may never become profitable.
As
of
December 31, 2005 we have an accumulated deficit of $11,824,859, all of which
related to our previous activities as a business development organization,
Dstage.com, and only approximately $300,000 of which relate to our current
activities as a motion picture production, marketing and distribution entity.
Similarly, of these losses, approximately $9,800,900 was the result of non-cash
charges to earnings related to stock-based compensation and impairments to
intangibles and long-lived assets.
There
can
be no assurance that our management should be successful in managing the Company
as a motion picture production, distribution and marketing concern. See
“Managements Discussion and Analysis of Financial Conditions and Results of
Operations”.
We
expect to have a need for Additional Financing
As
of
December 31, 2005, we had a working capital deficit of $261,117. Our history
of
recurring losses from operations raises a substantial doubt about our ability
to
continue as a going concern. There can be no assurance that we will have
adequate capital resources to fund planned operations or that any additional
funds will be available to us when needed, or if available, will be available
on
favorable terms or in amounts required by us. If we are unable to obtain
adequate capital resources to fund our motion picture operations, it may be
required to delay, scale back or eliminate some or all of our operations, which
may have a material adverse effect on our business, results of operations and
ability to operate as a going concern.
Our
business requires a substantial investment of capital. The production,
acquisition and distribution of motion pictures require a significant amount
of
capital. A significant amount of time may elapse between our expenditure of
funds and the receipt of commercial revenues from our motion pictures, if any.
This time lapse requires us to fund a significant portion of our capital
requirements from private parties, institutions other sources. Although we
intend to reduce the risks of our production exposure through strict financial
guidelines and financial contributions from broadcasters, subdistributors,
tax
shelters, government and industry programs and studios, we cannot assure you
that we will be able to implement successfully these arrangements or that we
will not be subject to substantial financial risks relating to the production,
acquisition, completion and release of future motion pictures. If we increase
our production slate or our production budgets, we may be required to increase
overhead, make larger up-front payments to talent and consequently bear greater
financial risks. Any of the foregoing could have a material adverse effect
on
our business, results of operations or financial condition.
Penny
Stock Regulation
Our
common stock is deemed to be a penny stock. Penny stocks generally are equity
securities with a price of less than $5.00 per share other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
Stock Market, provided that current price and volume information with respect
to
transactions in such securities is provided by the exchange or system.
Our
securities may be subject to "penny stock rules" that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those
with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase
of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving
a
penny stock, unless exempt, the "penny stock rules" require the delivery, prior
to the transaction, of a disclosure schedule prescribed by the Commission
relating to the penny stock market.
The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for
the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks.
Consequently,
the "penny stock rules" may restrict the ability of broker-dealers to sell
our
securities. The foregoing required penny stock restrictions should not apply
to
our securities if such securities maintain a market price of $5.00 or greater.
Considering our stock currently has a bid price of 1.2 cents, there can be
no
assurance that the price of our securities will ever reach or maintain such
a
level.
We
are Dependent on Key Personnel
Our
success and future growth depends on our ability to attract and retain qualified
employees throughout our business. Specifically, we are dependent on our
officers and directors, including President and Chief Executive Officer Robert
P. Atwell and Chief Operating Officer Michael Ellis. He was just hired for
this
position in the first quarter of 2006. In order for this business to continue
they must raise the capital necessary to fund the business model.
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We
compete for our employees with many other companies, some of which have greater
financial and other resources. In the future, we may have difficulty recruiting
and retaining sufficient numbers of qualified personnel, which could result
in a
material decline in revenues. In addition, increased compensation levels could
materially and adversely affect our financial condition or results.
Our
success in achieving growth objectives depends upon the efforts of highly
skilled creative and production personnel, including producers, executives,
cinematographers, editors, costume designers, set designers, sound technicians,
lighting technicians, actors, sales and marketing experts, and legal and
accounting experts. Although we expect to find high quality candidates to fill
these positions, they may be unwilling to work for us under acceptable terms.
This could delay production or reduce the quality of our film projects, which
would impair our ability to successfully implement our business model.
Also,
many of these positions could require us to hire members of unions or guilds.
As
a result, our ability to terminate unsatisfactory or non-performing workers
could be adversely affected by existing union or guild contracts and
regulations. This could cause delays in production of our film projects and
significantly increase costs.
Competition
is Severe in the Motion Picture Industry
The
motion picture industry is highly competitive. Our management believes that
a
motion picture's theatrical success is dependent upon general public acceptance,
marketing technology, advertising and the quality of the production. We intend
to produce motion picture productions that normally should compete with numerous
independent and foreign productions as well as productions produced and
distributed by a number of major domestic companies, many of which are units
of
conglomerate corporations with assets and resources substantially greater than
ours.
Our
management believes that in recent years there has been an increase in
competition in virtually all facets of the motion picture industry. With
increased alternative distribution channels for many types of entertainment,
the
motion picture business competes more intensely than previously with all other
types of entertainment activities as well as television. While increased use
of
pay per view television, pay television channels, and home video products are
potentially beneficial, there is no guarantee that we will be able to
successfully penetrate these markets. Failure to penetrate these potential
distribution channels would have a material adverse impact on our results of
operations.
Substantial
Risks Germane to the Motion Picture Industry
The
success of a single motion picture project is fraught with an unusually high
degree of uncertainty and risk. Similarly, the probability of successfully
completing a motion picture project is also laden with an unusually high degree
of uncertainty and risks. A studio or independent producer’s ability to finance
a project, execute a successful distribution strategy, obtain favorable press
and compete with an unknown quantity of competing releases are just some of
the
factors that impact the commercial success or failure of a film project. Our
strategy involves producing a minimum of 12 motion pictures per year. While
the
intent is to reduce production risk through this strategy, our plan has the
potential to compound risks germane to the industry.
Movie
producers are often involved in several projects at the same time and an active
film director is often presented with opportunities to direct many movies.
In
addition, independent contractors needed to produce the film often have
commitments to more than one movie project. Because we may decide to replace
key
members of our production team if they are unable to perform their duties within
our schedule, the marketing appeal of our film may be reduced.
If
we do
not complete the film on schedule or within budget, our ability to generate
revenue may be diminished or delayed. Our success depends on our ability to
complete the film on schedule and within budget.
Each
film
we produce and distribute should appeal to a given segment of society to achieve
acceptance. Although our intent to target niche markets that should require
less
than broad market acceptance to achieve commercial success, there can be no
assurance that this strategy will succeed.
Motion
picture production and distribution is highly speculative and inherently risky.
There can be no assurance of the economic success of any motion picture since
the revenues derived from the production and distribution of a motion picture
(which do not necessarily bear a direct correlation to the production or
distribution costs incurred) depend primarily upon its acceptance by the public,
which cannot be predicted. The commercial success of a motion picture also
depends upon the acceptance of competing films released into the marketplace
at
or near the same time, the availability of alternative forms of entertainment
and leisure time activities, general economic conditions and other tangible
and
intangible factors, all of which can change and cannot be predicted with
certainty. Further, the theatrical success of a motion picture is generally
a
key factor in generating revenues from other distribution channels. There is
a
substantial risk that some or all of our motion pictures will not be
commercially successful, resulting in costs not being recouped or anticipated
profits not being realized.
Theaters
are more likely to exhibit feature films with substantial studio marketing
budgets. Even if we are able to complete the films and obtain distribution,
it
is unclear how much should be spent on marketing to promote each film by our
distributors.
All
of
these factors cannot be predicted with certainty. In addition, motion picture
attendance is seasonal, with the greatest attendance typically occurring during
the summer and holidays. The release of a film during a period of relatively
low
theater attendance is likely to affect the film’s box office receipts adversely.
Distribution
in Foreign Countries
We
plan
to license motion picture and television programming in foreign countries to
subdistributors. If we are at all successful in this regard, a portion of our
revenues should be derived from foreign sources. Because of this, our business
is subject to certain risks inherent in international trade, many of which
are
beyond our control. Such risks include, but are not limited to, changes in
laws
and policies affecting trade, investment and taxes (including laws and policies
relating to the repatriation of funds and to withholding taxes), differing
degrees of protection for intellectual property, the instability of foreign
economies and governments and in some cases an adverse acceptance to a film
may
occur, resulting in a demand to renegotiate the license agreement’s terms and
conditions. In addition, fluctuations in foreign exchange rates may affect
our
results of operations.
Risks
of Litigation
The
nature of the motion picture industry is such that claims from third parties
alleging infringement upon their rights to characters, stories, concepts or
other intellectual property are common. Due to our limited history as a motion
picture production company, it is likely that we could receive such claims
at
some point in the future following release of completed film projects by us.
Such claims could have material adverse impact on our results from operations
and our financial statements.
There
can
be no assurance that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against us, or that any assertions or prosecutions will not
materially adversely affect our business, financial condition or results of
operations. Irrespective of the validity or the successful assertion of such
claims, we would incur significant costs and diversion of resources with respect
to the defense thereof, which could have a material adverse effect on our
business, financial condition or results of operations.
Our
Management and Chief Executive Officer Own a Large Portion of our Common Stock
As
of
December 31, 2005, our Chief Executive Officer, Robert P. Atwell, beneficially
owns approximately 63.47% of our outstanding Common Stock. This concentration
of
our common stock ownership, combined with Mr. Atwell’s position as our Chief
Executive Officer, substantially reduce the ability of other shareholders to
impact matters requiring shareholder approval, or cause a change in control
to
occur. As a result, Mr. Atwell, acting alone, is able to exercise sole
discretion over all matters requiring shareholder approval, including the
election of the entire board of directors and approval of significant corporate
transactions, including an acquisition. Such concentration of ownership may
also
have the effect of delaying or preventing a change in control or impeding a
merger, consolidation, takeover or other business combination, or discouraging
a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of the Company. Mr. Atwell is also Chief Executive Officer at The Atwell
Group, Inc. Although Mr. Atwell spends time at the Company and is active in
its
management, he does not devote his full time and resources to the Company.
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Piracy
of Original Motion Pictures we Produce may Reduce our Revenues and Potential
Earnings
According
to industry sources, piracy losses in the motion picture industry have increased
substantially, from an estimated $2.2 billion in 1997 to an estimated $3.5
billion in 2002. In certain regions such Asia, the former Soviet Union and
South
America, motion picture piracy has been a major issue for some time. With the
proliferation of DVD format around the globe, along with other digital recording
and playback devices, losses from piracy have spread more rapidly in North
America and Europe. Piracy of original motion pictures we produce and distribute
may adversely impact the gross receipts received from the exploitation of these
films, which could have a material adverse effect on our business, results
of
operations or financial condition.
Fluctuation
of Operating Results
Like
all
motion picture production companies, our revenues and results of operations
could be significantly dependent upon the timing of releases and the commercial
success of the motion pictures we distribute, none of which can be predicted
with certainty. Accordingly, our revenues and results of operations may
fluctuate significantly from period to period, and the results of any one period
may not be indicative of the results for any future periods.
In
accordance with generally accepted accounting principles and industry practice,
we intend to amortize film costs using the individual-film-forecast method
under
which such costs are amortized for each film in the ratio that revenue earned
in
the current period for such title bears to management's estimate of the total
revenues to be realized from all media and markets for such title. To comply
with this accounting principal, our management plans to regularly review, and
revise when necessary, our total revenue estimates on a title-by-title basis,
which may result in a change in the rate of amortization and/or a write-down
of
the film asset to net realizable value. Results of operations in future years
should be dependent upon our amortization of film costs and may be significantly
affected by periodic adjustments in amortization rates. The likelihood of the
Company's reporting of losses is increased because the industry's accounting
method requires the immediate recognition of the entire loss in instances where
it is expected that a motion picture should not recover the Company's
investment.
Similarly,
should any of our films be profitable in a given period, we should have to
recognize that profit over the entire revenue stream expected to be generated
by
the individual film.
Difficulties
with Relationships Impacting Organized Labor may Adversely Impact our Earnings
and Ability to Complete Film Projects
The
Screen Actors Guild, of which many actors in the film industry are members,
bargains collectively with producers on an industry-wide basis from time to
time. Similarly, many other classes of personnel required to complete a motion
picture bargain collectively through guilds and unions. There is no assurance
that labor difficulties will not adversely affect the production of our films.
It
is
common for film directors, producers, animators and actors at film production
companies to belong to a union. There can be no assurance that our employees
will not join or form a labor union or that we, for certain purposes, will
not
be required to become a union signatory. We may be directly or indirectly
dependent upon certain union members, and work stoppages or strikes organized
by
such unions could materially adversely impact our business, financial condition
or results of operations. For example, many of the actors who provide voice
talent for films are members of the Screen Actors Guild (SAG) and/or the
American Federation of Television and Radio Artists (AFTRA) and the current
SAG
and AFTRA contract expires June 30, 2005. If a work stoppage did occur, it
could
delay the completion of our films and have a material adverse effect on our
business operating results or financial condition.
Forecasting
Film Revenue and Associated Gross Profits from our Feature Films is Extremely
Difficult
While
customer acceptance is initially measured by box office success, customer
acceptance within each follow-on product category, such as home video,
merchandise or television, depends on factors unique to each type of product,
such as pricing, competitive products, and the time of year or state of the
economy into which a product is released, among many other factors. In addition,
the degree of customer acceptance varies widely among foreign countries. While
box office success is often a good indicator of general customer acceptance,
the
relative success of follow-on products is not always directly correlated, and
the degree of correlation is difficult to predict.
With
respect to the difficulty of forecasting the timing of revenues, distribution
of
our films and film-related products, therefore, determines the timing of product
releases.
In
addition, the amount of revenue recognized in any given quarter or quarters
from
all of our films depends on the timing, accuracy, and sufficiency of a
distributor’s information we receive to determine revenues and associated gross
profits. Although we plan to rely on the most current information available
to
recognize our revenue and to determine our film gross profit, any subsequent
adjustments to the information that has been provided could have a material
impact on us in later periods.
For
instance, towards the end of the life cycle for a revenue stream, we may be
informed of additional distribution costs to those previously forecasted. Such
adjustments can impact and may continue to impact our revenue and our film
gross
profit. In addition, through information we obtain from other sources, we may
make certain judgments and/or assumptions and adjust the information we receive
from a distributor.
With
respect to capitalized film production costs, our policy is to amortize these
costs over the expected revenue streams as we recognize revenues from each
of
our films. The amount of film costs that should be amortized each quarter
depends on how much future revenue we expect to receive from each film.
Unamortized film production costs are compared with net realizable value each
reporting period on a film-by-film basis. If estimated remaining gross revenues
are not sufficient to recover the unamortized film production costs, the
unamortized film production costs should be written down to net realizable
value. In any given quarter, if we lower our previous forecast with respect
to
total anticipated revenue from any individual feature film, we would be required
to accelerate amortization of related film costs, resulting in lower gross
margins. Such lower gross margins would adversely impact our business, operating
results, and financial condition.
Forecasting
our Operation Expenses is Extremely Difficult
Our
business model requires that we be efficient in production of our motion
pictures. Actual motion picture production costs often exceed their budget,
sometimes significantly. The production, completion and distribution of motion
pictures are subject to a number of uncertainties, including delays and
increased expenditures due to creative differences among key cast members and
other key creative personnel or other disruptions or events beyond our control.
Risks such as death or disability of star performers, technical complications
with special effects or other aspects of production, shortages of necessary
equipment, damage to film negatives, master tapes and recordings or adverse
weather conditions may cause cost overruns and delay or frustrate completion
of
a production. If a motion picture production incurs substantial budget overruns,
we may have to seek additional financing from outside sources to complete
production.
We
cannot
make assurances regarding the availability of such financing on terms acceptable
to us, and the lack of such financing could have a material adverse effect
on
our business, results of operations and financial condition. In addition, if
a
motion picture production incurs substantial budget overruns, we cannot assure
you that we should recoup these costs, which could have a material adverse
effect on our business, results of operations or financial condition. Increased
costs incurred with respect to a particular film may result in any such film
not
being ready for release at the intended time and the postponement to a
potentially less favorable time, all of which could cause a decline in box
office performance, and thus the overall financial success of such film. Budget
overruns could also prevent a picture from being completed or released.
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Any
of
the foregoing could have a material adverse effect on our business, results
of
operations and financial condition. Production costs and marketing costs are
rising at a faster rate than increases in either domestic admissions to movie
theaters or admission ticket prices, leaving us more dependent on other media,
such as home video, television and foreign markets, and new media. If we cannot
successfully exploit these other media, it could have a material adverse effect
on our business, results of operations or financial condition.
Film
Production Budgets may Increase and Film Production Spending may Exceed such
Budgets
Our
future film budgets may increase due to factors including, but not limited
to,
(1) escalation in compensation rates of people required to work on our projects,
(2) number of personnel required to work on our projects, (3) equipment needs,
(4) the enhancement of existing or the development of new proprietary technology
and (5) the addition of facilities to accommodate the growth of a studio. Due
to
production exigencies, which are often difficult to predict, it is not uncommon
for film production spending to exceed film production budgets, and our projects
may not be completed within the budgeted amounts. In addition, when production
of each film is completed, we may incur significant carrying costs associated
with transitioning personnel on creative and development teams from one project
to another. These carrying costs increase overall production budgets and could
have a material adverse effect on our results of operations and financial
condition.
Our
Anticipated Successive Releases of Films could Place a Significant Strain on
our
Limited Resources
We
anticipate establishing parallel creative teams so that we can develop more
than
one film at a time. These teams are expected to work on future projects, as
we
move towards producing 12 films per year. Due to the anticipated strain on
our
personnel from the effort required for the release of an upcoming film and
the
time required for creative development of future films, it is possible that
we
would be unable to release twelve new films in the first year and in subsequent
years. We may be required to expand our employee base, increase capital
expenditures and procure additional resources and facilities in order to
accomplish the scheduled releases of our films. This growth and expansion may
place a significant strain on our resources. We cannot provide any assurances
that any future film will be released as targeted or that this strain on
resources will not have a material adverse effect on our business, financial
condition or results of operations. As we move towards achieving 12 films a
year, there will likely be additional demands placed on the availability of
key
people. A lack of availability of key people may adversely impact the success
and timing of our future films.
We
may
implement a variety of new and upgraded operational and financial systems,
procedures and controls, including improvement and maintenance of our accounting
system, other internal management systems and backup systems. Our growth and
these diversification activities, along with the corresponding increase in
the
number of our employees and our rapidly increasing costs, may result in
increased responsibility for our management team. We may need to improve our
operational, financial and management information systems, to hire, train,
motivate and manage our employees, and to provide adequate facilities and other
resources for them. We cannot provide any assurance we will be successful in
accomplishing all of these activities on a timely and cost-effective basis.
Any
failure to accomplish one or more of these activities on a timely and
cost-effective basis would have a material adverse effect on our business,
financial condition and results of operations.
The
decisions regarding the timing of theatrical releases and related products,
the
marketing and distribution strategy, and the extent of promotional support
are
important factors in determining the success of our motion pictures and related
products. We may enter into agreements with third-parties to assist us in the
marketing and distribution of our films, and we may require the marketers and
distributors to consult with us with respect to all major marketing and
distribution decisions. Said agreements may or may not include: (1) the manner
in which distributors may distribute our films and related products; (2) the
number of theaters to which our films are distributed; (3) the specific timing
of release of our films and related products; or (4) the specific amount or
quality of marketing and promotional support of the films and related products
as well as the associated promotional and marketing budgets.
Because
our Films may Contain Mature Themes, they may be Subject to Ratings Restrictions
and Censorship which would Reduce our Ability to Commercialize a Film
Certain
agreements we may obtain, including agreements with distribution companies
for
films we elect not to distribute ourselves, may be contingent upon our film
ultimately receiving a rating classification from the MPAA that is no more
restrictive than “R”. However, some of our films may contain mature themes, and
it is difficult to predict how the MPAA will ultimately classify a specific
film.
If
any of
our films are unable to obtain a rating less restrictive than NC-17, then
marketing and advertising support may be reduced, resulting in fewer
distribution venues and thus a smaller audience.
In
addition, censors in certain foreign jurisdictions might find elements of our
films to be objectionable. We may be forced to make revisions before exhibiting
our films in these jurisdictions, further adding to our expenses. The release
of
our films in certain jurisdictions may be denied regardless of revisions. These
occurrences would reduce our international revenues. We cannot provide any
assurances that we will be successful in addressing such risks.
Terrorist
Activities and Resulting Military and other Actions could Adversely Affect
our
Business
The
continued threat of terrorism within the United States and abroad, military
action and heightened security measures in response to such threats, as well
as
other socioeconomic and political events, may cause significant disruption
to
commerce, including the entertainment industry, throughout the world. For
example, the terrorist attacks in New York and Washington, D.C. on September
11,
2001 disrupted commerce throughout the United States and Europe. Such disruption
in the future could have a material adverse effect on our business and results
of operations.
We
are Subject to Risks Caused by the Availability and Cost of Insurance
Changing
conditions in the insurance industry have affected most areas of corporate
insurance. These changes have equated to higher premium costs, higher
deductibles and lower insurance coverage limits. We intend to obtain insurance
policies standard in a motion picture production, including general liability
insurance, a completion bond and other production related insurance. This
decision should be made by our management after their review of other insurance
policies we obtain for our film productions. There is no way to know how
comprehensive our coverage may be or how such a loss might impact the success
of
the Company. In addition, our schedules and budgets must be reviewed and
approved by a completion bond company before we can obtain a completion bond.
Nevertheless, our ability to adhere to our schedules and budgets face many
uncertainties, including but not limited to, whether we can attract suitable
production and creative staff within our budgets; the timing of the availability
of our principal cast members; the continued health of our director, producer,
actors and other key personnel; delays caused by unpredictable weather; the
availability and affordability of desirable locations for our productions;
and
our ability to secure appropriate facilities for post-production work in a
timely fashion. Therefore, we cannot be certain that production of our films
will occur on schedule or within budget.
If
we are
forced to exceed our production budgets due to unforeseen problems, we may
be
required to raise additional capital in the form of short-term debt to complete
the films. Additionally, if we do not complete a film on schedule its
distribution could be delayed and it could increase the time before we begin
to
generate revenues. During this period we expect to continue to incur overhead
costs, which may reduce our net revenue, if any. If our productions go over
budget, we may be unable to raise additional capital.
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Our
Success Depends on the Commercial Success of Motion Pictures, which is
Unpredictable
Operating
in the motion picture industry involves a substantial degree of risk. Each
motion picture is an individual artistic work, and unpredictable audience
reactions primarily determine commercial success. Generally, the popularity
of
our motion pictures or programs depends on many factors, including the critical
acclaim they receive, the format of their initial release, for example,
theatrical or direct-to-video, the actors and other key talent, their genre
and
their specific subject matter.
The
commercial success of our motion pictures also depends upon the quality and
acceptance of motion pictures or programs that our competitors release into
the
marketplace at or near the same time, critical reviews, the availability of
alternative forms of entertainment and leisure activities, general economic
conditions and other tangible and intangible factors, many of which we do not
control and all of which may change.
We
cannot
predict the future effects of these factors with certainty, any of which factors
could have a material adverse effect on our business, results of operations
and
financial condition. In addition, because a motion picture’s performance in
ancillary markets, such as home video and pay and free television, is often
directly related to its box office performance, poor box office results may
negatively affect future revenue streams.
Our
success could depend on the experience and judgment of our management to select
and develop new investment and production opportunities. We cannot make
assurances that our motion pictures will obtain favorable reviews or ratings,
or
that our motion pictures will perform well at the box office or in ancillary
markets. The failure to achieve any of the foregoing could have a material
adverse effect on our business, results of operations and financial condition.
We
are Smaller and Less Diversified than Many of our Competitors.
Although
we plan to be an independent distributor and producer, we expect to constantly
compete with major U.S. and international studios. Most of the major U.S.
studios are part of large diversified corporate groups with a variety of other
operations, including television networks and cable channels that can provide
both means of distributing their products and stable sources of earnings that
may allow them better to offset fluctuations in the financial performance of
their motion picture and television operations. In addition, the major studios
have more resources with which to compete for ideas, storylines and scripts
created by third parties as well as for actors, directors and other personnel
required for production. The resources of the major studios may also give them
an advantage in acquiring other businesses or assets, including film libraries,
that we might also be interested in acquiring. The foregoing could have a
material adverse effect on our business, results of operations and financial
condition.
The
Motion Picture Industry is Highly Competitive and at Times may Create an
Oversupply of Motion Pictures in the Market .
The
number of motion pictures released by our competitors, particularly the major
U.S. studios, may create an oversupply of product in the market, reduce our
share of box office receipts and make it more difficult for our films to succeed
commercially once we begin to produce, market and distribute our films.
Oversupply may become most pronounced during peak release times, such as school
holidays and national holidays, when theater attendance is expected to be
highest. For this reason, and because of our more limited production and
advertising budgets, we plan to not release our films during peak release times,
which may also reduce our potential revenues for a particular release. Moreover,
we cannot guarantee that we can release all of our films when they are otherwise
scheduled. In addition to production or other delays that might cause us to
alter our release schedule, a change in the schedule of a major studio may
force
us to alter the release date of a film because we cannot always compete with
a
major studio’s larger promotion campaign. Any such change could adversely impact
a film’s financial performance. In addition, if we cannot change our schedule
after such a change by a major studio because we are too close to the release
date, the major studio’s release and its typically larger promotion budget may
adversely impact the financial performance of our film. The foregoing could
have
a material adverse effect on our business, results of operations and financial
condition.
The
limited supply of motion picture screens compounds this product oversupply
problem. Currently, a substantial majority of the motion picture screens in
the
U.S. typically are committed at any one time to only ten to 15 films distributed
nationally by major studio distributors. In addition, as a result of changes
in
the theatrical exhibition industry, including reorganizations and consolidations
and the fact that major studio releases occupy more screens, the number of
screens available to us when we want to release a picture may decrease. If
the
number of motion picture screens decreases, box office receipts, and the
correlating future revenue streams, such as from home video and pay and free
television, of our motion pictures may also decrease, which could have a
material adverse effect on our business, results of operations or financial
condition.
We
May Not be Able to Obtain Additional Funding to Meet our Requirements
Our
ability to grow our company through acquisitions, business combinations and
joint ventures, to maintain and expand our development, production and
distribution of motion pictures and to fund our operating expenses will depend
upon our ability to obtain funds through equity financing, debt financing
(including credit facilities) or the sale or syndication of some or all of
our
interests in certain projects or other assets. If we do not have access to
such
financing arrangements, and if other funding does not become available on terms
acceptable to us, there could be a material adverse effect on our business,
results of operations or financial condition.
We
Face Risks from Doing Business Internationally
We
may
distribute motion picture productions outside the United States through third
party licensees and derive revenues from these sources. As a result, our
business is subject to certain risks inherent in international business, many
of
which are beyond our control. These risks include changes in local regulatory
requirements, including restrictions on content; changes in the laws and
policies affecting trade, investment and taxes (including laws and policies
relating to the repatriation of funds and to withholding taxes); differing
degrees of protection for intellectual property; instability of foreign
economies and governments; cultural barriers; wars and acts of terrorism. Any
of
these factors could have a material adverse effect on our business, results
of
operations or financial condition.
Leverage
Risks
The
degree to which we might become leveraged may require us to dedicate a
substantial portion of our cash flow to the payment of principal of, and
interest on, our indebtedness, reducing the amount of cash flow available to
fund film production costs and other operating expenses. Additionally, the
degree to which we might become leveraged may adversely affect our ability
to
obtain additional financing, if necessary, for such operating expenses, to
compete effectively against competitors with greater financial resources, to
withstand downturns in our business or the economy generally and to pursue
strategic acquisitions and other business opportunities that may be in the
best
interests of us and our stockholders.
REPORTS
TO SECURITY HOLDERS
The
public may read and copy any materials filed with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public
may
also obtain information on the operation of the Public Reference Room 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. This information, once we
complete our filing, should be available at http://www.sec.gov. Links to such
information are expected to be available on our web site at
www.camelotfilms.com.
Our
corporate headquarters are located at 2020 Main Street, Suite 990, Irvine,
California 92614. We occupy and share approximately 2,800 square feet of modern
executive office space provided to us by The Atwell Group, Inc., a
privately-held company owned by Robert P. Atwell, our Chief Executive Officer.
The space is leased on an annual basis. The current lease expires on December
31, 2008.
HOME
As
of the
date of this filing, management is not aware of any legal matters threatened
or
pending against the Company that have not been previously disclosed in one
or
more of the Company’s filings with the Securities and Exchange Commission.
On
April
12, 2004, The Company announced the intention to change the name of the Company
from Dstage.com, Inc. to Camelot Entertainment Group, Inc. which met with
shareholder approval in April, 2004.
During
April and May, 2004, the Company received shareholder approval to increase
the
authorized shares to 150,000,000 common and 50,000,000 preferred stock and
to
adopt the 2004 Stock Option Plan, which provides for the grant of stock options
to purchase up to 50,000,000 shares of common stock to officers, directors,
employees and consultants.
On
August
25, 2004 the Company held its annual meeting of shareholders and approved the
following matter:
(a)
Electing five directors to serve on the Board of Directors of the Company:
Robert P. Atwell, Albert A. Golusin, Jane Olmstead, Rounsevelle Schaum and
H.K.
Dyal III; (b) ratified the selection of the Company’s auditors, Epstein, Weber
& Conover, PLC, of Scottsdale, Arizona; (c) approved the acquisition of
Camelot Films, Inc., a Delaware corporation, Camelot Films, Inc., a Nevada
corporation, Camelot Films, In., a California corporations, and the
establishment of Dstage.com, Inc., a Delaware corporation newly formed in April,
2004, each to serve as a subsidiary of the Company; (d) ratify all actions
taken
by the directors to commence with an SB-2 registration filing with the
Securities and Exchange Commission; (f) authorized the Board of Directors to
amend by-laws or adopt new By-Laws; and (g) to transact such other business
as
may properly come before the meeting.
Market
Information
Although
the Company's common stock is quoted on the Over-the-Counter Bulletin Board
(OTCBB) under the symbol "CMEG" of the National Association of Securities
Dealers, Inc. (the "NASD"), there is currently no established market for such
shares; and there can be no assurance that any such market will ever develop
or
be maintained.
Any
market price for shares of common stock of the Company is likely to be very
volatile, and numerous factors beyond the control of the Company may have a
significant effect. In addition, the over-the-counter stock markets generally
have experienced, and continue to experience, extreme price and volume
fluctuations that have often been unrelated to the operating performance of
companies listed on such exchanges.
These
broad market fluctuations, as well as general economic and political conditions,
may adversely affect the market price of the Company's common stock in any
market that may develop.
Sales
of
"restricted securities" under Rule 144 may also have an adverse effect on any
market that may develop. See the caption "Sales of Unregistered Securities"
Stock
Performance
The
following table reflects the high and low bid, ask and sales price per share
of
Common Stock as quoted from the OTCBB transactions for each period indicated.
|
Year
Ended
December
31, 2005
|
BID
|
ASK
|
CLOSE
PRICE
|
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|
First
Quarter
|
0.02
|
0.015
|
0.04
|
0.03
|
0.04
|
0.015
|
|
Second
Quarter
|
0.06
|
0.015
|
0.04
|
0.02
|
0.07
|
0.012
|
|
Third
Quarter
|
0.04
|
0.03
|
0.07
|
0.05
|
0.04
|
0.04
|
|
Fourth
Quarter
|
0.05
|
0.03
|
0.08
|
0.04
|
0.05
|
0.03
|
|
|
|
|
|
|
|
|
|
December
31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
0.13
|
0.03
|
0.15
|
0.04
|
0.15
|
0.035
|
|
Second
Quarter
|
0.14
|
0.045
|
0.18
|
0.05
|
0.15
|
0.05
|
|
Third
Quarter
|
0.16
|
0.045
|
0.19
|
0.065
|
0.18
|
0.065
|
|
Fourth
Quarter
|
0.22
|
0.03
|
0.28
|
0.055
|
0.29
|
0.05
|
As
of
December 31, 2005 the bid share price of our Common Stock was .037 and as of
December 31, 2004 the bid share price of our Common Stock was $.19 on the OTCBB.
OTCBB quotations reflect inter-dealer prices, without retail mark-up, mark-down,
or commissions and may not represent actual transactions.
Holders
On
December 31, 2005, there were 115 holders of record of our Common Stock. On
December 31, 2004, there were 112 holders of record of our Common Stock.
However, we estimate there are approximately 2,300 beneficial owners of our
Common Stock. As of December 31, 2005, there were 93,649,589 shares of Common
Stock outstanding. and as of December 31, 2004, there were 74,951,209 shares
of
Common Stock outstanding.
HOME
Dividends
We
have
never declared or paid cash dividends on our Common Stock. We currently intend
to retain cash earnings, if any, to support expansion, and do not anticipate
paying any cash dividends for the foreseeable future. Should we ever produce
sufficient earnings as a result of gains in securities of Concept Affiliates
we
develop, our Board of Directors, after taking into account our earnings, capital
requirements, financial condition and other factors, has the discretion to
distribute such securities to our shareholders as property dividends.
Sale
of Unregistered Securities
All
securities sold in the past three years have been reported in previous quarterly
filings on Form 10-QSB and annual filings on Form 10-KSB.
During
the second quarter of 2005 the Company issued the following securities:
On
June
29, 2005, at 1:30pm PST, via telephone conference a special meeting of the
board
of directors was held to issue shares of common stock for accrued officer
compensation, issue shares of common stock to various consultants performing
services for the company and to Eagle Consulting Group for providing capital
for
continuing operations of the company.
It
was
Resolved that the company owed its officers $191,666 in accrued compensation.
First quarter accrued compensation of $87,500 and second quarter accrued
compensation of $104,166. The company issued a total of 911,459 restricted
common shares at a market value of $87,500 for the first quarter of 2005
services and a total of 1,364,575 restricted common shares at a market value
of
$102,343 for second quarter 2005 services. The total shares issued for
compensation of officers for the first and second quarter of 2005 was 2,276,034
shares.
It
was
Resolved that the Board authorized the company to issue 651,042 shares of the
Company’s $.001 par value common stock to Robert Atwell for services during the
first quarter of 2005.
It
was
Resolved that the Board authorized the company to issue 833,333 shares of the
Company’s $.001 par value common stock to Robert Atwell for services during the
second quarter of 2005.
It
was
Resolved that the Board authorized the company to issue 260,417 shares of the
Company’s $.001 par value common stock to Jane Olmstead for services during the
first quarter of 2005.
It
was
Resolved that the Board authorized the company to issue 86,602 shares of the
Company’s $.001 par value common stock to Jane Olmstead for services during the
second quarter of 2005.
It
was
Resolved that the Board authorized the company to issue 444,440 shares of the
Company’s $.001 par value common stock to George Jackson for services during the
second quarter of 2005.
In
the
efforts to build a management team the company issued stock to the new
management team.
It
was
Resolved that George Jackson, H K Dyal, Chris Davis and Craig Kitchens would
each receive 1,000,000 shares of the Company’s $.001 par value common stock for
consulting services provided during the second quarter of 2005.
The
Chairman next stated that in accordance with the agreement with Eagle Consulting
Group, Inc. and the Company, upon issuance of the above shares, there will
be a
total of 81,227,243 shares outstanding, resulting in 16,245,449 total shares
due
to Eagle Consulting Group, Inc. as of June 30, 2005. Eagle Consulting Group,
Inc. had previously been issued 14,396,727 shares, leaving a balance of
1,848,722 shares to be issued. The Company determined that the price per share
in connection herewith would be .03, based upon the original agreed upon price.
With this issuance of shares to Eagle Consulting Group, Inc., there will be
a
total common stock of 83,075,964 shares, issued, and outstanding. Upon a motion
duly made and seconded, and following a discussion of other business matters,
and the above June 29, 2005 resolutions were unanimously passed.
During
the fourth quarter of 2005, the Company issued the following
securities:
On
December 30, 2005, the company owed its officers $175,000 in accrued
compensation. Third quarter accrued compensation of $87,500 and fourth quarter
accrued compensation of $87,500. The company issued a total of 3,538,263
restricted common shares at a market value of $175,000 for the third and fourth
quarter services.
On
December 30, 2005, in accordance with the agreement with Eagle Consulting Group,
Inc. and the Company, issued the following shares: 1,452,662 for 3rd
and
4th
quarter
expenses of $127,712 and 1,762,271 representing 20% of new shares issued during
the year.
On
December 30, 2005, the company issued 233,547 shares to consultant, Michael
Ellis for services rendered during the 4th
quarter.
During
the fourth quarter of 2004, the Company issued the following securities:
On
November 30, 2004, the Company authorized the issuance of 8,749,998 shares
to
individuals providing consulting services to the Company. The number of shares
issued to officers in full payment of their services was 3,999,998, valued
at
$262,500. Additional shares were issued for consulting services, valued at
$393,750. The issuance of the stock was exempt from registration under Section
4(2) of the Securities Act. No underwriter was involved in the offer of sale
of
the shares.
On
December 15, 2004, the Company issued shares in exchange for legal services.
The
total number of shares issued were 450,000 and such shares were issued in the
fourth quarter of 2004 at a stated price of $. 23/share. The issuance of the
stock was exempt from registration under Section 4(2) of the Securities Act.
No
underwriter was involved in the offer of sale of the shares.
On
December 15, 2004, the Company issued 1,000,000 shares to VedaLabs, Inc. in
accordance with the settlement agreement dated October 23, 2003. The shares
had
been authorized on March 30, 2004, subject to completion of all the terms and
conditions of the settlement agreement, which were finally completed on or
about
December 15, 2004.
On
December 31, 2004, the Company authorized the issuance of common stock shares
to
Eagle Consulting Group, Inc. The number of shares to be issued are 2,967,573
at
an agreed upon price of $.03/share. The issuance of the stock was exempt from
registration under Section 4(2) of the Securities Act. No underwriter was
involved in the offer of sale of the shares.
Subsequent
Authorization and/or Issuances of Preferred Stock
During
the first quarter of 2005, the Company issued the following securities:
On
January 5, 2005, the Company established a Series A and Series B Preferred
Class
of stock, with the Series A Preferred Stock reserved for employees, consultants
and other professionals retained by the Company, and with the Series B Preferred
Stock reserved for the Board of Directors.
On
January 5, 2005, the Company directed its officers to file the appropriate
Preferred Stock Designations with the State of Delaware.
On
January 5, 2005, the Company authorized the issuance of 5,100,000 shares of
its
Class A Preferred Stock to Robert P. Atwell.
On
January 5, 2005, the Company authorized the issuance of 5,100,000 shares of
its
Class B Preferred Stock to Robert P. Atwell.
The
matters discussed in this report contain forward-looking statements within
the
meaning of Section 27A of the Securities Act of 1933, as amended, and within
the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which
are subject to the "safe harbor" created by those sections. These
forward-looking statements include but are not limited to statements concerning
our business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; and statements concerning
assumptions made or exceptions as to any future events, conditions, performance
or other matters which are "forward-looking statements" as that term is defined
under the Federal Securities Laws. All statements, other than historical
financial information, may be deemed to be forward-looking statements. The
words
"believes", "plans", "anticipates", "expects", and similar expressions herein
are intended to identify forward-looking statements. Forward-looking statements
are subject to risks, uncertainties, and other factors, which would cause actual
results to differ materially from those stated in such statements.
Forward-looking statements include, but are not limited to, those discussed
in
"Risk Factors" and elsewhere in this report, and the risks discussed in the
Company's other SEC filings.
Plan
of Operation
Overview
On
October 12, 1999 we were incorporated in Delaware as Dstage.com, Inc.. On April
12, 2004 we announced our intention of changing our name to Camelot
Entertainment Group, Inc. and changed our business model from pursuing a new
approach to venture formation (the Dstage.com Model) to the Camelot Studio
Model
(or "CSM"). The CSM attempts to combine the efficiencies realized by studios
of
the early 1900s, with the artistic focus and diversity of today's independent
productions. Using this approach, the Company believes the risk-reward
relationship facing the typical film project can be dramatically shifted. For
example, whereas a typical film pushes artists and directors to rush development
and production in hopes of conserving cash, the CSM extends the pre-production
cycle substantially to reduce costs while simultaneously increasing quality.
Similarly, whereas a low-budget picture is severely limited by the types of
postproduction technology used, due to budget constraints, we intend to invest
directly in top of the line technology, spreading the costs over a targeted
minimum of 12 original motion pictures each year. The goal of the CSM is to
develop the ability to consistently produce films with the look, feel and
artistic content of multi-million dollar pictures, for a fraction of the cost.
Our
historical operations, prior to becoming Camelot Entertainment Group, Inc.,
consisted primarily of attempting to provide support, organization and
restructuring services to other development stage companies. Due to the complete
and drastic change in our business focus, from seeking to aid development stage
companies to our current focus of producing, distributing and marketing original
motion pictures, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful and should not be relied on as an
indication of future performance. However, it is still important that you read
the discussion in connection with the audited financial statements, the
unaudited interim financials and the related notes included elsewhere in this
annual report in addition to thoroughly reading our current plan of operations.
Our
View of the Steps Required for Motion Picture Commercialization
We
view
the motion picture commercialization process as involving three major steps,
each of which bears a symbiotic relationship to the costs, creative value and
profitability of any planned film to be released by us. These three steps are
development, production and distribution. Under our planned model, development
should include not only screenplay acquisition and development, but also a
carefully constructed and unusually elongated pre-production phase. This process
was developed as a result of the direct experience and observations of our
management.
By
viewing the development phase as a distinct and major component of the motion
picture creation process, we hope that we can create a culture that encourages
producers, writers and directors associated with our projects to focus their
efforts and expertise on creating world-class pictures before the first day
of
shooting begins. We believe that creating such a culture could potentially
result in a substantial reduction of the cost of our film projects, as compared
to the film projects of our competitors. When combined with what we believe
is a
unique method of attracting, compensating and retaining talent that would
otherwise not be involved in an active motion picture project, it is expected
that the opportunity for a cost advantage could emerge.
We
believe that our plan to create our motion pictures should succeed because
our
management team has worked extensively in all phases of motion picture
production. In addition, we are actively seeking to bolster our management
team
with executives who have extensive experience in not only motion picture
production, distribution and marketing, but also in television and other related
fields. This combined experience led our management team to a number of beliefs
upon which our business model for creating our product is founded. These key
views are:
|
·
|
The
manner in which development and pre-production activities are managed
can
have the largest impact on both the quality, or creative content,
and the
cost of creating a motion picture.
|
|
·
|
There
are a number of factors that make it difficult for most motion pictures
to
invest large amounts of time and a proportionally large share of
a motion
picture’s overall budget into development and pre-production activities.
|
|
·
|
The
factors that make it difficult for many motion picture projects to
invest
a major share of a film’s time and financial resources into development
and pre-production activities may have created a pervasive business
culture that emphasizes moving projects towards principal photography
too
quickly.
|
|
·
|
A
very small percentage of all writers that want to have their screenplays
become completed motion picture projects will ever realize this ambition.
|
|
·
|
A
very small percentage of all directors will participate in principal
photography in any given year.
|
|
·
|
The
percentage of qualified actors that never have the opportunity to
participate in a completed original motion picture that is released
commercially is substantial.
|
|
·
|
There
are large periods of unemployment for many individuals involved in
motion
picture production.
|
We
believe that these observations suggest that the capacity to create motions
pictures, in terms of employable professionals, is far higher than the current
demand of existing film production companies for these services. However, we
also believe that growth in motion picture consumption worldwide has created
increased demand for original motion pictures in general. As a result, we
anticipate that the underemployed, or unemployed, directors, writers and other
film professionals could help fill a void for low cost, quality original motion
picture production, given the right mix of incentives and business structure.
There can be no assurance that such benefits, advantages or capacity will ever
materialize.
Successfully
creating such low cost, but relatively high quality pictures should result
in a
higher per picture financial return and a lower breakeven point for each film
produced. Also, by distributing these pictures primarily through in-house
distribution professionals, the per picture return might be increased even
further, enabling more motion pictures to be produced by us annually and thereby
diversifying the risk associated with any single film project. These beliefs
form the foundation for our planned business model and expected strategy.
Our
Strategy of Emphasizing the Pre-production Phase of Motion Picture
Commercialization
As
noted
previously, we believe that a very small percentage of all writers that want
to
have their screenplays become completed motion picture projects will ever
realize this ambition. We believe that this assertion speaks to the opportunity
we envision to cost effectively acquire writing, directing producing and other
motion picture production talent that would otherwise exceed demand for these
services.
This
perceived opportunity is critical to our strategy, because without a great
script, we believe it is either incredibly expensive or simply impossible to
produce a great motion picture. However, we also believe that few great scripts
begin as great scripts, but most evolve from a great idea to a substandard
script and so forth. Matching great script ideas with tried and true expertise
of professionals that know character development, genre formulas and how to
convert words into pictures that create passion are expected to allow us to
realize our vision.
We
believe that many small and medium sized production companies can rarely afford
to invest their time into unproven writers, much less even consider going with
unproven directing talent. Moreover, we believe that the investors and
distributors they are aligned with often play a major role in which projects
get
approved for production, or “green-lighted.”
Similarly,
we believe that major studios have even more reasons for steering clear from
these unproven sources of product. If these assertions are correct, then a
large
pool of untapped creative talent available for use in motion picture production
exists. It is our intention to engage this pool to commercialize motion pictures
in accordance with our strategy. To accomplish this objective, we intend to
do
the following:
|
·
|
Obtain
Complete And Outright Ownership Of Scripts And Other Literary Works
:
We
anticipate that by offering the proper incentives to screenwriters
and
other authors of compelling literary works well suited for a film
project,
we should be able to acquire complete and outright ownership of these
copyrights for a fraction of what many producers would pay simply
to get
an option on a script. As mentioned, such writers have an incentive
that
fewer than 10% of Screenwriters Guild members expect to experience
in a
given year the true opportunity to have their vision become a theatrically
released motion picture. In addition, our plan calls for participating
writers to share in the success of their script, through profit
participation and indirectly in the success of other film projects
we
complete, through restricted shares of or common stock. This same
formula
is expected to allow us to attract directors, producers and other
creative
personnel with a passion for making pictures that the public wants
to see.
|
|
·
|
A
Recurring 6-Month Cycle Of Pre-Production Activities :
Our
plans for the pre-production phase for each motion picture project
we
initiate is to utilize a recurring 6-month cycle that starts every
month
for a new film, enabling us to create a rolling pipeline of product.
Unlike our perception of pure independents and small production companies,
we don’t anticipate that our pre-production phase could consume creative
resources by having producers, writers and directors hunt for additional
film financing. Instead, we anticipate that each film should have
a set
and fixed budget. We expect the additional time that should emerge,
if we
are successful, to allow the production designer, producers, director
of
photography and other personnel adequate time to find ways to increase
quality and reduce costs through skillful planning.
|
|
·
|
Relatively
Firm Scheduling Of Film Projects :
Another
feature we expect to emerge as a result of our planned approach is
that it
should allow relatively firm scheduling of the cast at a very early
stage,
something that we believe is rare in the world of pure independent
productions. During this same time, we expect the production team
to
benefit from a mentoring environment that insures the creative spark
sought in each of our productions does not become an increasing collection
of unrealistic ambitions, leading to missed production schedules.
With
these elements firmly in place, we would typically expect principal
photography to begin in the fifth month of each project.
|
Our
Strategy of Achieving Higher Quality and Lower Costs During the Production
Phase
of Motion Picture Commercialization
Four
key
elements following development and pre-production are expected to enable us
to
create quality pictures for a fraction of the cost experienced by our
competitors. These four elements are:
1.
Digital
Photography
Like
the
model we plan to pursue, we believe that purely independent productions can
realize costs savings by using digital film technology due to the lower cost
of
processing, stock, dailies and certain editing costs. We also believe that
major
studios benefit from using digital technology in certain genres, but not so
much
from a cost standpoint.
Instead,
we think that the heavy special effects used by major studios’ high-budget
action and science-fiction pictures are increasingly enhanced as a result of
using digital photography. While, if true, this would negate some of the cost
benefits of using digital photography, the overall value in terms of
entertainment quality would still be enhanced, in general. One party that we
believe has found the benefits of digital photography rather elusive is the
small and mid-sized production company.
We
believe that this is generally because when such companies convince a director
to use digital photography, the director and director of photography (or “DP”)
are likely to specify additional camera setups. We also believe that the
increased, low-cost coverage available, along with real-time video monitoring,
often results in issues between directors and directors of photography on
projects of these companies, as they analyze and debate each shot during
precious shooting time. As a result, the mixed use of digital photography by
small and medium sized production companies generally has a neutral impact
on
overall value, in our opinion.
2.
Profit
Participation
We
believe that it is very common for purely independent productions to offer
profit participation, or points, as a means of getting parties they could
otherwise not afford to hire (for cash) to work on the production. If this
is in
fact a standard method of simply getting a picture made for these types of
productions, we believe the effects on value are neutral. That is, if every
competitive production is offering this same type of compensation, the potential
impact of the incentive is reduced.
Similarly,
in the case of major studios, we believe that all of the parties involved in
such productions have access to sophisticated negotiators and advocates that
can
reasonably weigh the potential market value of such incentives. If so, we
believe that such incentives rarely offer a competitive advantage to the
production. However, for small and medium sized independents, our model assumes
that the added incentive of points can be the extra incentive needed to attract
certain parties that would otherwise not participate on a given project.
We
intend
to use profit participation in a manner that we think is precedent setting
in
the industry. Firstly, under our model, every member of the production stands
to
participate in the financial success of our film projects, thereby reversing
an
industry tradition whereby the phrase “net” has had little or no meaning or
substance. Similarly, since the same types of writers and directors that would
be otherwise willing to work on a picture with little or no compensation are
being pursued under our model, albeit at very low cash rates, the added
incentive of profit participation is expected to be a meaningful bonus in the
eyes of these parties.
3.
Production
Management
We
believe that the largest full-time employers of motion picture production
management, and also the entities with the most developed production management
infrastructures, are major studios. However, we believe that these large
bureaucracies, while essential to the management of a relatively large volume
of
high budget pictures, also create an environment that often pits creative talent
against management. If true, then to a certain degree, this may offset some
of
the potential advantages of their production management systems. The production
management systems of one-picture only, pure independent productions tend to
be
ad hoc systems that find their way into the process through the producer,
director and other personnel that are assembled to create a one-time
organization, in our opinion. This leaves the small and medium sized production
companies, who benefit from their ambitions of creating multiple motion
pictures. Unfortunately, as their staffs of full-time production and development
personnel grow, we believe their budgets grow accordingly, in general, creating
little competitive value over time.
4.
Common
Stock Incentives
To
the
best of our knowledge, no other publicly traded film company has ever utilized
common stock to provide incentive for all of its creative, production and
management resources. There are two specific reasons why this option is not
generally available to competitors. Firstly, most of the companies making lower
budget pictures do not have business models that justify becoming a publicly
traded company. Secondly, for companies that do have the scale to offer publicly
traded stock as a form of production compensation, we believe that doing so
would be at odds with their fundamental business cultures and, in many cases,
at
odds with the wishes of their shareholders.
With
the
exception of using common stock, we believe that each of these value enhancement
tools is used to varying degrees, with varying success, by other motion picture
productions. However, we are not aware of any other Company that uses the
systematic and flawless integration of these elements into each of their
productions the way that we intend to. If this is correct, we believe it may
explain why few if any motion picture companies can consistently realize the
reduction in cash production expenditures combined with the increase of quality
that we expect to be a key element of our business model.
Our
Strategy of Developing and Utilizing In-house Distribution Expertise
A
number
of new distribution channels have increased the means by which motion picture
product can be consumed and, therefore, the potential channels for revenue.
These channels include theatrical or box office, video cassette, DVD,
pay-per-view television, cable television, network television, television
syndication, non-theatrical outlets, such as in-flight movies, and international
channels. With so many new distribution channels available, it may seem
surprising that pictures with smaller budgets still find it so difficult to
get
their films in front of audiences. Our management believes this pervasive
problem is primarily due to two difficult obstacles to overcome.
Firstly,
we believe that the very reliance on a distributor places a small independent
production at the mercy of a party they have limited bargaining power with
and
virtually no control over: the distributor. Under such a scenario, we believe
that even if revenues and expenses are fairly and properly accounted for by
the
distributor, cash must flow through many hands before revenue makes it way
back
to investors and other profit participants.
Secondly,
and perhaps equally important, we believe that without a large volume of product
in the pipeline, the alternatives to using an outside distributor are few,
and
rarely result in large, predictable inflows of cash. For instance, if an
independent producer has a single picture budgeted at $5 million, it is
generally economically impractical to establish an in-house distribution
department with the limited mission of directly marketing that one film. At
the
same time, we believe that volume purchasers of motion picture product,
including studios, cable outlets, home video companies and other buyers with
large needs for product, require a dependable source of multiple pictures.
The
one-picture or two-picture production company simply can’t meet these needs,
making it more efficient for buyers to deal with an agent or sub-distributor,
in
our opinion. Our planned combination of high-volume and high-quality motion
pictures stands to change these economics, making in-house distribution an
essential element of our strategy.
Motion
Picture Library
A
potential benefit of our business model is the planned ownership of an expansive
library of feature films that should be, for the most part, unencumbered. If
we
are successful in implementing our business plan, we could have 12 films or
more
going into our library annually that could have an extended shelf life in
ancillary markets, including, but not limited to, cable, satellite and
television syndication, both domestically and internationally, extended DVD’s,
special edition DVD’s and other areas of repurposing.
Liquidity
and Capital Resources
We
have
no history of operations as a film production and distribution company. We
believe that, due to the complete and drastic change in our business focus,
period-to-period comparisons of our operating results are not necessarily
meaningful and should not be relied on as an indication of future performance.
Our
current liquidity and capital resources are provided principally through our
financing agreement with Eagle Consulting Group, Inc.(“Eagle”). We entered into
an agreement with Eagle on March 28, 2003, to provide operational funding for
the Company. In exchange for twenty percent (20%)of the Company’s outstanding
common stock on a non-dilutive, continuing basis until the Company can secure
additional financing from another source, Eagle has agreed to provide funding
for the Company’s annual audit, quarterly filings, accounts payable and other
ongoing expenses including office, phones, business development, legal and
accounting fees. In 2005 Eagle advanced $125,287 to the company and in 2004
Eagle advanced $127,341. In addition Robert Atwell advanced $259,941 to the
Company during 2005. The funding commitment from Eagle should cover all of
our
operating expenses for the next twelve months.
We
entered into an agreement with The Corporate Solution, Inc., owned by our
President, Robert P. Atwell, whereby The Corporate Solution has agreed to
provide a minimum of $262,500 toward the budget of an initial film we planned
to
develop in-house. The filming was expected to commence during the third or
fourth quarter of 2005 but did not. In exchange for providing the funds, The
Corporate Solution, Inc. was to receive 3,500,000 shares of our $.001 par value
common stock. We decided to postpone this initial in-house project in favor
of
developing our studio project and entering into transactions to acquire
additional projects. During 2005 and the first quarter of 2006, we began
negotiations on securing land for our studio project, retained architects,
cost
estimators and related consultants. We also acquired the rights to two motion
picture projects, which we are currently developing through our Camelot
Production Services Group division.
In
addition, during 2004 we entered into an agreement with Corporate Awareness
Professionals, Inc.(“CAP”), which in part provided for the initial purchase of
1,675,000 shares of our $.001 par value common stock through options priced
at
$0.15 per share for $251,250. In addition, CAP had the option to purchase an
additional 1,000,000 shares at $.50 per share for $500,000. Upon purchasing
those shares, CAP had the right to purchase up to a maximum of 10% more shares,
or 100,000 shares, at $.50 per share. If CAP had exercised all its options,
it
should have purchased 2,775,000 total shares for $801,250. As of the date of
this annual report, CAP has not exercised any of its options. There can be
no
guarantee that they will exercise any of their options, and in the event they
do
exercise some of their options, there can be no guarantee that they will
exercise all of their options. As a result, the failure of CAP to exercise
some
or all of their options necessitated additional funds be provided from other
sources. As of December 31, 2005, CAP had not exercised any of its options,
which expired in March, 2005.
Further,
we are in the process of preparing a private placement memorandum and an SB-2
registration statement for the purpose of funding our initial slate of pictures.
If the anticipated funding is successful, it is our goal to have between
10 and 12 motion pictures in various stages of development or production within
12 months. In the event we are unable to complete the funding, we could have
to
delay our slate until such time as the necessary funding is acquired.
Like
all
motion picture production companies, our revenues and results of operations
could be significantly dependent upon the timing of releases and the commercial
success of the motion pictures we distribute, none of which can be predicted
with certainty. Accordingly, our revenues and results of operations may
fluctuate significantly from period to period, and the results of any one period
may not be indicative of the results for any future periods. Similarly, the
efficiencies we aim to realize through our model may not materialize. Failure
of
the efficiencies to materialize, along with other risks germane to the picture
production, may cause us to produce fewer films than our plan calls for.
Sources
of Revenue
Upon
completion of each film, assuming that any are successfully completed, we intend
to engage international and domestic channels of distribution using a variety
of
methods. These methods include, but are not limited to:
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Licensing
of videocassettes and digital video discs (DVDs)
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Pay-per-view
cable and satellite licensing
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Pay
television and Internet licensing
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Broadcast
television, cable and satellite licensing
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Hotels,
airlines and other non-theatrical exhibitions
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Syndicated
television licensing
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Internet
Protocol TV (IPTV)
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HOME
Our
strategy of developing in-house distribution and marketing expertise, while
intended to increase the proportion of a given original motion picture’s revenue
we can retain, may actually have the effect of reducing the speed with which
we
can obtain cash from any motion pictures we complete. This is due in part to
the
way that many independent productions distribute their motion pictures.
We
believe that many independent productions plan to engage sales agents to
distribute their motion pictures. These sales agents often license the
distribution rights to distributors on behalf of the production company, or
another party that owns the rights to the motion picture negative. In exchange
for these services, the agent normally receives a percentage of any licensing
fees generated by licensing the film to a distributor.
The
distributor’s licensing a film’s rights often has a fee set as a percentage of
gross revenue from the film. While a preset rate is used, the amount of this
fee
is generally unknown at the time that the distribution agreement is entered
into, as there is no way to know with any degree of certainty how much revenue,
if any, will be generated by the film. However, in some cases the distributor
might pay a certain minimum amount to the production company, or rights owner,
upon delivery of a completed motion picture. This is sometimes referred to
as a
minimum guarantee or simply as an advance. Such guarantees, when available,
reduce the perceived risks of parties financing original motion picture
productions. As a result, these advances can make it easier for producers to
obtain financing for a project.
Our
strategy does not involve working through sales agents, although were we unable
to successfully market our films directly to distributors, we may have no
alternative but to pursue such channels. Under our strategy of marketing
directly to buyers and other distributors, we would still have the ability
to
pursue and negotiate minimum guarantees and advances. However, in general we
believe that this would likely negatively impact the potential return we seek
to
realize on our original motion picture productions. The result of this strategy
may be that the speed with which we convert film projects into cash inflows
could also be negatively impacted.
Expected
Significant Changes in the Number of Employees
According
to the Bureau of Labor Statistics, in 2004, the United States had about 367,900
wage and salary jobs in the motion picture production and distribution industry.
The majority of these jobs were in motion picture production and services,
including casting, acting, directing, editing, film processing, motion picture
and videotape reproduction, and equipment and wardrobe rental. Most motion
picture and distribution establishments employ fewer than 10 workers.
Many
additional individuals work in the motion picture production and distribution
industry on a freelance, contract, or part-time basis, but accurate statistics
on their numbers are not available. Many people in the film industry are
self-employed. They sell their services to anyone who needs them, often working
on productions for many different companies during the year. Competition for
these jobs is intense, and many people are unable to earn a living solely from
freelance work.
While
these factors appear to reinforce our belief that there is a large pool of
available resources to engage in the production of our original motion pictures,
there can be no guarantee that the resources will accept our terms or business
strategy. According to our planned business model, those that do are expected
to
be engaged primarily as independent contractors. However, our plans also call
for substantially increasing the number of individuals we hire as salaried
and
hourly employees.
Prior
to
the date of this annual report, none of our executive officers or other
personnel were paid cash compensation for their services. As a result, we would
typically monitor the amount of time devoted by each executive officer and
other
personnel engaged as independent contractors. Subsequent to this annual report,
and subject to our ability to properly capitalize the Company, we anticipate
that at least 3 of our current officers could be receiving cash compensation
as
salaried employees. We also plan to hire a minimum of 4 additional personnel
engaged in marketing and distribution, operations and general and administrative
capacities. These planned changes in personnel alone are significant. However,
should we be required to engage a higher number of production professionals
as
employees, instead of our current plans to engage many production personnel
as
independent contractors, the increase in employees would be even more
significant.
Critical
Accounting Estimates
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management
to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. As such, in accordance with the use of
accounting principles generally accepted in the United States of America, our
actual realized results may differ from management’s initial estimates as
reported. A summary of our significant accounting policies are detailed in
the
notes to the financial statements which are an integral component of this
filing.
Management
evaluates the probability of the utilization of the deferred income tax asset
related to the net operating loss carryforward. The Company has estimated a
$3,187,402 deferred income tax asset related to net operating loss carryforward
and other book/tax differences at December 31, 2005. Management determined
that
because the Company has yet to generate taxable income and that the generation
of taxable income in the short term is uncertain, it was appropriate to provide
a valuation allowance for the total deferred income tax asset, resulting in
a
net deferred income tax asset of $0.
The
Company has acquired certain technology and licenses. Prior to December 31,
2004, the Company determined that the value of these acquired assets was
impaired and has provided an impairment allowance for the full purchase price
of
these assets. The impairment amount of assets and investments in other companies
charged to operations in prior years was $3,113,000.
Critical
Accounting Policies
The
Company has defined a critical accounting policy as one that is both important
to the portrayal of the Company's financial condition and results of operations;
and requires the management of the Company to make difficult, subjective or
complex judgments. Estimates and assumptions about future events and their
effects cannot be perceived with certainty. The Company bases its estimates
on
historical experience and on various other assumptions that are believed to
be
reasonable under the circumstances, the results of which form the basis for
making judgments. These estimates may change as new events occur, as more
experience is acquired, as additional information is obtained and as the
Company's operating environment changes.
We
have
identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations is discussed throughout
Management's Discussion and Analysis of Financial Condition and Results of
Operations, where such policies affect our reported and expected financial
results. In the ordinary course of business, we have made a number of estimates
and assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America. Actual
results could differ significantly from those estimates under different
assumptions and conditions. We believe that the following discussion addresses
our most critical accounting policies, which are those that are most important
to the portrayal of our financial condition and results of operations and
require our most difficult, subjective, and complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
Acquired
Technology and Intangible Assets
Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), establishes accounting and reporting standards for
recording, valuing and impairing goodwill and other intangible assets. The
adoption of SFAS 142 did not have an impact on the Company's financial condition
or results of operations for fiscal year 2004. However, as the Company's
business model is heavily dependent on acquiring intangible assets, this
pronouncement is expected to have a material impact on the Company's financial
condition and results of operations in future periods, should the Company
survive as an ongoing concern.
Deferred
Compensation
The
Company had in the past negotiated contracts to grant common stock in exchange
for future (prepaid) services with various other companies and individuals.
Where the other companies are independent or have minimal common stock ownership
in the Company, those prepaid expenses had been presented in the accompanying
balance sheet as an asset. Where the other companies or individuals have
significant stock ownership or are functioning as, or similar to, employees,
officers or directors, such prepaid services were presented on the balance
sheet
as deferred compensation and a reduction to total equity.
It
is
Company policy to expense those items which have been unused after the
contractual period or after one year, if not used. Other prepaid expenses where
services are being used are amortized over the life of the contract. As of
December 31, 2005, all deferred compensation had been expensed. As a result,
there were no deferred compensation issues in 2004 or in 2005.
Going
Concern Uncertainties
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles accepted in the United States, which
contemplate continuation of the Company as a going concern. However, the Company
has experienced recurring operating losses and negative cash flows from
operations.
The
Company's continued existence is dependent upon its ability to increase
operating revenues and/or obtain additional equity financing.
The
Company reached an agreement with Eagle Consulting Group, Inc., a Nevada
corporation ("Eagle"), to provide equity financing. Eagle has advanced the
Company a limited amount of funds since 2003, and it appears likely that such
funding should continue to be enough to meet all of the Company's cash
requirements in 2005. However, the Company must find additional sources of
financing in order to remain a going concern in the future. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
Impairment
of Long-Lived Assets
The
Company adheres to the provisions of Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). The Company reviews the carrying value of its long-lived
assets and certain identifiable intangibles for impairment whenever events
or
changes in circumstances indicate that the carrying amount of an asset may
not
be recoverable through undiscounted net cash flows. Impairment is calculated
based on fair value of the asset, generally using net discounted cash flows.
Any
long-lived assets to be disposed of are reported at the lower of the carrying
amount or fair value less estimated costs to sell.
Significant
Accounting Practices
Beginning
January 1, 2004 we adopted new accounting rules which were effective January
1,
2001, which require, among other changes, that exploitation costs, including
advertising and marketing costs, be expensed as incurred. Theatrical print
costs
are amortized over the periods of theatrical release of the respective
territories. Under accounting rules in effect for periods prior to January
1,
2001, such costs were capitalized as a part of film costs and amortized over
the
life of the film using the individual-film-forecast method. The current practice
dramatically increases the likelihood of reporting losses upon a film’s
theatrical release, but should provide for increased returns when a film is
released in the ancillary markets of home video and television, when we incur
a
much lower proportion of advertising costs. Additional provisions under the
new
accounting rules include changes in revenue recognition and accounting for
development costs and overhead, and reduced amortization periods for film costs.
Accounting
for Motion Picture Costs
In
accordance with accounting principles generally accepted in the United States
and industry practice, we amortize the costs of production, including
capitalized interest and overhead, as well as participations and talent
residuals, for feature films using the individual-film-forecast method under
which such costs are amortized for each film in the ratio that revenue earned
in
the current period for such title bears to management’s estimate of the total
revenues to be realized from all media and markets for such title. All
exploitation costs, including advertising and marketing costs, are expensed
as
incurred. Theatrical print costs are amortized over the periods of theatrical
release of the respective territories.
Management
plans to regularly review, and revise when necessary, our total revenue
estimates on a title-by-title basis, which may result in a change in the rate
of
amortization and/or a write-down of the film asset to estimated fair value.
These revisions can result in significant quarter-to-quarter and year-to-year
fluctuations in film write-downs and amortization. A typical film recognizes
a
substantial portion of its ultimate revenues within the first two years of
release. By then, a film has been exploited in the domestic and international
theatrical markets and the domestic and international home video markets, as
well as the domestic and international pay television and pay-per-view markets.
A similar portion of the film’s capitalized costs should be expected to be
amortized accordingly, assuming the film or television program is profitable.
The
commercial potential of individual motion pictures varies dramatically, and
is
not directly correlated with production or acquisition costs. Therefore, it
is
difficult to predict or project a trend of our income or loss. However, the
likelihood that we report losses, particularly in the year of a motion picture’s
release, is increased by the industry’s method of accounting which requires the
immediate recognition of the entire loss (through increased amortization) in
instances where it is estimated the ultimate revenues of a motion picture could
not recover our capitalized costs. On the other hand, the profit of a profitable
motion picture must be deferred and recognized over the entire revenue stream
generated by that motion picture. This method of accounting may also result
in
significant fluctuations in reported income or loss, particularly on a quarterly
basis, depending on our release schedule, the timing of advertising campaigns
and the relative performance of individual motion pictures.
Equity
Investments
We
are
accounting for any potential investment in other related entities in the future
in accordance with Accounting Principles Board Opinion No. 18, “The
Equity Method of Accounting for Investments in Common Stock.” In
accordance with APB Opinion No. 18, management plans to continually review
its
equity investments to determine if any impairment has occurred. If, in
management’s judgment, an investment has sustained an other-than-temporary
decline in its value, the investment is written down to its fair value by a
charge to earnings. Such determination is dependent on the specific facts and
circumstances, including the financial condition of the investee, subscriber
demand and growth, demand for advertising time and space, the intent and ability
to retain the investment, and general economic conditions in the areas in which
the investee operates.
New
Accounting Pronouncements
In
June
2000, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 139, “Rescission
of FASB No. 53 and Amendments to FASB Statements No. 63, 89 and 121,”
which,
effective for financial statements for fiscal years beginning after December
15,
2000, rescinds Statement of Financial Accounting Standards No. 53, “Financial
Reporting by Producers and Distributors of Motion Picture Films.”
The
companies that were previously subject to the requirements of Statement of
Financial Accounting Standards No. 53 are following the guidance in American
Institute of Certified Public Accountants Statement of Position 00-2,
“Accounting
by Producers or Distributors of Films,” issued
in
June 2000.
Statement
of Position 00-2 establishes new accounting and reporting standards for all
producers and distributors that own or hold the rights to distribute or exploit
films. Statement of Position 00-2 provides that the cumulative effect of changes
in accounting principles caused by its adoption should be included in the
determination of net income in conformity with Accounting Principles Board
Opinion No. 20, “Accounting
Changes.”
We
adopted the Statement of Position on January 1, 2004. The new rules also require
that advertising costs be expensed as incurred as opposed to the old rules
which
generally allowed advertising costs to be capitalized as part of film costs
and
amortized using the individual-film-forecast method. Due to the significant
advertising costs incurred in the early stages of a film’s release, we
anticipate that the new rules could significantly impact our results of
operations for the foreseeable future.
In
June
1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” as
amended by Statement of Financial Accounting Standards No. 137, “Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of Financial Accounting Standards Board No. 133,” and
by
Statement of Financial Accounting Standards No. 138, “Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an Amendment
of Financial Accounting Standards Board Statement No. 133,” which
is
effective for all quarters of fiscal years beginning after June 15, 2000. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. We adopted Statement of Financial
Accounting Standards No. 133 beginning January 1, 2004. The adoption of
Statement of Financial Accounting Standards No. 133 did not materially impact
our results of operations.
In
June
2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 142, “Goodwill
and Other Intangible Assets.” According
to this statement, goodwill and intangible assets with indefinite lives are
no
longer subject to amortization, but rather an annual assessment of impairment
by
applying a fair-value-based test. Under this statement, the carrying value
of
assets are calculated at the lowest level for which there are identifiable
cash
flows, which include feature film operations, television programming operations,
cable channels and other businesses. We adopted this statement beginning January
1, 2002, and upon adoption we did not recognize any impairment of goodwill.
In
December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 148, “Accounting
for Stock-Based Compensation—Transition and Disclosure—an Amendment of Statement
of Financial Accounting Standard No. 123.” This
statement provides alternative methods of transition for a voluntary change
to
the fair value based method of accounting for stock-based employee compensation.
This statement also amends the disclosure requirements of Statement of Financial
Accounting Standard No. 123 and Accounting Principles Board Opinion No. 28,
“Interim
Financial Reporting,” to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We implemented Statement of
Financial Accounting Standard No. 148 effective January 1, 2003 regarding
disclosure requirements for condensed financial statements for interim periods.
We have not yet determined whether we will voluntarily change to the fair value
based method of accounting for stock-based employee compensation.
In
January 2003, the Financial Accounting Standards Board issued Interpretation
No.
46, “Consolidation
of Variable Interest Entities,” which
establishes criteria to identify variable interest entities and the primary
beneficiary of such entities. An entity that qualifies as a variable interest
entity must be consolidated by its primary beneficiary. All other holders of
interests in a variable interest entity must disclose the nature, purpose,
size
and activity of the variable interest entity as well as their maximum exposure
to losses as a result of involvement with the variable interest entity.
Interpretation No. 46 was revised in December 2003 and is effective for
financial statements of public entities that have special-purpose entities,
as
defined, for periods ending after December 15, 2003. For public entities without
special-purpose entities, it is effective for financial statements for periods
ending after March 15, 2004. We do not have any special-purpose entities, as
defined, and are currently evaluating the provisions of this statement as it
relates to its various forms of investments. We do not expect Interpretation
No.
46 to have a material effect on our financial statements.
In
May
2003, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 150, “Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity.” This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability or an asset in some circumstances. Many of
those
instruments were previously classified as equity. This statement is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15 2003. We implemented this statement on July 1, 2003. The impact
of
such adoption did not have a material effect on our financial statements
In
December 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 (revised 2003), “Employers’
Disclosures about Pensions and Other Postretirement Benefits.” This
statement revises employers’ disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans required by Statement of Financial Accounting Standards No.
87,
“Employers’
Accounting for Pensions,” Statement
of Financial Accounting Standards No. 88, “Employers’
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and
for Termination Benefits,” and
Statement of Financial Accounting Standards No. 106, “Employers’
Accounting for Postretirement Benefits Other Than Pensions.” This
statement retains the disclosure requirements contained in Statement of
Accounting Standards No. 132, “Employers’
Disclosures about Pensions and Other Postretirement Benefits,” which
it
replaces. It requires additional disclosures to those in the original Statement
of Financial Accounting Standards No. 132 about the assets, obligations, cash
flows, and net periodic benefit cost of defined benefit pension plans and other
defined benefit postretirement plans. The required information should be
provided separately for pension plans and for other postretirement benefit
plans. This statement is effective for financial statements with fiscal years
ending after December 15, 2003. We implemented the Statement of Financial
Accounting Standards No. 132 (revised 2003) on December 15, 2003. The impact
of
such adoption did not have a material effect on our financial statements.
Accounting
for Films
In
June
2000, the Accounting Standards Executive Committee of the American Institute
of
Certified Public Accountants issued Statement of Position 00-2 “Accounting by
Producers or Distributors of Films” (“SoP 00-2”). SoP 00-2 establishes new
accounting standards for producers or distributors of films, including changes
in revenue recognition, capitalization and amortization of costs of acquiring
films and accounting for exploitation costs, including advertising and marketing
expenses. We elected adoption of SoP 00-2 effective as of April 1, 2004.
The
principal changes as a result of applying SoP 00-2 are as follows:
•
Advertising and marketing costs, which were previously capitalized to investment
in films on the balance sheet and amortized using the individual film forecast
method, are now expensed the first time the advertising takes place.
We
capitalize costs of production, including financing costs, to investment in
motion pictures. These costs are amortized to direct operating expenses in
accordance with SoP 00-2. These costs are stated at the lower of unamortized
motion picture costs or fair value (net present value). These costs for an
individual motion picture or television program are amortized in the proportion
that current period actual revenues bear to management’s estimates of the total
revenue expected to be received from such motion picture over a period not
to
exceed ten years from the date of delivery.
Management
plans to regularly review, and revise when necessary, its total revenue
estimates, which may result in a change in the rate of amortization and/or
write-down of all or a portion of the unamortized costs of the motion picture
to
its fair value. No assurance can be given that unfavorable changes to revenue
estimates will not occur, which may result in significant write-downs affecting
our results of operations and financial condition.
Revenue
Recognition
Revenue
from the sale or licensing of motion pictures is recognized upon meeting all
recognition requirements of SoP 00-2. Revenue from the theatrical release of
motion pictures is recognized at the time of exhibition based on the company’s
participation in box office receipts. Revenue from the sale of DVDs in the
retail market, net of an allowance for estimated returns, is recognized on
the
latter of shipment to the customer or “street date” (when it is available for
sale by the customer). Under revenue sharing arrangements, rental revenue is
recognized when we are entitled to receipts and such receipts are determinable.
Revenues
from television licensing are recognized when the motion picture is available
to
the licensee for telecast. For television licenses that include separate
availability “windows” during the license period, revenue is allocated over the
“windows.” Revenue from sales of international territories are recognized when
the feature film is available to the distributor for exploitation and no
conditions for delivery exist, which under most sales contracts requires that
full payment has been received from the distributor.
For
contracts that provide for rights to exploit a program on multiple media (i.e.
theatrical, video, television) with a fee for a single motion picture where
the
contract specifies the permissible timing of release to various media, the
fee
is allocated to the various media based on management’s assessment of the
relative fair value of the rights to exploit each media and is recognized as
the
program is released to each media. For multiple-title contracts with a fee,
the
fee is allocated on a title-by-title basis, based on management’s assessment of
the relative fair value of each title. Cash payments received are recorded
as
deferred revenue until all the conditions of revenue recognition have been
met.
Income
Taxes
The
Company recognizes future income tax assets and liabilities for the expected
future income tax consequences of transactions that have been included in the
financial statements or income tax returns. Future income taxes are provided
for
using the liability method. Under the liability method, future income taxes
are
recognized for all significant temporary differences between the tax and
financial statement bases of assets and liabilities.
Capital
Structure
The
Company has adopted Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"), which requires
companies to disclose all relevant information regarding their capital
structure. The Company issued no shares in 2002 due to conversion, exercises
or
contingent issuances. In 2003, the Company issued 20,000,000 shares due to
the
conversion of notes payable retiring principal and accrued interest totaling
$224,296. The Company reached an agreement with Eagle Consulting Group, Inc.
on
March 28, 2003 to provide operational funding for the Company. In exchange
for
twenty percent (20%)of the Company’s outstanding common stock on an
anti-dilutive, continuing basis until the Company could secure additional
financing from another source, Eagle agreed to provide funding for the Company’s
annual audit, quarterly filings, accounts payable and other ongoing expenses
including office, phones, business development, legal and accounting fees.
In
2004, Eagle advanced $127,341 and in 2005 Eagle advanced $125,288. In accordance
with the anti-dilutive provision, the amount of stock due Eagle is calculated
on
a quarterly basis. This anti-dilution provision to the agreement could have
a
material adverse effect on our shareholders as it might continue for a
substantial period of time and as a result the dilutive effect to the
shareholders cannot be fully determined until the funding from Eagle ceases.
On
January 5, 2005, the Company designated two classes of preferred stock, Class
A
Convertible Preferred Stock and Class B Convertible Preferred Stock. Both
classes have a par value of $.001 and 10,000,000 shares authorized. The Series
A
is reserved for employees, consultants and other professionals retained by
the
Company and the Series B is reserved for the Board of Directors. On June 30,
2005, the Company issued 5,100,00 shares of each Class A Convertible and Class
B
Convertible Preferred Stock to Robert Atwell. The Company recorded expense
of
$3,366,000 in connection with the Preferred Stock issuances.
General
Our
historical operations consisted primarily of attempting to provide support,
organization and restructuring services to other development stage companies.
Due to the complete and drastic change in our business focus, from seeking
to
aid development stage companies to our current focus of producing, distributing
and marketing original motion pictures, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and should
not be relied on as an indication of future performance. However, it is still
important that you read the discussion in connection with the audited financial
statements, the unaudited interim financial and the related notes included
elsewhere in this annual report.
YEAR
ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
REVENUE
|
|
Cumulative
During Development
|
Year
Ended December 31,
|
|
|
|
Stage
|
2005
|
2004
|
%
Change
|
|
|
|
|
|
|
|
Net
Revenues
|
$58,568
|
$
0
|
$0
|
(0%)
|
We
did
not generate any revenue for the year ended December 31, 2005. The business
model we were pursuing at that time anticipated that most of our services would
be paid for with stock and certain services would be paid for with cash. The
ultimate balance we realized between sales settled with cash and sales settled
with stock had a material impact on our results of operations, operating cash
flow, and the degree to which our earnings, revenues and costs fluctuated from
period to period. This was due in part to the complexities of transactions
settled in equity. This complexity was increased by our focus on early stage
companies, whose securities were privately held, thinly traded, or quoted on
mediums that make valuation highly subjective.
To
address these complexities, our accounting policies required us to record
services issued in exchange for stock in early stage companies at a nominal
value, or no value at all, since the stock issued generally has no readily
determinable value. As a result, the extent to which we accepted stock in
exchange for services we rendered to privately held, early stage clients
directly impacted our future results. In the remaining quarter of 2003, we
stopped pursuing opportunities to deliver services to such clients in exchange
for cash, stock and a combination of stock and cash. Previously, we anticipated
that these agreements would involve a variety of contracting methodologies,
including, but not limited to, performance based compensation for services
rendered, fixed sum, guaranteed maximum price, and time and materials.
Similarly, it was expected that an hourly rate would be used to track contract
progress. Professional services under all types of agreements except those
involving contingent consideration were to be recognized as the services are
performed.
Another
important consideration regarding the balance between services paid for in
cash
and services settled in the client's stock was our ability to cover operating
expenses we are required to settle in cash. Our primary business focus was
not
on generating immediate revenue. Instead, our focus was on acquiring equity
interests in promising companies we believed would create capital appreciation
for our shareholders. Despite this focus, operating activities that result
in
cash revenue were assumed to play an important role in our ability to meet
cash
requirements. This was especially true to the degree that we were unable to
successfully secure external cash financing to satisfy expenses we could not
satisfy using our common stock.
Our
future operations as a film production and distribution company are also
expected to be influenced by our ability to use equity compensation to cover
certain types of expenses. However, accepting common stock in exchange for
services we rendered to non-affiliated enterprises is no longer a component
of
our business strategy.
COST
OF SERVICES
|
|
Cumulative
During Development
|
Year
Ended December 31,
|
|
|
Stage
|
2005
|
2004
|
%
Change
|
|
|
|
|
|
|
|
Cost
of Services
|
$95,700
|
$0
|
$0
|
(0%)
|
Our
cost
of services was comprised principally of consulting services provided by
contract individuals on behalf of our customer’s business model we were
structuring at that time. We provided no services that generated revenue for
the
year ended December 31, 2005, and had no costs of services. To the degree that
we generated revenue in future periods, consulting services provided by officers
during such periods are to be matched to revenue associated with such services
and recorded as costs of services. In future periods, we do not expect to be
providing consulting services in exchange for the common stock of early stage
companies. However, we do expect to rely heavily on the ability to use exchanges
of our equity to key production and other personnel and contractors as a means
of reducing the cash required to complete original motion picture projects.
Such
reliance could likely result in a lack of predictability and a great deal of
volatility with regard to our cost of sales and, therefore, our gross margin
percentage.
SALES
AND MARKETING EXPENSES
|
|
Cumulative
During Development
|
Year
Ended December 31,
|
|
|
Stage
|
2005
|
2004
|
%
Change
|
|
|
|
|
|
|
|
Sales
& Marketing
Expenses
|
$53,959
|
$0
|
$0
|
(0%)
|
Since
inception, sales and marketing expenses have consisted of advertising,
promotional materials and public relations expenses. The percentage decrease
in
sales and marketing expenses, from the year ended December 31, 2004 compared
to
the year ended December 31, 2005, is insubstantial and reflects our ability
to
perform our marketing and sales efforts internally, which reduces costs and
adds
benefits to our customers. The total dollar amount of sales and marketing
expenses were extremely low in 2002 and there were none in 2003, 2004 or 2005.
Of our total sales and marketing expenses incurred in the year ended December
31, 2002, 100%, or $14,000, required payment in cash. In future periods, we
expect that nearly all of our sales and marketing expenses should be related
to
the distribution and promotion of original motion pictures we intend to produce.
Similarly, we anticipate that nearly all such expenses should require settlement
in cash.
RESEARCH
AND DEVELOPMENT
|
|
Cumulative
During Development
|
Year
Ended December 31,
|
|
|
Stage
|
2005
|
2004
|
%
Change
|
|
|
|
|
|
|
|
Research
& Development
Expenses
|
$252,550
|
$0
|
$0
|
(0%)
|
Since
inception, research and development expenses have consisted primarily of costs
related to the acquisition, testing, design, development and enhancement of
certain technologies we held rights to and which we intended to use in the
future to meet our internal needs or the needs of ventures we might have
invested these technologies with. While the total dollar amount of research
and
development expenses was zero during 2004 and there were none in 2005, the
percentage change in research and development expenses, from the year ended
December 31, 2004 compared to the year ended December 31, 2005, is explained
by
no research and development activity during 2005. Prior to 2004, 100% of our
research and development expenses required settlement in cash. Since inception,
the majority, $252,550 or 82.07% of our research and development expenses,
has
related to rights to technologies we acquired in exchange for our common stock.
In future quarters, we do not anticipate entering into similar agreements to
acquire technologies.
GENERAL
AND ADMINISTRATIVE
|
|
Cumulative
During Development
|
Year
Ended December 31,
|
|
|
Stage
|
2005
|
2004
|
%
Change
|
|
|
|
|
|
|
General
& Administrative
Expenses
|
$8,592,567
|
$4,500,141
|
$
1,265,000
|
(13%)
|
General
and administrative expenses during 2005 consisted primarily of officer
compensation, professional services and preferred stock issuance. The increase
in general and administrative expenses for the year ended December 31, 2005,
compared to the year ended December 31, 2004, was small and due to an lessened
need to utilize outside professional services and the expensing of stock
options. The main difference for the year was due to the issuance of preferred
stock for which the company recorded an expense of $3,366,000.
The
primary expenses during the year ended December 31, 2005 was for Officers
salaries, Professional fees (legal and accounting), Professional services (film
industry consultants) and Eagle consulting. These expenses amounted to $792,907
or 74% of all general and administrative expenses for the year the ended,
December 31, 2005. For the year ended, December 31, 2005: Officers Salaries:
$333,333 (paid in stock), Professional Fees - legal & accounting $72,798,
Professional Services - film industry consultants $213,371 and Eagle Consulting
$127,713 (paid in stock). Under an agreement Eagle consulting (Robert Atwell)
provided funds necessary to pay all operating expenses (except those paid in
stock) during the year ended, December 31, 2005. Other general and
administrative expenses included advertising and marketing costs of $172,116
(related primarily to Cannes Film Festival and other film industry trade shows)
and the related travel costs of $42,636. Costs related to film industry shows,
advertising, public relations, marketing and related travel costs were $214,752
or 20% of all general and administrative expenses for the year ended, December
31, 2005. Office rent and supplies, dues & subscriptions, stock transfer and
maintenance fees, utilities, and other expenses were $57,765, representing
the
remaining operating expenses or 6% of all general and administrative expenses
for the year ended, December 31, 2005.
IMPAIRMENT
OF LONG-LIVED ASSETS AND IMPAIRMENT OF INVESTMENTS IN OTHER COMPANIES
|
|
Cumulative
During Development
|
Year
Ended December 31,
|
|
|
Stage
|
2005
|
2004
|
%
Change
|
|
Impairment
of Assets
|
$2,402,338
|
$0
|
$0
|
(0%)
|
|
|
|
|
|
|
|
Impairment
of
Investments
in
Other
Companies
|
$
710,868
|
$
0
|
$
0
|
(0%)
|
Our
impairment policy requires management to review assets and investments for
impairment on an ongoing basis. In the case of investments in other companies,
this analysis, combined with our other accounting policies, is expected to
have
a material impact on our results of operations in future periods. Our accounting
policies generally may require us to record services performed in exchange
for
stock in early stage companies at a nominal value, since the stock issued
generally has no readily determinable value. However, when we used our stock
to
effect investments in other companies, the bid price for our stock on the date
of issuance is used to value the transaction initially. Subsequently, an
impairment of this value may be required to reduce the carrying amount on our
books to reflect an impairment in value.
Our
financial results since inception are indicative of the extent to which
impairment of investments and assets can impact our operating results. Since
inception, impairment of investments in other companies accounts for $710,868,
or approximately 6% of our $11,824,859 net loss, whereas impairment of
long-lived assets has accounted for $2,402, 338, or approximately 20% of our
net
loss since inception. Together, these two expense categories account for 26%
of
our net loss from inception and through the year ended December 31, 2005.
An
impairment loss is recorded in the period in which we determine that the
carrying amount is not recoverable. This requires the Company to make long-term
forecasts of its future revenues and costs related to the assets subject to
review. These forecasts may require assumptions about demand for the Company's
products and services, future market conditions and technological developments
in order to support fair value and avoid impairment. Significant and
unanticipated changes to these assumptions could require a provision for
impairment in a future period.
INCOME
TAXES
There
is
no current or deferred tax expense for the period from January 1, 2005 to
December 31, 2005 due to net losses from operations by the Company. As of
December 31, 2005 we had federal net operating loss carryforwards of $9,097,141,
compared to operating loss carryforwards of $4,437,000 as of December 31, 2004.
The operating loss carryforwards expire beginning in 2013 and may be subject
to
significant limitations attributable to change in control rules.
NET
LOSS
|
|
Cumulative
During Development
|
Year
Ended December 31,
|
|
|
Stage
|
2005
|
2004
|
%
Change
|
|
Net
income (loss)
|
($11,824,859)
|
($4,500,141)
|
($1,265,000)
|
(256%)
|
|
Net
income (loss) per share
|
($0.31)
|
($0.05)
|
($0.02)
|
(150%)
|
|
Weighted
average shares outstanding
|
38,746,736
|
83,668,182
|
52,678,000
|
|
We
have
incurred net losses from operations in each fiscal year since our inception.
The
changes in components of our net loss are important. Impairment of assets
accounted for 0% of our net loss in 2003, 2004 and 2005, whereas impairment
of
assets accounted for 40% of our net loss in 2002. We anticipate that impairments
should no longer play a major role in our operating results for 2006 as well
as
in future periods. Although none of our impairment losses have consumed cash
flow since inception, our ability to convert the assets, resources and
technology we acquired into gains, and ultimately positive cash flow, had
largely determined the viability or lack thereof of our business model.
Similarly, to the degree that we had to issue more shares to acquire assets
and
resources that were later impaired and not readily recovered, such events were
dilutive to our existing shareholders. With the anticipated change in 2004
and
2005 of our business model, impairments should hopefully no longer be an issue.
General
and administrative expenses accounted for a higher proportion of our net loss
in
2004 and 2005 compared to 2002 and 2003. In 2003, general and administrative
expenses represented 252% of our net loss, whereas this caption represented
58%
of our net loss in 2002. In 2005, however, general and administrative expenses
of $4,500,141 accounted for 38% of our cumulative net loss. We anticipate that
these expenses could continue in 2006, as we engage more officers, directors
and
other key personnel. Similarly, we anticipate that the total dollar amount
of
general and administrative expenses requiring payment by cash could also
increase in 2006. To the extent that we are unable to secure additional external
financing, and or increase the cash revenue generated by our operations, our
results and ability to continue as an ongoing concern may be materially
adversely affected.
We
are
filing the following reports, financial statements and notes to financial
statements with this Annual Report. These reports may be found following Part
III of this Annual Report.
On
March
17, 2005, the Company engaged Epstein, Weber & Conover, P.L.C, Certified
Public Accountants of Scottsdale, Arizona as its Certifying Accountant for
2005.
The Company has no consulting arrangements or other services that are performed
by Epstein, Weber & Conover, P.L.C., Certified Public
Accountants.
On
March
16, 2004, the Company engaged Epstein, Weber & Conover, P.L.C., Certified
Public Accountants of Scottsdale,(“EW&C”) Arizona as its new Certifying
Accountant. The Company did not have any consulting arrangements with Epstein,
Weber & Conover, P.L.C., Certified Public Accountants prior to their
appointment.
On
March
15, 2004 Camelot Entertainment Group, Inc. ("the Company") terminated the
services of James C. Marshall, C.P.A., P.C., (“Marshall”) and dismissed them as
the Certifying Accountant of the Company upon the recommendation of the
Company’s audit committee.
HOME
Marshall
was engaged by the Company on March 9, 2003 and subsequently reviewed the
Company’s quarterly filings through September 30, 2003. The Company had no
disagreements with James C. Marshall, CPA, P.C. during 2003.
The
Company authorized Marshall to respond fully to any inquiries of any new
auditors hired by the Company relating to their engagement as the Company's
independent accountant. The Company requested that Marshall review the
disclosure and Marshall was given an opportunity to furnish the Company with
a
letter addressed to the Commission containing any new information, clarification
of the Company's expression of its views, or the respect in which it did not
agree with the statements made by the Company in the report on Form 8-K filed
on
March 19, 2004. Such letter was filed as an exhibit to such Form 8-K.
During
the fiscal year ended December 31, 2002, and the interim period between
September 20, 2002 and May 8, 2003, there were no disagreements between the
Company and Ehrhardt, Keefe, Steiner & Hottman PC (“EKS&H”) on any
matter of accounting principles or practices, financial statement disclosure
or
auditing scope or procedure, which disagreement(s), if not resolved to
EKS&H's satisfaction, would have caused it to make reference to the subject
matter of the disagreement(s) in connection with its reports for such year.
On
March
19, 2003, the Company changed the Board Directors and appointed new management.
On
May
23, 2003, the Company received a letter from EKS&H, addressed to the
Securities and Exchange Commission, stating EKS&H agreed with the statements
included under Item 4 of our Form 8-K dated May 15, 2003 other than advising
the
Company that it believed the Company had a reportable condition related to
adequate infrastructure over accounting and financial reporting including
segregation of duties during the year ended December 31, 2002.
The
Company disagreed with EKS&H and responded accordingly. Our new management
team reviewed our infrastructure regarding accounting and financial reporting
including segregation of duties during the time period in question and
subsequent thereto.
The
Company had not previously consulted with EW&C regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed; or (ii) the type of audit opinion that might be rendered
on the Company's financial statements; or (iii) any matter that was either
the
subject matter of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation
S-B and the related instructions) between the Company and Marshall or the
Company's previous independent accountant.
The
disagreement on a reportable condition as stated by EKS&H on May 23, 2003
was disclosed to EW&C. EW&C reviewed the disclosure and was provided an
opportunity to furnish the Company with a letter addressed to the Commission
containing any new information, clarification of the Company's expression of
its
views, or the respects in which it did not agree with the statements made by
the
Company in response to Item 304(a). EW&C did not furnish a letter to the
Commission.
During
the preceding two fiscal years and through September 20, 2002, there were no
reportable events required to be disclosed pursuant to Item 304(a)(1)(v).
Pursuant to Item 304(a)(3), on September 30, 2002, GH&B, our previous
auditors, furnished us with a letter addressed to the Securities and Exchange
Commission stating it agreed with the statements made by us in response to
Item
304(a). A copy of that letter was filed as an exhibit to our report on Form
8-K,
filed October 12, 2002.
On
September 20, 2002, we engaged EKS&H as our independent accountants for the
fiscal year ending December 31, 2002. This change in accountants was recommended
by our executive management and approved by our board of directors.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls
and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship
of
possible controls and procedures.
As
of the
end of the period covered by this report (the “Evaluation
Date” ),
we
carried out an evaluation, under the supervision and with the participation
of
our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our Chief Executive Officer
and
Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective at the reasonable assurance
level and in compliance with Section 404 of the Sarbanes-Oxley Act.
To
the
best of our knowledge and belief, there has been no change in our internal
controls over financial reporting during the year ended December 31, 2005 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reports.
COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The
following table sets forth the names and ages of the current directors and
executive officers of the Company as of December 31, 2005, the principal offices
and positions with the Company held by each person and the date such person
became a director or executive officer of the Company. Each serves until the
next annual meeting of stockholders.
|
Name
of Executive
Officers
and Directors
|
Age
|
Position
|
Date
of Appointment
|
|
Robert
P. Atwell
|
52
|
President,
CEO and Director
|
March
2003
|
|
George
Jackson
|
45
|
Secretary,
CFO, Director
|
April
2005
|
|
H
K
Dyal
|
65
|
Director
|
August
2004
Resigned
March 2006
|
|
Jane
Olmstead
|
51
|
Director
|
December
1, 2004
|
|
Rounsevelle
Schaum
|
73
|
Director
|
October
2002
|
|
|
55
|
Chief
Operating Officer
|
March
2006
|
HOME
Robert
P.
Atwell, 52, Chairman, President and Chief Executive Officer, has been President
of the Company since March 19, 2003. Mr. Atwell is also the President of The
Corporate Solution, Inc. a position he has held since 1978. The Corporate
Solution specializes in taking on and implementing assignments for a variety
of
agencies and corporations including general business consulting, corporate
restructuring, mergers and acquisitions, corporate investigations and securities
administration. Mr. Atwell also serves as Chairman and is on the board of Eagle
Consulting Group, Inc., The Atwell Group, Inc. and Camelot Films, Inc.
George
Jackson, 45, was appointed Chief Financial Officer and joined the Board of
Directors on April 1, 2005.
Mr.
Jackson has been a Certified Public Accountant since 1984. He worked with the
public accounting firm of KPMG. While at KPMG he worked as a consultant and
auditor on many film companies including: Carolco Films, New World Pictures
and
others. He was the co-founder, CEO & CFO of several fitness center from 1985
to 1999. He was responsible for managing companies with over $20 million in
revenue, 540 employees in the United States and Asia, raising over $10 million
in capital and managing the accounting departments and preparing financial
statements for shareholders in the U.S. and Asia. He sold all his fitness center
assets to Bally Total Fitness in early 2000, netting a return to shareholders
of
over 45% on an annual basis. From 2000 to present he has developed more fitness
centers in Asia and been a director to several fitness companies.
Mr.
Jackson graduated from the University of Southern California with a B.S. in
Accounting in 1982.
Jane
Olmstead, CPA, 51, Chief Financial Officer, Director, has over 20 years
experience in the financial and accounting fields, including serving as a Senior
Management Consultant with Touche Ross & Co. (currently Deloitte &
Touche) for nine years. Ms. Olmstead's expertise is in strategic business
planning, financial systems design and implementation and tax preparation and
planning. Her involvement with numerous Fortune 500 companies such as Ford
Motor
Co., Mobil Oil and Coors resulted in cost savings measures and increases in
profitability through the implementation of improved financial and communication
systems.
Ms.
Olmstead has focused on improving corporate efficiency and effectiveness through
a variety of means including: acting as CFO, implementing new procedures,
creating reorganization plans, forecasting and planning for future growth.
Some
of her additional strengths are in asset management, systems integration,
budgeting and cost control. Ms. Olmstead graduated Magna cum Laude from the
University of Tennessee with a B.S. in Accounting and a Minor in Statistics.
She
is currently a member of the Colorado Society of CPAs and the Association of
Professional Consultants.
Rounsevelle
Schaum, 73, Director, is the Chairman of Newport Capital Partners, Inc., an
investment banking firm specializing in providing financial advisory services
to
emerging growth companies. He is a graduate of Phillips Andover Academy and
holds a Bachelor of Science degree in Mechanical Engineering from Stanford
University and an MBA from the Harvard Business School. He was also a member
of
the faculty and Defense Research Staff of the Massachusetts Institute of
Technology, where he participated in the development of the computer programs
for the Ballistic Missile Early Warning System.
He
is a
director and chairman of the audit committee of the Quigley Corporation (NASDAQ
"QGLY") and was a founder and director of Streaming Media Corporation. He was
also the Chairman and CEO of BusinessNet Holdings Corporation and has served
as
a crisis manager for Heller Financial Corporation. He also served on the
District Advisory Council of the U.S. Small Business Administration; as Chairman
of the California Small Business Development Corporation, a private venture
capital syndicate; and was the founder and Managing Director of the Center
of
Management Sciences, a consulting firm serving the aerospace industry.
He
was
the principal author of the "Weapon Systems Management Guide" under contract
to
the Office of the Secretary of Defense. Mr. Schaum resides in Newport, Rhode
Island, where he has been active in civic affairs. He is a member of the Naval
War College Foundation and a director of the Newport Historical Society.
Subsequent
Events:
During
the first quarter of 2006, H. Kaye Dyal resigned his position as director of
Camelot Entertainment Group, Inc.
Mike
Ellis was hired as Chief Operating Officer of Camelot Entertainment Group,
Inc.
during the first quarter of 2006.
Michael
Ellis, 55 Chief Operating Officer of Camelot Entertainment Group, Inc. and
joined the company in November 2005 as a consultant.
Michael
Ellis offers over 25 years of senior executive management experience with an
emphasis on technology-driven enterprises from NYSE and NASDAQ listed
corporations to emerging-growth startups. He possesses broad expertise in
finance, marketing, technology and operations with emphasis on growing revenues,
profits and market valuations for both publicly traded and private entities.
Over the years, his highly-effective teams have consistently translated
aggressive goals into efficiently executed and highly profitable programs.
Successes encompass managing P&L at $450 million and CAPEX at $500 million
annually, overseeing centerpiece development for the most popular destination
attraction in the United States, to rebuilding a NASDAQ global entertainment
enterprise - producing record profits for all.
Before
joining Camelot Entertainment Group, Ellis served as a management consultant
bringing “leading-edge” operational methodologies and technologies, financial
savvy plus worldwide contacts to entrepreneurial startup, turnaround and
high-growth companies. Ellis typically functioned in senior executive roles
to
quickly diagnose, design and implement revenue and profit growth strategies
for
entities involved in entertainment, hospitality, Internet services, information
technologies, telecom, electronics, retail, international trade, real estate
services and construction management.
Prior
to
his consulting endeavors, Ellis served as the Senior Vice President for Showscan
Entertainment, a NASDAQ traded global manufacturer, producer, distributor and
licensor of state-of-the-art, location based entertainment attractions plus
special venue film and digital media. He performed as both the COO and CTO,
updating Showscan’s strategic plan, creating new business/technology alliances
and rebuilding the corporate infrastructure. Worldwide responsibilities included
operations, engineering, construction, electronics manufacturing, supply chain
management, customer services, product development plus film/digital media
production and post, sales, marketing, licensing and distribution. In addition,
Ellis managed Showscan’s largest customer accounts including Gardaland, Imagine
Japan, Universal Studios, Futuroscope, Tokyo Dome and Fox Studios.
Previously,
Ellis was the Corporate Director of Engineering for Knott’s Berry Farm and was
responsible for overseeing design and construction of Mall of America, Knott’s
Camp Snoopy, a $100+ million, seven acre enclosed theme park in Minneapolis,
MN.
In this lead role, Ellis built a distinguished project team of international
consultants and contractors while managing design, construction and operations
planning activities. Today, Mall of America is the most visited destination
attraction in the U.S. with over 43 million annual visitors.
Before
joining Knott’s, Ellis was a senior executive for divisions of PepsiCo including
Frito-Lay and Taco Bell where he built and managed numerous engineering,
technology and operations based organizations while overseeing major capital
expansion programs.
Ellis
is
a graduate of North Carolina State University and holds a Bachelor of Science
degree in Electrical Engineering.
Audit
Committee
We
have
had an audit committee since inception. Our current audit committee has been
reduced to two following the resignation on December 1, 2004 of our CFO, Albert
Golusin. Of our two remaining audit committee members, Jane Olmstead, who was
an
independent director and our audit committee financial expert that met the
definition of an "audit
committee financial expert," as
that
term is defined by SEC regulations, and further, one of two audit committee
members who were independent, as defined by applicable regulations, she
temporarily stepped in as interim CFO from December 1, 2004 until March 31,
2005. We named a permanent CFO during the first quarter of 2005, at which time
Ms. Olmstead , resumed her duties as an independent director and audit committee
financial expert. Our current CFO, George Jackson is the other audit committee
member as of the beginning of the second quarter of 2005.
HOME
Significant
Employees
We
rely
on our Board of Directors, Executive Officers, and all of our employees to
further the development of our business.
Family
Relationships
There
are
no family relationships.
Involvement
in Certain Legal Procedures
None.
Code
of Ethics
We
have
adopted a Code of Business Conduct that applies to all our directors, officers
(including its principal executive officer and principal financial officer)
and
employees. The Code of Business Conduct can be found on our website at
“http://www.camelotfilms.com.”
We
plan
to also post on this section of our website any amendment to the Code of
Business Conduct, as well as any waivers that are required to be disclosed
in
accordance with Securities and Exchange Commission or market regulations.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors
and executive officers, and persons who beneficially own more than ten percent
of a registered class of our equity securities (referred to as "reporting
persons"), to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities. Reporting persons are required by Commission regulations
to
furnish us with copies of all Section 16(a) forms they file. To the Company's
knowledge, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than ten percent beneficial owners during such
period were satisfied.
None
of
our executive officers or directors currently has a compensation package.
Although we plan to enter into compensation packages during the second quarter
of 2006, we have not entered into any written employment agreements with our
executive officers as of the date of this filing. All members of management
have
elected to postpone negotiations with us regarding salaries, until such time
as
our revenue is adequate to pay salaries without causing financial damage to
our
plan for business development. As it becomes necessary, more detailed written
employment contracts should be entered into between our key personnel and the
Company.
Our
Board
of Directors has not granted any Stock Incentive Plans as of the date of this
filing. We are considering granting such a plan in the future. Stock options
may
be granted to eligible participations in the form of Incentive Stock Options
(ISOs) under the Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or options which do not qualify as ISOs (non-Qualify Stock Options
or "NQSOs").
The
following table summarizes all compensation paid to our President and Chief
Financial Officer for services rendered in all capacities to the Company during
each of the fiscal years ended December 31, 2005, 2004, and 2003.
|
Name
|
Position
|
Salary
|
Bonus
|
Compensation
|
Securities
Underlying
Options
|
All
Other
Compensation
|
|
Robert
P. Atwell (1)
|
President,
CEO
&
Director
2005
2004
2003
|
250,000
250,000
250,000
|
0
|
0
|
0
|
0
|
|
Albert
Golusin (2)
|
CFO
& Director
2004
2003
|
75,000
100,000
|
0
|
0
|
0
|
0
|
|
Jane
Olmstead (3)
|
CFO
& Director
2005
2004
|
31,510
25,000
|
0
|
0
|
0
|
0
|
|
Rounsevelle
Schaum
|
Past
President
2002
|
0
|
0
|
0
|
0
|
$4,582
|
|
Frank
R. Maresca
|
CEO
2002
|
0
|
0
|
0
|
0
|
0
|
|
Sue
Perrault
|
Past
President
2002
|
0
|
0
|
0
|
0
|
0
|
|
George
Jackson (4)
|
CFO
& Director
2005
|
83,333
|
0
|
|
|
|
Notes:
(1)
Mr.
Atwell was scheduled to receive a salary of $250,000 for 2005, which was accrued
in 2004. Mr. Atwell converted the accrual to stock during 2005.
(2)
Mr.
Golusin was scheduled to receive a salary of $75,000 for 2004, which was accrued
in 2004. Mr. Golusin converted the accrual to stock during 2004. His annual
salary was reduced due to his resignation on December 1, 2004.
(3)
The
accrual for the officers for salaries is $262,500 as of December 31, 2004,
based
upon $87,500 for the second, third and fourth quarters of 2004.
(4)
The
accrual for the officers for salaries is $365,843 as of December 31, 2005,
based
upon annual salary to Mr. Atwell of $250,000 and Mr. Jackson of $100,000 for
second, third and fourth quarters of 2005. All officers Mr. Atwell, Mr. Jackson
and Ms. Olmstead converted salary accruals into stock during 2005. No cash
compensation was received by any of the officers during 2005.
Stock
Option Plan
The
Company adopted during fiscal year 2004 a Statutory and Non-Statutory Incentive
Stock Option Plan ("Plan") which authorizes the Company to grant incentive
stock
options within the meaning of Section 422A of the Internal Revenue Code of
1986,
as amended, and to grant nonstatutory stock options. Under the Plan, outstanding
options must be exercised within 10 years from the date of grant and no later
than three months after termination of employment or service as a director,
except that any optionee who is unable to continue employment or service as
a
director due to total and permanent disability may exercise such options within
one year of termination and the options of an optionee who is employed or
disabled and who dies must be exercised within one year after the date of death.
The
Plan
should require that the exercise prices of options granted must be at least
equal to the fair market value of a share of common stock on the date of grant,
provided that for incentive options if an employee owns more than 10% of the
Company's outstanding common stock then the exercise price of an incentive
option must be at least 110% of the fair market value of a share of the
Company's common stock on the date of grant, and the maximum term of such option
may be no longer than five years. The aggregate fair market value of common
stock, determined at the time the option is granted, for which incentive stock
options become exercisable by an employee during any calendar year, is to be
limited to an amount to be determined by our Board of Directors.
The
Plan
is to be administered by the Company's Board of Directors, or a committee
thereof, which determines the terms of options granted, including the exercise
price, the number of shares of common stock subject to the option, and the
terms
and conditions of exercise. No option granted under the Plan is transferable
by
the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by such
optionee.
Compensation
of Directors
It
is our
current policy not to pay cash compensation to directors for solely being a
director.
During
2004 and 2005, independent directors were not compensated; however, officers
that were also directors were compensated as described in the Summary
Compensation Table. In addition, Jane Olmstead, one of our Directors, provided
consulting services to us and received stock for those services and will
continue to receive stock for her services.
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table sets forth as of December 31, 2005, certain information, based
on information obtained from the persons named below, with respect to the
beneficial ownership of the common stock by each person known by us to own
beneficially 5% or more of the common stock.
As
of
December 31, 2005, there were 93,649,589 outstanding shares held by 118
shareholders of record. For the purposes of this Item 11, any shareholder
beneficially owning 5% or more of the Company's common stock are listed below.
|
Name
of Beneficial
Owner
|
Shares
Beneficially
Owned
|
Percent
|
|
Albert
Golusin
668
North 44 th
Street,
Suite 248
Phoenix
AZ 85008
|
4,518,695
|
5%
|
|
The
Atwell Group, Inc. (1)
100
E. San Marcos Blvd. #400
San
Marcos CA 92069
|
59,440,485
|
63%
|
|
TOTAL
5% Shareholders as a Group
|
63,959,080
|
68%
|
|
(1)
Includes all shares owned and or under the control of Beneficial
Owner
|
|
|
The
number of shares of common stock owned are those "beneficially owned" as
determined under the rules of the Securities and Exchange Commission, including
any shares of common stock as to which a person has sole or shared voting or
investment power and any shares of common stock which the person has the right
to acquire within 60 days through the exercise of any option, warrant or right.
All shares are held beneficially and of record and each record shareholder
has
sole voting and investment power.
Securities
Ownership of Management
The
following table sets forth as of December 31, 2005, certain information, based
on information obtained from the persons named below, with respect to the
securities ownership of the common stock by Management.
|
Name
of Beneficial Owner
|
Shares
Beneficially Owned
|
Percent
|
|
Robert
P. Atwell
100
E. San Marcos Blvd. #400
San
Marcos CA 92069
|
59,440,485
|
63%
|
|
Jane
Olmstead
7474
East Arkansas #1204
Denver
CO 80231
|
1,859,552
|
2%
|
|
George
Jackson
2020
Main Street Suite 990
Irvine,
CA 92614
|
2,455,372
|
2.6%
|
|
H
Kaye Dyal
2020
Main St Suite 990
Irvine,
Ca 92614
|
1.200,000
|
1.2%
|
The
number of shares of common stock owned are those "beneficially owned" as
determined under the rules of the Securities and Exchange Commission, including
any shares of common stock as to which a person has sole or shared voting or
investment power and any shares of common stock which the person has the right
to acquire within 60 days through the exercise of any option, warrant or right.
No
officer, director or security holder listed above owns any warrants, options
or
rights.
All
shares are held beneficially and of record and each record shareholder has
sole
voting and investment power. The address at which each Executive Officer and
Director can be reached is the Company's headquarters.
Involvement
in Certain Legal Proceedings
None
of
our management is involved in any type of legal proceedings.
The
following transactions are for year ended, December 31, 2005. All transactions
are incorporated by reference and can be found through our previous
filings:
On
January 5, 2005, the Company established a Series A and Series B Preferred
Class
of stock, with the Series A Preferred Stock reserved for employees, consultants
and other professionals retained by the Company, and with the Series B Preferred
Stock reserved for the Board of Directors. In addition, the Company authorized
the issuance of 5,100,000 shares of its Class A and 5,100,000 shares of its
Class B Preferred Stock to its Chief Executive Officer.
The
Company has entered into an agreement with an affiliate whereby the affiliate
receives 20% of the Company’s common stock on a non-dilutive basis in return for
services and cash advances. The anti-dilutive provisions are in force through
March 28, 2008. In addition, the affiliate will receive 2,000,000 options to
purchase common shares.
During
the year ended December 31, 2005, the Company recorded $125,288 in expenses
paid
by an affiliate on behalf of the Company, compared to $127,341 for year ended
December 31, 2004. The affiliate received 2,046,177 shares of common stock
for
repayment of expense advances on behalf of the company. The stock issued was
valued at the weighted average price per share. The affiliate received an
additional 3,017,478 shares of common stock for continuing to finance the
operations of the company under the agreement described above. In addition
the
Company issued 3,586,881 shares of common stock for repayment of advances made
by an officer of the Company.
The
following transactions are for fiscal year 2004. All other transactions are
incorporated by reference and can be referenced through our previous filings.
On
February 3, 2004, the Company authorized the issuance of an additional 6,791,287
restricted common shares to Eagle Consulting Group, Inc., whose President is
Robert P. Atwell, in accordance with its agreement with the Company to receive
20% of the Company’s outstanding shares for providing funding. The Company also
authorized the issuance of 100,000 shares to Jane Olmstead, one of our
directors, for accounting services.
On
June
22, 2004, the Company authorized the issuance of a total of 11,105,755
restricted common shares to Robert P. Atwell and a total of 4,442,296 restricted
common shares to Albert Golusin for services in 2003 and the first quarter
of
2004, including shares previously authorized by the board. The Company also
authorized the issuance of an additional 4,637,867 restricted common shares
to
Eagle Consulting Group, Inc., whose President is Robert P. Atwell, in accordance
with its agreement with the Company to receive 20% of the Company’s outstanding
shares for providing funding.
On
August
25, 2004 the shareholders elected our board of directors, including Robert
P.
Atwell, Albert Golusin, Jane Olmstead, Rounsevelle Schaum and our newest member,
H. K. Dyal.
On
November 30, 2004 Albert Golusin submitted his resignation as Chief Financial
Officer. The Company authorized the issuance of a total of 2,499,999 restricted
common shares to Robert P. Atwell, a total of 666,666 restricted common shares
to Albert Golusin, and a total of 333,333 to Jane Olmstead for services in
during the second, third and fourth quarters of 2004. In addition, the Company
authorized the issuance of an additional 1,000,000 restricted common shares
to
Jane Olmstead for prior services rendered to the Company. The Company also
authorized the issuance of 3,500,000 restricted common shares to The Corporate
Solution, Inc., a company owned by Robert P. Atwell, in connection with The
Corporate Solution, Inc. providing financing for the Company’s initial in-house
production. The Company also authorized moving the corporate headquarters from
San Marcos to Irvine, with said offices to be provided by The Atwell Group,
Inc., a company owned by Robert P. Atwell.
On
December 1, 2004, The Corporation accepted the resignation of Albert Golusin
as
Chief Financial Officer and appointed Jane Olmstead as interim Chief Financial
Officer.
Where
so
indicated by footnote, exhibits, which were previously filed, are incorporated
by reference. For exhibits incorporated by reference, the location of the
exhibit in the previous filing is indicated in parentheses.
INDEX
TO
EXHIBITS
Exhibit
Number Description
3.
Articles of Incorporation and Bylaws 3.1 Articles of Incorporation of Camelot
Entertainment Group, Inc.. (Incorporated by reference from exhibit 2.1 to Form
10-KSB filed on April 17, 2001) 3.2 By-Laws of Camelot Entertainment Group,
Inc.
((Incorporated by reference from exhibit 2.2 to Form 10-KSB filed on April
17,
2001)
4.
Instruments Defining the Rights of Security Holders 4.1 See Exhibit 3.1
"Articles of Incorporation" (Incorporated by reference from exhibit 2.1 to
Form
10-KSB filed on April 17, 2001)
5.
Voting
Trust Agreement
5.1
None
6.
Material Contracts
10.
8K
Filings Incorporated Herein by Reference.
10.1
Changes in Control of Registrant incorporated by reference to Exhibit 10.1
on
Form 8-K filed July 22, 2002.
10.2
Changes in Control of Registrant; Acquisition or Disposition of Assets; Other
Events incorporated by reference to Exhibit 10.2 on Form 8-K filed May 29,
2002.
10.3
Settlement Agreement with Veda Labs, Inc. incorporated by reference to Exhibit
10.3 on Form 8-K filed November 14, 2003.
16.1
Changes in Registrant's Certifying Accountant; Other Events incorporated by
reference to Exhibit 16.1 on Form 8-K filed October 1, 2002.
16.2
Changes in Registrant's Certifying Accountant; Other Events incorporated by
reference to Exhibit 16.2 on Form 8-K filed May 15, 2003 and Form 8-K/A on
May
28,2003.
16.3
Changes in Registrant's Certifying Accountant; Other Events incorporated by
reference to Exhibit 16.3 on Form 8-K filed March 19, 2004.
16.4
Material Contract; Other Events incorporated by reference to Exhibit 16.4 on
Form 8-K filed April 12, 2004.
16.5
Other Events incorporated by reference to Exhibit 16.5 on Form 8-K filed June
30, 2004.
16.6
Corporate Governance and Management; Departure of Directors or Principal
Officers; Election of Directors; Appointment of Principal Offers incorporated
by
reference to Exhibit 16.6 on Form 8-K filed December 12, 2004.
Epstein,
Weber & Conover, PLC (“EWC”) has been the Company’s independent auditor
since March of 2004 and were the auditors for the year ended December 31, 2003
and December 31, 2004. James C. Marshall C.P.A., P.C., (”Marshall”), was the
Company's independent auditor for the three quarters ended September 30, 2003.
Ehrhardt, Keefe, Steiner & Hottman PC, (“EKS&H”), were the auditors for
the year ended December 31, 2002 and reviewed the quarterly financial statements
during that year. Gordon, Hughes and Banks, (“GH&B”), were the auditors for
the year ended December 31, 2001 and reviewed the quarterly statements that
year.
The
Principal Accountants performed the services listed below and were paid the
fees
listed below:
AUDIT
FEES
EWC
charged approximately $17,950 for the year ended December 31, 2005 for
professional services rendered in connection with the Company’s annual financial
statements and review of the financial statements included in the Company’s 2005
Quarterly Reports on Form 10-QSB.
EWC
charged approximately $14,500 for the year ended December 31, 2004 for
professional services rendered in connection with the Company’s annual financial
statements and review of the financial statements included in the Company’s 2004
Quarterly Reports on Form 10-QSB.
Marshall
billed aggregate fees of approximately $9,600 for the review of the financial
statements included in the Company’s Quarterly Reports on Form 10-QSB for each
of the three quarters ended September 30, 2003.
HOME
EKS&H
charged approximately $15,600 for year ended December 31, 2002 for professional
services rendered for the audit of the Company's annual financial statements
and
review of the financial statements included in the Company's Quarterly Reports
on Form 10-QSB.
TAX
FEES
No
accountants were used for professional advice pertaining to tax matters.
ALL
OTHER
FEES
No
Principal Accountant provided or billed for any other professional services
during the two years ended December 31, 2004.
(Remainder
of Page Left Intentionally Blank)
CAMELOT
ENTERTAINMENT GROUP, INC.
(a
development stage company)
INDEX
TO FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND DECEMBER 31, 2004 AND
INCEPTION
TO DATE
DECEMBER
31, 2005 AND DECEMBER 31, 2004 AND
INCEPTION
TO DATE
ENDED
DECEMBER 31, 2005 AND DECEMBER 31, 2004 AND
INCEPTION
TO DATE
ENDED
DECEMBER 31, 2005 AND DECEMBER 31, 2004 AND
INCEPTION
TO DATE
To
the
Stockholders and Board
of
Directors of Camelot Entertainment Group, Inc.:
We
have
audited the accompanying balance sheet of Camelot Entertainment Group, Inc.
(a
Development Stage Company) as of December 31, 2005 and the related statements
of
operations, stockholders’ deficit and cash flows for the each of the two years
in the period then ended and the cumulative period from October 12, 1999
(inception) through December 31, 2005. 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
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 our audits
provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Camelot Entertainment Group, Inc.
as of December 31, 2005, and the results of its operations and cash flows for
each of the two years in the period ended December 31, 2005, and the cumulative
period from October 12, 1999 (inception) through December 31, 2004, in
conformity with accounting principles generally accepted in the United States
of
America.
As
disclosed in Note 1, the accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
yet
to commence revenue generating activities and has experienced material operating
losses and had little cash for operations at December 31, 2005. Management
is
seeking equity capital and is implementing a business plan that it believes
will
result in profitable operations. There can be no assurances that the Company
will obtain sufficient capital or that operations will become profitable. These
and other conditions raise substantial doubt about the Company’s ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might be necessary should the Company be unable
to
continue as a going concern.
/s/
Epstein, Weber & Conover, PLC
Scottsdale,
Arizona
March
31,
2006
|
Camelot
Entertainment Group, Inc.
|
|
(a
development stage company)
|
|
|
|
As
of December 31, 2005
|
|
|
|
|
December
31, 2005
|
|
|
|
|
|
(in
000's)
|
|
|
ASSETS
|
|
|
|
|
| |
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
|
|
$
|
3
|
|
|
Prepaid
Expenses
|
|
|
9
|
|
| |
|
|
|
|
|
Total
Current Assets
|
|
|
12
|
|
| |
|
|
|
|
|
Scripts
Costs
|
|
|
19
|
|
| |
|
|
|
|
|
Total
Assets
|
|
$
|
31
|
|
| |
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
| |
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
Accounts
Payable and accured liabilities
|
|
$
|
86
|
|
|
|
|
|
|
|
|
Total
Current liabilities
|
|
|
86
|
|
| |
|
|
|
|
|
Stockholders'
Deficit:
|
|
|
|
|
|
Common
Stock, $.001 par value, 150,000,000 shares authorized,
|
|
|
94
|
|
|
93,649,589
issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Convertible Preferred Stock, $.001 par value, 10,000,000
|
|
|
5
|
|
|
shares
authorized, 5,100,000 issued and outstanding
|
|
|
|
|
| |
|
|
|
|
|
Class
B Convertible Preferred Stock, $.001 par value, 10,000,000
|
|
|
5
|
|
|
shares
authorized, 5,100,000 issued and outstanding
|
|
|
|
|
| |
|
|
|
|
|
Additional
paid-in-capital
|
|
|
11,924
|
|
|
Subscription
receivable under financing agreement
|
|
|
(258
|
)
|
|
(
Deficit) accumulated during development stage
|
|
|
(11,825
|
)
|
| |
|
|
|
|
|
Total
stockholders' deficit
|
|
|
(55
|
)
|
| |
|
|
|
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
31
|
|
| |
|
|
|
|
The
accompanying notes are an integal part of theses financial
statements.
|
CAMELOT
ENTERTAINMENT GROUP, INC.
|
|
(a
development stage company)
|
|
|
| |
|
For
the Year Ended,
|
|
For
the Year Ended,
|
|
Inception
to
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
|
|
|
(in
'000s)
|
|
|
(in
'000s)
|
|
|
(in
'000s)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
$
|
-
|
|
$
|
-
|
|
$
|
59
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of services
|
|
|
|
|
|
|
|
|
96
|
|
|
Sales
and Marketing
|
|
|
|
|
|
|
|
|
54
|
|
|
Research
& Development
|
|
|
|
|
|
|
|
|
253
|
|
|
General
& Administrative
|
|
|
4,500
|
|
|
1,265
|
|
|
8,592
|
|
|
Impairment
of assets
|
|
|
|
|
|
|
|
|
2,402
|
|
|
Impairment
of investments in other companies
|
|
|
|
|
|
|
|
|
711
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
4,500
|
|
|
1,265
|
|
|
12,108
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
(4,500
|
)
|
|
(1,265
|
)
|
|
(12,049
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Other
income and (expense)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
-
|
|
|
-
|
|
|
(31
|
)
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
255
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
-
|
|
|
-
|
|
|
224
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(4,500
|
)
|
$
|
(1,265
|
)
|
$
|
(11,825
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.06
|
)
|
$
|
(0.02
|
)
|
$
|
(0.40
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing
|
|
|
|
|
|
|
|
|
|
|
|
net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
79,098
|
|
|
52,678
|
|
|
29,523
|
|
| |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
Camelot
Entertainment Group, Inc.
|
|
(a
development stage company)
|
|
|
| |
|
For
the Year Ended,
|
|
For
the Year Ended,
|
|
Inception
to
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
|
|
|
(in
000's)
|
|
|
(in
000's)
|
|
|
(in
000's)
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) for the period
|
|
$
|
(4,500
|
)
|
$
|
(1,265
|
)
|
$
|
(11,825
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net (loss) to cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock issued for wages
|
|
|
333
|
|
|
|
|
|
333
|
|
|
Common
Stock issued per dilution agreement
|
|
|
198
|
|
|
|
|
|
198
|
|
|
Value
of options expensed
|
|
|
|
|
|
351
|
|
|
351
|
|
|
Gain
on extinguishment of debt
|
|
|
|
|
|
|
|
|
(255
|
)
|
|
Depreciation
|
|
|
|
|
|
|
|
|
4
|
|
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
1,539
|
|
|
Common
Stock issued for services
|
|
|
262
|
|
|
1,114
|
|
|
1,549
|
|
|
Common
Stock issued for expense reimbursement
|
|
|
|
|
|
|
|
|
22
|
|
|
Common
Stock issued for technology
|
|
|
|
|
|
|
|
|
19
|
|
|
Impairment
of investments in other companies
|
|
|
|
|
|
|
|
|
711
|
|
|
Impairment
of assets
|
|
|
|
|
|
|
|
|
2,629
|
|
|
Prepaid
services expensed
|
|
|
|
|
|
|
|
|
530
|
|
|
Expenses
paid through notes payable proceeds
|
|
|
|
|
|
|
|
|
66
|
|
|
Loss
on disposal of property and equipment
|
|
|
|
|
|
|
|
|
6
|
|
|
Preferred
Stock issued to shareholder
|
|
|
3,366
|
|
|
|
|
|
3,366
|
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
(increase)
decrease in other current assets
|
|
|
(9
|
)
|
|
|
|
|
(9
|
)
|
|
Increase
(decrease) in accounts payable & other a/p
|
|
|
(14
|
)
|
|
(326
|
)
|
|
176
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
Cash (used) for operating activities
|
|
|
(364
|
)
|
|
(126
|
)
|
|
(590
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used) for investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
Purchase
of assets-Script Costs
|
|
|
(19
|
)
|
|
|
|
|
(19
|
)
|
|
Cash
(used) for investing activities
|
|
|
(19
|
)
|
|
-
|
|
|
(26
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
|
|
|
|
|
|
26
|
|
|
Advances
from affiliate/shareholder for cash flow
|
|
|
385
|
|
|
127
|
|
|
558
|
|
|
Proceeds
from issuance of common stock
|
|
|
|
|
|
|
|
|
31
|
|
|
Incease
in notes payable
|
|
|
|
|
|
|
|
|
4
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by financing activities
|
|
|
385
|
|
|
127
|
|
|
619
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash
|
|
|
2
|
|
|
1
|
|
|
3
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
at the beginning of period
|
|
|
1
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
at the end of the period
|
|
$
|
3
|
|
$
|
1
|
|
$
|
3
|
|
| |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
CAMELOT
ENTERTAINMENT GROUP, INC.
|
|
(a
development stage company)
|
|
|
|
For
the Years Ended December 31, 2005, 2004
|
|
And
from October 12, 1999 (date of inception)
|
| |
| |
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Paid-In
|
|
|
Development
|
|
|
Subscription
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Receivable
|
|
|
Compensation
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
|
74,951
|
|
|
75
|
|
|
-
|
|
|
-
|
|
|
7,408
|
|
|
(7,325
|
)
|
|
(258
|
)
|
|
-
|
|
|
(100
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares issued for wages
|
|
|
5,467
|
|
|
5
|
|
|
|
|
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
Common
Shares issued for services
|
|
|
4,581
|
|
|
5
|
|
|
|
|
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
Common
Shares issued per Dilution Agreement
|
|
|
3,017
|
|
|
3
|
|
|
|
|
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
198
|
|
|
Common
Shares issued for advances
|
|
|
5,633
|
|
|
6
|
|
|
|
|
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
386
|
|
|
Preferred
Shares issued for services
|
|
|
|
|
|
|
|
|
10,200
|
|
|
10
|
|
|
3,356
|
|
|
|
|
|
|
|
|
|
|
|
3,366
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,500
|
)
|
|
-
|
|
|
-
|
|
|
(4,500
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
93,649
|
|
|
94
|
|
|
10,200
|
|
|
10
|
|
|
11,924
|
|
|
(11,825
|
)
|
|
(258
|
)
|
|
-
|
|
|
(55
|
)
|
The
accompanying notes are an integral part of these financial
statements.
|
Camelot
Entertainment Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
Additional
|
|
|
During
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Paid-In
|
|
|
Development
|
|
|
Subscription
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Receivable
|
|
|
Compensation
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 12, 1999
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Issuance
of shares for cash at $.02 per share
|
|
|
1,000,000
|
|
|
1,000
|
|
|
|
|
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
Issuance
of shares for services at $.02 per share
|
|
|
2,600,000
|
|
|
2,600
|
|
|
|
|
|
|
|
|
49,400
|
|
|
|
|
|
|
|
|
|
|
|
52,000
|
|
|
Issuance
of shares for expense reimbursement
|
|
|
834,569
|
|
|
835
|
|
|
|
|
|
|
|
|
15,856
|
|
|
|
|
|
|
|
|
|
|
|
16,691
|
|
|
at
$.02 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-66,796
|
|
|
|
|
|
|
|
|
-66,796
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 1999
|
|
|
4,434,569
|
|
|
4,435
|
|
|
0
|
|
|
0
|
|
|
84,256
|
|
|
-66,796
|
|
|
0
|
|
|
0
|
|
|
21,895
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for conversion of notes
|
|
|
1,000,000
|
|
|
1,000
|
|
|
|
|
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
payable
at $.02 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Issuance
of shares for services at $.02 per share
|
|
|
750,000
|
|
|
750
|
|
|
|
|
|
|
|
|
14,250
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
Issuance
of shares for cash at $1.00 per share
|
|
|
10,835
|
|
|
11
|
|
|
|
|
|
|
|
|
10,824
|
|
|
|
|
|
|
|
|
|
|
|
10,835
|
|
|
Issuance
of shares for conversion of notes
|
|
|
15,000
|
|
|
15
|
|
|
|
|
|
|
|
|
14,985
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
payable
at $1.00 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Issuance
of shares for expense reimbursement
|
|
|
4,630
|
|
|
4
|
|
|
|
|
|
|
|
|
4,626
|
|
|
|
|
|
|
|
|
|
|
|
4,630
|
|
|
at
$1.00 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Issuance
of shares for services at $1.00 per share
|
|
|
107,000
|
|
|
107
|
|
|
|
|
|
|
|
|
106,893
|
|
|
|
|
|
|
|
|
|
|
|
107,000
|
|
|
Investment
in other companies by issuance
|
|
|
710,000
|
|
|
710
|
|
|
|
|
|
|
|
|
709,290
|
|
|
|
|
|
|
|
|
|
|
|
710,000
|
|
|
of
shares at $1.00 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Issuance
of shares for prepaid services at
|
|
|
195,000
|
|
|
195
|
|
|
|
|
|
|
|
|
194,805
|
|
|
|
|
|
|
|
|
|
|
|
195,000
|
|
|
at
$1.00 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Issuance
of shares for deferred compensation
|
|
|
89,000
|
|
|
89
|
|
|
|
|
|
|
|
|
88,911
|
|
|
|
|
|
|
|
|
|
|
|
89,000
|
|
|
to
officers, directors and controlling parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
at
$1.00 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-89,000
|
|
|
-89,000
|
|
|
Deferred
compensation expensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,920
|
|
|
21,920
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-954,329
|
|
|
|
|
|
|
|
|
-954,329
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2000
|
|
|
7,316,034
|
|
|
7,316
|
|
|
0
|
|
|
0
|
|
|
1,247,840
|
|
|
-1,021,125
|
|
|
0
|
|
|
-67,080
|
|
|
166,951
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for expense reimbursement
|
|
|
1,248
|
|
|
1
|
|
|
|
|
|
|
|
|
5,616
|
|
|
|
|
|
|
|
|
|
|
|
5,617
|
|
|
Issuance
of shares for prepaid services
|
|
|
337,208
|
|
|
337
|
|
|
|
|
|
|
|
|
400,407
|
|
|
|
|
|
|
|
|
|
|
|
400,744
|
|
|
Property
& equipment lease by issuance of shares
|
|
|
1,000,000
|
|
|
1,000
|
|
|
|
|
|
|
|
|
1,149,000
|
|
|
|
|
|
|
|
|
|
|
|
1,150,000
|
|
|
Licensed
technology by issuance of shares
|
|
|
2,270,000
|
|
|
2,270
|
|
|
|
|
|
|
|
|
35,730
|
|
|
|
|
|
|
|
|
|
|
|
38,000
|
|
|
Issuance
of shares for deferred compensation
|
|
|
1,122,944
|
|
|
1,123
|
|
|
|
|
|
|
|
|
1,297,229
|
|
|
|
|
|
|
|
|
|
|
|
1,298,352
|
|
|
to
officers, directors and related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-1,298,352
|
|
|
-1,298,352
|
|
|
Issuance
of shares for developed
|
|
|
16,667
|
|
|
17
|
|
|
|
|
|
|
|
|
19,150
|
|
|
|
|
|
|
|
|
|
|
|
19,167
|
|
|
technology
expensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Forgiveness
of debt by shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,489
|
|
|
|
|
|
|
|
|
|
|
|
31,489
|
|
|
Related
party services paid for by shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
25,500
|
|
|
Deferred
compensation expensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,423
|
|
|
315,423
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-1,875,683
|
|
|
|
|
|
|
|
|
-1,875,683
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2001
|
|
|
12,064,101
|
|
|
12,064
|
|
|
0
|
|
|
0
|
|
|
4,211,961
|
|
|
-2,896,808
|
|
|
0
|
|
|
-1,050,009
|
|
|
277,208
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
to
officers, directors and related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Issuance
of shares for services
|
|
|
1,207,500
|
|
|
1,208
|
|
|
|
|
|
|
|
|
150,367
|
|
|
|
|
|
|
|
|
-151,575
|
|
|
0
|
|
|
Licensed
technology by issuance of shares
|
|
|
3,000,000
|
|
|
3,000
|
|
|
|
|
|
|
|
|
897,000
|
|
|
|
|
|
|
|
|
|
|
|
900,000
|
|
|
Deferred
compensation expensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Purchase
of treasury stock in exchange
|
|
|
|
|
|
|
|
|
-1,500,000
|
|
|
-1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-1,500
|
|
|
for
licensed technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Purchase
of treasury stock in exchange
|
|
|
|
|
|
|
|
|
-900,000
|
|
|
-900
|
|
|
900
|
|
|
|
|
|
|
|
|
1,201,584
|
|
|
1,201,584
|
|
|
for
capital lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-3,000,982
|
|
|
|
|
|
|
|
|
-3,000,982
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
16,271,601
|
|
|
16,272
|
|
|
-2,400,000
|
|
|
-2,400
|
|
|
5,260,228
|
|
|
-5,897,790
|
|
|
0
|
|
|
0
|
|
|
-623,690
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for debt
|
|
|
20,000,000
|
|
|
20,000
|
|
|
|
|
|
|
|
|
204,296
|
|
|
|
|
|
|
|
|
|
|
|
224,296
|
|
|
Retirement
of treasury shares
|
|
|
-2,400,000
|
|
|
-2,400
|
|
|
2,400,000
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Cancellation
of shares previously issued
|
|
|
-15,168
|
|
|
-15
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-161,652
|
|
|
|
|
|
|
|
|
-161,652
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
33,856,433
|
|
|
33,857
|
|
|
0
|
|
|
0
|
|
|
5,464,539
|
|
|
-6,059,442
|
|
|
0
|
|
|
0
|
|
|
-561,046
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
|
100,000
|
|
|
100
|
|
|
|
|
|
|
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
Shares
issued for financing
|
|
|
6,791,287
|
|
|
6,791
|
|
|
|
|
|
|
|
|
196,948
|
|
|
|
|
|
|
|
|
|
|
|
203,739
|
|
|
Subscriptions
receivable for financing agreement
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-116,069
|
|
|
|
|
|
-116,069
|
|
|
Net
(loss) for the three months ended March 31, 2004
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
-131,681
|
|
|
|
|
|
|
|
|
-131,681
|
|
|
Balance
at March 31, 2004
|
|
|
40,747,720
|
|
$
|
40,748
|
|
$
|
0
|
|
$
|
0
|
|
$
|
5,664,387
|
|
|
(6,191,123.00
|
)
|
|
($116,069
|
)
|
$
|
0
|
|
|
($602,057
|
)
|
|
Share
issued for services
|
|
|
24,009,000
|
|
|
24,009
|
|
|
|
|
|
|
|
|
1,085,500
|
|
|
|
|
|
|
|
|
|
|
|
1,109,509
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
issued for financing
|
|
|
7,604,562
|
|
|
7,605
|
|
|
0
|
|
|
0
|
|
|
221,460
|
|
|
|
|
|
(316,003
|
)
|
|
|
|
|
(86,938
|
)
|
|
Advances
offset sub a/r
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,000
|
|
|
|
|
|
174,000
|
|
|
Shares
issued for debt
|
|
|
1,000,000
|
|
|
1,000
|
|
|
0
|
|
|
0
|
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for amt due
|
|
|
1,589,927
|
|
|
1,590
|
|
|
0
|
|
|
0
|
|
|
47,000
|
|
|
|
|
|
|
|
|
|
|
|
48,590
|
|
|
Value
of option exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351,000
|
|
|
|
|
|
|
|
|
|
|
|
351,000
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,161,756
|
)
|
|
|
|
|
|
|
|
(1,161,756
|
)
|
|
Balance
as of December 31, 2004
|
|
|
74,951,209
|
|
|
74952
|
|
|
0
|
|
|
0
|
|
|
7408347
|
|
|
(7,324,719
|
)
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) 1st quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2005
|
|
|
74,951,209
|
|
|
74,952
|
|
$
|
0
|
|
$
|
0
|
|
|
7,408,347
|
|
|
(7,441,815
|
)
|
|
(258,072
|
)
|
$
|
0
|
|
|
(216,588
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
4,000,000
|
|
|
4,000
|
|
|
0
|
|
|
0
|
|
|
216,000
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
consulting
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
2,276,033
|
|
|
2,276
|
|
|
0
|
|
|
0
|
|
|
187,568
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
officers
salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to
|
|
|
1,848,723
|
|
|
1,849
|
|
|
0
|
|
|
0
|
|
|
79,078
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Eagle
for expenses paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(486,174
|
)
|
|
|
|
|
|
|
|
|
|
|
Subtotals
for 2nd quarter
|
|
|
8,124,756
|
|
|
8,125
|
|
|
0
|
|
|
0
|
|
|
482,646
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2005
|
|
|
83,075,965
|
|
|
83,076
|
|
|
0
|
|
|
0
|
|
|
7,890,993
|
|
|
(7,927,989
|
)
|
|
(258,072
|
)
|
|
|
|
|
(262,457
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(127,024
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance
at Sept 30, 2005
|
|
|
83,075,965
|
|
|
83,076
|
|
|
0
|
|
|
0
|
|
|
7,890,993
|
|
$
|
(8,055,014
|
)
|
|
($258,072
|
)
|
|
|
|
|
(262,457
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
233,547
|
|
|
233
|
|
|
0
|
|
|
0
|
|
|
9,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consulting
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
3,538,263
|
|
|
3,538
|
|
|
0
|
|
|
0
|
|
|
171,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
officers
salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to
|
|
|
1,452,662
|
|
|
1,453
|
|
|
0
|
|
|
0
|
|
|
118,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle
for expenses paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to Eagle
|
|
|
1,762,271
|
|
|
1,762
|
|
|
|
|
|
|
|
|
120,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20%
of shares issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
3,586,881
|
|
|
3,587
|
|
|
|
|
|
|
|
|
256,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder
loans 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss 4th Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,769,845
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance
at Dec 31, 2005
|
|
|
93,649,589
|
|
|
93,649
|
|
|
0
|
|
|
0
|
|
|
8,567,786
|
|
|
(11,824,859
|
)
|
|
-258,072
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
CAMELOT
ENTERTAINMENT GROUP, INC.
YEAR
ENDED DECEMBER 31, 2005
|
1.
|
ORGANIZATION
AND BASIS OF PRESENTATION
|
Camelot
Entertainment Group, Inc. (the Company
),
a
Delaware Corporation, which develops, produces, markets and distributes motion
pictures, was originally incorporated with the intention of providing services
and resources to entrepreneurs looking to launch novel products and ventures
worldwide in exchange for an interest in the startup ventures. The Company’s
activities since inception have consisted of raising capital, recruiting a
management team and entering into ventures and alliances with affiliates. The
Company has substantially relied on issuing stock to officers, directors,
professional service providers and other parties in exchange for services and
technology. As of December 31, 2002 the Company had written-off all of its
investments due to impairments in the carrying value of the assets. Since
inception, impairment of investments in other companies and of long-lived assets
accounts for approximately 65% of the Company’s net losses.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has had minimal revenues, has
experienced material operating losses and has a stockholders’ deficit. These
conditions, the loss of financial support from affiliates, and the failure
to
secure a successful source of additional financial resources raise substantial
doubt about the Company’s ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the classification of liabilities that may result from the outcome of this
uncertainty.
Management’s
plans with respect to the current situation consist of restructuring its debt
and seeking additional financial resources from its existing investors or
others. However, instability in the stock price may make it difficult to find
parties willing to accept restricted shares of common stock in exchange for
services required to execute its business plan. There is no assurance that
such
resources would be made available to the Company, or that they would be on
financially viable terms.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Cash
and cash equivalents: The
Company considers all investment instruments purchased with maturities of three
months or less to be cash equivalents.
Film
Properties (scripts):
The
Company capitalizes the cost of properties purchased which are the basis for
the
production of a particular film. When it is determined that a particular
property will not be used in the production of a film, a loss will be charged
to
the income statement. If after three years from the date of purchase, a property
has not been set for production, it is presumed that the property will be
disposed of and a loss will be charged to the income statement.
Income
taxes -
The
Company provides for income taxes based on the provisions of Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes, which,
among other things, requires that recognition of deferred income taxes be
measured by the provisions of enacted tax laws in effect at the date of
financial statements.
Financial
Instruments -
Financial instruments consist primarily of prepaid expenses and obligations
under accounts payable and accrued expenses. The carrying amounts of prepaid
expenses and accounts payable and accrued expenses approximate fair value
because of the short maturity of those instruments. The Company has applied
certain assumptions in estimating these fair values. The use of different
assumptions or methodologies may have a material effect on the estimates of
fair
values.
Use
of
Estimates -
The
preparation of financial statements in conformity with generally accepted
accounting principles 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 the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recently
Issued Accounting Standards - In December 2004, the Financial Accounting
Standards Board issued Statement 123 (revised 2004), Share-Based Payment
(Statement 123(R)). This Statement requires that the costs of employee
share-based payments be measured at fair value on the awards’ grant date using
an option-pricing model and recognized in the financial statements over
the
requisite service period. This Statement does not change the accounting
for
stock ownership plans, which are subject to American Institute of Certified
Public Accountants SOP 93-6, “Employer’s Accounting for Employee Stock Ownership
Plans.” Statement 123(R) supersedes Opinion 25, Accounting for Stock Issued to
Employees and its related interpretations, and eliminates the alternative
to use
Opinion 25’s intrinsic value method of accounting, which the Company is
currently using.
Statement
123(R) allows for two alternative transition methods. The first method
is the
modified prospective application whereby compensation cost for the portion
of
awards for which the requisite service has not yet been rendered that are
outstanding as of the adoption date will be recognized over the remaining
service period. The compensation cost for that portion of awards will be
based
on the grant-date fair value of those awards as calculated for pro forma
disclosures under Statement 123, as originally issued. All new awards and
awards
that are modified, repurchased, or cancelled after the adoption date will
be
accounted for under the provisions of Statement 123(R). The second method
is the
modified retrospective application, which requires that the Company restates
prior period financial statements. The modified retrospective application
may be
applied either to all prior periods or only to prior interim periods in
the year
of adoption of this statement. The Company is currently determining which
transition method it will adopt and is evaluating the impact Statement
123(R)
will have on its financial position, results of operations, EPS and cash
flows
when the Statement is adopted. Upon making its determination of the transition
method the Company will adopt Statement 123(R). The Company will adopt
this
Statement on January 1, 2006 in accordance with the
requirements[MW1].
In
December 2004, the FASB issued Staff Position No. FAS 109-1 (“FAS
109-1”), “Application of FASB Statement No. 109, Accounting for Income
Taxes, to the Tax Deduction on Qualified Production Activities Provided
by the
American Jobs Creation Act of 2004”. FSP 109-1 clarifies SFAS No. 109’s
guidance that applies to the new tax deduction for qualified domestic production
activities. FAS 109-1 was adopted at the beginning of 2005. This standard
did
not have a material impact on the Company’s consolidated financial statements.
In
May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections- a replacement of APB Opinion No. 20 and FASB Statement
No. 3”, which replaces APB No. 20, “Accounting Changes”, and SFAS
No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and
changes the requirements for the accounting for and reporting of a change
in
accounting principle. SFAS No. 154 applies to all voluntary changes in
accounting principle, and also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. SFAS No. 154 will be effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. SFAS No. 154 does not change the transition
provisions of any existing accounting pronouncements, including those that
are
in a transition phase as of the effective date of SFAS No. 154. The Company
does not currently believe that the adoption of SFAS No.154 will have a
material
impact on its consolidated financial statements.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets — an amendment of APB Opinion No. 29”. APB No. 29 requires a
nonmonetary exchange of assets to be accounted for at fair value, recognizing
any gain or loss, if the exchange meets a commercial substance criterion
and
fair value is determinable. The commercial substance criterion is assessed
by
comparing the entity’s expected cash flows immediately before and after the
exchange. SFAS No. 153 eliminates the “similar productive assets
exception”, which accounts for the exchange of assets at book value with no
recognition of gain or loss. SFAS No. 153 will be effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005.
The Company does not currently believe that the adoption of SFAS No. 153
will have a material impact on its consolidated financial statements.
Impairment
of long-lived assets is assessed by the Company whenever there is an
indication
that the carrying amount of the asset may not be recoverable.
Recoverability
of these assets is determined by comparing the forecasted undiscounted
cash flows generated by those assets to the assets’ net carrying value.
The amount of impairment loss, if any, is measured as the difference
between
the net book value of the assets and the estimated fair value of the
related
assets.
Loss
Per Common Share - The Company has adopted SFAS No. 128, Earnings per
Share,
which supercedes APB No. 15. Basic EPS differs from primary EPS calculation
in that basic EPS does not include any potentially dilutive securities.
Diluted EPS must be disclosed regardless of the dilutive impact to basic
EPS. There were no potentially dilutive securities outstanding at December
31,
2005.
In
the
year ended December 31, 2002, the Company’s property and equipment, which was
held at a storage facility, was sold for non-payment of rent. Rent and fees
due
at the time of sale were approximately $701. The net book value of the assets
disposed of for settlement was approximately $5,413, resulting in a loss on
sale
of $4,712. The Company had no property or equipment during the twelve months
ended December 31, 2005. Depreciation expense for the years ended December
31,
2005 and 2004 was $0.
In
the
year ended December 31, 2001, the Company entered into a commitment to purchase
technology licenses from an unrelated entity. The Company was unable to complete
the purchase and returned the asset under a settlement agreement. Accordingly,
the licensed technology which had been recorded at a value of $900,000 was
fully
impaired in 2002. The impairment impact in 2002 was $1,186,500. Impairment
losses for the years December 31, 2005 and 2004 were $0. Cumulative losses
due
to impairment of assets are $3,113,206 from inception through December 31,
2005.
|
5.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company is delinquent on obligations to its public relations firm. Accounts
payable balances over 90 days past due as of December 31, 2005 and 2004 were
$37,100 and $70,900 respectively. The Company believes it has identified and
accrued all valid claims from creditors, consultants and vendors as of December
31, 2005. Although there have been no specific disputes over these matters
and
related amounts these third parties may assert additional claims as the Company
attempts to settle all past due obligations. The company has carried payables
for various vendors of $11,109, since 2003 and will extinguish these debts
in
the first quarter of 2006.
The
Company is following a practice of paying all debts within 30 days of invoicing
and will continue to do so for the coming year. Outstanding payables to its
public relations firm will be paid.
During
the year ended December 31, 2002, the Company issued a note payable for $200,000
to an affiliate for investment banking services. The note payable provided
for
annual interest at 8%, was secured by all of the assets of the Company, and
was
due on demand. In 2003, the Company issued 20,000,000 restricted common shares
to retire the note, additional advances and accrued interest totaling $224,296.
Interest expense for the years ended December 31, 2003 and 2002 was $1,115
and
$9,295 respectively. There were no notes payable outstanding during 2005 or
2004
and therefore there was no interest expense for the year ended December 31,
2005
or 2004.
| 7. |
GENERAL
AND ADMINISTRATIVE EXPENSES
|
The
company has incurred $8,592,567 of general and administrative expenses since
its
inception. General and Administrative expenses were $4,500,141 ($3,366,000
for
preferred stock issued to Eagle Consulting) for the year ended, December 31,
2005, compared to $1,265,000 for the year ended, December 31, 2004.
The
general and general administrative expenses for the year were comprised of
$333,333 of officers salaries, $261,677 of professional services and fees,
$20,861 for legal and accounting fees, and $198,064 was paid to Eagle Consulting
for fees in accordance with an funding agreement entered in March 2003.
Additionally, $152,244 in expenses related to the Cannes Film Festival were
incurred during the second quarter of 2005, $30,002 for advertising, $84,258
for
public relations and other marketing costs, $34,124 in travel, lodging and
entertainment costs and $3,860 in printing costs. These expenses were related
to
the pursuit of the Company’s plan of operation to produce and distribute motion
pictures.
Additional
general and administrative expenses included $25,782 in shareholder relation
expenses which included stock transfer fees, edgar fees and other corporate
filing fees, $26,954 for office rent and other office expenses, $30,879 in
public relations costs not related to the Cannes Film Festival and $41,299
of
other advertising and promotion costs for the business. General and
administrative expenses also included $3,366,000 for issuance of Class A and
B
convertible preferred stock to Eagle Consulting.
8.
INCOME
TAXES
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes.
The
deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, if appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors. The Company has considered these factors in reaching
its conclusion as to a valuation allowance for financial reporting purposes.
The
components of the provision for income taxes for years ended December 31, are
as
follows:
|
|
|
2005
|
|
2004
|
|
|
Current
tax provision (benefit)
|
|
$
|
(
512,000
|
)
|
$
|
(564,600
|
)
|
|
Deferred
tax provision (benefit)
|
|
|
512,000
|
|
|
564,600
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax provision (benefit)
|
|
$
|
-0-
|
|
$
|
-0-
|
|
The
reconciliation of the effective income tax rate to the Federal statutory
rate is
as follows:
|
|
|
2005
|
|
2004
|
|
|
Federal
statutory rates
|
|
$
(1,530,000
|
) |
(34
|
)% |
$ (430,100
|
) |
(34)%
|
|
|
State
income taxes
|
|
|
(270,000
|
)
|
|
(6
|
)% |
|
(75,900
|
)
|
|
(6
|
)%
|
|
Valuation
allowance for
operating
loss carryforwards
|
|
|
1,795,000
|
|
|
40
|
% |
|
500,600
|
|
|
40
|
%
|
|
Permanent
difference on gain on debt extinguishment
|
|
|
-0-
|
|
|
-
|
|
|
-0-
|
|
|
-
|
|
|
Other
|
|
|
-5,000-
|
|
|
0
|
% |
|
-5,400-
|
|
|
0
|
%
|
|
Effective
rate
|
|
$
|
-0-
|
|
|
(-0-
|
)%
|
$
|
-0-
|
|
|
(-0
|
)%
|
At
December 31, 2005 the Company had federal net operating loss carryforwards
of
approximately $5,731,000 that expire from 2013 to 2025 and stated net operating
loss carryforwards of approximately $2,521 that expire from 2005 to 2009.
Because of the current uncertainty of realizing the benefits
of
Deferred
tax assets and liabilities reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of
the
Company's deferred tax assets and liabilities at December 31, 2005 are as
follows:
|
Differences
in book/tax bases of intangible assets
|
|
$
|
768,000
|
|
|
Differences
in book/tax bases of accrued compensation
|
|
|
1,486,000
|
|
|
Net
operating loss carryforwards
|
|
|
2,287,000
|
|
|
Deferred
income tax asset
|
|
|
4,541,000
|
|
|
Less:
valuation allowance
|
|
|
4,541,000
|
|
|
Total
deferred income tax asset
|
|
|
-0-
|
|
|
|
|
|
|
|
|
Deferred
income tax liability
|
|
|
(-0-
|
)
|
|
|
|
|
|
|
|
Net
deferred income tax asset
|
|
$
|
-
0 -
|
|
The
Company's valuation allowance increased by approximately $1,795,000, $501,000
and $161,000 during the years ended December 31, 2005, 2004 and 2003
respectively.
9.
RELATED PARTY TRANSACTIONS
During
the years ended December 31, 2005 and 2004, the Company entered into related
party transactions with Board members, officers and affiliated entities. The
Company issued shares of common stock for services rendered, cash advances,
and
payment of expenses on behalf of the Company.
The
Company has entered into an agreement with an affiliate whereby the affiliate
receives 20% of the Company’s common stock on a non-dilutive basis in return for
services and cash advances. The anti-dilutive provisions are in force through
March 28, 2008. During the year ended December 31, 2005, the Company issued
3,017,478 shares of common stock valued at $198,064 related to the dilution
agreement.
During
the year ended December 31, 2005, the Company received advances of $125,287
from
this affiliate, compared to $127,341 for the year ended December 31, 2004.
The
Company issued 2,046,177 shares of common stock for repayment of these advances.
The stock issued was valued at the weighted average price per share. Robert
Atwell also received 3,586,881 shares of common stock in exchange for advances
made to the Company during 2005 of $259,941.
During
2005, the Company issued 5,467,077 shares of common stock to two officers,
Robert Atwell and George Jackson for full payment of accrued salaries. The
Officers may accept their compensation in stock, and in the event they elect
to
do so the amount of stock to be issued shall be determined by prorating their
annual salary on a monthly basis and issuing shares based on the average close
price for each month converted to stock as determined by the market price report
generated by the Over the Counter Bulletin Board.
In
the
efforts to build a management team the company issued stock to the new
management team.
George
Jackson, H K Dyal, Chris Davis and Craig Kitchens each received 1,000,000 shares
of the Company’s $.001 par value common stock during the second quarter of 2005
valued at $220,000.
On
December 30, 2005, the company issued 233,547 shares to consultant, Michael
Ellis for services rendered in the amount of $10,000 during the 4th
quarter.
During
2005, the Company leased office space from the Company’s president for
$6,435.
On
February 3, 2004, the Company authorized the issuance of an additional 6,791,287
restricted common shares to an affiliate in accordance with its agreement with
the Company to receive 20% of the Company’s outstanding shares for providing
funding. The Company also authorized the issuance of 100,000 shares to a
director for accounting services.
On
June
22, 2004, the Company authorized the issuance of a total of 11,105,755
restricted common shares to an officer and a total of 4,442,296 restricted
common shares to another officer for services in 2003 and the first quarter
of
2004, including shares previously authorized by the board. The Company also
authorized the issuance of an additional 4,637,867 restricted common shares
to
an affiliate in accordance with its agreement with the Company to receive 20%
of
the Company’s outstanding shares for providing funding for Company
operations.
On
November 30, 2004 the Company authorized the issuance of a total of 2,499,999
restricted common shares to an officer, a total of 666,666 restricted common
shares to another officer, and a total of 333,333 to a third officer for
services in the second, third and fourth quarter of 2004. In addition, the
Company authorized the issuance of an additional 1,000,000 restricted common
shares to an officer and director for prior services rendered to the Company.
The Company also authorized the issuance of 3,500,000 restricted common shares
to an affiliate in connection with the affilate providing financing for the
Company’s initial in-house production. The Company also authorized moving the
corporate headquarters with said offices to be provided by an affiliate.
10.
COMMON STOCK
As
of
December 31, 2005, there were 93,649,589 shares of common stock outstanding.
During the year ended, December 31, 2005 there were issued 18,698,380 common
shares, the majority of which, 15,111,499 shares (81 %) were issued to officers,
staff and affiliates. The Company issued 5,467,078 (29%) shares for officers
salaries, 5,063,655 (28%)shares were issued to Eagle Consulting for expenses
in
accordance with funding agreement, and 4,580,766 (24%) shares to officers,
staff
and consultants. The remaining 3,586,881 (19%)shares were issued for repayment
of shareholders loans.The
transactions were valued on the basis of the trading price of the common stock
at the date on which the agreements and commitments were
made.
As
of
December 31, 2004, there were 74,951,209 shares of common stock outstanding.
During the year ended December 31, 2004 there were 41,094,776 common shares
issued, the majority of which, 38,794,776 shares (94%), were issued to officers,
staff and affiliates. 24,298,049 shares (59%) were issued to officers and staff
and 14,496,727 shares (35%) were issued to an affiliate. The remaining 2,300,000
shares (6%) were issued for legal services (550,000 shares), the VedaLabs,
Inc.
settlement (1,000,000 shares) and the agreement with Corporate Awareness
Professionals, Inc. (750,000 shares).
As
a
result of our agreement with the affiliate, the affiliate receives 20% of the
Company’s common stock on an anti-dilutive basis in return for services and
cash advances. The anti-dilutive provisions are in force through March 28,
2008.
In addition, the affiliate has the option to receive 2,000,000 cashless options
to purchase common shares at $0.03 per share. For each one dollar ($1) increase
in the price of the Company’s stock, the affiliate shall be entitled to receive
an additional two million options throughout the term of the agreement between
the affiliate and the Company, which expires on March 28, 2008. In addition,
the
Company shall have the first right of refusal to purchase the options from
the
affiliate for the current market value once the affiliate notifies the Company
that it intends to exercise the options. In the event the Company elects not
to
exercise this first right of refusal, and subject to applicable laws, the
affiliate shall be entitled to exercise the sale of shares or options
immediately thereafter. As of December 31, 2005, the affiliate has not exercised
its right to receive the options and therefore no options have been granted.
The
affiliate’s right to receive the options and to exercise those options expires
on March 28, 2008.
During
the year ended December 31, 2004, the Company granted, under terms of a
consulting agreement, 1,675,000 options to acquire common stock at $0.15 and
1,000,000 options at $0.15. The options expire on March 30, 2005. The Company
determined the value of these options to be $351,000 based on the following
calculation:
Risk
Free
Interest Rate
4.5
%
Dividends None
Volatility
248%
The
value
of the options was expensed in the year ended December 31, 2004.
During
the year ended December 31, 2003 the Company issued a total of 20,000,000 shares
of its common stock to an affiliate in retirement of the affiliate’s $224,296 of
debt with the Company.
During
the year ended December 31, 2002 the Company issued 4,207,500 shares of its
common stock to various parties for a variety of resources, services and
technology.
During
the year ended December 31, 2002, the Company entered into an agreement with
an
unrelated entity, to acquire their technology for 3,000,000 shares of the
Company’s stock along with a note payable for $250,000. The Company was unable
to fulfill the agreement due to a lack of financial resources. As a result,
on
October 23, 2003, the Company entered into a settlement agreement to return
the
technology, to issue 1,000,000 restricted common shares at fair market value
of
$0.04 per share. As of December 31, 2004 the Company had accrued a liability
for
the 1,000,000 shares at $40,000, which was fully satisfied with the issuance
of
the stock.
At
December 31, 2002, there were a total of 2,400,000 shares of its common stock
in
treasury resulting from two separate transactions. In April 2002 the Company
repurchased 900,000 shares at and in May 2002, the Company repurchased 1,500,000
shares. The shares were acquired for par value of $0.001. During the year ended
December 31, 2004, the Company retired these shares at their par value of $0.001
per share.
The
transactions were valued on the basis of the trading price of the common
stock
at the date on which the agreements and commitments were made.The Company
received no cash for any of the shares it issued in the years ended December
31,
2004 and 2003.
11.
PREFERRED STOCK
On
January 5, 2005, the Company designated two classes of preferred stock, Class
A
Convertible Preferred Stock and Class B Convertible Preferred Stock. Both
classes have a par value of $.001 and 10,000,000 shares authorized. The Series
A
is reserved for employees, consultants and other professionals retained by
the
Company and the Series B is reserved for the Board of Directors. On June 30,
2005, the Company issued 5,100,00 shares of each Class A Convertible and Class
B
Convertible Preferred Stock to Robert Atwell. The Company recorded expense
of
$3,366,000 in connection with the Preferred Stock issuances. The
value
of these transactions was based upon the trading value of the common stock
into
which the preferred stock may be converted.
The
Class
A Convertible Preferred Stock ranks junior to the Class B Convertible preferred
stock as to the payment of dividends and distribution of assets. Dividends
are
payable only if declared by the Board of Directors and are not cumulative.
Each
share of Class A Convertible Preferred Stock entitles the holder to 50 votes.
Holders of Class A Convertible Preferred Stock have the right, upon demand,
to
convert any or all of their Class A Preferred Stock into 2 (two) shares of
Common Stock for each share of Class A Convertible Preferred share held. No
shares were converted during 2005.
The
Class
B Convertible Preferred Stock ranks senior to the Class A Convertible Preferred
Stock as to the payment of dividends and distribution of assets. Dividends
are
payable only if declared by the Board of Directors and are not cumulative.
Each
share of Class B Convertible Preferred Stock entitles the holder to 1,000 votes.
Holders of Class B Convertible Preferred Stock have the right, once the thirty
day moving average bid price of the common stock is at or exceeds $.15 per
share
to convert any or all of their Class B Preferred Stock into 10 shares of Common
Stock for each share of Class B Convertible Preferred Stock held. In the event
of liquidation, holders of Class B Convertible Preferred Stock shall rank senior
to Class A Convertible Preferred stock and be entitled to $1.00 per each Class
B
Convertible Preferred Stock share held. No shares were converted during
2005.
12.
GAIN
ON EXTINGUISHMENT OF DEBT
During
the year ended December 31, 2003, the Company entered into a settlement
agreement with an unrelated entity to return assets which the Company had made
a
commitment to purchase for $250,000 plus interest. As retirement of the debt
the
Company issued 1,000,000 restricted common shares valued at $0.04 per share
($40,000). The gain on extinguishment of debt for the years ended December
31,
2003 and 2002 was $255,500 and $0 respectively.
SIGNATURES
EXHIBIT
31
CAMELOT
ENTERTAINMENT GROUP, INC.
CERTIFICATIONS
PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I,
Robert
P. Atwell, certify that:
1.
I have reviewed this quarterly report on Form 10-QSB of Camelot Entertainment
Group, Inc.;
2.
Based
on my knowledge, this quarterly report does not contain any untrue statement
of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were
made, not misleading with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the small business issuer
as
of, and for, the periods presented in this report;
4.
The
small business issuer’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
small business issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the small business issuer’s disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the small business issuer’s internal
control over financial reporting that occurred during the small business
issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the small business issuer’s internal
control over financial reporting; and
5.
The
small business issuer’s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to
the small business issuer’s auditors and the audit committee of the small
business issuer’s board of directors (or persons performing the equivalent
functions):
(a)
All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the small business issuer’s ability to record, process,
summarize and report financial information; and
(b)
Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the small business issuer’s internal control over
financial reporting.
Date:
March 31, 2006
/s/
Robert P. Atwell
Robert
P.
Atwell
Chief
Executive Officer
CAMELOT
ENTERTAINMENT GROUP, INC.
CERTIFICATIONS
PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I,
George
Jackson, certify that:
1.
I have reviewed this quarterly report on Form 10-QSB of Camelot Entertainment
Group, Inc.;
2.
Based
on my knowledge, this quarterly report does not contain any untrue statement
of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were
made, not misleading with respect to the period covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the small business issuer
as
of, and for, the periods presented in this report;
4.
The
small business issuer’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the
small business issuer and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the small business issuer’s disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the
period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the small business issuer’s internal
control over financial reporting that occurred during the small business
issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is
reasonably likely to materially affect, the small business issuer’s internal
control over financial reporting; and
5.
The
small business issuer’s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to
the small business issuer’s auditors and the audit committee of the small
business issuer’s board of directors (or persons performing the equivalent
functions):
(a)
All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the small business issuer’s ability to record, process,
summarize and report financial information; and
(b)
Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the small business issuer’s internal control over
financial reporting.
Date:
March 31, 2006
/s/George
Jackson
George
Jackson
Chief
Financial Officer
EXHIBIT
31
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Camelot Entertainment Group, Inc.
(“Camelot”) on Form 10-K for the period ending December 31, 2005 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I,
Robert P. Atwell, President and Chief Executive Officer of Camelot Entertainment
Group, Inc. and a member of the Board of Directors, certify, pursuant to s.906
of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly represents, the financial
condition and result of operations of Camelot Entertainment Group, Inc..
/s/
Robert P. Atwell
Robert
P.
Atwell
Chief
Executive Officer
March
31,
2006
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Camelot Entertainment Group, Inc.
(“Camelot”) on Form 10-K for the period ending December 31, 2005 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I,
George Jackson, President and Chief Financial Officer of Camelot Entertainment
Group, Inc. and a member of the Board of Directors, certify, pursuant to s.906
of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly represents, the financial
condition and result of operations of Camelot Entertainment Group, Inc..
/s/George
Jackson
George
Jackson
Chief
Financial Officer
March
31,
2006