As
filed with the Securities and Exchange Commission on February 2, 2007
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________
FORM
SB-2
______________
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
(Name
of
Small Business Issuer in its Charter)
|
Delaware
|
7812
|
52-2195605
|
|
State
or Jurisdiction of Incorporation or Organization
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer Identification No.)
|
2020
Main Street, Suite 990
Irvine,
CA 92614
(949)
777-1090
(Address
and Telephone Number of Principal Executive Offices and Principal Place of
Business)
______________
Robert
P. Atwell, Chief Executive Officer
2020
Main Street, Suite 990
Irvine,
CA 92614
(949)
777-1090
(Name,
Address and Telephone Number of Agent for Service)
______________
Copies
of
Communications to:
Richard
I. Anslow, Esq.
Anslow
& Jaclin, LLP
195
Route 9 South, Suite 204
Manalapan,
New Jersey 07726
Telephone:
(732) 409-1212
Fax:
(732) 577-1188
Approximate
date of proposed sale to the public: As soon as practicable after this
Registration Statement becomes effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act of 1933, please check the following box and
list
the Securities Act Registration Statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class of Securities to be Registered
|
Number
of Units/Shares to be Registered
|
Proposed
Maximum
Offering
Price Per Unit
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount
of
Registration
Fee
|
||||
|
|
|
|
|
|
||||
|
Common
Stock, par value $.001 per share (1)
|
28,094,877
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(2)
|
$0.042
|
$1,348554
|
$144.30
|
|||
|
Total
|
28,094,877
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$1,348554
|
$144.30
|
(1)
Represents
28,094,877 shares of common stock issuable in connection with the conversion
of
promissory notes in accordance with the Securities Purchase Agreement dated
December 27, 2006 between us and AJW Partners, LLC, AJW Offshore, Ltd., AJW
Qualified Partners, LLC and New Millennium Capital Partners II, LLC. The price
of $0.042 per share is being estimated solely for the purpose of computing
the
registration fee pursuant to Rule 457(c) of the Securities Act and is based
on
the estimated conversion price of the Callable Secured Convertible Notes ($0.07
was the closing price on the date the transaction closed, December 29, 2006,
less a 40% discount).
(2)
The
number of shares being registered for the conversion of the Callable Secured
Convertible Notes is 28,094,877 representing approximately 30% of our 93,649,589
common shares issued and outstanding.
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to Section 8(a),
may
determine.
Preliminary
Prospectus subject to completion dated February 2, 2007
PROSPECTUS
28,094,877
SHARES OF COMMON STOCK
This
prospectus relates to the resale of up to 28,094,877 shares of our common stock
issuable to AJW Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners,
LLC
and New Millennium Capital Partners II, LLC (collectively, the “Selling
Stockholders”) in connection with the conversion of notes. The Selling
Stockholders may sell their common stock from time to time at prevailing market
prices.
Our
common stock is currently quoted on the OTC Bulletin Board (“OTCBB”) under the
symbol “CMEG”. On February 1, 2007, the closing price of our shares was
$0.11.
The
securities offered in this prospectus involve a high degree of risk and are
subject to the “penny stock” rules. You should carefully consider the factors
described under the heading “Risk Factors” beginning on page
2.
Neither
the Securities and Exchange Commission (the “SEC”) nor any state securities
commission has approved or disapproved of these securities or determined if
this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The
date
of this prospectus is February ___, 2007.
TABLE
OF CONTENTS
i
This
summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including, the section entitled
“Risk Factors”, and our Consolidated Financial Statements and the related Notes
included in this prospectus before deciding to invest in our common stock.
Except as otherwise required by the context, all references in this prospectus
to "we", "us”, "our", “CMEG”, or "Company" refer to the consolidated operations
of Camelot Entertainment Group Inc., a Delaware corporation, and its wholly
owned subsidiaries.
Our
Business
We
are a
vertically-integrated entertainment company focused on creating, producing
and
distributing quality content across various media channels including feature
film, television, radio, the Internet, and various forms of digital media for
use in the home or on mobile devices. We were incorporated in Delaware on
October 12, 1999 as Dstage.com, Inc. On April 15, 2004, we changed 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”), which provides for the development, production, marketing and
distribution of motion pictures. The CSM attempts to combine the efficiencies
realized by studios of the early 1900’s, with the artistic focus and diversity
of today’s independent productions. Using this approach, we believe 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, as Dstage.com, 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 focusto
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 audited financial statements,
the unaudited interim financials and the related notes included elsewhere in
this prospectus in addition to thoroughly reading our current plan of
operations.
Our
common stock is currently quoted on the OTCBB under the symbol “CMEG”.
Our
Contact Information
Our
principal executive offices are located at 2020 Main Street, Suite 990, Irvine,
CA 92614. We can be reached by calling (949) 777-1090, faxing (949) 777-109
or
emailing info@camelotfilms.com.
We
invite you to visit our website at www.camelotfilms.com
for
information about our company, products and services.
Going
Concern
As
reflected in Note 1 to the Financial Statements which accompany this prospectus,
our consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and liabilities and
commitments in the normal course of business. In the near term, we expect
operating costs to continue to exceed funds generated from operations. As a
result, we expect to continue to incur operating losses and we may not have
sufficient funds to grow our business in the future. We can give no assurance
that we will achieve profitability or be capable of sustaining profitable
operations. As a result, operations in the near future are expected to continue
to use working capital.
To
successfully grow the individual segments of the business, we must decrease
our
cash burn rate, improve our cash position and the revenue base of each segment,
and succeed in our ability to raise additional capital through a combination
of
primarily public or private equity offering or strategic alliances. We also
depend on certain contractors and our executives, and the loss of any of those
contractors or executives, may harm our business.
1
The
Offering
|
Common
Stock Offered by Selling Stockholders:
|
Up
to 28,094,877 shares which represents approximately 30% of our
93,649,589
common shares issued
and outstanding.
|
|
|
Common
Stock to be Outstanding After the Offering:
|
Up
to 121,744,466 shares.
|
|
|
Use
of Proceeds:
|
We
will not receive any proceeds from the sale of the common stock.
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|
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OTCBB
Symbol:
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CMEG
|
An
investment in our shares involves a high degree of risk. Before making an
investment decision, you should carefully consider all of the risks described
in
this prospectus. Each of the following risks could materially adversely affect
our business, financial condition and results of operations, which could cause
the price of our shares to decline significantly and you may lose all or a
part
of your investment. Our forward-looking statements in this prospectus are
subject to the following risks and uncertainties. Our actual results could
differ materially from those anticipated by our forward-looking statements
as a
result of the risk factors below. See “Forward-Looking
Statements.”
Risks
Associated with Our Operations
We
are subject to various risks that may materially harm our business, financial
condition and results of operations. You should carefully consider the risks
and
uncertainties described below and the other information in this filing before
deciding to purchase our common stock. If any of these risks or uncertainties
actually occurs, our business, financial condition or operating results could
be
materially harmed. In that case, the trading price of our common stock could
decline.
We
have a limited operating history as a motion picture company in which to
evaluate our business.
We
were
incorporated in Delaware on October 12, 1999 as Dstage.com, Inc., a business
development organization. On April 15, 2004, we changed our name to Camelot
Entertainment Group, Inc. and our business model to motion picture production,
distribution and marketing. We have been unable to fully implement this new
business model because of financing constraints. To date, we have no revenue
and
a limited operating history as a motion picture company upon which an evaluation
of our future success or failure can be made. Current and future Company assets,
including scripts and other properties that may be obtained in the future,
may
not be suitable for development to the projected forecast for 2007-2008 unless
additional financing is secured. No assurances of any nature can be made to
investors that the Company will be profitable or that it will remain in
business. There can be no assurances that our management will be successful
in
managing the Company as a motion picture production, distribution and marketing
company.
We
have incurred significant and continuing losses and may not be able to generate
revenues to sustain our operations.
We
have
experienced significant operating losses since our inception on October 12,
1999. We have incurred net losses of approximately $591,740 and $730,295 for
the
nine months ended September 30, 2006 and 2005, respectively, and have an
accumulated deficit of $12,416,599 at September 30, 2006, all of which related
to our previous activities as a business development organization, Dstage.com,
and none of which relate to our current activities as a motion picture
production, marketing and distribution entity.
We
will
continue to have a high level of operating expenses and will be required to
make
significant up-front expenditures in connection with the commencement of
income-generating activities (including, but not limited to, salaries of
executive, marketing and other personnel). We expect to incur additional losses
until such time as we are able to fully implement our new business model and
generate sufficient revenues to finance our operations and the costs of
expansion. There can be no assurance that the Company will be able to generate
such revenues and operate profitably.
2
We
will require additional funds to achieve our current business strategy and
our
inability to obtain additional financing could cause us to cease our business
operations.
Even
with
the proceeds generated from this offering and through prior funding, including
loans from Company executives, we will need to raise additional funds through
public or private debt or sale of equity to achieve our new business strategy.
Such financing may not be available when needed. Even if such financing is
available, it may be on terms that are materially adverse to your interests
with
respect to dilution of book value, dividend preferences, liquidation
preferences, or other terms.
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. Our new business plan requires
a
substantial investment of capital. At present, we need to generate approximately
one million dollars ($1,000,000) annually either through revenue generation
or
some form of financing to implement our business model. This amount may be
adjusted at the time we begin fully implementing our business plan. As a result,
there can be no guarantee that we will be able to generate this level of revenue
and/or funding, and as a result our ability to remain in business could be
adversely affected if we are not successful in developing revenues and/or
funding. 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, and other sources.
Although we intend to reduce the risks of our production exposure through strict
financial guidelines and financial contributions from broadcasters,
sub-distributors, 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.
If
we are
unable to obtain financing on reasonable terms, we could be forced to delay,
scale back or eliminate certain product and service development programs. In
addition, such inability to obtain financing on reasonable terms could have
a
material negative effect on our business, operating results, or financial
condition to such extent that we are forced to restructure, file for bankruptcy,
sell assets or cease operations, any of which could put your investment dollars
at significant risk.
We
have been the subject of a going concern opinion for the fiscal years ended
December 31, 2005 and 2004 from our independent auditors, which means that
we
may not be able to continue operations unless we can become profitable or obtain
additional funding.
Our
independent auditors have added an explanatory paragraph to their audit opinions
issued in connection with our financial statements for the fiscal years ended
December 31, 2005 and 2004, which states that the financial statements raise
substantial doubt as to our ability to continue as a going concern. Our ability
to make operations profitable or obtain additional funding will determine our
ability to continue as a going concern. Our financial statements do not include
any adjustments that might result from the outcome of this uncertainty. We
will
have to raise additional funds to meet our current obligations and to cover
operating expenses through the year ending December 31, 2007. If we are not
successful in raising additional capital we may not be able to continue as
a
going concern.
We
are subject to a working capital deficit, which means that our current assets
at
September 30, 2006 were not sufficient to satisfy our current liabilities.
As
of
September 30, 2006, we had a working capital deficit of $760,536,
which
means that our current liabilities of $779,306 exceeded our current assets
of
$18,770 by that amount on September 30, 2006. Current assets are assets that
are
expected to be converted to cash within one year and, therefore, may be used
to
pay current liabilities as they become due. Our working capital deficit means
that our current assets on September 30, 2006 were not sufficient to satisfy
all
of our current liabilities on that date. We will have to raise additional
capital or debt to fund the deficit or cease operations.
3
If
we are unable to retain the services of our executive officers, Robert P.
Atwell, George Jackson, and Michael Ellis, or if we are unable to successfully
recruit qualified managerial personnel and employees with experience in business
and the motion picture industry, we may not be able to continue our
operations.
Our
success depends to a significant extent upon the continued service of our
executive officers, Robert P. Atwell, President and Chief Executive Officer,
George Jackson, Secretary and Chief Financial Officer, and Michael Ellis, Chief
Operating Officer. Loss of the services of any of our executive officers could
have a material adverse effect on our growth, revenues, and prospective
business. We do not maintain key-man insurance on the lives of our executive
officers.
In
addition, in order to successfully implement and manage our business plan,
we
will be dependent upon, among other things, successfully recruiting 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 qualified candidates to fill
these positions, competition is intense and 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.
There
can
be no assurance that we will be able to find, attract and retain existing
employees or that we will be able to find, attract and retain qualified
personnel on acceptable terms.
Mr.
Atwell, our President, Chief Executive Officer and Chairman owns a controlling
interest in our voting stock and investors will not have any voice in our
management.
Mr.
Atwell, our President, Chief Executive Officer and Chairman, is the beneficial
owner of 63.47% of our issued and outstanding common shares and 51.00% of each
of our Class A Convertible Preferred Stock (“Class A”) and Class B Convertible
Preferred Stock (“Class B”). Each share of Class A entitles the holder to 50
votes and each share of Class B entitles the holder to 1,000 votes. In the
aggregate, Mr. Atwell is entitled to cast 5,414,440,485 or 99.37% of the votes
in any vote by our stockholders. Thus, Mr. Atwell, will have the ability to
control substantially all matters submitted to our stockholders for approval,
including:
|
§
|
election
of our board of directors;
|
|
§
|
removal
of any of our directors;
|
|
§
|
amendment
of our certificate of incorporation or bylaws; and
|
|
§
|
adoption
of measures that could delay or prevent a change in control or impede
a
merger, takeover or other business combination involving
us.
|
As
a
result of his ownership and position as a director and executive officer, he
is
able to influence all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. In
addition, sales of significant amounts of shares held by our directors and
executive officers, or the prospect of these sales, could adversely affect
the
market price of our common stock. Management's stock ownership may discourage
a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of us, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.
It
is likely that additional shares of our stock will be issued in the normal
course of our business development, which will result in a dilutive affect
on
our existing stockholders.
We
will
issue additional stock as required to raise additional working capital in order
to secure intellectual properties, undertake company acquisitions, recruit
and
retain an effective management team, compensate our officers and directors,
engage industry consultants and for other business development
activities.
4
If
we fail to adequately manage our growth, we may not be successful in growing
our
business and becoming profitable.
We
expect
our business and number of employees to grow over the next year. We expect
that
our growth will place significant stress on our operation, management, employee
base and ability to meet capital requirements sufficient to support our growth
over the next 12 months. Any failure to address the needs of our growing
business successfully could have a negative impact on our chance of
success.
If
we acquire or invest in other businesses, we will face certain risks inherent
in
such transactions.
We
may
acquire, make investments in, or enter into strategic alliances or joint
ventures with, companies engaged in businesses that are similar or complementary
to ours. If we make such acquisitions or investments or enter into strategic
alliances, we will face certain risks inherent in such transactions. For
example, we could face difficulties in managing and integrating newly acquired
operations. Additionally, such transactions would divert management resources
and may result in the loss of artists or songwriters from our rosters. We cannot
assure you that if we make any future acquisitions, investments, strategic
alliances or joint ventures that they will be completed in a timely manner,
that
they will be structured or financed in a way that will enhance our
creditworthiness or that they will meet our strategic objectives or otherwise
be
successful. Failure to effectively manage any of these transactions could result
in material increases in costs or reductions in expected revenues, or both.
“Penny
Stock” rules may make buying or selling our common stock
difficult.
Trading
in our securities is subject to the “penny stock” rules. The SEC has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
These rules require that any broker-dealer who recommends our securities to
persons other than prior customers and accredited investors, must, prior to
the
sale, make a special written suitability determination for the purchaser and
receive the purchaser’s written agreement to execute the transaction. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated with trading in the penny stock
market. In addition, broker-dealers must disclose commissions payable to both
the broker-dealer and the registered representative and current quotations
for
the securities they offer. The additional burdens imposed upon broker- dealers
by such requirements may discourage broker-dealers from effecting transactions
in our securities, which could severely limit the market price and liquidity
of
our securities. Broker-dealers who sell penny stocks to certain types of
investors are required to comply with the Commission’s regulations concerning
the transfer of penny stocks. These regulations require broker-dealers
to:
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§
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Make
a suitability determination prior to selling a penny stock to the
purchaser;
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§
|
Receive
the purchaser’s written consent to the transaction; and
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§
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Provide
certain written disclosures to the
purchaser.
|
Risks
Associated with the Motion Picture Production and Distribution
Industry
Because
the movie industry is intensely competitive and we lack the name recognition
and
resources of our competitors, we may never generate any revenues or become
profitable.
The
motion picture industry is highly competitive. We believe 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 pictures 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. Some of the production and distribution companies that we will compete
with are The Weinstein Company, Jerry Bruckheimer Films, Miramax Films, Lions
Gate Entertainment Corp., Sony Pictures Entertainment, Inc., New Line Cinema,
a
subsidiary of Time Warner, Universal Studios, 20th
Century
Fox Film Corporation, a subsidiary of News Corp., Buena Vista Motion Pictures
Group, a collection of affiliated motion picture studios all subsidiaries of
The
Walt Disney Company, Paramount Pictures Corporation, a subsidiary of Viacom,
and
Troma Entertainment, Inc. All of these competitors are significantly larger
than
us, have a long-standing business relationship with customers, vendors and
financial institutions, and have established staying power in the industry
over
the past twenty years.
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.
5
Since
our success depends on the commercial success of our motion pictures, which
is
unpredictable
and highly speculative, we may never generate any revenue or become
profitable.
The
success of a single motion picture project is fraught with an unusually high
degree of uncertainty and risk.. 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.
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.
Relatively
few motion pictures return a profit to investors. There can be no assurance
that
a motion picture will recoup its production costs. There is a very high degree
of risk that any motion picture we may produce will not return all or any
portion of our investment.
We
may not be able to complete a specific motion picture, which could cost us
substantial amounts and potentially adversely affect our other planned
productions.
The
probability of successfully completing a motion picture project is also laden
with an unusually high degree of uncertainty and risks. 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 availability of qualified personnel to replace key members may not be
adequate and as a result our ability to continue and complete a specific
production may be put in jeopardy. As a result, we might have to close down
a
production. That event would have an adverse affect on our planned operations.
If
we do
not complete the film on schedule or within budget, our ability to generate
revenue may be diminished, delayed or even evaporate. Our success depends on
our
ability to complete the film on schedule and within budget. If a specific film
is not completed, we may loose all of the funds paid into a particular project
with no way to recoup that investment.
We
intend to distribute our films in foreign countries which may be unpredictable
and may have unstable and different governments and/or laws than the
U.S.
We
plan to license motion picture and television programming in foreign countries
to sub-distributors. 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.
Piracy
of the original motion pictures that we plan to 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 as Asia, the Eastern bloc countries
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.
Our
operating results will fluctuate.
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 principle, 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.
Our
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.
7
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.
We
are smaller and less diversified than all 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.
If
we are alleged to have infringed on the intellectual property or other rights
of
third parties it could subject us to significant liability for damages and
invalidation of our proprietary rights.
Our
business is highly dependent upon intellectual property, a field that has
encountered increasing litigation in recent years. If third parties allege
that
we have infringed on their intellectual property rights, privacy rights or
publicity rights or have defamed them, we could become a party to litigation.
These claims and any resulting lawsuits could subject us to significant
liability for damages and invalidation of our proprietary rights and/or restrict
our ability to publish and distribute the infringing or defaming content. There
can be no assurance that we would prevail in any such litigation. If we were
to
lose a litigation relating to intellectual property, we could be forced to
pay
monetary damages and to cease the sale of certain products or the use of certain
technology. Any of the foregoing may adversely affect our business.
Risks
Related to Our Common Stock and Its Market
If
the ownership of our common stock continues to be somewhat concentrated in
shares owned by our management, and mainly Mr. Atwell, it may prevent you and
other stockholders from influencing significant corporate decisions and may
result in conflicts of interest that could cause our stock price to
decline.
As
of
December 15, 2006, Mr. Atwell, our President, Chief Executive Officer and
Chairman, and his affiliates, beneficially own or control approximately 99.37%
of the votes that may be cast in any stockholder vote. Accordingly, Mr. Atwell
and his affiliates will have sole control over the outcome of corporate actions
requiring stockholder approval, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets or any other
significant corporate transactions. This stockholder may also delay or prevent
a
change of control of us, even if such a change of control would benefit our
other stockholders. The concentration of stock ownership may adversely affect
the trading price of our common stock due to investors’ perception that
conflicts of interest may exist or arise.
We
have not, and currently do not anticipate, paying dividends on our common
stock.
We
have
never paid any dividend on our common stock and do not plan to pay dividends
on
our common stock for the foreseeable future. We currently intend to retain
future earnings, if any, to finance operations, capital expenditures and to
expand our business.
There
is a limited market for our common stock which makes it difficult for investors
to engage in transactions in our securities.
Our
common stock is quoted on the OTCBB under the symbol “CMEG”. If public trading
of our common stock does not increase, a liquid market will not develop for
our
common stock. The potential effects of this include difficulties for the holders
of our common shares to sell our common stock at prices they find attractive.
If
liquidity in the market for our common stock does not increase, investors in
our
company may never realize a profit on their investment.
Our
stock is thinly traded, which can lead to price volatility and difficulty
liquidating your investment.
The
trading volume of our stock has been low, which can cause the trading price
of
our stock to change substantially in response to relatively small orders. In
addition, during the last two fiscal years and subsequent interim period, our
common stock has traded as low as $0.015 and as high as $0.16. Both volume
and
price could also be subject to wide fluctuations in response to various factors,
many of which are beyond our control, including actual or anticipated variations
in quarterly and annual operating results and general market perception. An
absence of an active trading market could adversely affect our stockholders’
ability to sell our common stock in short time periods, or possibly at all.
In
addition, we believe that factors such as changes in the overall economy or
the
condition of the financial markets could cause the price of our common stock
to
fluctuate substantially. These fluctuations may also cause short sellers to
enter the market from time to time in the belief that we will have poor results
in the future. We cannot predict the actions of market participants and,
therefore, can offer no assurances that the market for our stock will be stable
or appreciate over time.
9
A
sale of a substantial number of shares of our common stock may cause the price
of our common stock to decline.
If
our
stockholders sell substantial amounts of our common stock in the public market,
including shares issued upon the exercise of outstanding options or warrants,
the market price of our common stock could fall. These sales also may make
it
more difficult for us to sell equity or equity-related securities in the future
at a time and price that we deem reasonable or appropriate.
Our
common stock is deemed to be “penny stock”, which may make it more difficult for
investors to sell their shares due to suitability
requirements.
Our
common stock is deemed to be “penny stock” as that term is defined in
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These requirements may reduce the potential market
for our common stock by reducing the number of potential investors. This may
make it more difficult for investors in our common stock to sell shares to
third
parties or to otherwise dispose of them. This could cause our stock price to
decline. Penny stocks are stock:
| § |
With
a price of less than $5.00 per
share;
|
| § |
That
are not traded on a “recognized” national exchange;
|
| § |
Whose
prices are not quoted on the NASDAQ automated quotation system (NASDAQ
listed stock must still have a price of not less than $5.00 per share);
or
|
| § |
In
issuers with net tangible assets less than $2.0 million (if the issuer
has
been in continuous operation for at least three years) or $10.0
million (if in continuous operation for less than three years), or
with
average revenues of less than $6.0 million for the last three
years.
|
Broker-dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker-dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. Many brokers have decided not to trade
“penny stocks” because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that we remain subject to the “penny stock
rules” for any significant period, there may develop an adverse impact on the
market, if any, for our securities. Because our securities are subject to the
“penny stock rules,” investors will find it more difficult to dispose of our
securities.
The
conversion of the promissory notes from our recent financing is based on an
average of the three (3) lowest intraday trading prices of our common stock
during the twenty (20) trading day period prior to conversion and the decrease
of the intraday trading price will result in issuances of a significant increase
of shares resulting in dilution to our stockholders.
The
conversion of the promissory notes in our recent financing is based on the
applicable percentage of the average of the lowest three (3) intraday trading
prices for the Common Stock during the twenty (20) trading day period prior
to
conversion. The “Applicable Percentage” means 50%; provided, however, that the
Applicable Percentage shall be increased to (i) 55% in the event that a
Registration Statement is filed within thirty days of the closing and (ii)
60%
in the event that the Registration Statement is declared effective by the SEC.
The price of our common shares may fluctuate and the lower intra-day trading
price in the future, will result in a conversion ratio resulting in issuance
of
a significant amount of our common shares to the promissory note holders. This
will result in our present stockholders being diluted.
10
Selling
Stockholders may impact our stock value through the execution of short sales
which may decrease the value of our common stock.
Short
sales are transactions in which a selling shareholder sells a security it does
not own. To complete the transaction, a selling shareholder must borrow the
security to make delivery to the buyer. The selling shareholder is then
obligated to replace the security borrowed by purchasing the security at the
market price at the time of replacement. The price at such time may be higher
or
lower than the price at which the security was sold by the selling shareholder.
If the underlying security goes down in price between the time the selling
shareholder sells our security and buys it back, the selling shareholder will
realize a gain on the transaction. Conversely, if the underlying security goes
up in price during the period, the selling shareholder will realize a loss
on
the transaction. The risk of such price increases is the principal risk of
engaging in short sales. The Selling Stockholders in this registration statement
could short the stock by borrowing and then selling our securities in the
market, and then converting the stock through either the Note or Warrants at
a
discount to replace the security borrowed. Because the Selling Stockholders
control a large portion of our common stock, the Selling Stockholders could
have
a large impact on the value of our stock if they were to engage in short selling
of our stock. Such short selling could impact the value of our stock in an
extreme and volatile manner to the detriment of other stockholders.
Shares
eligible for public sale in the future could decrease the price of our shares
of
common stock and reduce our future ability to raise
capital.
Sales
of
substantial amounts of shares of our common stock in the public market could
decrease the prevailing market price of our common stock. If this is the case,
investors in our shares of common stock may be forced to sell such shares at
prices below the price they paid for their shares, or in the case of the
Investors in the recent financing, prices below the price they converted their
notes and warrants into shares. In addition, a decreased market price may result
in potential future investors losing confidence in us and failing to provide
needed funding. This will have a negative effect on our ability to raise equity
capital in the future.
The
Selling Stockholders are selling shares of common stock covered by this
prospectus for their own account. We will not receive any of the proceeds from
the resale of these shares. We have agreed to bear the expenses relating to
the
registration of the shares for the Selling Stockholders.
Broker-dealer
practices in connection with transactions in “penny stocks” are regulated by
certain penny stock rules adopted by the SEC. Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered
on
certain national securities exchanges or quoted on the NASDAQ system). Penny
stock rules require a broker-dealer, prior to a transaction in a penny stock
not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the risks in the
penny
stock market. The broker-dealer also must provide the customer with current
bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer’s account. The
broker-dealer must also make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These requirements may have the effect
of
reducing the level of trading activity, if any, in the secondary market for
a
security that becomes subject to the penny stock rules.
We
agreed
to register for resale shares of common stock held by the Selling Stockholders
listed below. On December 27, 2006, we entered into a Securities Purchase
Agreement for a total subscription amount of $1,000,000 that included Stock
Purchase Warrants and Callable Secured Convertible Notes with AJW Capital
Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
Millennium Capital Partners II, LLC (collectively, the “Investors”). The initial
funding of $600,000, of which we received net proceeds of $525,000, was
completed on December 29, 2006 (the “Closing Date”). On the Closing Date, the
following parties issued callable secured convertible notes as follows: AJW
Capital Partners, LLC invested $52,200; AJW Offshore, Ltd. invested $358,800;
AJW Qualified Partners, LLC invested $181,800; and New Millennium Capital
Partners II, LLC invested $7,200.
The
Callable Secured Convertible Notes are convertible into shares of our common
stock at a variable conversion price based upon the applicable percentage of
the
average of the lowest three (3) trading prices for the Common Stock during
the
twenty (20) trading day period prior to conversion. The “Applicable Percentage”
means 50%; provided, however, that the Applicable Percentage shall be increased
to (i) 55% in the event that a Registration Statement is filed within thirty
days of the closing, and (ii) 60% in the event that the Registration Statement
is declared effective by the SEC. Under the terms of the callable secured
convertible note and the related warrants, the callable secured convertible
note
and the warrants are exercisable by any holder only to the extent that the
number of shares of common stock issuable pursuant to such securities, together
with the number of shares of common stock owned by such holder and its
affiliates (but not including shares of common stock underlying unconverted
shares of Callable Secured Convertible Notes or unexercised portions of the
warrants) would not exceed 4.99% of the then outstanding common stock as
determined in accordance with Section 13(d) of the Exchange Act.
11
The
Investors also received the following seven year warrants to purchase shares
of
our common stock, exercisable at $.15 per share: AJW Capital Partners, LLC
-
870,000 warrants; AJW Offshore, Ltd. - 5,980,000 warrants; AJW Qualified
Partners, LLC - 3,030,000 warrants; and New Millennium Capital Partners II,
LLC
- 650,000 warrants (the “Warrants”). The Warrants are not subject to
registration rights.
We
are
presently registering 28,094,877 shares, or 30% of our outstanding common stock,
as follows: (i) AJW Capital Partners, LLC - 2,444,254 shares of common stock
issuable in connection with the conversion of the callable secured convertible
note; (ii) AJW Offshore, Ltd. - 16,800,736 shares of common stock issuable
in
connection with the conversion of the callable secured convertible note;; (iii)
AJW Qualified Partners, LLC - 8,512,748 shares of common stock issuable in
connection with the conversion of the callable secured convertible note; and
(iv) New Millennium Capital Partners II, LLC - 337,139 shares of common stock
issuable in connection with the conversion of the Callable Secured Convertible
Notes.
|
Name
of Selling Stockholder (11)
|
Shares
of common stock owned prior
to
the
offering
(1)
|
Percent
of common shares owned prior to the offering
|
Shares
of common stock to be sold in the offering
|
Number
of shares owned
after
the offering
|
Percent
of shares owned
after
offering
|
|
AJW
Capital Partners, LLC (7)
|
0
|
0
|
2,444,254
(2)(3)
|
0
|
0%
|
|
AJW
Offshore, Ltd. (8)
|
0
|
0
|
16,800,736
(2)(4)
|
0
|
0%
|
|
AJW
Qualified Partners, LLC (9)
|
0
|
0
|
8,512,748
(2)(5)
|
0
|
0%
|
|
New
Millennium Capital Partners II, LLC (10)
|
0
|
0
|
337,139
(2)(6)
|
0
|
0%
|
*
Less
than 1%
|
|
(1)
|
Based
on 93,649,589 shares issued and outstanding as of February 1, 2007.
|
|
|
(2)
|
The
conversion has been calculated based on the maximum number of shares
the
investors can receive in accordance with the 8% Callable Secured
Convertible Notes, up to 30% of our issued and outstanding common
stock.
The number of shares set forth in the table for the Selling Stockholders
represents an estimate of the number of shares of common stock to
be
offered by the Selling Stockholders. The actual number of shares
of common
stock issuable upon conversion of the notes is indeterminate, is
subject
to adjustment and could be materially less or more than such estimated
numbers depending on factors which cannot be predicted by us at this
time
including, among other factors, the future market price of the common
stock. The actual number of shares of common stock offered in this
prospectus, and included in the registration statement of which this
prospectus is a part, includes such additional number of shares of
common
stock as may be issued or issuable upon conversion of the notes by
reason
of any stock split, stock dividend or similar transaction involving
the
common stock, in accordance with Rule 416 under the Securities Act
of 1933
(the “Securities Act”). Under the terms of the debentures, if the
debentures had actually been converted on December 27, 2006, the
conversion price would have been $0.036. Under the terms of the
debentures, the debentures are convertible by any holder only to
the
extent that the number of shares of common stock issuable pursuant
to such
securities, together with the number of shares of common stock owned
by
such holder and its affiliates (but not including shares of common
stock
underlying unconverted shares of the debentures) would not exceed
4.99% of
the then outstanding common stock as determined in accordance with
Section
13(d) of the Exchange Act. Accordingly, the number of shares of common
stock set forth in the table for the Selling Stockholders exceeds
the
number of shares of common stock that the selling stockholder could
beneficially own at any given time through their ownership of the
debentures.
|
12
|
|
(3)
|
Represents
2,444,254
shares of our common stock issuable in connection with the conversion
of
the callable secured convertible note.
|
|
|
(4)
|
Represents
16,800,736
shares
of our common stock issuable in connection with the conversion of
the
callable secured convertible note.
|
|
|
(5)
|
Represents
8,512,748
shares of our common stock issuable in connection with the conversion
of
the callable secured convertible note.
|
|
|
(6)
|
Represents
337,139
shares of our common stock issuable in connection with the conversion
of
the callable secured convertible note.
|
|
|
(7)
|
AJW
Partners, LLC is a private investment fund that is owned by its investors
and managed by SMS Group, LLC. SMS Group, LLC of which Mr. Corey S.
Ribotsky is the fund manager, has voting and investment control over
the
shares listed below owned by AJW Partners, LLC.
|
|
|
(8)
|
AJW
Offshore, Ltd. is a private investment fund that is owned by its
investors
and managed by First Street Manager II, LLC. First Street Manager
II, LLC,
of which Corey S. Ribotsky is the fund manager, has voting and investment
control over the shares listed below owned by AJW Offshore
Ltd.
|
|
|
(9)
|
AJW
Qualified Partners, LLC is a private investment fund that is owned
by its
investors and managed by AJW Manager, LLC of which Corey S. Ribotsky
and
Lloyd A. Groveman are the fund managers, have voting and investment
control over the shares listed below owned by AJW Qualified Partners,
LLC.
|
|
|
(10)
|
New
Millennium Capital Partners II, LLC is a private investment fund
that is
owned by its investors and managed by First Street Manager II, LLC.
First
Street Manager II LLC of which Corey S. Ribotsky is the fund manager,
has
voting and investment control over the shares listed below owned
by New
Millennium Capital Partners, LLC.
|
|
|
(11)
|
None
of the Selling Stockholders are broker-dealers or affiliates of
broker-dealers.
|
All
of
the stock owned by the Selling Stockholders will be registered by the
registration statement of which this prospectus is a part. The Selling
Stockholders may sell some or all of their shares immediately after they are
registered. The Selling Stockholders shares may be sold or distributed from
time
to time by the Selling Stockholders or by pledgees, donees or transferees of,
or
successors in interest to, the Selling Stockholders, directly to one or more
purchasers (including pledgees) or through brokers, dealers or underwriters
who
may act solely as agents or may acquire shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
distribution of the shares may be effected in one or more of the following
methods:
|
§
|
ordinary
brokers transactions, which may include long or short
sales,
|
|
§
|
transactions
involving cross or block trades on any securities or market where
our
common stock is trading,
|
|
§
|
purchases
by brokers, dealers or underwriters as principal and resale by such
purchasers for their own accounts pursuant to this prospectus, “at the
market” to or through market makers or into an existing market for the
common stock,
|
|
§
|
in
other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
|
|
§
|
any
combination of the foregoing, or by any other legally available
means.
|
In
addition, the Selling Stockholders may enter into hedging transactions with
broker-dealers who may engage in short sales, if short sales were permitted,
of
shares in the course of hedging the positions they assume with the Selling
Stockholders. The Selling Stockholders may also enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the shares, which shares may be resold thereafter pursuant
to
this prospectus.
Brokers,
dealers, underwriters or agents participating in the distribution of the shares
may receive compensation in the form of discounts, concessions or commissions
from the Selling Stockholders and/or the purchasers of shares for whom such
broker-dealers may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). The Selling Stockholders and any broker-dealers acting
in connection with the sale of the shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and
any
commissions received by them and any profit realized by them on the resale
of
shares as principals may be deemed underwriting compensation under the
Securities Act. Neither the Selling Stockholders nor we can presently estimate
the amount of such compensation. We know of no existing arrangements between
the
Selling Stockholders and any other stockholder, broker, dealer, underwriter
or
agent relating to the sale or distribution of the shares.
13
We
will
not receive any proceeds from the sale of the shares of the Selling Stockholders
pursuant to this prospectus. We have agreed to bear the expenses of the
registration of the shares, including legal and accounting fees, and such
expenses are estimated to be approximately $100,000.
The
Selling Stockholders named in this prospectus must comply with the requirements
of the Securities Act and the Exchange Act in the offer and sale of the common
stock. The Selling Stockholders and any broker-dealers who execute sales for
the
Selling Stockholders may be deemed to be an “underwriter” within the meaning of
the Securities Act in connection with such sales. In particular, during such
times as the Selling Stockholders may be deemed to be engaged in a distribution
of the common stock, and therefore be considered to be an underwriter, they
must
comply with applicable laws and may among other things:
|
1.
|
Not
engage in any stabilization activities in connection with our common
stock;
|
|
2.
|
Furnish
each broker or dealer through which common stock may be offered,
such
copies of this prospectus from time to time, as may be required by
such
broker or dealer; and
|
|
3.
|
Not
bid for or purchase any of our securities or attempt to induce any
person
to purchase any of our securities permitted under the Exchange
Act.
|
Regulation
M
We
have
informed the Selling Stockholders that Regulation M promulgated under the
Securities Exchange Act may be applicable to them with respect to any purchase
or sale of our common stock. In general, Rule 102 under Regulation M prohibits
any person connected with a distribution of our common stock from directly
or
indirectly bidding for, or purchasing for any account in which it has a
beneficial interest, any of the shares or any right to purchase the shares,
for
a period of one business day before and after completion of its participation
in
the distribution.
During
any distribution period, Regulation M prohibits the Selling Stockholders and
any
other persons engaged in the distribution from engaging in any stabilizing
bid
or purchasing our common stock except for the purpose of preventing or retarding
a decline in the open market price of the common stock. None of these persons
may effect any stabilizing transaction to facilitate any offering at the market.
As the Selling Stockholders will be offering and selling our common stock at
the
market, Regulation M will prohibit them from effecting any stabilizing
transaction in contravention of Regulation M with respect to the
shares.
We
also
have advised the Selling Stockholders that they should be aware that the
anti-manipulation provisions of Regulation M under the Exchange Act will apply
to purchases and sales of shares of common stock by the Selling Stockholders,
and that there are restrictions on market-making activities by persons engaged
in the distribution of the shares. Under Regulation M, the Selling Stockholders
or their agents may not bid for, purchase, or attempt to induce any person
to
bid for or purchase, shares of our common stock while such Selling Stockholders
are distributing shares covered by this prospectus. Regulation M may prohibit
the Selling Stockholders from covering short sales by purchasing shares while
the distribution is taking place, despite any contractual rights to do so under
the Agreement. We have advised the Selling Stockholders that they should consult
with their own legal counsel to ensure compliance with Regulation
M.
Neither
the Company nor any of its subsidiaries is a party to any pending or threatened
legal proceedings.
The
following table sets forth the names and ages as of management, and business
experience of the directors, executive officers and certain other significant
employees of our company. Our directors hold their offices for a term of one
year or until their successors are elected and qualified. Our officers serve
at
the discretion of the Board of Directors. Each officer devotes as much of his
working time to our business as is required.
14
|
Name
|
Age
|
Position
|
Date
of Appointment
|
|||
|
Robert
P. Atwell
|
52
|
President,
Chief Executive Officer, Chairman
|
March
19, 2003
|
|||
|
George
Jackson
|
45
|
Secretary,
Chief Financial Officer, Director
|
April
1, 2005
|
|||
|
Michael
Ellis
|
55
|
Chief
Operating Officer
|
March
2006
|
|||
|
Jane
Olmstead, CPA
|
51
|
Director
|
December
1, 2004
|
|||
|
Rounsevelle
Schaum
|
73
|
Director
|
October
2002
|
The
principal occupation for the past five years (and, in some instances, for prior
years) of each of our directors and officers are as follows:
Robert
P. Atwell
Mr.
Atwell has served as our Chairman, President and Chief Executive Officer since
March 19, 2003, and founded Camelot Films, a subsidiary of our Company, where
he
served as President since its inception in 1978. As Chief Executive Officer,
Mr.
Atwell is responsible for all aspects of the Company’s management and
operations, including oversight of the Company’s major divisions and
subsidiaries, including Camelot Film Group, Camelot Studio Group and Camelot
Production Services Group. Mr. Atwell reports directly to the Company’s Board of
Directors.
Mr.
Atwell has been involved in all phases of feature film production, including
research and development, acquisitions, packaging, financing, budgeting and
forecasting, writing, casting, pre-production, physical production,
post-production, domestic and foreign distribution, sales and marketing,
publicity, insurance, completion bonding, syndication, corporate, legal, union
negotiation, contract enforcement, product placement and promotion. Mr. Atwell
has been involved in the development, financing and production of more than
twenty feature film projects during his career. Working primarily behind the
scenes, he has developed and implemented domestic and international financing
facilities, designed and implemented domestic and international sales and
marketing campaigns and established completion bond programs for low budget
films. After establishing Camelot Films in New York and its subsequent expansion
into London and Los Angeles between 1978 and 1981, Mr. Atwell developed a
financing program in 1981 that resulted in the company’s first feature film “One
Down, Two To Go” being 100% financed directly from a major international bank
utilizing only the negative as collateral. Prior to founding Camelot Films,
Mr.
Atwell served as vice president of Sunset Productions, where he was responsible
for acquisition, finance, production and distribution for the Los Angeles-based
company. Mr. Atwell began his career in 1976 with On the Scene Productions,
where his responsibilities included the physical production of various
publishing, commercial, television and feature film projects.
Mr.
Atwell is also the President of The Atwell Group, Inc., which was formed in
September of 2003 to consolidate various entities owned by Mr. Atwell, including
The Corporate Solution, Inc., where Mr. Atwell served as President and Chief
Executive Officer since founding the company in 1978. The Atwell Group
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 has attended nine colleges and universities,
including Amarillo College, Pasadena City College, National University, Texas
Tech University, University of California at Los Angeles, University of
Maryland, University of Southern California, University of Texas, and University
of Texas El-Paso. Mr. Atwell also served in the United States Army and is a
graduate of Pasadena High School in Pasadena, California.
Michael
Ellis
Mr.
Ellis
has served as our Chief Operating Officer since March 2006, and had been a
consultant to us since November 2005. Mr. 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 an 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 “Profit and Loss” at $450 million and “Capital Expenditures” 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.
15
Before
joining us in 2005, Mr. Ellis served as a management consultant between 2002
and
2005, bringing “leading-edge” operational methodologies and technologies,
financial savvy plus worldwide contacts to entrepreneurial startup, turnaround
and high-growth companies. Mr. 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, Mr. 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 from 1994 to 2001. 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,
Mr. Ellis was the Corporate Director of Engineering for Knott’s Berry Farm
between 1989 and 1993 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, Mr. 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 Berry Farm, Mr. Ellis was a senior executive for divisions of
PepsiCo, including Frito-Lay and Taco Bell, from 1978 to 1988, where he built
and managed numerous engineering, technology and operations based organizations
while overseeing major capital expansion programs. Between 1974 and 1978 Mr.
Ellis worked as an engineer for Fiber Industries/Celanese.
Mr.
Ellis
is a 1973 graduate of North Carolina State University and holds a Bachelor
of
Science degree in Electrical Engineering.
George
Jackson
Mr.
Jackson has served as our Chief Financial Officer and Director since 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 and CFO of several fitness centers from
1985 to 1999, and 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 stockholders in the U.S. and Asia. He sold all his
fitness center assets to Bally Total Fitness in early 2000, netting a return
to
stockholders 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
Ms.
Olmstead has been a Director and member of the Audit Committee since December
1,
2004 and 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. From December 1, 2004 to March
31, 2005, Ms. Olmstead served as our Interim Chief Financial Officer. 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.
16
Ms.
Olmstead has been an independent auditing and financial consultant for the
past
ten years. 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
Mr.
Schaum has served as a Director since October 2002, and has served as the
Chairman of Newport Capital Partners, Inc., an investment banking firm
specializing in providing financial advisory services to emerging growth
companies for the past twelve years. 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
Symbol “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.
Mr.
Schaum 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.
Board
of Directors
All
directors hold office until the annual meeting of stockholders of the Company
following their election or until their successors are duly elected and
qualified. Officers are appointed by the Board of Directors and serve at its
discretion. We have had a standing audit committee since our
inception.
Audit
Committee
Our
current audit committee consists of two members, Jane Olmstead and George
Jackson. Ms. Olmstead is an independent director and our audit committee
financial expert. Ms. Olmstead was appointed to the Audit Committee in December
2004 and Mr. Jackson was appointed to the Audit Committee at the beginning
of
the second quarter of 2005.
Significant
Employees
None.
Family
Relationships
No
family
relationships exist among our directors or executive officers.
17
Involvement
in Certain Legal Proceedings
To
our
knowledge,
during
the past five years, none of our directors, executive officers, promoters,
control persons, or nominees has been:
|
•
|
the
subject of any bankruptcy petition filed by or against any business
of
which such person was a general partner or executive officer either
at the
time of the bankruptcy or within two years prior to that time;
|
|
•
|
convicted
in a criminal proceeding or is subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses);
|
|
•
|
subject
to any order, judgment, or decree, not subsequently reversed, suspended
or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting
his
involvement in any type of business, securities or banking activities;
or
|
|
•
|
found
by a court of competent jurisdiction (in a civil action), the Commission
or the Commodity Futures Trading Commission to have violated a federal
or
state securities or commodities law.
|
Code
of Ethics
We
have
adopted a Code of Business Conduct that applies to all our directors, officers
(including our principal executive officer and principal financial officer)
and
employees. Once we complete the redesign of our website, the Code of Business
Conduct can be found at 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.
The
following table sets forth certain information regarding the ownership of our
capital stock, as of February 1, 2007, for: (i) each director; (ii) each person
who is known to us to be the beneficial owner of more than 5%of our outstanding
common stock; (iii) each of our executive officers named in the Summary
Compensation Table; and (iv) all of our current executive officers and directors
of as a group. Except as otherwise indicated in the footnotes, all information
with respect to share ownership and voting and investment power has been
furnished to us by the persons listed. Except as otherwise indicated in the
footnotes, each person listed has sole voting power with respect to the shares
shown as beneficially owned.
|
Title
of Class
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class (2)
|
||||
|
Common
Stock
|
Robert
P. Atwell (1)
(3)
|
59,440,485
|
63.47%
|
||||
|
|
|||||||
|
Common
Stock
|
George
Jackson (1)
|
2,455,372
|
2.62%
|
||||
|
Common
Stock
|
Jane
Olmstead (1)
|
1,859,552
|
1.99%
|
||||
|
Common
Stock
|
Rounsevelle
Schaum (1)
|
--
|
--
|
||||
|
Common
Stock
|
Michael
Ellis (1)
|
--
|
---
|
||||
|
Common
Stock
|
All
officers and directors as a group (5 in number)
|
63,755,409
|
68.08%
|
||||
|
Class
A Convertible Preferred Stock
|
Robert
P. Atwell (1)
|
5,100,000
|
51%
|
||||
|
Class
A Convertible Preferred Stock
|
All
officers and directors as a group (1 in number)
|
5,100,000
|
51%
|
||||
|
Class
B Convertible Preferred Stock
|
Robert
P. Atwell (1)
|
5,100,000
|
51%
|
||||
|
Class
B Convertible Preferred Stock
|
All
officers and directors as a group (1 in number)
|
5,100,000
|
51%
|
(1)
The
person listed is an officer and/or director of the Company and the address
for
each beneficial owner is 2020 Main Street, Suite 990, Irvine, CA
92614.
(2)
Based on
93,649,589 common shares issued and outstanding as of February 1,
2007.
(3)
Includes
shares issued to The Atwell Group, Inc., Eagle Consulting Group, Inc., and
The
Corporate Solution, for which Mr. Atwell is the President, and shares issued
to
Mr. Atwell’s wife.
18
We
are
authorized to issue 150,000,000 shares of common stock, par value $0.001 per
share, and 50,000,000 shares of “blank check” preferred stock, par value $0.001
per share, of which 10,000,000 shares have been designated Class A Convertible
Preferred Stock and 10,000,000 shares have been designated Class B Convertible
Preferred Stock. As of February 1, 2007, there were issued and outstanding
93,649,589 shares of common stock, 5,100,000 shares of Class A Convertible
Preferred Stock and 5,100,000 shares of Class B Convertible Preferred Stock.
Only common stock is offered in this prospectus.
Common
Stock
Holders
of our common stock are entitled to one vote for each share held on all matters
submitted to a vote of our stockholders. Holders of our common stock are
entitled to receive dividends ratably, if any, as may be declared by the board
of directors out of legally available funds, subject to any preferential
dividend rights of any outstanding preferred stock (there are none currently).
Upon our liquidation, dissolution or winding up, the holders of our common
stock
are entitled to receive ratably our net assets available after the payment
of
all debts and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are fully paid and non-assessable. The rights, preferences and privileges
of holders of our common stock are subject to, and may be adversely affected
by,
the rights of holders of shares of any series of preferred stock which we may
designate and issue in the future without further shareholder
approval.
Preferred
Stock
We
have
authorized 50,000,000 shares of “blank check” preferred stock, par value $0.001
per share, of which 10,000,000 shares have been designated Class A Convertible
Preferred Stock and 10,000,000 shares have been designated Class B Convertible
Preferred Stock. Our Board of Directors has the authority, without further
action by the stockholders, to issue from time to time the blank check preferred
stock in one or more series for such consideration and with such relative
rights, privileges, preferences and restrictions that the Board may determine.
The preferences, powers, rights and restrictions of different series of
preferred stock may differ with respect to dividend rates, amounts payable
on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and purchase funds and other matters. The issuance of preferred
stock could adversely affect the voting power or other rights of the holders
of
common stock.
Class
A Convertible Preferred Stock
The
Class
A is reserved for employees, consultants and other professionals retained by
the
Company, and ranks junior to the Class B 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, and is convertible into 2 common shares
upon demand.
Class
B Convertible Preferred Stock
The
Class
B is reserved for the Board of Directors, and ranks senior to the Class A 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, and
is
convertible into 10 common shares, once the thirty day moving average bid price
of the common stock is at or exceeds $0.15 per share. In the event of
liquidation, holders of Class B shall rank senior to Class A holders and are
entitled to $1.00 per share held of Class B.
19
Convertible
Notes
On
December 27, 2006, we entered into a Securities Purchase Agreement for a total
subscription amount of $1,000,000 that included Stock Purchase Warrants and
Callable Secured Convertible Notes with AJW Capital Partners, LLC, AJW Offshore,
Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC
(collectively, the “Investors”). The initial funding of $600,000, of which we
received net proceeds of $525,000, was completed on December 29, 2006 (the
“Closing Date”). On the Closing Date, the following parties issued callable
secured convertible notes as follows: AJW Capital Partners, LLC invested
$52,200; AJW Offshore, Ltd. invested $358,800; AJW Qualified Partners, LLC
invested $181,800; and New Millennium Capital Partners II, LLC invested $7,200.
The
Callable Secured Convertible Notes are convertible into shares of our common
stock at a variable conversion price based upon the applicable percentage of
the
average of the lowest three (3) trading prices for the Common Stock during
the
twenty (20) trading day period prior to conversion. The “Applicable Percentage”
means 50%; provided, however, that the Applicable Percentage shall be increased
to (i) 55% in the event that a Registration Statement is filed within thirty
days of the closing, and (ii) 60% in the event that the Registration Statement
is declared effective by the SEC. Under the terms of the callable secured
convertible note and the related warrants, the callable secured convertible
note
and the warrants are exercisable by any holder only to the extent that the
number of shares of common stock issuable pursuant to such securities, together
with the number of shares of common stock owned by such holder and its
affiliates (but not including shares of common stock underlying unconverted
shares of Callable Secured Convertible Notes or unexercised portions of the
warrants) would not exceed 4.99% of the then outstanding common stock as
determined in accordance with Section 13(d) of the Exchange Act.
Warrants
Based
on
our recent financing, we issued the following seven year warrants to purchase
shares of our common stock, exercisable at $.15 per share: AJW Capital Partners,
LLC - 870,000 warrants; AJW Offshore, Ltd. - 5,980,000 warrants; AJW Qualified
Partners, LLC - 3,030,000 warrants; and New Millennium Capital Partners II,
LLC
- 650,000 warrants. Each Warrant entitles the holder to one share of our common
stock and is exercisable for seven years from December 27, 2007. The Warrants
are not subject to registration rights.
In
connection with the recent financing and pursuant to a Structuring Agreement,
we
also issued to Lionheart Associates, LLC d/b/a Fairhills Capital (“Lionheart”)
warrants representing the right to purchase up to 582,609 shares of our common
stock under the same terms as the Warrants issued to the Investors.
No
expert
or counsel named in this prospectus as having prepared or certified any part
of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had,
or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee. Anslow & Jaclin, LLP, retained as our
independent legal counsel in connection with our recent financing transaction,
has provided an opinion on the validity of our common stock.
The
financial statements included in this prospectus and the registration statement
have been audited by Epstein, Weber & Conover, PLC, to the extent and for
the periods set forth in their report appearing elsewhere herein and in the
registration statement, and are included in reliance upon such report given
upon
the authority of said firm as experts in auditing and accounting.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
Certificate of Incorporation provides that, to the fullest extent permitted
by
law, none of our directors or officers shall be personally liable to us or
our
stockholders for damages for breach of any duty owed to our stockholders or
us.
In
addition, we have the power, by our by-laws or in any resolution of our
stockholders or directors, to undertake to indemnify the officers and directors
of ours against any contingency or peril as may be determined to be in our
best
interest and in conjunction therewith, to procure, at our expense, policies
of
insurance. At this time, no statute or provision of the by-laws, any contract
or
other arrangement provides for insurance of any of our controlling persons,
directors or officers that would affect his or her liability in that
capacity.
20
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the SEC such indemnification
is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by our directors, officers
or controlling persons in the successful defense of any action, suit or
proceedings, is asserted by such director, officer, or controlling person in
connection with any securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit
to a
court of appropriate jurisdiction the question whether such indemnification
by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issues.
Business
Development
Background
of the Company
We
are a
vertically integrated media enterprise that creatively conceptualizes, finances,
produces, and distributes original entertainment content across various media,
including motion pictures, television, interactive gaming, radio and a multitude
of digital media channels. We were originally incorporated in Delaware on
October 12, 1999 as Dstage.com, Inc. with the intention to provide support,
organization and restructuring services to development stage companies. From
then, until 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, we underwent a restructuring which resulted in a new management
team and the adoption of a new business model to pursue the development,
production, marketing and distribution of motion pictures. On April 15, 2004,
we
changed our name to Camelot Entertainment Group, Inc. (“CMEG”), and incorporated
its refined business model of developing, producing, marketing and distributing
motion pictures, television and digital media.
Since
inception and continuing into 2006, we had been in the development stage
and our
activities consisted of raising capital, recruiting a management team and
entering into ventures and alliances with affiliates. During 2006, we stepped
up
operations and began the process of identifying and selecting various projects
to be produced by the Company. As a result, we have entered into various
verbal
and written option agreements on projects to be developed and produced through
our Camelot Film and Media Group division. Our urban film division, which
is
part of our film and media group, is completing a feature length documentary
which we expect will be available for distribution during the second quarter
of
2007. Our studio group division has begun the process of potentially acquiring
the rights to build our first studio project in Orange County, California.
We
expect to have a final decision on whether or not we will be able to acquire
those rights at some point during the second quarter of 2007. Further, we
are in
the process of retaining consultants and other experts to assist us in
implementing our business model. To date, the Company has substantially relied
on issuing stock to officers, directors, professional service providers and
other parties in exchange for services and technology. As our operations
begin
to grow, it becomes even more critical for us to be able to attract and secure
the necessary financing to sustain these activities. If we are unable to
do so,
our ability to continue as a going concern would be adversely
affected.
During
2004 and 2005 we acquired three companies, Camelot Films, Inc., a Nevada
corporation, Camelot Films, Inc., a California corporation, and Camelot Films,
Inc., a Delaware corporation, all of which are our wholly-owned subsidiaries.
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.
In
the
second quarter of 2005, we incorporated Ferris Wheel Films, Inc., a Nevada
corporation and wholly owned subsidiary of us, to establish a family film
division dedicated to developing, producing, marketing and distributing
specifically family films domestically and internationally.
Fiscal
year 2005 saw us take the initial steps in 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. In May 2006
we
entered into a binding letter of intent to acquire Elemental Pictures, Inc.,
a
production company with limited operations in Capetown, South Africa, Majorca,
Spain, Berlin, Germany, and most recently in Seoul, South Korea. Elemental
has
three motion pictures in pre-production, and is actively developing a horror
trilogy which they expect will be ready for pre-production during the summer
of
2007. Elemental has generated limited revenues to date, mostly through
production service contracts in South Africa and Majorca Spain. Until we
finalize a formal agreement to acquire Elemental and the their pictures are
produced and distributed, we do not expect any financial impact on our Company.
We anticipate entering into a formalized agreement with Elemental during
the
first or second quarter of 2007.
We
are
comprised of the following three top-level divisions that can act in concert
on
its projects or autonomously as circumstances warrant.
| § |
Camelot
Film & Media Group
|
| § |
Camelot
Studio Group
|
| § |
Camelot
Production Services Group
|
21
Camelot
Film & Media Group
is
responsible for all content production and distribution. It is organized into
five operational units:
| § |
Camelot
Films
|
| § |
Camelot
Features
|
| § |
Camelot
Distribution
|
| § |
Camelot
Television
|
| § |
Camelot
Digital Media
|
Camelot
Studio Group
is
solely focused on the development, financing, design, planning, building,
completion and operation of the major West Coast production studio, which
Camelot is currently proposing to locate in the Advanced Technology &
Education Park (“ATEP”) complex, which would include the following
entities:
| § |
Studio
Development
|
| § |
Business
Development
|
| § |
Master
Developer
|
| § |
Counsel
|
| § |
Academic
Program Development
|
Camelot
Production Services Group
is
comprised of five divisions:
| § |
Technology
|
| § |
Radio
and Music
|
| § |
Consulting
|
| § |
Financial
Services
|
| § |
Event
Management
|
Our
New Camelot Films Business Model
The
new
management team developed a new Camelot Films business model for implementation
during 2004 and 2005 and continued to enhance its model during 2006. 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 compensation 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:
22
|
·
|
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.
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.
General.
According to the Motion Picture Association’s U.S. Theatrical
Market: 2005 Statistics,
overall
domestic box office revenue was approximately $9.0 billion in 2005.
Although it fluctuates from year to year (including a moderate decline from
2004
to 2005), the domestic motion picture industry has grown in revenues and
attendance over the past 10 years, with box office receipts up 63.7% and
admissions up 11.1% from 1995 to 2005. However, revenues and attendance numbers
have remained fairly flat from 2002 to 2005.
Competition.
Major
studios have historically dominated the motion picture industry. The term major
studios is generally regarded in the entertainment industry to mean: Universal
Pictures (“Universal”); Warner Bros.; Twentieth Century Fox; Sony Pictures
Entertainment (“Sony”); Paramount Pictures; and The Walt Disney Company
(“Disney”). Competitors less diversified than the major studios include
Dreamworks SKG (now owned by Paramount), The
Weinstein Company, Jerry Bruckheimer Films, Miramax Films, Lions Gate
Entertainment Corp., New Line Cinema, Newmarket
Films, Motion Picture Distribution LP and IFC Entertainment.
Despite
the limited resources generally available to independent studios, independent
films have gained wider market approval and increased share of overall box
office receipts in recent years. Past successful independent films such as
My
Big Fat Greek Wedding, Bend It Like Beckham, Saw II and
Crash
highlight moviegoers’ willingness to support high quality motion pictures
despite limited pre-marketing and production budgets.
Product
Life Cycle.
Successful motion pictures may continue to play in theaters for more than three
months following their initial release. Concurrent with their release in the
United States, motion pictures are generally released in Canada and may also
be
released in one or more other foreign markets. After the initial theatrical
release, distributors seek to maximize revenues by releasing movies in
sequential release date windows, which are generally exclusive against other
non-theatrical distribution channels:
Typical
Film Release Windows*
|
|
|
|
|
|
|
|
|
|
|
Months
After
|
|
Approximate
|
||||
|
Release
Period
|
Initial
Release
|
|
Release
Period
|
||||
|
|
|
|
|
||||
|
Theatrical
|
|
—
|
|
|
|
0-3 months
|
|
|
Home
video/ DVD (1st cycle)
|
|
3-6 months
|
|
|
|
1-3 months
|
|
|
Pay-per-transaction
(pay per-view and video-on-demand)
|
|
4-8 months
|
|
|
|
3-4 months
|
|
|
Pay
television
|
|
9-12 months
|
**
|
|
|
18 months
|
|
|
Network
or basic cable
|
|
21-28 months
|
|
|
|
18-60 months
|
|
|
Syndication
|
|
48-70 months
|
|
|
|
12-36 months
|
|
|
Licensing
and merchandising
|
|
Concurrent
|
|
|
|
Ongoing
|
|
|
All
international releases
|
|
Concurrent
|
|
|
|
Ongoing
|
|
|
|
*
|
These
patterns may not be applicable to every film, and may change with
the
emergence of new technologies.
|
|
**
|
First
pay television window.
|
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.
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.
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.
24
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.
Business
of Issuer
Our
Products and Services and their Markets
We
are
engaged 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%. 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.
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.
25
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.
26
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:
|
·
|
advance
any sums in excess of the budget required to complete and deliver
the
film;
|
|
·
|
complete
and
deliver the film itself; or
|
|
·
|
shut-down
the
production and repay the financier all monies spent thus far to produce
the film.
|
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.
Distribution
Methods for Our Products and 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.
27
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.
28
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.
Competition
General
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.
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.
29
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.
Intellectual
Property
We
regard
intellectual property as valuable assets and believe that trademarks are an
important factor in marketing our products. We have trademarked the name
“CAMELOT FILMS” as a service mark (Serial No. 78558249; Registration No.
19800501). We also plan to copyright and own all motion pictures that we make,
which should result in the Company building a library of its own products over
time.
Need
for any Government Approval of Principal Products or Services
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 Our 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.
30
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.
Employees
As
of
February 1, 2007, we have approximately 8 total employees. Two of our staff
members, both of whom are officers of our company, spend 50% to 80% of their
time on matters relating to our company. The other 6 staff members spend
anywhere from 10% to 50% of their time on matters relating to our business.
The
Atwell Group, Inc. is the full time employer of these additional staff members.
The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of our results of operations
and
financial condition. The discussion should be read in conjunction with our
financial statements and notes thereto appearing in this prospectus.
Safe
Harbor Regarding Forward-Looking Statements
The
following discussion contains forward-looking statements within the meaning
of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 relating to future events or our future performance. Actual
results may materially differ from those projected in the forward-looking
statements as a result of certain risks and uncertainties set forth in this
prospectus. Although management believes that the assumptions made and
expectations reflected in the forward-looking statements are reasonable, there
is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual results will not be different from expectations expressed
in this report.
Plan
of Operations
Overview
We
were
incorporated in Delaware on October 12, 1999. On April 15, 2004 we changed
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”), which provides for the development,
production, marketing and distribution of motion pictures. The CSM attempts
to
combine the efficiencies realized by studios of the early 1900’s, with the
artistic focus and diversity of today’s independent productions. Using this
approach, we believe 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.
We
have
no history of operations as a film production and distribution company. Our
historical operations, as Dstage.com, Inc., consisted primarily of attempting
to
provide support, organization and restructuring services to other development
stage companies. 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. However, it is still important that you review the audited
financial statements, the unaudited interim financial statements and the related
notes in addition to thoroughly reading our current plan of
operations.
Our
Financial Statements have been prepared on a going concern basis, which
contemplates the realization of assets and liabilities and commitments in the
normal course of business. In the near term, we expect operating costs to
continue to exceed funds generated from operations. As a result, we expect
to
continue to incur operating losses and we may not have sufficient funds to
grow
our business in the future. We can give no assurance that we will achieve
profitability or be capable of sustaining profitable operations. As a result,
operations in the near future are expected to continue to use working capital.
Our
current cash requirements 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. For the first three quarters of 2006, Eagle has advanced the
Company a total, including interest, of $401,982, which covered all of our
operating expenses for 2006.
To
successfully grow the individual segments of our business, we must decrease
our
cash burn rate, improve our cash position and the revenue base of each segment,
and succeed in our ability to raise additional capital through a combination
of
primarily public or private equity offering or strategic alliances.
As
more
fully discussed below, we recently secured additional financing from 4 investors
for the purpose of funding our initial slate of pictures. It is our goal to
use
this funding to have between 10 and 12 motion pictures in various stages of
development or production within the next 12 months. In the event we are unable
to receive the entire funding, we may 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.
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.
Our
President and Chief Executive Officer, Robert P. Atwell, has worked extensively
in financing, producing and directing original motion pictures and television
programs. This experience led our management to a number of beliefs upon which
our planned business model 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.
|
32
|
·
|
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.
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|
33
|
·
|
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.
34
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
a
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 incentive 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 stockholders.
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 my 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.
35
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.
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:
|
·
|
Licensing
of videocassettes and digital video discs (DVDs)
|
|
|
·
|
Pay-per-view
cable and satellite licensing
|
|
|
·
|
Pay
television and Internet licensing
|
|
|
·
|
Broadcast
television, cable and satellite licensing
|
|
|
·
|
Hotels,
airlines and other non-theatrical exhibitions
|
|
|
·
|
Theatrical
exhibition
|
|
|
·
|
Syndicated
television licensing
|
|
|
·
|
Internet
Protocol TV (IPTV)
|
|
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.
36
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.
Recent
Financing
On
December 27, 2006, we entered into a Securities Purchase Agreement with AJW
Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and
New
Millennium Capital Partners II, LLC. Under the terms of the Securities Purchase
Agreement, the Investors purchased an aggregate of (i) $1,000,000 in Callable
Secured Convertible Notes (the “Notes”) and (ii) warrants to purchase 10,000,000
shares of our common stock (the “Warrants”).
Pursuant
to the Securities Purchase Agreement, the Investors will purchase the Notes
and
Warrants in two tranches as set forth below:
| 1. |
At
closing on December 29, 2006 (“Closing”), the Investors purchased Notes
aggregating $600,000 and Warrants to purchase 10,000,000 shares of
CMEG
common stock;
|
| 2. |
Upon
effectiveness of the Registration Statement, the Investors will purchase
Notes aggregating $400,000.
|
The
Notes
carry an interest rate of 8% per annum and a maturity date of December 27,
2009.
The notes are convertible into CMEG common shares at the applicable percentage
of the average of the lowest three (3) trading prices for CMEG shares of common
stock during the twenty (20) trading day period prior to conversion. The
“Applicable Percentage” means 50%; provided, however, that the Applicable
Percentage shall be increased to (i) 55% in the event that a Registration
Statement is filed within thirty (30) days of the closing, and (ii) 60% in
the
event that the Registration Statement is declared effective by the
SEC.
At
our
option, we may prepay the Notes in the event that no event of default exists,
there are a sufficient number of shares available for conversion of the Notes
and the market price is at or below $0.07 per share. In addition, in the event
that the average daily price of the common stock, as reported by the reporting
service, for each day of the month ending on any determination date is below
$0.07, we may prepay a portion of the outstanding principal amount of the Notes
equal to 104% of the principal amount hereof divided by thirty-six (36) plus
one
month's interest. Exercise of this option will stay all conversions for the
following month. The full principal amount of the Notes is due upon default
under the terms of Notes. In addition, we have granted the Investors a security
interest in substantially all of our assets and intellectual property as well
as
registration rights. In addition, the Company has granted the investors a
security interest in substantially all of its assets and intellectual property,
excluding Camelot Studio Group and Camelot Film Group, as well as demand
registration rights.
We
simultaneously issued to the Investors seven year warrants to purchase
10,000,000 shares of our common stock at an exercise price of $0.15.
In
connection with the recent financing and pursuant to a Structuring Agreement,
we
also issued to Lionheart warrants representing the right to purchase up to
582,609 shares of our common stock under the same terms as the Warrants issued
to the Investors. We also paid to Lionheart a fee of $120,000.
The
Investors have contractually agreed to restrict their ability to convert the
Notes and exercise the Warrants and receive shares of our common stock such
that
the number of shares of our common stock held by them and their affiliates
after
such conversion or exercise does not exceed 4.99% of the then issued and
outstanding shares of CMEG’s common stock.
In
the
event of full conversion of the aggregate principal amount of the Notes of
$1,000,000, we would have to register a total of 23,809,524 shares of common
stock. This amount is calculated as follows:
The
aggregate principal amount of the Notes is $1,000,000. The estimated conversion
price of the Notes is $0.042 based on the following: $0.06 was the average
of
the lowest three (3) trading prices for our shares of common stock during the
twenty (20) trading days prior to the closing date of the transaction, less
a
40% discount. Thus, at a discounted price-per-share of $0.042, 23,809,524
shares
of the Company's common stock would be issuable upon conversion of $1,000,000
into common shares of the Company ("Conversion Shares") and would be
registered.
37
The
following table shows the effect on the number of shares issuable upon full
conversion, in the event the common stock price declines by 25%, 50% and 75%
from its the most recent trading price.
|
Price
Decreases By
|
||||
|
12/27/2006
|
25%
|
50%
|
75%
|
|
|
Average
Common Stock Price (as defined above)
|
$0.060
|
$0.045
|
$0.030
|
$0.015
|
|
Conversion
Price
|
$0.036
|
$0.027
|
$0.018
|
$0.009
|
|
100%
Conversion Shares
|
23,809,524
|
37,037,037
|
55,555,556
|
111,111,111
|
There
is
no limit to the number of shares that we may be required to issue upon
conversion of the Notes as it is dependent upon our share price, which varies
from day to day. This could cause significant downward pressure on the price
of
our common stock.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements, financings, or other relationships
with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).
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 President, Chief Executive
Officer and Chairman. The space is leased on an annual basis for $78,936 per
year based on our 2006 lease payments. The current lease expires on December
31,
2008.
Transactions
with Related Persons
Except
as
indicated below, and for the periods indicated, there were no material
transactions, or series of similar transactions, since the beginning of the
Company’s last fiscal year, January 1, 2006, or any currently proposed
transactions, or series of similar transactions, to which we were or are a
party, in which the amount involved exceeds $0.11, and in which any director
or
executive officer, or any security holder who is known by us to own of record
or
beneficially more than 5% of any class of our common stock, or any member of
the
immediate family of any of the foregoing persons, has an interest.
We
entered into an agreement with Eagle on March 28, 2003, to provide operational
funding for the Company, which expires on March 28, 2008. Mr. Atwell is the
Chairman of Eagle. 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 addition, Eagle received an option to receive 2,000,000
cashless options to purchase common shares at $0.03 per share. For each $1.00
increase in the price of the Company’s stock, Eagle shall be entitled to receive
an additional two million options throughout the term of the agreement. In
addition, the Company shall have the first right of refusal to purchase the
options from Eagle for the current market value once Eagle 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, Eagle
shall be entitled to exercise the sale of shares or options immediately
thereafter. As of December 31, 2006, Eagle has not exercised its right to
receive the options and therefore no options have been granted.
For
the
first three quarters of 2006, Eagle has advanced to the Company a total,
including interest, of $401,982, which covered all of our operating expenses
for
2006, including general and administrative costs, costs for screenplays and
prepaid exhibitor’s space. We intend to issue Eagle up to approximately
5,852,538 shares of common stock for repayment of expenses advanced on behalf
of
the Company during 2006. The stock to be issued will be valued at the weighted
average price per share, which is $0.093 per share. Eagle is also scheduled
to
receive approximately 2,250,000 additional shares of common stock for continuing
to finance our operations under the agreement described above.
38
We
lease
office space from The Atwell Group, Inc., a privately-held company owned by
Mr.
Atwell, our President, Chief Executive Officer and Chairman. The space is leased
on an annual basis for $78,936 per year based on the 2006 lease payments. The
current lease expires on December 31, 2008.
Transactions
with Promoters
During
the past five fiscal years, we have not had any material transactions with
a
promoter at any time.
Market
Information
Our
common stock is currently quoted on the OTCBB under the symbol “CMEG”. There is
a limited trading market for our common stock. The following table sets forth
the range of high and low bid quotations for each quarter within the last two
fiscal years, and the subsequent interim period. These quotations as reported
by
the Pink Sheets reflect inter-dealer prices without retail mark-up, mark-down,
or commissions and may not necessarily represent actual
transactions.
|
Closing
Bid
|
||
|
YEAR
2005
|
High
Bid
|
Low
Bid
|
|
1st
Quarter Ended March 31
|
$0.020
|
$0.015
|
|
2nd
Quarter Ended June 30
|
$0.060
|
$0.015
|
|
3rd
Quarter Ended September 30
|
$0.040
|
$0.030
|
|
4th
Quarter Ended December 31
|
$0.050
|
$0.030
|
|
YEAR
2006
|
High
Bid
|
Low
Bid
|
|
1st
Quarter Ended March 31
|
$0.130
|
$0.040
|
|
2nd
Quarter Ended June 30
|
$0.140
|
$0.084
|
|
3rd
Quarter Ended September 30
|
$0.160
|
$0.075
|
|
4th
Quarter Ended December 31
|
$0.129
|
$0.060
|
|
YEAR
2007
|
High
Bid
|
Low
Bid
|
|
Period
ended February 1, 2007
|
$0.140
|
$0.051
|
Holders
As
of
February 1, 2007 in accordance with our transfer agent records, we had 115
stockholders of record, holding 93,649,589 common shares.
Dividends
Historically,
we have not paid dividends to the holders of our common stock and we do not
expect to pay any such dividends in the foreseeable future as we expect to
retain our future earnings for use in the operation and expansion of our
business. Should we ever produce sufficient earnings as a result of gains in
securities of Concept Affiliates we develop, our Board of Directors, after
taking into account our earnings, capital requirements, financial condition
and
other factors, has the discretion to distribute such securities to our
stockholders as property dividends.
Compensation
of Executive Officers
The
following summary compensation table sets forth all compensation awarded to,
earned by, or paid to the named executive officers paid by us during the fiscal
years ended December 31, 2006 and 2005 in all capacities for the accounts of
our
executives, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO):
|
Name
and Principal Position
|
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
|
Non-Qualified
Deferred Compensation Earnings
($)
|
|
|
All
Other Compensation
($)
|
|
Totals
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
P. Atwell,
(1)
President,
Chief
|
|
|
2006
|
|
$
|
250,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
$
|
250,000
|
|
Executive
Officer
|
|
|
2005
|
|
$
|
250,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
$
|
250,000
|
|
George
Jackson, (2)
Secretary,
Chief
|
|
|
2006
|
|
$
|
180,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
$
|
180,000
|
|
Financial
Officer
|
|
|
2005
|
|
$
|
60,705
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
$
|
60,705
|
|
Michael
Ellis, (3)
Chief
Operating
|
|
|
2006
|
|
$
|
200,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
$
|
200,000
|
|
Officer
|
|
|
2005
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
$
|
0
|
|
Jane
Olmstead, (4)
Chief
Financial
|
|
|
2006
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
$
|
0
|
|
Officer
(until 3/31/05)
|
|
|
2005
|
|
$
|
31,510
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
$
|
31,510
|
|
(1)
|
Mr.
Atwell’s salary for 2006 is accrued and unpaid. We intend to convert his
salary into stock at current market prices. Mr. Atwell’s salary for 2005
was converted into stock at current market prices on the conversion
date.
The total number of shares issued to Mr. Atwell for accrued salary
in 2005
was 4,011,706, at a conversion price of $0.07 per share, based on
the
average closing bid price of the stock calculated on a monthly basis
during the fiscal year as reported by the OTCBB.
|
|
(2)
|
Mr.
Jackson’s salary for 2006 is accrued and unpaid. We intend to convert his
salary into stock at current market prices. Mr. Jackson’s salary for 2005
was converted into stock at current market prices on the conversion
date.
The total number of shares issued to Mr. Jackson for accrued salary
in
2005 was 1,455,372, at a conversion price of $0.07 per share, based
on the
average closing bid price of the stock calculated on a monthly basis
during the fiscal year as reported by the OTCBB.
|
|
(3)
|
Mr.
Ellis’s salary for 2005 is accrued and unpaid. We intend to convert his
salary into stock at current market prices. Mr. Ellis’s salary for 2005
was converted into stock at current market prices on the conversion
date.
The total number of shares issued to Mr. Ellis for accrued salary
in 2005
was 233,547, at a conversion price of $0.043 per share, based on
the
average closing bid price of the stock calculated on a monthly basis
during the fourth quarter of 2005 as reported by the
OTCBB.
|
|
(4)
|
Ms.
Olmstead’s salary for 2005 was converted into stock at current market
prices on the conversion date. The total number of shares issued
to Ms.
Olmstead for accrued salary in 2005 was 347,019, at a conversion
price of
$0.09 per share, based on the average closing bid price of the stock
calculated on a monthly basis during the first and second quarter
of 2005
as reported by the OTCBB.
|
|
Note:
All share average conversion prices were rounded
upward.
|
40
Outstanding
Equity Awards at Fiscal Year-End Table.
There
were no individual grants of stock options to purchase our common stock made
to
the named executive officers in the Summary Compensation Table during the fiscal
year ended December 31, 2006, and the subsequent period up to the date of the
filing of this prospectus.
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.
Employment
Agreements
As
of the
date of this prospectus, we have not entered into employment contracts with
any
of our executive officers, but intend to do so some time during 2007. 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.
Compensation
of Directors
For
the
fiscal year ended December 31, 2006, and the subsequent period up to the date
of
the filing of this prospectus, the Company did not compensate directors for
their services.
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On
January 29, 2007, we received a letter from Epstein, Weber & Conover, PLC
(“EWC”), our independent registered public accounting firm, advising us that as
a result of its combination with Moss Adams LLP effective January 1, 2007,
Moss
Adams had decided not to assume the role as our auditor, and therefore EWC
(now
Moss Adams) would cease to act as our independent registered public accounting
firm effective January 12, 2007. We appointed Malone & Bailey, PC as our new
auditor going forward.
The
reports of EWC with respect to the Company's financial statements for the fiscal
years ended December 31, 2005 and 2004 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles except for an explanatory paragraph
relative to the Company’s ability to continue as a going concern. Since
appointment as our independent auditors through the date of this report, there
were no disagreements between us and EWC on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of EWC, would have
caused EWC to make reference to the subject matter of the disagreements in
connection with its report on the Company's financial statements for such years.
41
The
decision to appoint Malone & Bailey, PC as the Company’s new auditor was
approved by the Audit Committee of the Board of Directors on January 29,
2007.
No
consultations occurred between the Company and Malone & Bailey during the
years ended December 31, 2005 and 2004 and through January 29, 2007 regarding
either (i) the application of accounting principles to a specific completed
or
contemplated transaction, the type of audit opinion that might be rendered
on
the Company’s financial statements, or other information provided that was an
important factor considered by the Company in reaching a decision as to an
accounting, auditing, or financial reporting issue, or (ii) any matter that
was
the subject of disagreement or a reportable event requiring disclosure under
Item 304(a)(1)(iv) of Regulation S-B.
We
have
filed a registration statement on Form SB-2 under the Securities Act with the
SEC with respect to the shares of our common stock offered through this
prospectus. This prospectus is filed as apart of that registration statement
and
does not contain all of the information contained in the registration statement
and exhibits. We refer you to our registration statement and each exhibit
attached to it for a more complete description of matters involving us. You
may
inspect the registration statement and exhibits and schedules filed with the
Securities and Exchange Commission at the Commission’s principal office in
Washington, D.C. Copies of all or any part of the registration statement may
be
obtained from the Public Reference Section of the Securities and Exchange
Commission, 100 F Street NE, Washington, D.C. 20549. Please call the Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. The SEC also maintains a web site at http://www.sec.gov that
contains reports, proxy statements and information regarding registrants that
file electronically with the Commission. In addition, we will file electronic
versions of our annual and quarterly reports on the Commission’s Electronic Data
Gathering Analysis and Retrieval, or EDGAR System. Our registration statement
and the referenced exhibits can also be found on this site as well as our
quarterly and annual reports. We will not send the annual report to our
stockholders unless requested by the individual stockholders.
42
CAMELOT
ENTERTAINMENT GROUP, INC.
(a
development stage company)
Index
to Financial Statements
|
Page
|
|
|
December
31, 2005 and 2004 (Audited)
|
|
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
December
31, 2005 and December 31, 2004 and Inception to Date
|
|
|
F-5
|
|
|
December
31, 2005 and December 31, 2004 and Inception to Date
|
|
|
F-6
|
|
|
December
31, 2005 and December 31, 2004 and Inception to Date
|
|
|
December
31, 2005 and December 31, 2004 and Inception to Date
|
F-7
|
|
F-10
|
|
|
September
30, 2006 and 2005 (Unaudited)
|
|
|
F-17
|
|
|
Three
and Nine Months Ended September 30, 2006 and 2005
|
F-18
|
|
Three
and Nine Months Ended September 30, 2006 and 2005
|
F-19
|
|
Three
and Nine Months Ended September 30, 2006 and 2005
|
F-21
|
|
F-23
|
F-1
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
F-2
|
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 accrued 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 integral part of theses financial
statements.
F-3
|
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.
F-4
|
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 stockholder
|
|
|
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/stockholder for cash flow
|
|
|
385
|
|
|
127
|
|
|
558
|
|
|
Proceeds
from issuance of common stock
|
|
|
|
|
|
|
|
|
31
|
|
|
Increase
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.
F-5
|
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.
F-6
|
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 stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,489
|
|
|
|
|
|
|
|
|
|
|
|
31,489
|
|
|
Related
party services paid for by stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
25,500
|
|
|
Deferred
compensation expensed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,423
|
|
|
315,423
|
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-1,875,683
|
|
|
|
|
|
|
|
|
-1,875,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
financial statements.
F-7
|
Camelot
Entertainment Group, Inc.
|
|
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
Additional
|
|
|
During
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Paid-In
|
|
|
Development
|
|
|
Subscription
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Receivable
|
|
|
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
financial statements.
F-8
|
Camelot
Entertainment Group, Inc.
|
|
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
Additional
|
|
|
During
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Paid-In
|
|
|
Development
|
|
|
Subscription
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Receivable
|
|
|
Compensation
|
|
|
Total
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder
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
|
)
|
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-258,072
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The
accompanying notes are an integral part of these financial
statements.
F-9
HOME
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.
F-10
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 supersedes 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.
F-11
|
3.
|
PROPERTY
& EQUIPMENT
|
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.
|
4.
|
LICENSED
TECHNOLOGY
|
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.
|
6.
|
NOTES
PAYABLE
|
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 stockholder 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.
F-12
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
|
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$
(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.
F-13
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 affiliate 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.
F-14
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 stockholders 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.
F-15
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.
F-16
|
Camelot
Entertainment Group, Inc.
|
|
(a
development stage company)
|
|
September
30, 2006
|
|
ASSETS
|
||||
|
|
September
30,
|
|||
|
|
2006
|
|||
|
|
Unaudited
|
|||
|
Current
Assets
|
||||
|
Cash
|
$
|
876
|
||
|
Prepaid
Expenses
|
17,894
|
|||
|
|
||||
|
Total
Current Assets
|
18,770
|
|||
|
|
||||
|
Investments
|
||||
|
|
||||
|
Scripts
Costs
|
113,300
|
|||
|
|
||||
|
Subtotal
|
113,300
|
|||
|
|
||||
|
Total
Assets
|
$
|
132,070
|
||
|
|
||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||
|
|
||||
|
Current
Liabilities
|
||||
|
Accounts
Payable and accrued liabilities
|
$
|
377,324
|
||
|
|
||||
|
Stockholder
advances
|
401,982
|
|||
|
|
||||
|
Total
Current Liabilities
|
779,306
|
|||
|
|
||||
|
Total
Liabilities
|
779,306
|
|||
|
|
||||
|
|
||||
|
Stockholders'
Equity (Deficit)
|
||||
|
Common
Stock; Par Value $.001 Per Share; Authorized
|
||||
|
150,000,000
Shares; 93,649,589 Shares
|
||||
|
Issued
and Outstanding.
|
93,649
|
|||
|
|
||||
|
Class
A Convertible Preferred Stock; Par Value $.001 per share
|
5,100
|
|||
|
Authorized,
issued and outstanding 5,100,000 shares
|
||||
|
|
||||
|
Class
B Convertible Preferred Stock; Par Value $.001 per share
|
5,100
|
|||
|
Authorized,
issued and outstanding 5,100,000 shares
|
||||
|
|
||||
|
Subscription
Receivable
|
(258,072
|
)
|
||
|
|
||||
|
Capital
in Excess of Par Value
|
11,923,586
|
|||
|
Deficit
Accumulated During the Development Stage
|
(12,416,599
|
)
|
||
|
|
||||
|
|
||||
|
Total
Stockholders' Equity (Deficit)
|
(647,236
|
)
|
||
|
|
||||
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
$
|
132,070
|
||
|
|
The
accompanying notes are an integral part of theses financial
statements.
F-17
Camelot
Entertainment Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
21, 1999
|
|
|
|
|
|
For
the Three Months Ended,
|
|
|
For
Nine Months Ended
|
|
|
through
|
|
||||||
|
|
|
|
30-Sep
|
|
|
30-Sep
|
|
|
30-Sep
|
|
|
30-Sep
|
|
|
September
30,
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
58,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
58,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,700
|
|
|
Sales
and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,959
|
|
|
Research
& Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,550
|
|
|
General
& Administrative
|
|
|
198,022
|
|
|
127,024
|
|
|
591,740
|
|
|
730,295
|
|
|
9,184,302
|
|
|
Impairment
of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,402,338
|
|
|
Impairment
of investments in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
710,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Expenses
|
|
|
198,022
|
|
|
127,024
|
|
|
591,740
|
|
|
730,295
|
|
|
12,699,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
OPERATING LOSS
|
|
|
(198,022
|
)
|
|
(127,024
|
)
|
|
(591,740
|
)
|
|
(730,295
|
)
|
|
(12,641,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,294
|
)
|
|
Other
income (expense)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(21,652
|
)
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
255,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expenses)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
224,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(198,022
|
)
|
$
|
(127,024
|
)
|
$
|
(591,740
|
)
|
$
|
(730,295
|
)
|
$
|
(12,416,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
LOSS PER COMMON SHARE
|
|
|
(0.0021
|
)
|
|
(0.0016
|
)
|
|
(0.0063
|
)
|
|
(0.0098
|
)
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING
|
|
|
93,649,589
|
|
|
83,075,965
|
|
|
93,649,589
|
|
|
83,075,965
|
|
|
42,178,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
F-18
Camelot
Entertainment Group, Inc.
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
|
Inception
on
|
|
|
|
|
|
|
|
|
|
|
|
April
21, 1999
|
|
|
|
|
|
For
Nine Months Ended
|
|
|
through
|
|
|||
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income for the period
|
|
$
|
(591,740
|
)
|
$
|
(730,295
|
)
|
$
|
(12,416,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net (loss) to cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Value
of options expensed
|
|
|
-
|
|
|
|
|
351,000
|
|
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
|
|
(255,500
|
)
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
3,997
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
|
|
1,538,927
|
|
|
|
Common
Stock issued for debt
|
|
|
|
|
|
|
|
194,171
|
|
|
|
Common
Stock issued for services
|
|
|
-
|
|
|
384,843
|
|
|
1,939,732
|
|
|
Common
Stock issued for expense reimbursement
|
|
|
-
|
|
|
55,462
|
|
|
354,788
|
|
|
Common
Stock issued for technology
|
|
|
|
|
|
|
|
|
19,167
|
|
|
Impairment
of investments in other companies
|
|
|
-
|
|
|
|
|
|
710,868
|
|
|
Impairment
of assets
|
|
|
|
|
|
|
|
|
2,628,360
|
|
|
Prepaid
services expensed
|
|
|
2,392
|
|
|
|
|
|
531,429
|
|
|
Expenses
paid through notes payable proceeds
|
|
|
|
|
|
|
66,489
|
|
||
|
Loss
on disposal of property and equipment
|
|
|
|
|
|
|
|
|
5,854
|
|
|
Preferred
Stock issued to stockholder
|
|
|
|
|
|
|
|
3,366,000
|
|
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
||
|
(increase)
decrease in other current assets
|
|
|
(11,195
|
)
|
|
(18,615
|
)
|
|
(18,810)
|
|
|
Increase
(decrease) in accounts payable & other a/p
|
|
|
290,914
|
|
|
55,876
|
|
|
409,381
|
|
|
Increase
(decrease) in due to officers
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Net
Cash provided (used) by operating activities
|
|
|
(309,629
|
)
|
|
(252,729
|
)
|
|
(570,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
|
|
|
|
$
|
(6,689
|
)
|
|
|
Purchase
of assets-Script Costs
|
|
|
(94,500
|
)
|
|
(12,400
|
)
|
|
(113,300
|
)
|
|
Cash
provided (used) from investing activities
|
|
|
(94,500
|
)
|
|
(12,400
|
)
|
$
|
(119,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
|
|
|
|
|
|
25,500
|
|
|
Advanced
from affiliate/stockholder loans for cash flow
|
|
|
401,982
|
|
|
264,512
|
|
|
629,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
|
|
|
|
|
30,835
|
|
|
|
Increase
(decrease) in notes payable
|
|
|
0
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided (used) in financing activities
|
|
|
307,482
|
|
|
264,512
|
|
|
570,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash
|
|
|
(2,147
|
)
|
|
(617
|
)
|
|
(264)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
3,023
|
|
|
1,140
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at the end of the period
|
|
$
|
876
|
|
$
|
523
|
|
$
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
financial statements
F-19
Camelot
Entertainment Group, Inc.
Statement
of Cash Flows (Unaudited)
(continued)
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
|
Inception
on
|
|
|
|
|
|
|
|
|
|
|
|
April
21, 1999
|
|
|
|
|
|
For
Nine Months Ended
|
|
|
through
|
|
|||
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Paid
|
|
|
0
|
|
|
0
|
|
$
|
31,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for
|
|
|
|
|
|
|
|
|
|
|
|
property
and equipment
|
|
|
0
|
|
|
0
|
|
$
|
1,153,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
for
licensed technology
|
|
|
0
|
|
|
0
|
|
|
938,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of Treasury Stock
|
|
|
0
|
|
|
0
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
|
|
|
|
|
|
|
|
|
for
debt
|
|
|
0
|
|
|
0
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of licensed technology
|
|
|
|
|
|
|
|
|
|
|
|
for
debt to seller
|
|
|
0
|
|
|
0
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for prepaid
|
|
|
|
|
|
|
|
|
|
|
|
and
other assets
|
|
|
0
|
|
|
0
|
|
|
1,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
of services for
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
0
|
|
|
0
|
|
|
2,046,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in other
|
|
|
|
|
|
|
|
|
|
|
|
companies
|
|
|
0
|
|
|
0
|
|
|
710,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of debt to
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
0
|
|
|
0
|
|
|
225,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of debt by
|
|
|
|
|
|
|
|
|
|
|
|
stockholder
|
|
|
0
|
|
|
0
|
|
|
31,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
F-20
Camelot
Entertainment Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Additional
|
|
|
During
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Development
|
|
|
Subscription
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Receivable
|
|
|
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
|
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
|
)
|
|
-
|
|
|
-
|
|
|
158,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) 1st quarter
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(117,096
|
)
|
|
-
|
|
|
-
|
|
|
(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
|
|
|
-
|
|
|
-
|
|
|
220,000
|
|
|
consulting
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
2,276,033
|
|
|
2,276
|
|
|
0
|
|
|
0
|
|
|
187,568
|
|
|
0
|
|
|
-
|
|
|
-
|
|
|
189,844
|
|
|
officers
salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to
|
|
|
1,848,723
|
|
|
1,849
|
|
|
0
|
|
|
0
|
|
|
79,078
|
|
|
0
|
|
|
-
|
|
|
-
|
|
|
80,927
|
|
|
Eagle
for expenses paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
(486,174
|
)
|
|
-
|
|
|
-
|
|
|
(486,174
|
)
|
|
Subtotals
for 2nd quarter
|
|
|
8,124,756
|
|
|
8,125
|
|
|
0
|
|
|
0
|
|
|
482,646
|
|
|
(486,174
|
)
|
|
-
|
|
|
-
|
|
|
4,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2005
|
|
|
83,075,965
|
|
|
83,076
|
|
|
0
|
|
|
0
|
|
|
7,890,993
|
|
|
(7,927,989
|
)
|
|
(258,072
|
)
|
|
-
|
|
|
(211,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
(127,024
|
)
|
|
-
|
|
|
-
|
|
$
|
(127,024
|
)
|
|
Balance
at Sept 30, 2005
|
|
|
83,075,965
|
|
|
83,076
|
|
|
0
|
|
|
0
|
|
|
7,890,993
|
|
$
|
(8,055,013
|
)
|
|
($258,072
|
)
|
|
-
|
|
|
(339,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
233,547
|
|
|
233
|
|
|
0
|
|
|
0
|
|
|
9,767
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
|
consulting
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
3,538,263
|
|
|
3,538
|
|
|
0
|
|
|
0
|
|
|
171,462
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
175,000
|
|
|
officers
salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to
|
|
|
1,452,662
|
|
|
1,453
|
|
|
0
|
|
|
0
|
|
|
118,219
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
119,672
|
|
|
Eagle
for expenses paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to Eagle
|
|
|
1,762,271
|
|
|
1,762
|
|
|
-
|
|
|
-
|
|
|
120,991
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
122,753
|
|
|
20%
of shares issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
3,586,881
|
|
|
3,587
|
|
|
-
|
|
|
-
|
|
|
256,354
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
259,943
|
|
|
Stockholder
loans 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss 4th Quarter
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(3,769,845
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
(3,769,845
|
)
|
|
Class
A Preferred Stock issued
|
|
|
-
|
|
|
-
|
|
|
5,100,000
|
|
|
5,100
|
|
|
555,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
561,000
|
|
|
Class
B Preferred Stock issued
|
|
|
-
|
|
|
-
|
|
|
5,100,000
|
|
|
5,100
|
|
|
2,799,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,805,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at Dec 31, 2005
|
|
|
93,649,589
|
|
|
93,649
|
|
|
10,200,000
|
|
|
10,200
|
|
|
11,923,586
|
|
|
(11,824,859
|
)
|
|
(258,072)
|
|
|
-
|
|
|
(55,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(190,762
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
F-21
Camelot
Entertainment Group, Inc.
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2006
|
|
|
93,649,589
|
|
|
93,649
|
|
|
10,200,000
|
|
|
10,200
|
|
|
11,923,586
|
|
|
(12,015,621
|
)
|
|
(258,072)
|
|
|
-
|
|
|
(246,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(202,956
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2006
|
|
|
93,649,589
|
|
|
93,649
|
|
|
10,200,000
|
|
|
10,200
|
|
|
11,923,586
|
|
|
(12,218,576
|
)
|
|
(258,072)
|
|
|
-
|
|
|
(449,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(198,022)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2006
|
|
|
93,649,589
|
|
|
93,649
|
|
|
10,200,000
|
|
|
10,200
|
|
|
11,923,586
|
|
|
(12,416,599
|
)
|
|
(258,072
|
)
|
|
-
|
|
|
(646,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
F-22
CAMELOT
ENTERTAINMENT GROUP, INC.
|
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 the
Company’s debt and seeking additional financial resources from existing
investors or others in implementing its new business model. However, instability
in the stock price may make it difficult to find parties willing to accept
the
Company’s restricted shares of common stock in exchange for cash and or services
required to execute its Plan of Operation. 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.
Basis
Of Presentation
The
unaudited financial statements included herein were prepared from the records
of
the Company in accordance with Generally Accepted Accounting Principles and
in
accordance with current securities regulations. These unaudited financial
statements have been reviewed by our independent auditors. These financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to provide a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally conform
to
the presentation reflected in the Company's Form 10-KSB filed with the
Securities and Exchange Commission for the year ended December 31, 2005. The
current interim period reported herein should be read in conjunction with the
Company's Form 10-KSB subject to independent audit at the end of the year.
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
the 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 materially from those estimates.
F-23
CAMELOT
ENTERTAINMENT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED, SEPTEMBER 30,
2006
Income
taxes
The
Company provides for income taxes based on the provisions of Statement of
Financial Accounting Standards (“SFAS”) 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 obligations under accounts payable and accrued
expenses, notes payable and capital lease obligations. The carrying amounts
of
accounts payable and accrued expenses approximate fair value because of the
short maturity of those instruments. The carrying value of notes payable and
capitalized lease obligations approximate fair value because they contain market
value interest rates and have specified repayment terms. 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.
Impairment
of Long-Lived Assets
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
supersedes 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 September 30, 2006.
Revenue
Recognition
Revenue
consists of professional services. Revenues for services are recognized when
the
services are rendered. The amounts of such revenues are recorded based on the
value of compensation received for the services. In the Company's current
operations, compensation to the Company has consisted of stock in start up
companies to whom the services were rendered.
Stock
Based Compensation
Statement
of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure (SFAS
148).
SFAS
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation.
SFAS 148 also amends the disclosure requirements of SFAS 123 to require more
prominent disclosures in annual and interim financial statements with regard
to
the method of accounting for stock-based employee compensation and the impact
of
the method used on reported results. The Company has elected to adopt the
recognition provisions of SFAS 148 for stock-based compensation recorded for
fiscal years beginning after December 15, 2002. The interim disclosure
requirements of SFAS 148 are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002.
F-24
CAMELOT
ENTERTAINMENT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED, SEPTEMBER 30,
2006
3.
GOING
CONCERN UNCERTAINTIES
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the
Company as a going concern. However, the Company has experienced recurring
operating losses and negative cash flows from operations, which raise
substantial doubt about its ability to continue as a going concern. The
Company's continued existence is dependent upon its ability to increase
operating revenues and/or obtain additional equity financing. In view of these
matters, the Company has undergone a series of negotiations to obtain additional
equity financing to enable it to achieve its strategic objectives. The Company
has an agreement with Eagle Consulting Group, Inc., a Nevada corporation
("Eagle"), to provide equity financing. While Eagle has advanced the Company
$401,982 during the first, second and third quarter of 2006, it appears unlikely
that such funding will be enough to implement the Company's Plan of Operation
during the remaining nine months of 2006 and beyond. As a result, 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.
4.
COMMITMENTS
AND CONTINGENCIES
The
Company is delinquent on obligations to various vendors. Accounts payable and
accrued expenses balances over 90 days past due as of September 30, 2006 was
$39,549. The Company believes it has identified and accrued for all valid claims
from creditors, consultants, stock option adjustments and vendors. 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 also has a non-dilution commitment with an Affiliate to issue 20% of
all
newly issued common shares to the Affiliate in exchange for funding cash flow
deficits over the period specified in the agreement. The Company has not
issued shares this quarter to this Affiliate.
5.
ADVANCES
FROM AFFILIATE
During
the first and second and third quarter of 2006, the Company had not issued
common shares to Affiliate. The Affiliate’s cash advances for the first and
second and third quarter of $401,982 were covered under an agreement in which
the Affiliate must fund the Company’s cash flow deficits over the period
specified in the agreement. These advances were for general and administrative
costs, cost of screenplays and prepaid exhibitors space for the
quarter.
6.
DUE
TO OFFICERS
As
of
September 30, 2006, $337,500 was due to officers for salaries during the first,
second and third quarter. No other amounts are currently due.
7.
COMMON STOCK
No
common
stock was issued during the first, second or third quarter of 2006.
8.
RELATED PARTY TRANSACTIONS
On
March
30, 2003, the Company entered into an agreement with an Affiliate whereby the
Company will issue 20% of its outstanding common shares in exchange for services
and advances. No shares were issued during the first, second or third quarter
of
2006. The Affiliate paid $401,982 in expenses on behalf of the Company during
the first and second quarter of 2006.
F-25
PROSPECTUS
28,094,877
SHARES OF COMMON STOCK
You
should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
prospectus is not an offer to sell common stock and is not soliciting an offer
to buy common stock in any state where the offer or sale is not
permitted.
Until
_____________, all dealers that effect transactions in these securities whether
or not participating in this offering may be required to deliver a prospectus.
This is in addition to the dealers’ obligation to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PART
II — INFORMATION NOT REQUIRED IN THE PROSPECTUS
|
Item
24.
|
Indemnification
of Directors and Officers.
|
Delaware
law
permits a corporation, under specified circumstances, to indemnify its
directors, officers, employees or agents against expenses (including attorney’s
fees), judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought
by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if these directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be
in
or not opposed to the best interests of the corporation and, with respect to
any
criminal action or proceedings, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agent in connection
with the defense or settlement of an action or suit, and only with respect
to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnify for such expenses despite such
adjudication of liability.
Our
Certificate of Incorporation provides that, none of our directors shall be
liable to us or our stockholders for damages for breach of fiduciary duty,
unless such breach involves a breach of duty of loyalty, acts or omissions
not
in good faith or which involve intentional misconduct or a knowing violation
of
law or involve unlawful payment of dividends or unlawful stock purchases or
redemptions, or involves a transaction from which the director derived an
improper personal benefit.
In
addition, our by-laws provide that we shall indemnify our officers, directors
and agents to the fullest extent permissible under Delaware law, and in
conjunction therewith, to procure, at our expense, policies of insurance. In
addition, our by-laws provide that our directors shall have no liability for
monetary damages to the fullest extent permitted under Delaware law.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons pursuant to the
foregoing provisions or otherwise, we have been advised that in the opinion
of
the SEC, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim
for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by our director, officer, or controlling person in
the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being
registered hereunder, we will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
|
Item
25.
|
Other
Expenses of Issuance and
Distribution.
|
|
Securities
and Exchange Commission registration fee
|
$
|
144.30
|
|
Transfer
Agent Fees (1)
|
$
|
2,000.00
|
|
Accounting
fees and expenses (1)
|
$
|
18,000.00
|
|
Legal
fees and expenses (1)
|
$
|
65,000.00
|
|
Consulting
fees and expenses (1)
|
$
|
120,000.00
|
|
Insurance
fees and expenses (1)
|
$
|
15,000.00
|
|
Document
fees and expenses (1)
|
$
|
20,000.00
|
|
Total
(1)
|
$
|
240,144.30
|
|
(1)
|
Estimated
|
All
amounts are estimates other than the Commission’s registration fee. We are
paying all expenses of the offering listed above. No portion of these expenses
will be borne by the Selling Stockholders. The Selling Stockholders, however,
will pay any other expenses incurred in selling their common stock, including
any brokerage commissions or costs of sale.
|
Item
26.
|
Recent
Sales of Unregistered
Securities.
|
During
the fiscal year ended December 31, 2004, we issued
41,094,776 common shares issued, the majority of which, 38,794,776 shares,
were
issued to officers, staff, affiliates and consultants for services rendered.
24,298,049 shares were issued to officers and staff and 14,496,727 shares were
issued to an affiliate. The remaining 2,300,000 shares 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).
These shares of our common stock qualified for exemption under Section 4(2)
of
the Securities Act of 1933 since the issuance of shares by us did not involve
a
public offering.
On
June
30, 2005, we issued 5,100,000 shares each of Class A Convertible and Class
B
Convertible Preferred Stock to Mr. Atwell, our President, CEO and Chairman.
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.
These
shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance of shares by us did not involve a
public offering.
During
the fiscal year ended December 31, 2005, we issued 18,698,380
common shares, the majority of which, 15,111,499 shares were issued to officers,
staff, affiliates and consultants for services rendered. The Company issued
5,467,078 shares for officers salaries, 5,063,655 shares were issued to Eagle
Consulting for expenses in accordance with funding agreement, and 4,580,766
shares to officers, staff and consultants. The remaining 3,586,881 shares were
issued for repayment of stockholders 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. These
shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act of 1933 since the issuance of shares by us did not involve a
public offering.
All
of
the above issuances of shares of our common stock qualified for exemption under
Section 4(2) of the Securities Act since the issuance of such shares by us
did
not involve a public offering. Each of these stockholders was a sophisticated
investor and had access to information regarding us. The offering was not a
“public offering” as under Section 4(2) due to the insubstantial number of
persons involved in the deal, size of the offering, manner of the offering
and
number of shares offered. We did not undertake an offering in which we sold
a
high number of shares to a high number of investors. In addition, these
stockholders had the necessary investment intent as required by Section 4(2)
since they agreed to and received a share certificate bearing a legend stating
that such shares are restricted pursuant to Rule 144 of the Securities Act.
These restrictions ensure that these shares would not be immediately
redistributed into the market and therefore not be part of a “public offering.”
Based on an analysis of the above factors, we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act for the above
transactions.
On
December 27, 2006, we entered into a Securities Purchase Agreement for a total
subscription amount of $1,000,000 that included Stock Purchase Warrants and
Callable Secured Convertible Notes with AJW Capital Partners, LLC, AJW Offshore,
Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC
(collectively, the “Investors”). The initial funding of $600,000, of which we
received net proceeds of $525,000, was completed on December 29, 2006 (the
“Closing Date”). On the Closing Date, the following parties issued callable
secured convertible notes as follows: AJW Capital Partners, LLC invested
$52,200; AJW Offshore, Ltd. invested $358,800; AJW Qualified Partners, LLC
invested $181,800; and New Millennium Capital Partners II, LLC invested $7,200.
Under
the
Securities Purchase Agreement, we will receive the principal amount of $400,000
when this SB-2 registration statement is declared effective by the SEC. At
all
times, we will issue callable secured convertible notes for such amounts. The
note is convertible into our common shares at the lowest 3 intraday trading
prices during the 20 trading days immediately prior to the conversion date
discounted by 40%. The investors in the financing shall not be entitled to
convert the promissory note if such conversion would result in any investor
solely owning more than 4.99% of our outstanding shares of common
stock.
Based
on
our recent financing, we have also issued seven year warrants to purchase
10,000,000 shares of our common stock, exercisable at $.15 per share. Each
Warrant entitles to holder to one share of our common stock. The warrants were
issued as follows: AJW Capital Partners, LLC - 870,000 warrants; AJW Offshore,
Ltd. - 5,980,000 warrants; AJW Qualified Partners, LLC - 3,030,000 warrants;
and
New Millennium Capital Partners II, LLC - 120,000 warrants (the “Warrants”). The
Warrants are not subject to registration rights.
In
connection with the recent financing and pursuant to a Structuring Agreement,
we
also issued to Lionheart warrants representing the right to purchase up to
582,609 shares of our common stock under the same terms as the Warrants issued
to the Investors.
The
convertible notes and the warrants (the “Securities”) were issued in reliance on
the exemption from registration provided by Section 4(2) of the Securities
Act.
No commissions were paid for the issuance of such Securities. The above issuance
of Securities qualified for exemption under Section 4(2) of the Securities
Act
since the issuance of such shares by us did not involve a public offering.
The
holders set forth above were each accredited investors and had access to
information normally provided in a prospectus regarding us. The offering was
not
a “public offering” as defined in Section 4(2) due to the insubstantial number
of persons involved in the deal, size of the offering, manner of the offering
and number of Securities offered. We did not undertake an offering in which
we
sold a high number of Securities to a high number of investors. In addition,
the
holders set forth above had the necessary investment intent as required by
Section 4(2) since they agreed to receive a share certificate bearing a legend
stating that such shares underlying the Securities are restricted pursuant
to
Rule 144 of the Securities Act. These restrictions ensure that these shares
would not be immediately redistributed into the market and therefore not be
part
of a “public offering.” Based on an analysis of the above factors, we have met
the requirements to qualify for exemption under Section 4(2) of the Securities
Act for the above transaction.
|
Item
27.
|
Exhibits.
|
|
Exhibit No.
|
|
Title
of Document
|
|
Location
|
|
3.1.1
|
|
Certificate
of Incorporation
|
|
Incorporated
by reference as Exhibit 2.1 to Form 10-KSB filed April 17,
2001
|
|
3.1.2
|
|
Amended
Certificate of Incorporation
|
|
Incorporated
by reference to Form 8-K filed June 29, 2004
|
|
3.2
|
By-laws
|
Incorporated
by reference as Exhibit 2.1 to Form 10-KSB filed April 17,
2001
|
||
|
4.1
|
|
Securities
Purchase Agreement dated December 27, 2006, by and among the Company
and
New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC, AJW
Offshore, Ltd. and AJW Partners, LLC
|
|
Incorporated
by reference as Exhibit 4.1 to Form 8-K filed on February 1,
2007
|
|
4.2
|
|
Form
of Callable Convertible Secured Note by and among New Millennium
Capital
Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd.
and AJW
Partners, LLC
|
|
Incorporated
by reference as Exhibit 4.2 to Form 8-K filed on February 1,
2007
|
|
4.3
|
|
Form
of Stock Purchase Warrant issued to New Millennium Capital Partners
II,
LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners,
LLC
|
|
Incorporated
by reference as Exhibit 4.3 to Form 8-K filed on January 4,
2007
|
|
4.4
|
|
Registration
Rights Agreement dated December 27, 2006 by and among New Millennium
Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd.
and AJW Partners, LLC
|
|
Incorporated
by reference as Exhibit 4.4 to Form 8-K filed on January 4,
2007
|
|
4.5
|
|
Security
Agreement dated December 27, 2006 by and among the Company and New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC,
AJW
Offshore, Ltd. and AJW Partners, LLC
|
|
Incorporated
by reference as Exhibit 4.5 to Form 8-K filed on January 4,
2007
|
|
4.6
|
|
Intellectual
Property Security Agreement dated December 27, 2006 by and among
the
Company and New Millennium Capital Partners II, LLC, AJW Qualified
Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
|
|
Incorporated
by reference as Exhibit 4.6 to Form 8-K filed on January 4,
2007
|
|
4.7
|
Structuring
Agreement with Lionheart
|
Incorporated
by reference as Exhibit 4.7 to Form 8-K filed on January 4,
2007
|
||
|
4.8
|
Stock
Purchase Warrant issued to Lionheart Associates LLC d/b/a Fairhills
Capital
|
Incorporated
by reference as Exhibit 4.8 to Form 8-K filed on February 2,
2007
|
||
|
5.1
|
|
|
Filed
herewith
|
|
|
14.1
|
Filed
herewith
|
|||
|
23.1
|
|
|
Filed
herewith
|
|
|
Item
28.
|
Undertakings.
|
The
undersigned registrant hereby undertakes:
|
(a)
|
Rule
415 Offering:
Undertaking
pursuant to Item 512(a) of Regulation S-B
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The
undersigned registrant hereby undertakes:
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1.
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To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration
statement:
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(a)
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To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
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(b)
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To
reflect in the prospectus any facts or events arising after the effective
date of this registration statement, or most recent post-effective
amendment, which, individually or in the aggregate, represent a
fundamental change in the information set forth in this registration
statement; and notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
From
the low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission pursuant
to
Rule 424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement; and
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(c)
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To
include any material information with respect to the plan of distribution
not previously disclosed in this registration statement or any material
change to such information in the registration
statement.
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2.
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That,
for the purpose of determining any liability under the Securities
Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein,
and the
offering of such securities at that time shall be deemed to be the
initial
bona fide offering thereof.
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3.
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To
remove from registration by means of a post-effective amendment any
of the
securities being registered hereby which remain unsold at the termination
of the offering.
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4.
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For
determining liability of the undersigned small business issuer under
the
Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that
in a
primary offering of securities of the undersigned small business
issuer
pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to he purchaser, if the securities
are
offered or sold to such purchaser by means of any of the following
communications, the undersigned small business issuer will be a seller
to
the purchaser and will be considered to offer or sell such securities
to
such purchaser:
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(a)
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Any
preliminary prospectus or prospectus of the undersigned small business
issuer relating to the offering required to be filed pursuant to
Rule 424
(Sec. 230. 424);
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(b)
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Any
free writing prospectus relating to the offering prepared by or on
behalf
of the undersigned small business issuer or used or referred to by
the
undersigned small business issuer;
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(c)
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The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned
small
business issuer; and
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(d)
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Any
other communication that is an offer in the offering made by the
undersigned small business issuer to the
purchaser.
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(b)
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Request
for Acceleration of Effective Date:
Undertaking
pursuant to Item 512(e) of Regulation S-B
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Insofar
as indemnification for liabilities arising under the Securities Act
may be
permitted to our directors, officers and controlling persons pursuant
to
the provisions above, or otherwise, we have been advised that in
the
opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by us of expenses
incurred or paid by one of our directors, officers, or controlling
persons
in the successful defense of any action, suit or proceeding, is asserted
by one of our directors, officers, or controlling persons in connection
with the securities being registered, we will, unless in the opinion
of
our counsel the matter has been settled by controlling precedent,
submit
to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities
Act, and we will be governed by the final adjudication of such
issue.
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(c)
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For
Purposes of Determining Liability under the Securities
Act:
Undertaking
pursuant to Item 512(g) of Regulation S-B
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The
undersigned registrant hereby undertakes that, for the purpose of
determining liability under the Securities Act to any
purchaser:
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| Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. | |
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the City of Irvine, State
of
California on February 2, 2007.
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CAMELOT
ENTERTAINMENT GROUP INC.
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By:
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/s/
Robert P. Atwell
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ROBERT
P. ATWELL
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President,
Chief Executive Officer
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Date:
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February
2, 2007
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CAMELOT
ENTERTAINMENT GROUP INC.
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By:
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/s/
George Jackson
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GEORGE
JACKSON
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Secretary,
Chief Financial Officer
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Date:
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February
2, 2007
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CAMELOT
ENTERTAINMENT GROUP INC.
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By:
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/s/
Michael Ellis
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MICHAEL
ELLIS
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Chief
Operating Officer
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Date:
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February
2, 2007
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In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates indicated.
POWER
OF ATTORNEY
The
undersigned directors and officers of Camelot Entertainment Group Inc. hereby
constitute and appoint Robert P. Atwell, George Jackson, and Michael Ellis.
with
full power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute
in our name and behalf in the capacities indicated below any and all amendments
(including post-effective amendments and amendments thereto) to this
registration statement under the Securities Act of 1933 and to file the same,
with all exhibits thereto and other documents in connection therewith, with
the
Securities and Exchange Commission and hereby ratify and confirm each and every
act and thing that such attorneys- in-fact, or any them, or their substitutes,
shall lawfully do or cause to be done by virtue thereof. Pursuant to the
requirements of the Securities Act of 1933, this registration statement has
been
signed by the following persons in the capacities and on the dates
indicated.
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Name
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Title
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Date
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/s/
Robert P. Atwell
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President,
Chief Executive Officer,
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February
2, 2007
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ROBERT
P. ATWELL
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Chairman
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/s/
George Jackson
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Secretary,
Chief Financial Officer,
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February
2, 2007
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GEORGE
JACKSON
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Director
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/s/
Michael
Ellis
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Chief
Operating Officer
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February
2, 2007
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MICHAEL
ELLIS
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/s/
Jane Olmstead, CPA
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Director
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February
2, 2007
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JANE
OLMSTEAD, CPA
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/s/
Rounsevelle Schaum
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Director
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February
2, 2007
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ROUNSEVELLE
SCHAUM
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