AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON ___________________
REGISTRATION NO: 333-124563
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 5 to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SKREEM ENTERTAINMENT CORPORATION
Delaware 7380 33-0565710
-------- -------------- -----------
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
11637 Orpington Street, Orlando, Florida 32817
(407) 207-0400
(Address and Telephone Number of Principal Executive Offices,
Principal Place of Business)
Charles Camorata
Chief Executive Officer
11637 Orpington Street, Orlando, Florida 32817
(407) 207-0400
(Name, address and telephone number of agent for service)
Copy to:
Hank Vanderkam, Vanderkam & Associates
1301 Travis, #1200, Houston, TX 77002
(713) 547-8900, (713) 547-8910 fax
Approximate date of commencement of proposed sale to the public:(October 11,
2005)
Date this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION
Title of Each Class Amount To Be Proposed Maximum Proposed Maximum Amount of
of Securities To Be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Share Price
--------------------- --------------- ------------------ ------------------- ----------------
2,000,000 $1.00 $2,000,000 $ 253.40*
Common Stock $0.001
par value per share
Common Stock $0.001
par value per share 23,107,856 - $ 0 -
Total 25,107,856 $2,000,000 $253.40*
* Represents amount already paid.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
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 said section 8(a),
may determine.
PROSPECTUS
2,000,000 Shares
SKREEM ENTERTAINMENT CORPORATION
The registration statement of which this Prospectus is a part relates to the
offer and sale by Skreem Entertainment Corporation, a Delaware corporation
("Skreem," "We," or "Our"), of our securities. Our common stock offered is not
listed on any national securities exchange or the NASDAQ stock market.
This offering and registration consists of 25,107,856 common shares, $.001 par
value per share. 2,000,000 of the 25,107,856 shares will be offered by the
Company for $1.00 per share with the remaining 23,107,856 shares representing
shares currently issued and outstanding as of August 12, 2005 which are being
registered for sale by our stockholders.
Skreem's officers will be marketing these securities on a best efforts
minimum/maximum basis. The offering will end one hundred and eighty (180) days
after the effective date of the registration statement. The minimum purchase
requirement is 2,000 shares per investor. Additionally, Skreem will not make
arrangements to place the funds in an escrow, trust or similar account. If the
Company does not sell a minimum of 100,000 shares, within 180 days of the
effective date of the registration statement, all proceeds will be returned to
the purchasers promptly.
Skreem's current shareholders are restricted and will refrain from the sale of
the 23,107,856 issued and outstanding common shares being registered until such
time as the 180 day offering period, beginning with the effective date of this
registration statement, has expired or the 2,000,000 shares offered by the
Company are sold.
Underwriting
Discounts and Offering Net Proceeds
Shares Offering Price Commissions Costs to Skreem
-------------------------------------------------------------------------------
2,000,000 $2,000,000 $0.00 $35,000.00 $ 1,965,000.00
100,000 $ 100,000 $0.00 $35,000.00 $ 65,000.00
"Per share" $ 1 $0.00 $.02 $ 0.98
*this figure assumes the entire 2,000,000 shares offered are sold.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD A COMPLETE LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED 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 September 12, 2005
TABLE OF CONTENTS
Part I Information Required in Prospectus
Prospectus Summary 4
Risk Factors 6
Use of Proceeds 9
Determination of Offering Price 9
Dilution 9
Selling Security Holders 10
Plan of Distribution 10
Legal Proceedings 11
Directors, Executive Officers, Promoters and Control Persons 12
Security Ownership of Certain Beneficial Owners and Management 13
Description of Securities 13
Interest of Named Experts and Counsel 14
Disclosure of Commission Position on Indemnification For Securities Act 14
Description of Business 14
Management's Discussion and Analysis or Plan of Operation 17
Description of Property 19
Certain Relationships and Related Transactions 19
Market For Common Equity and Related Stockholder Matters 20
Executive Compensation 21
Financial Statements 23
Changes in and Disagreements With Accountants 46
on Accounting and Financial Disclosure
Part II Information Not Required In Prospectus
Indemnification of Directors and Officers 47
Other Expenses of Issuance and Distribution 48
Recent Sales of Unregistered Securities 48
Exhibits 48
Undertakings 48
Signatures 49
Until _______________, 2005, 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 dealer's obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SUMMARY INFORMATION AND RISK FACTORS
PROSPECTUS SUMMARY
This offering consists of 2,000,000 common shares, $.001 par value per share
offer by us for $1.00 per share as well as 23,107,856 shares already issued and
outstanding being offered for sale by the selling shareholders. The shares are
being marketed on a best efforts basis by the officers of Skreem. The
offering will end one hundred and eighty (180) days after the effective date of
the registration statement, during which period we will keep this registration
statement current by updating the financial statements, related financial
disclosures, and any other updates to the operations of the Company.
OUR COMPANY
The Company was incorporated in Delaware on June 11, 1992. On May 28, 1998, the
Company changed its name from Plasmatronics Technologies, Inc. to Ecological
Services, Inc. and on January 3, 2003 changed it's name to Stanford Capital
Corporation. In December 2002, the Company acquired all the issued and
outstanding shares of Stanford Capital International, Ltd. a Hong Kong based
public relations firm for 10,000 shares of its common stock. This transaction
was subsequently revoked. On January 31, 2004, the Company acquired all of the
shares of Skreem Entertainment Corporation in exchange for 22,000,000 shares of
its one for five post reverse split common shares and on March 16, 2004, the
Company changed it's name to Skreem Entertainment Corporation. Skreem
Entertainment Corporation promotes, finances and manages artists in the
entertainment industry.
The Company currently promotes a music group named "3rd Wish". One of the
members (Justin Martin) of the group "3rd Wish" is the son of Jeffrey Martin,
the Company's majority shareholder. As of June 30, 2005, the Company had
advanced $425,426 to Jeffrey Martin's son in connection with his performance for
"3rd Wish".
The Company's revenues for the year ended March 31, 2005 totalled $120,862. The
Company's loss from operations for the year ended March 31, 2005 was $1,508,221.
The Company's revenues for the quarter ended June 30, 2005 were $22,759. The
Company's loss from operations for the quarter totalled $482,737 or $160,912 per
month. Considering that the Company's assets at June 30, 2005 totalled $57,758,
the Company will be out of funds in less than two months unless there is a
substantial change in revenues, expenses, or unless additional proceeds from the
sale of stock or the issuance of notes payable are received.
THE OFFERING
As of August 12, 2005 we had 23,107,856 shares of our common stock issued and
outstanding. This offering is comprised of 2,000,000 shares of common stock
being offered on a best efforts minimum/maximum basis and the registration for
sale by the selling shareholders of the 23,107,856 shares currently issued and
outstanding. If a minimum of 100,000 shares are not sold, within 180 days
after the effective date of the registration statement, all proceeds will be
returned to the shareholders promptly by the Company.
4
FINANCIAL SUMMARY INFORMATION
The following summary financial information and operating data have been derived
from the financial statements of Skreem for the periods indicated. The following
financial data should be read in conjunction with our financial statements and
the notes thereto included elsewhere in this registration statement.
Three Months
Year Ended March 31, Ended June 30, 2005
---------------------- -------------------
2005 2004 (unaudited)
Statements of Operations
Income statement data:
Revenues $120,862 $176 $ 22,759
Expenses 1,629,083 754,828 468,989
Income (loss) from operations (1,508,221) (754,652) (446,230)
Other Income (Expense) (84,248) (57,836) (36,507)
Income (loss) before income taxes (1,592,469) (812,488) (482,737)
------------- ----------- -----------
Income tax -- -- --
------------- ----------- -----------
Net income (loss) $(1,592,469) $(812,488) $ (482,737
============= =========== ===========
Per share data:
Earnings per share $ (0.06) $ (0.05) $ (0.02)
========== ========= ==========
Weighted average shares outstanding
24,813,714 16,408,277 (1) 23,107,856
=========== =========== ==========
Balance sheet data:
Working capital (deficiency) $(1,855,073) $(581,477) $(2,336,918)
Total assets $ 211,939 $ 29,730 $57,758
Long term debt $ - $ - $ -
Shareholder Deficit $(1,845,202) $(554,661) $(2,327,939)
(1) Data for the year ended March 31, 2004 is provided for comparative purposes
only.
5
RISK FACTORS
THE SECURITIES BEING OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PROSPECTIVE
INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING
THE BUSINESS OF THE COMPANY AND AN INVESTMENT IN THE SHARES.
COMPANY RISKS
An investment in our common stock involves certain risks. Prospective investors
should carefully review the following factors, together with the other
information contained in this prospectus, prior to making a decision to invest
in our common stock. The future trading price of shares of our common stock will
be affected by the performance of our business relative to, among other things,
competition, market conditions and general economic and industry conditions.
RISKS RELATED TO OUR FINANCIAL CONDITION AND OUR BUSINESS
Our auditors have issued a going concern opinion,
which means that there is substantial doubt that we can continue as an ongoing
business for the next 12 months.
Our revenue is currently insufficient to cover the costs of our ongoing
promotion and funding of recording talent, our search for additional talent, and
our general operating costs. Our ability to continue our operations is
dependent on the continued successful signing, licensing, and promoting of
talent and the revenue, and the successful making and marketing of a recording
act.
We are substantially dependent on the willingness and ability of Jeff Martin and
other affiliates to continue funding our operations.
To the extent such signing and promoting of recording talent produces inadequate
revenues to operate profitably, the Company is dependent on the willingness and
ability of Jeff Martin, a major shareholder, and other affiliates, to continue
funding, through notes payable, our operations, and our ability to obtain
additional sources of financing as discussed below in "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources." As of the date of this prospectus, our relationship with Mr.
Martin is stable and we have no reason to doubt his willingness to continue
providing additional funding. However, if Mr. Martin discontinues funding our
operations and we are unable to obtain alternative financing when needed on
acceptable terms, if at all, we may be unable to continue our operations.
Jeffrey Martin is our largest shareholder. Other affiliates are Martin
Consultants, Inc., Jeffrey Martin Real Estate Co., and JT Investments, all of
which are owned or controlled by Jeffrey Martin.
We may be unable to meet our capital requirements which may slow down or curtail
our business plans.
Since our inception on August 19, 1999 to June 30, 2005, we have suffered
operational losses totaling $4,211,870 and we expect to continue to have
substantial expenditures and working capital needs. If success of our
talent decreases, we experience operating difficulties, or other factors, many
of which are beyond our control, cause our revenues or cash flows from
operations to decrease, we may be limited in our ability to obtain the capital
necessary to complete our search, promotion, and development of talent and
recording acts. We have not thoroughly investigated whether this capital would
be available, who would provide it, and on what terms. If we are unable, on
acceptable terms, to raise the required capital, our business may be seriously
harmed or even terminated.
Our expenses for the year ended March 31, 2005 totalled $1,629,083 and for the
three months ended June 30, 2005 $468,989. We anticipate expenses to remain
approximately the same for the interim quarters and the year ending March 31,
2006 and will require revenue and capital sufficient to meet those expenditures.
The company promotes an artist (Justin Martin) who is the son of Jeffrey Martin,
our largest shareholder.
The major shareholder's influence may hinder or prohibit the company from making
commercially reasonable business judgements regarding the promotion and
continued support of this artist. As of June 30, 2005, the Company had
advanced, for the purpose of promoting the act "3rd Wish", $425,435 to Jeffrey
Martin's son.
Revenue from licensing and promoting recording acts and talent often depends on
factors beyond our control.
The profitability of our operations depends upon factors which are beyond our
control, including:
6
o File sharing, downloading, and copyright infringement;
o Poor market acceptance of our talent and record releases; and
o Our competitors are constantly seeking new talent or opportunities to
increase market share. They may release a particular song or act that
is substantially similar to ours in order to compete with us in a
particular market. They also may record a song being performed by our
artists and release it in a different market.
The company is dependent on few customers to license and distribute the artist's
music.
The Company distributes the artist's music by licensing it to distribution
companies in exchange for a percentage of revenues. At March 31, 2005, the
Company had entered into license agreements with 9 organizations, however, one
organization, Cheyenne Records provided approximately 95% of the Company's
revenue.
Our success depends on our management team and other key personnel, the loss of
any of whom could disrupt our business operations.
Our success will depend on our ability to retain and to attract other
talent for the development of recording acts. We will depend, to a large extent,
on the efforts, musical talent, and continued employment of such personnel and
members of our management team. If members of our management team should resign
or we are unable to attract the necessary talent or recording acts, our business
operations could be adversely affected.
One shareholder owns a significant amount of our common stock, giving him
influence or control in corporate transactions and other matters, and their
interests could differ from those of other shareholders
Jeffrey Martin and Martin Consultants, Inc. own 21,350,000 shares or
approximately 92.4 percent of our outstanding common stock. As a result, he is
in a position to significantly influence or control the outcome of matters
requiring a shareholder vote, including the election of directors, the adoption
of any amendment to our certificate of incorporation or bylaws, and the approval
of mergers and other significant corporate transactions. His control of Skreem
may delay or prevent a change of control on terms favorable to the other
shareholders and may adversely affect the voting and other rights of other
shareholders.
RISKS RELATED TO THIS OFFERING
As there is presently no public market for our common stock and a market may
never develop, investors may be unable to freely sell their securities.
We intend to apply for listing of the securities on the Over the Counter
Bulletin Board ("OTCBB"); however, we cannot assure that we will be able to
obtain such a listing. The over-the-counter market ("OTC") differs substantially
from national and regional stock exchanges because it (1) operates through
communication of bids, offers and confirmations between broker-dealers, rather
than one centralized market or exchange and (2) securities admitted to quotation
are offered by one or more broker-dealers rather than "specialists" which
operate in stock exchanges. To qualify for listing on the OTCBB, an equity
security must have at least one registered broker-dealer, which acts as the
market maker listing bids or ask quotations and which sponsors an issuer
listing. A market maker sponsoring a company's securities is required in order
to obtain listing of securities on any of the public trading markets, including
the OTCBB. We currently do not have a market maker for our securities. If we are
able to obtain a market maker for our securities, we may obtain a listing on the
OTCBB or develop a trading market for our common stock. We may be unable to
locate a market maker that will agree to sponsor our securities. Even if we do
locate a market maker, there is no assurance that our securities will be able to
meet the OTCBB requirements or that the securities will be accepted for an OTCBB
listing.
There can be no assurance that a market for our common stock will be established
or that, if established, such market will be sustained. Therefore, purchasers of
our shares registered hereunder may be unable to sell their securities, because
there may not be a public market for our securities. As a result, you may find
it more difficult to dispose of, or obtain accurate quotes of our common stock.
Any purchaser of our securities should be in a financial position to bear the
risks of losing their entire investment.
Shares of our common stock may be "penny stocks."
If the market price per share of our common stock is less than $5.00, the shares
of our common stock will be "penny stocks" as defined in the Exchange Act. As a
result, an investor may find it more difficult to dispose of or obtain accurate
quotations as to the price of the shares of our common stock being registered
under this prospectus. In addition, the "penny stock" rules adopted by the SEC
under the Exchange Act subject the sale of shares of our common stock to
regulations which impose sales practice requirements on broker-dealers. For
example, broker-dealers selling penny stocks must, prior to effecting the
transaction, provide their customers with a document that discloses the risks of
investing in penny stocks.
7
Furthermore, if the person purchasing the securities is someone other than an
accredited investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker-dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in penny stocks.
Accordingly, the SEC's rules may limit the number of potential purchasers of
shares of our common stock. Moreover, various state securities laws impose
restrictions on transferring "penny stocks," and, as a result, investors in our
common stock may have their ability to sell their shares impaired.
The proceeds from sales will not be held in an escrow account.
The proceeds from the sale of stock will not be held in escrow. The Company will
hold proceeds in a separate account until the minimum, 100,000 shares with
proceeds of $100,000 is sold at which point the funds will be available to the
Company for use and no further proceeds will be held in a separate account. If
the minimum is not reached, all proceeds will be returned to investors promptly.
The sale of a substantial number of shares of our common stock after this
offering may affect our stock price.
The market price of our common stock could decline as a result of sales of
substantial amounts of the 23,107,856 shares of common stock in the public
market after the closing of this offering or the perception that substantial
sales could occur. These sales also might make it difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate.
The Company is subject to potential rescission liability from a previous private
stock offering.
In 2004 the Company sold approximately 600,000 shares of stock for proceeds of
approximately $300,000. The sale did not meet the minimum sale amount required
by the private placement memorandum so the company amended the memorandum to
decrease the minimum and extend the period during which sales could be made. The
Company notified the pre-amendment purchasers that they could request a return
of their funds, none elected to do so. This amendement did not comply with
requirements of the federal securities laws. The purchasers may seek rescission
until approximately October 1, 2008 which would result in the Company being
held liable for funds not returned.
Our certificate of incorporation and bylaws and the Delaware General Corporation
Law contain provisions that could discourage an acquisition or change of control
of Skreem.
Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire control of us. These provisions include a
denial of cumulative voting rights, limitations on shareholder proposals at
meetings of shareholders, and restrictions on the ability of our shareholders to
call special meetings. In addition, the Delaware General Corporation Law imposes
restrictions on mergers and other business combinations between us and any
holder of 15 percent or more of our outstanding common stock.
These provisions of Delaware law and our certificate of incorporation and bylaws
may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in his best interest, including attempts that might
result in a premium over the market price for the common stock.
CAUTION ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Business" and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. When used in this prospectus, the words "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "seeks," "should" or "will" or the negative of these terms or similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors."
8
USE OF PROCEEDS
All proceeds received by Skreem from the sale of shares will be used for the
general purpose of working capital. Assuming a sales price of $1.00 per share,
the following would be our use of proceeds assuming 25%, 50%, 75% and 100% of
the securities offered being sold.
Amount of Securities Sold 100,000 * 500,000 1,000,000 1,500,000 2,000,000
shares shares shares shares shares
Gross Proceeds $100,000 $500,000 $1,000,000 $1,500,000 $2,000,000
======== ======== ========== ========== ==========
Expenses of the Offering $35,000 $35,000 $35,000 $35,000 $35,000
======== ======= ======= ======= =======
Working Capital $65,000 $465,000 $965,000 $1,465,000 $1,965,000
======== ======== ======== ========== ==========
* Represents the minimum to be sold
We anticipate the following detailed uses of working capital as follows:
- Hire additional marketing and promoting staff;
- Purchase additional advertising for artists currently promoted by Skreem;
- Develop website and increase internet presence through purchased marketing;
- Form additional recording acts through training, coordinating and consulting
with talent acts;
- Service debt with interest payments (the Company anticipates that no
proceeds will be used to retire debt) - Contract with producers,
choreographers, and writers to develop current acts;
We will not receive any proceeds from the sales, if any, of the shares currently
issued and outstanding. The sale of shares currently issued and outstanding will
be restricted until after the 2,000,000 shares offered in this prospectus are
sold or 180 days from the effective date of this registration statement.
DETERMINATION OF OFFERING PRICE
The purpose of this offering is to sell 2,000,000 shares of common stock and to
register our common stock outstanding as of August 12, 2005 for resale by the
selling shareholders. As such the offering price applies to the 2,000,000 shares
offered.
There is no established public market for the common stock being registered. As
such, the offering price was determined arbitrarily. As the Company's
liabilities exceed the Company's assets by approximately 1.85 million dollars at
March 31, 2005, the Company determined that an offering price of $1 per share
with an offering of $2,000,000 shares was necessary to allow the Company to
continue operations, particularly, to allow the Company to continue operations
while maintaining and expanding the search and development of talent acts.
DILUTION
Our net book value (deficit) as of June 30, 2005, with 23,107,856 shares
outstanding, was approximately ($2,327,939) or ($0.10) per share before giving
effect to the offering. Net book value represents the amount of total tangible
assets less total liabilities, divided by the number of shares outstanding.
Assuming the sale of 2,000,000 shares and after deducting offering expenses
estimated at $35,000, our adjusted net book value (deficit) as of June 30, 2005
would have been approximately ($362,939) or ($0.01) per share. This represents
an immediate increase in net book value of $0.09 per share for June 30, 2005 to
the existing shareholders and an immediate dilution in net book value of $1.01
per share for June 30, 2005 to the new investors in the shares in this offering.
The following table illustrates this per share dilution:
June 30,
2005
Offering price per share $ 1.00
Net book value per share prior to the offering (.10)
Increase per share attributable to new investors .09
Adjusted net book value per share after the offering .01
Dilution per share to new investors 1.01
Further, assuming the sale of the minimum amount of 100,000 shares, and after
deducting offering expenses estimated at $35,000, our adjusted net book value
deficit as of June 30, 2005 would have been approximately ($2,262,939) or
($0.10) per share. This represents no significant change to the existing
shareholders for March 31, 2005 and an immediate dilution in net book value of
$1.10 per share to the new investors in the shares in this offering. The
following table illustrates this per share dilution:
9
March 31
2005
Offering price per share $ 1.00
Net book value per share prior to the offering (.10)
Increase per share attributable to new investors .00
Adjusted net book value per share after the offering (.10)
Dilution per share to new investors 1.10
SELLING SECURITY HOLDERS
The registration includes 23,107,856 shares offered on behalf of the selling
shareholders and 2,000,000 shares offered for sale by the company. The following
table sets forth, as of June 30, 2005 the name, and number of shares of each
shareholder holding more than 5% of the issued and outstanding common stock as
well as their position, office, or other material relationship, with the
Company, within the past three years.
The shareholders will be restricted from the sale of the 23,107,856 shares until
the earlier of the sale of the 2,000,000 shares offered by this prospectus or
the expiration of the 180 day offering period beginning on the effective date of
this registration statement. The selling shareholders are deemed underwriters.
Position, office,
Share amount or other relationship Amount offered Share amount owned
before with by the selling after the resale
Name offering the registrant shareholder offering
-------------- -------------- --------------------- ---------------- -------------------
Jeffrey Martin 21,350,000 Shareholder, promissory 21,350,000 -
(1) note holder
Charles Camorata 200,000 Director, Chief 200,000 -
Executive Officer
Tony Harrison 200,000 Director 200,000 -
Karen Pollino 100,000 Director, Secretary,
Chief Financial Officer 100,000 -
All others 1,257,856 1,257,856 23,107,856
============= ============= ==============
Total 23,107,856 23,107,856 23,107,856
(1) Includes shares owned by Martin Consultants, Inc., Neither Mr. Martin, nor
Martin Consultants, Inc. are registered broker-dealers or affiliates of
registered broker-dealers.
PLAN OF DISTRIBUTION
This offering consists of 2,000,000 common shares, $0.001 par value per share,
offered by us for $1.00 per share in addition to the registration of 23,107,856
shares already issued and outstanding. The shares are offered on a best efforts
minimum / maximum basis by the officers of Skreem. The offering will end one
hundred and eighty (180) days after the effective date of the registration
statement, during which period we will keep this registration statement current
by updating the financial statements, related financial disclosures, and
information on the operations of the Company.
If the minimum of 100,000 shares is not met before 180 days after the effective
date of the registration statement, all proceeds will be returned to the
shareholders promptly.
10
Pursuant to the Securities Exchange Act of 1934, any person engaged in a
distribution of the common stock offered by this prospectus may not
simultaneously engage in market making activities for our common stock during
the applicable "cooling off" periods prior to the commencement of the
distribution.
We have advised the shareholders and officers of Skreem, that during the time as
they may be engaged in a distribution of any of the shares we are registering by
the Registration Statement, they are required to comply with Regulation M
promulgated under the Securities Exchange Act of 1934. In general, Regulation M
precludes any selling shareholder, any affiliated purchasers and any
broker-dealer or other person who participates in the distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase,
and any security which is the subject of the distribution until the entire
distribution is complete. Regulation M defines a "distribution" as an offering
of securities that is distinguished from ordinary trading activities by the
magnitude of the offering and the presence of special selling efforts and
selling methods. Regulation M also defines a "distribution participant" as an
underwriter, prospective underwriter, broker, dealer, or other person who has
agreed to participate or who is participating in a distribution.
Regulation M prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security, except
as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. We have advised the selling
shareholders that stabilizing transactions permitted by Regulation M allow bids
to purchase our common stock so long as the stabilizing bids do not exceed a
specified maximum, and that Regulation M specifically prohibits stabilizing that
is the result of fraudulent, manipulative, or deceptive practices. The selling
shareholders and distribution participants will be required to consult with
their own legal counsel to ensure compliance with Regulation M.
Subject to any future contingencies, the following table is an itemization of
all expenses that we have incurred or we expect to incur in connection with the
issuance and distribution of the securities being offered hereby. Items marked
with an asterisk (*) represent estimated expenses. We have agreed to pay all the
costs and expenses of this offering.
Item expense
SEC Registration Fee $ 253
Legal Fees and Expenses* 25,000
Printing registration statement and other documents* $ 1,747
Accounting Fees and Expenses* $ 8,000
-------
Total $ 35,000
=======
The officers and directors claim an exemption from broker status under Rule
3a4-1 of the Securities Exchange Act of 1934. The Directors and Officers are not
subject to any statutory disqualification, will not be compensated in connection
with participation in the issuance based directly or indirectly on transactions
in the Company's securities, are not associated persons of a broker, perform
substantial duties for or on behalf of the issuer other than in connection with
transactions in securities, were not, and were not associated with,
broker/dealers in the previous 12 months, and will not participate in the sale
of securities for an issuer more than once every 12 months.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding. We are not aware of any
contemplated legal proceeding by a governmental authority or a private party
involving Skreem.
11
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
Our Bylaws provide that we shall have three directors. Vacancies are filled by a
majority vote of the remaining directors then in office. Our directors and
executive officers are as follows:
Age Positions Held Officer / Director Since
--- -------------- -------------------------
Name
Principal Executive Officer & January 31, 2004
Charles Camorata 51 Director
Tony Harrison 47 Vice President & Director January 31, 2004
Chief Financial Officer &
Karen Pollino 54 Director January 31, 2004
The following is the business background of each officer and director.
Charles Camorata. Mr. Camorata was a founder of and has been employed by
Skreem Entertainment Corporation since August 1999 and was appointed Chief
Executive Officer and director of the Company on January 31, 2004. From
1980-1999 he was the owner and president of Camorata Productions, Inc. an entity
which composed, arranged and produced music as well as designed audio and visual
systems for theme parks and recording studios. He has composed and published 35
musical arrangements.
Tony Harrison. Mr. Harrison joined Skreem Entertainment Corporation in
August 2003 and was appointed Vice President and director of the Company on
January 31, 2004. Since 1996 he has operated a recording studio just outside
Cologne Germany and produces records in Europe under the "Captain Hollywood"
label.
Karen Pollino. Ms. Pollino joined Skreem Entertainment Corporation in
August 1999 on an as-needed basis and was appointed Secretary/Treasurer and
director of the Company January 31, 2004. From 1997 to 2005, Ms. Pollino has
been employed by Martin Consultants, Inc. as Secretary/Treasurer. From 1990 to
1997 she was employed by Sorex Medical of Salt Lake City where she had oversight
responsibility of purchasing and customer service.
Except as indicated below, to the knowledge of management, during the past
five years, no present or former director, or executive officer of the Company:
(1) filed a petition under the federal bankruptcy laws or any state insolvency
law, nor had a receiver, fiscal agent or similar officer appointed by a
court for the business or property of such person, or any partnership in
which he was a general partner at or within two years before the time of
such filing, or any corporation or business association of which he was an
executive officer at or within two years before the time of such filing;
(2) was convicted in a criminal proceeding or named subject of a pending
criminal proceeding (excluding traffic violations and other minor
defenses);
(3) was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from or otherwise limiting, the
following activities:
(i) acting as a future commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, associated person of any of the foregoing, or as
an investment advisor, underwriter, broker or dealer in securities, or
as an affiliate person, director or employee of any investment company
or engaging in or continuing any conduct or practice in connection with
such activity;
(ii) engaging in any type of business practice; or
(iii)engaging in any activity in connection with the purchased or sale of
any security or commodity or in connection with any violation of
federal or state securities laws or federal commodities laws;
12
(4) was the subject of any order, judgment, or decree, not subsequently
reversed, suspended, or vacated, of any federal or state authority barring,
suspending, or other wise limiting for more than 60 days the right of such
person to engage in any activity described above under this Item, or to be
associated with persons engaged in any such activity;
(5) was found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission to have violated any federal or state
securities law, and the judgment in such civil action or finding by the
Securities and Exchange Commission has not been subsequently reversed,
suspended, or vacated.
(6) was found by a court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
The directors named above will serve until the next annual meeting of our
shareholders to be held within six (6) months of the close of our fiscal year or
until a successor shall have been elected and accepted the position. Directors
are elected for one year terms.
Charles Camorata and Tony Harrison devote 100% of their time in
the development and operation of Skreem, and they do not participate in any
other significant business activities. Karen Pollino provides her services on
an as needed basis.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Title of Name and Amount and Percent of Class
Class Address Nature of Beneficial Owner
of Beneficial Owner
---------- ------------------- ----------- ---------------------
Common Jeff Martin 21,350,000 92.4%
1802 Crescent
Orlando, FL 32817
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.001 per share, and 1,000,000 shares of preferred stock, par value
$0.001 per share. The following summary of the material matters relating to our
common stock and preferred stock is qualified in its entirety by reference to
our certificate of incorporation and bylaws.
Common Stock
As of September 12, 2005, there were 23,107,856 shares of our common stock
outstanding.
The holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of our shareholders, including the
election of directors, and do not have cumulative voting rights. Subject to
preferences that may be applicable to any then outstanding series of our
preferred stock, holders of our common stock are entitled to receive ratably
such dividends, if any, as may be declared by our board of directors out of
legally available funds. Upon our liquidation, dissolution or winding up, the
holders of our common stock will be entitled to share ratably in the net assets
legally available for distribution to our shareholders after the payment of all
our debts and other liabilities, subject to the prior rights of any series of
our preferred stock then outstanding. The holders of our common stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of our common stock are fully paid and non-assessable.
Preferred Stock
As of September 12, 2005, no shares of our preferred stock were outstanding.
Our board of directors has the authority, without further action by our
shareholders, to provide for the issuance of our preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers and
relative, participating, optional or other special rights and the qualifications
or restrictions on such rights. The preferences, powers, rights and restrictions
of different series of our 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 a series of our preferred stock could decrease the
amount of earnings and assets available for distribution to holders of our
common stock or affect adversely the rights and powers, including voting rights,
of the holders of our common stock, and may have the effect of delaying,
deferring or preventing a change in control of us.
13
Provisions having possible anti-takeover effects
Our certificate of incorporation and the bylaws contain provisions that could
have an anti-takeover effect. These provisions may discourage certain types of
transactions that may involve an actual or threatened change of control of
Skreem Entertainment Corporation.
Our board of directors has broad powers to fix by resolution the powers,
preferences and rights of any new series of preferred stock. This power could be
used to create a class of preferred stock that, because of its rights, could
discourage a potential takeover. Additionally, our bylaws give the board of
directors power to fill vacancies on the board without shareholder approval. As
a result, an incumbent board, not a potential bidder, would have control over
board positions in the period between annual meetings of shareholders. Our
bylaws also provide for an advance notice procedure governing business to be
brought before an annual meeting of shareholders, which could discourage a
potential bidder from taking action at a meeting.
We are subject to the provisions of Section 203 of the DGCL. In general, this
statute prohibits a publicly held Delaware corporation from engaging in a
"business transaction" with an "interested stockholder" for a period of three
years after the date that the person became an interested stockholder unless
(with certain exceptions) the business combination or the transaction in which
the person became an interested stockholder is approved in a prescribed manner.
A "business combination" generally includes a merger, asset or stock sale or a
transaction resulting in a financial benefit to the interested stockholder. An
"interested stockholder" generally is a person who, together with affiliates and
associates, owns (or within the three prior years did own) 15 percent or more of
a corporation's outstanding voting stock.
Transfer Agent
The transfer agent for our common stock is OTC stock transfer.
INTEREST OF NAMED EXPERTS AND COUNSEL
Our audited consolidated financial statements included in this prospectus and
elsewhere in the registration statement to the extent and for the periods
indicated in their reports have been audited by Thomas Leger & Co., L.L.P., an
independent registered public accounting firm, and Ham Langston & Brezina, LLP,
an independent registered public accounting firm, and are included herein in
reliance upon the authority of said firms as experts giving said reports.
Vanderkam & Associates will pass upon the validity of the common stock offered
hereby for us.
DISCLOSURE OF COMMISSIONS POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "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 Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore, unenforceable.
DESCRIPTION OF BUSINESS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations, business strategies, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing products, plans and objectives of management. Statements in this
periodic report that are not historical facts are hereby indentified as
"forward-looking statements".
Business
The Company was incorporated in Delaware on June 11, 1992. On May 28, 1998,
the Company changed its name from Plasmatronics Technologies, Inc. to Ecological
Services, Inc. and on January 3, 2003 changed its name to Stanford Capital
Corporation. In December 2002, the Company acquired all the issued and
outstanding shares of Stanford Capital International, Ltd. a Hong Kong based
public relations firm for 10,000 shares of its common stock. This transaction
was subsequently revoked. On January 31, 2004, the Company acquired all of the
shares of Skreem Entertainment Corporation in exchange for 22,000,000 shares of
its one for five post reverse split common shares. Skreem Entertainment
Corporation promotes finances and manages artists in the entertainment industry.
14
Overview
Our business is to locate and promote recording talent.
The Company is constantly seeking talent for recording and performing. Company
employees utilize their industry contacts and experience to locate prospective
music acts, including music groups and individuals, and evaluate these acts to
determine if, from the Company's perspective, such acts demonstrate the talent
potential to succeed in the music industry.
Upon locating an act that the Company believes has the potential for success,
the Company will sign the act to a contract. Upon signing a typical contract,
the Company at its option will advance funds to the artist to pay for travel,
arrange for performances, schedule public appearances and generally promote the
act, and the act's music, in exchange for a percentage of the revenues generated
by the act's performances and music sales.
Once the Company has located an act it wishes to promote, the Company will
determine where to promote the artist. It is the Company's strategy to promote
talent outside of the United States until the talent has demonstrated the
ability to sell music or tickets to performances. Once an act has gained some
level of success abroad, the Company intends to promote and market the act in
the United States. The Company believes that promoting abroad is a viable
approach because it costs less initially, foreign markets are very receptive to
American type music acts, and there is less competition. There is no set time
frame for introduction of an act into the U.S. The acts will be introduced when
they have achieved a level of success abroad which leads the Company to conclude
they will be successful in the U.S.
We believe that an act will demonstrate potential, if any, with approximately
1-2 years of promotion. We evaluate our acts approximately every 4 months to
decide whether or not we believe it is in the Company's best interest to
continue promoting the act.
We estimate that it will cost between $100,000 and $300,000 per quarter to
promote an act abroad. The actual amount is difficult to predict. As an act
becomes more successful it will require more promotion, but will also begin to
generate revenue which will partially offset promotion costs.
Distribution
The Company distributes its acts in two different ways. The first is through
concerts and public appearances. An act will perform and tour playing concerts
as frequently as possible to increase public awareness of their music. An act
will also make public appearances at retail centers, public places and other
events also to increase the act's public awareness.
The second way the act gains publicity is through licensing and sales of the
act's music. The Company does not sell records or other music media, however, it
does license master recordings to other organizations which distribute the
recordings in various media. The Company receives royalty payments pursuant to
licensing agreements which are a percentage of revenues from distribution of the
recordings.
The Company's artists music is currently being distributed by various
organizations throughout Europe and in other countries. Further description is
provided in the Plan of Operation under Item 6.
Licensing
From time to time the Company enters into licensing agreements with music
production and distribution companies. The license agreements typically grant
the production and distribution company rights to a music single or all of an
act's music in a particular country or region with a term of three to fifteen
years. The production or distribution company can then distribute the music in
record or cd format, mp3, ringtone, or any other music media licensed in the
agreement. The Company typically receives royalties of a negotiated percentage
between 18% and 75% of sales of the production and distribution company's
published dealer price less certain packaging deductions. In addition, the
Company shall receive between 18% and 75% of net royalty receipts received by in
the particular nation or region. In connection with the license agreement, the
Company may receive a cash advance.
95% of the Company's revenue for the year ended March 31, 2005 came from the
licensing agreement with Cheyenne Records.
15
Exclusive Artist Recording Agreements
As of June 30, 2005, the Company had entered into long-term Exclusive Artist
Recording Agreements with five artists, which include the three Artists of "3rd
Wish", the Artist "PatMoe" and the Artist "Precious Dawn Francis" for the
purpose of engaging the exclusive personal services of the Artists for making
master sound recordings for distribution in any medium. The territory for the
agreements shall be worldwide. All master recordings made by the Artists during
the terms of the agreements shall be recorded by the Artists on the Company's
behalf, and all phonograph records and related performances shall be the entire
property of the Company; the Company shall have the right to secure sound
recording copyright; and the Company and its licensees shall have the sole and
exclusive right to use the recordings throughout the world or any part thereof
in any manner it sees fit. The Company may pay all specifically approved
recording costs in connection with the master recordings made hereunder, and all
recording costs shall be deemed fully recoupable advances to the Artists and
shall be deducted from any and all royalties payable to the Artist by the
Company under this or any and all royalties payable to the Artists by the
Company. Any and all monies paid to or on behalf of the Artists during the term
of the agreement shall be fully recoupable, non-returnable advances unless
otherwise expressly agreed in writing between the Company and the Artists. The
Company has the right, but not the obligation to have the Artists participate in
the creation of music videos and 100% of any and all monies expended by or
advanced by the Company for the production of music videos shall constitute
additional fully recoupable advances hereunder. The Company shall own any and
all rights in and to said music videos in perpetuity.
In its sole discretion, the Company may choose, at any time during the term of
the agreements, to license master recordings made by the Artists to third
parties on a flat fee or royalty basis, or to enter into a distribution
agreement with a third party distributor for the distribution of phonograph
records embodying master recordings recorded by the Artists through normal
retail channels in the United States and worldwide. With respect to master
recordings of the Artists licensed to third parties on a flat-fee basis, the
Company shall pay the Artists 20-50% of the net amount received by the Company
under such license. With respect to master recordings of the Artists licensed to
third parties on a royalty basis, and with respect to phonograph recordings
released through a distributor selected by the Company, the Company shall pay
the Artists the lesser of 20-50% of the Company's net earned royalty receipts
under such license or distribution agreement, or 20-50% of the basic album or
single rate as defined in the agreements. Further, in its sole discretion, the
Company may choose to commercially release phonograph records through the
Company's own distribution network. In such event, the Company agrees to pay the
Artists royalties based on the basic album or singe rate as defined in the
agreements. For phonograph recordings that are exported or sold outside the
United States and through record clubs or similar plans, the Artists shall be
paid a royalty of 20-50% of the amounts provided of the above mentioned amounts.
In addition, the Artists may earn royalties related to licenses for musical
compositions, music video licenses and merchandising.
At June 30, 2005, the Artists had earned royalties of approximately $34,700,
based on total reported licensing revenues. However, the Company is not
obligated to pay any royalties until total advances to Artists of approximately
$1,286,748 at June 30, 2005 (plus any future advances) have been recouped.
16
Music Publishing Agreements
At June 30, 2005, the Company had entered into long-term Music Publishing
Agreements with four individual Writers, which include the three Artists of "3rd
Wish" and the Artist "PatMoe". The Company engaged the Writers to render the
Writer's exclusive services as songwriters and composers based upon terms and
conditions set forth in the agreements. In accordance with the agreements, the
Writers grant all rights to all musical compositions written or owned by the
Writers and all musical compositions shall be the Company's exclusive property
as sole owner. The Company shall pay royalties to the Writers based on various
terms and conditions set forth in the agreements. There have been no royalties
earned by the writers related to the agreements.
Personal Management Agreement
At June 30, 2005, the Company had entered into long-term Personal Management
Agreements with four Artists, which include the three Artists of "3rd Wish" and
the Artist "PatMoe". The Company accepts the engagement as the Artists' sole and
exclusive personal management company in connection with all activities in the
entertainment industries throughout the world, including but not limited to
their services as musicians, songwriters, actors, publishers, packagers or
performers in any medium now known or hereafter devised. For personal management
services performed, the Artists agree to pay the Company 15% of all gross
compensation earned or received as a result of activities in the entertainment
industry. However, the Company shall not be entitled to commissions by the
Artists from the sale, license, or grant of any literary or music rights to the
Company or any person, firm, or corporation owned or controlled by the Company.
During the year ended March 31, 2005, the Company earned commissions of $3,241,
all related to live performances. No commissions were earned during the three
month period ended June 30, 2005.
Competition
The Company's acts face fierce competition. There is no shortage of acts and
musicians seeking fortune and fame. There is also no shortage of talent in the
music industry. The Company believes that their approach of being selective when
choosing acts, refining these acts abroad, and marketing the acts through
appearances, performances, and music sales is a viable method to compete in the
music industry. However there are many other organizations with more capital to
spend, greater access to talent, better industry connections, and more
experience.
The Company's future depends on the success of it's acts and artists. Many music
acts spend entire careers without having a single popular song or tour. The most
talented artists and acts are not always the most successful and fan acceptance
is the most important and most difficult element of success. If the fans like
the act, the fans will purchase the music and tickets and recommend it to
friends. If the fans don't like the act, the act may never gain acceptance.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
The Company plans to continue operations by developing current acts into
successful music performing and recording acts. The Company currently is
actively promoting two acts, "3rd Wish" and "Pat Moe". These two acts will
tour, perform, make public appearances, and continue to record as opportunities
are located. The Company is uncertain as to when these acts may enter the
U.S. market. As of June 30, 2005, neither of the Company's acts have received
gold records for album sales.
The countries in which the Company is currently promoting its acts are as
follows:
Pat Moe 3rd Wish
-------- ----------
Germany, Switzerland, Austria Germany, Switzerland and Austria
UK, Eire
Australia, New Zealand
France, Andorra, Monaco, Belgium
Russia, Azerbaijan, Armenia, Georgia, Moldova
Kazakstan, Krygyzstan, Tajikistan, Uzbekistan,
Turkmenistan, Ukraine, Republic of Belarus,
Lithuania, Latvia, Estonia
Isreal
Portugal
The Company's cash balance is insufficient to satisfy the Company's cash
requirements for the next 12 months. The Company believes it can satisfy it's
cash requirements for 3 months with current cash. The Company is dependent on
continued receipt of revenues and will need outside funding from the sale of
shares or debt financing in order to continue operations beyond that.
17
The Company does not anticipate acquiring any significant equipment during the
next twelve months.
The Company does not anticipate any significant changes in the number of
employees in the next twelve months. The Company has two full time employees.
The Company has entered into various license agreements which grant certain
exclusive rights to sell and distribute certain recordings by "3rd Wish".
Approximately 95% of the Company's revenue for the year ended March 31, 2005
came from the Cheyenne Records agreement. The remaining contracts represent,
individually, less than 1% of revenue. The table below sets forth the parties,
material terms, and territories covered by these license agreements:
Party(Licensee) Territories
Cheyenne Records Germany, Switzerland and Austria
Our agreement with Cheyenne Records provide
that Cheyenne will market and sell 3rd Wish's
recordings for a period of 5 years beginning
in March 2004. Cheyenne will retain
approximately 25% to 45% of revenue from
distribution and sales and the Company
will pay the costs of production. The term
of the contract is 5.5 years from May 2004
Three 8 Music Limited UK, Eire
Our agreement with Three 8 provides that they
will receive royalties from 3rd Wish's first
three singles released. Royalties are 19%
on record sales and 50% on third party
licensing. The term of the contract is
15 years from October 2004
Shock Records Pty Ltd Australia, New Zealand
Our agreement with Shock Records provides for
royalties of 18-22% on album sales and 50% to
Shock for third party licensing. The term of
the contract is approximately 5 years from
January 2005.
NRJ Music France, Andorra, Monaco, Belgium
Our agreement with NRJ provides for royalties
of 13-22% for record sales. The Company will
bear the costs of production, the term is 5
years from January 2005.
Megaliner Records Russia, Azerbaijan, Armenia, Georgia, Moldova,
Our agreement with Kazakstan, Kyrgyzstan, Tajikistan, Uzbekistan,
Megaliner provides
Megaliner with 20% of
income from record sales Turkmenistan, Ukraine, Republic of Belarus,
and 60% of third party
licensing and broadcasting Lithuania, Latvia, Estonia
revenue. The term is three
years.
NMC Music Ltd. Israel
NMC will receive royalties
of approximately 18% of all
record sales. The contract
expires in December 2009.
Vidisco Portugal
Vidisco will receive a
royalty of approximately 18%
of all record sales. The
contract expires in January
of 2010.
Revenue is recognized in accordance with Staff Accounting Bulleting No. 104 (SAB
104) when persuasive evidence of an arrangement exists, the price to the buyer
is fixed or determinable; delivery had occurred or services have been rendered
or the license period has begun; and collectibility is reasonably assured.
Revenue from the distribution of recordings under license and distribution
agreements is recognized as earned under the criteria established by Statement
of Financial Accounting Standard No. 50. Revenue is generally recognized when
the Company receives an "accounting" of recordings sold with payment from the
licensee. In the event the Company has not received an "accounting" from the
licensee and if the Company has information related to the licensed use of
recordings that would result in the revenue being fixed and determinable, and
collection is reasonably assured, then revenue is recognized in the periods in
which the license revenue is earned. Minimum guarantees (advances) received from
licensees are recorded as deferred revenue and are amortized over the
performance period, which is generally the period covered by the agreement.
Results of Operations
In January 2004, the Company consummated a reverse merger transaction and
elected to continue the fiscal year of the legal acquirer (registrant), which
gives rise to a three month transition period for the three month period ended
March 31, 2004.
For Years Ended March 31, 2005 and 2004
The Company presents this discussion and analysis as a comparison between the
audited financial data for March 31, 2005 and the unaudited financial data for
March 31, 2004 for informational purposes.
Year Ended March 31, 2005 Compared to the Year Ended March 31,
2004 (unaudited)
Revenues. The Company had $120,862 of revenue for the year ended March 31, 2005
compared to $176 of revenue for the year ended March 31, 2004 (unaudited). The
substantial increase in revenue is due to earnings from licensing agreements to
distribute 3rd Wish's music.
18
Operating Expense. Operating expenses for the year ended March 31, 2005,
were $1,310,933, an increase of $722,188 or 123% from $588,745 for the year
ended March 31, 2004 (unaudited). The increase is primarily due to an increase
in production expenses related to video shoots and recordings of approximately
$495,000, an increase in advertising of approximately $116,000, and an increase
in travel and related support for artists in Germany of approximately $108,000.
General and Administrative Expenses. General and administrative expenses
increased 92% to $318,150 for the year ended March 31, 2005 from $166,083 for
the year ended March 31, 2004 (unaudited). This increase is primarily
attributable to a $162,000 increase in legal, accounting, and other professional
fees from the reverse merger transaction and Securities and Exchange Commission
filings.
Interest Expense. Interest expense increased 45% to $84,248 for the year ended
March 31, 2005 from $57,836 for the year ended March 31, 2004 (unaudited). This
decrease is attributable to having more debt outstanding for the year ended
March 31, 2005.
As a result of the foregoing, the net operating loss of the company increased
96% to $1,592,469 for the year ended March 31, 2005 from $812,488 for the year
ended March 31, 2004 (unaudited).
Liquidity and Capital Resources
As of March 31, 2005, the Company had cash of $52,195 and a deficit in working
capital of $1,855,073.
For the year ended March 31, 2005, the Company used $1,526,207 in
operating activities which is primarily due to a net loss of $1,592,469, an
increase in accounts receivable of $114,257, and an increase in prepaid expenses
and deposits of $15,695. These are offset by depreciation expense of $8,465,
expenses paid by shareholder and affiliate of $53,026, increase in accounts
payable and accrued liabilities of $30,159, increase in interest payable to
affiliates of $69,236, and an increase in deferred revenue of $35,328.
For the year ended March 31, 2005, the Company used $11,440 for investing
activities. All of the cash used by investing activities was for the purchase of
equipment.
For the year ended March 31, 2005 cash provided by financing activities was
$1,586,928. The amount represents $301,928 provided by the issuance of common
stock, $365,000 which is the proceeds from notes payable reduced by $265,000 in
principal payments made, $880,000 which represents the proceeds from notes
payable to a shareholder reduced by $80,000 in principal payments made, and
$475,000 which represents notes payable to affiliates reduced by $90,000 in
principal payments made.
Our expenses for the year ended March 31, 2005 totalled
$1,629,083. We anticipate expenses to remain approximately the same for the
year ending March 31, 2006 and will require revenue and capital sufficient to
meet those expenditures. The Company will require significant more cash in order
to continue beyond March 31, 2006. The Company will need at a minimum $1.5
million per year to continue operations.
Results of Operations for the Three Month Period Ended June 30, 2005 and 2004
Revenues - The Company recorded revenue of $22,759 for the three months ended
June 30, 2005. The revenue for this period consists of earnings from licensing
agreements to distribute 3rd Wish's music. There was no revenue during the three
months ended June 30, 2004.
Operating expenses - Operating expenses for the three months ended June 30, 2005
were $362,823, an increase of $124,651 or 52% from the $238,172 for the
corresponding period ended June 30, 2004. The increase is primarily due to tour
expenses of $41,777 that were not incurred for the three months ended June 30,
2004, an additional artist and an increase in travel and support for artist in
Germany of approximately $126,000, an increase in Website fees of $9,741, which
were offset by an overall decrease in music production and promotion costs of
approximately $56,000.
General and Administrative Expenses - General and administrative expenses
increased by $12,616 or 13% to $106,166 for the three months ended June 30, 2005
from $93,550 for the corresponding period ended June 30, 2004. This increa se is
primarily attributable to an increase in legal and accounting fees of $7,477 and
an overall increase in other general and administrative expenses of $5,139.
Interest Expense - Interest expense increased by $25,518 or 232.21% to $36,507
for the three months ended June 30, 2005 from $10,989 for the corresponding
period of the prior year. This increase is attributable to having additional
debt outstanding during the three months ended June 30, 2005.
Liquidity and Capital Resources
As of June 30, 2005, the Company had cash of $14,720 and a deficit in working
capital of $ 2,336,917. This compares with cash of $52,195 and a deficit in
working capital of $1,855,073 as of March 31, 2005.
Cash used in operations decreased by $ 100,207 to $236,475 for the three months
ended June 30, 2005 from $336,682 for the corresponding period of the prior
year. The decrease is principally attributable to an increase in the net loss of
$ 140,026, expenses paid by shareholder of $35,000, decrease in accounts
receivable of $114,257, increase in accounts payable and accrued liabilities of
$80,538, an increase in interest payable to affiliates of $30,008 which was
offset by a decrease in deferred revenue of $15,990.
Cash provided by financing activities for the three months ended June 30, 2005
was $199,000 from the issuance of promissory notes. This compares with $396,828
of cash being provided from financing activities during the three months ended
June 30, 2004, $266,828 from the issuance of common stock and the remainder from
promissory notes.
Because of the continued net operating losses of the Company, the Company will
not be able to continue as a going concern unless it is able to sell its shares
or obtain third and/or related party loans. Although the principal shareholder
and affiliates of the Company have been willing to lend funds to the Company in
the past, there is no obligation for them to do so in the future. Without such
funding, or the sale of its shares, the Company will have insufficient funds to
execute its business plans for the next twelve months.
The Company will continue seeking on increased publicity for its musical acts
and will pursue public appearances for performing and media interviews. The
Company anticipates that this will result in increased revenues with the
ultimate goal being the release of a hit record by one or more of the Company's
acts. The Company will continue promoting its artists as much as possible.
DESCRIPTION OF PROPERTIES
The Company's administrative offices are located in a leased office
facility located at 11637 Orpington Street, Orlando, Florida 32817. The facility
contains approximately 2,000 square feet of office space. There is no lease on
the facility nor is there a rental fee as the property is owned by the principal
shareholder of the Company (post merger).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company promotes a music act named 3rd Wish. Jeffrey Martin's son Justin
Martin is a member of this group. Jeffrey Martin is our largest shareholder.
The Company has advanced $376,756 as of March 31, 2005 to Justin Martin. The
advances are for living expenses including housing and travel in connection with
his presence in Europe for performances, music production and promotion.
The Company's Board of Directors held a meeting on August 30, 2003 and
unanimously approved a proposal received from Martin Consultants, Inc. and JT
Investments, Ltd., affiliates of the Company, to convert the debt and accrued
interest owed by the Company to equity. Martin Consultants, Inc. and JT
Investments, Ltd. are 100% and 50%, respectively owned by Jeffrey D. Martin. The
notes payable of $1,373,600 and related accrued interest of $208,383 were
reclassified to equity on August 31, 2003 and Martin Consultants, Inc. was
issued 43,000 shares (pre-merger) of common stock.
On November 18, 2004, the Company borrowed $25,000 (unsecured) from Jeffrey
Martin Real Estate Co., a company owned by Jeffrey D. Martin. The note bears
interest at the rate of 8% per year. The note and related interest expense of
$895 were paid during the year ended March 31, 2005.
On May 26, 2004 the Company borrowed $100,000 from Sugarcreek Capital, LLC. The
terms of the note call for repayment of $104,000 on or before July 30, 2004. As
security for the loan, Jeffrey D. Martin, a major stockholder, put up his 1/3
interest in Osceola Partners. On August 19, 2004 the note payable to Sugarcreek
Capital, LLC was transferred to Jeffrey D. Martin, a major stockholder, in
exchange for his 1/3 interest in Osceola Partners. This note is payable on
demand.
During the year ended March 31, 2005, Jeffrey D. Martin loaned the Company
$825,000. The notes are payable on demand and bear interest at the rate of 8%
per year. Accrued interest at March 31, 2005 was $17,144. Total principal
payments of these notes were $80,000 during the year ended March 31, 2005. The
total outstanding as of June 30, 2005 is 745,000.
On January 27, 2004, the Company borrowed $39,592 from JT Investments. The note
is unsecured, bears interest at the rate of 8% per year and is payable on
demand. The entire principal balance is outstanding at March 31, 2005. The
Company recorded interest expense of $564 and $3,167 related to the note for the
three months ended March 31, 2004 and year ended March 31, 2005, respectively.
At March 31, 2005, the balance of notes payable to Martin Consultants, Inc., a
company owned by Jeffrey D. Martin, was $879,028. The notes bear interest at the
rate of 8% per year and are secured by assets of the Company.
19
Notes payable to shareholders and affiliates consist of the following at March
31, 2005:
Notes payable upon demand to Jeffrey Martin
secured by the assets of the
Company, interest at 8% per annum $ 845,000
Notes payable upon demand to Martin Consultants, Inc., 879,028
secured by the assets of the
Company, interest at 8% per annum
Note payable upon demand to JT Investments, Ltd.,
unsecured, interest at 8% per annum 39,592
---------
$ 1,763,620
=========
Accounts payable due to an affiliate consisted of $9,254 for health insurance as
of March 31, 2005.
The Company promotes an artist who is the son of the Company's major
shareholder. Total advances to the son are approximately $425,426 as of June 30,
2005. The son, Justin Martin is a member of the music group "3rd Wish."
On March 1, 2003, the Company entered into an agreement with All Star Consulting
to establish a fee of $5,000 per month plus rent of an apartment and lease of
a car for services rendered as a Manager of Artists in Germany. Effective
January 1, 2005,the Company amended the agreement to increase the fee paid to
All Star Consulting to $6,500 per month. All Star consulting is owned by Tony
Harrison, who is a Vice President and Director of the Company. In connection
with the agreement, the Company expensed promotion fees of approximately
$64,500, $15,000 and $50,000 for the year ended March 31, 2005, three months
ended March 31, 2004, and the year ended December 31, 2003, respectively.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for our securities. None of our
common stock is subject to outstanding options or warrants to purchase our
shares. There are 23,107,856 shares of our common stock outstanding, all of
which are restricted securities. The restricted securities as defined under Rule
144 of the Securities Act may only be sold under Rule 144 or otherwise under an
effective registration statement or an exemption from registration, if
available. Rule 144 generally provides that an affiliate, including directors,
officers and control shareholders, who has satisfied a one year holding period
for the restricted securities may sell, within any three month period subject to
certain manner of resale provisions, an amount of restricted securities which
does not exceed the greater of 1% of a company's outstanding common stock or the
average weekly trading volume in such securities during the four calendar weeks
prior to such sale. Sales under Rule 144 must also be made without violating the
manner-of-sale provisions, notice requirements, and the availability of public
information about us. A sale of shares by such security holders, whether under
Rule 144 or otherwise, may have a depressing effect upon the price of our common
stock in any market that might develop.
Penny stock considerations
Our common stock is expected to trade on the over-the-counter electronic
bulletin board or on the Pink Sheets and, therefore, is subject to the
requirements of certain rules promulgated under the Securities Exchange Act of
1934, which require additional disclosure by broker-dealers in connection with
any trades involving a stock defined as a "penny stock". A penny stock is
generally defined as any non-NASDAQ equity security that has a market price of
less than $5.00 per share, subject to certain exceptions.
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith and impose various sales requirements on broker-dealers who sell penny
stocks to persons other than established customers and "accredited investors".
An accredited investor is generally defined as an investor with a net worth in
excess of $1,000,000, or annual income exceeding $200,000 individually or
$300,000 together with a spouse.
20
Pursuant to Rule 15g-9 of the Securities Exchange Act of 1934, for these types
of transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. The broker-dealer also must disclose the
commissions payable to the broker-dealer, current bid and offer quotation for
the penny stock and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. This information must be provided to the customer orally or in
writing before or with the written confirmation of trade sent to the customer.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. The additional burdens imposed upon broker-dealers by such requirements
could, in the event the common stock were deemed to be a penny stock, discourage
broker-dealers from effecting transactions in our common stock which could
severely limit the market liquidity of the common stock.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Our shares may someday be subject to such penny stock rules
and our shareholders will, in all likelihood, find it difficult to sell their
securities.
No market exists for our securities and there is no assurance that a regular
trading market will develop or if developed will be sustained. A shareholder in
all likelihood, therefore, will not be able to resell the securities referred to
herein should he or she desire to do so. Furthermore, it is unlikely that a
lending institution will accept our securities as pledged collateral for loans
unless a regular trading market develops. There are no plans, proposals,
arrangements or understandings with any person with regard to the development of
a trading market in any of our securities.
As of the date of this registration, we have approximately 110 holders of record
of our common stock. We currently have one class of common stock outstanding and
no preferred shares outstanding.
Transfer agent and registrar
We anticipate the registrar and transfer agent for our common shares will be OTC
stock transfer.
EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at March 31, 2005, the end
of the Company's last completed fiscal year):
Name Year Compensation
------ ---- ------------
Kevin Monson * 2003 None
Charles Camorata 2004 $50,000
Tony Harrison 2004 $60,000
Charles Camorata 2005 $50,000
* Resigned on January 31, 2004
Cash Compensation
There was no cash compensation paid to any director or executive officer of
the Company during the fiscal years ended March 31, 2003, 2002, and 2001.
Bonuses and Deferred Compensation
None.
Compensation Pursuant to Plans.
None.
Pension Table
None.
21
Other Compensation
None.
Compensation of Directors.
None.
Termination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in Cash Compensation
set out above which in any way result in payments to any such person because of
his resignation, retirement, or other termination of such person's employment
with the Company or its subsidiaries, or any change in control of the Company,
or change in the person's responsibilities following a changing in control of
the Company.
22
SKREEM ENTERTAINMENT CORPORATION
(A Development Stage Company)
Page
Reports of Independent Registered Public Accounting Firms F-1
Consolidated Financial Statements:
Consolidated Balance Sheet as of March 31, 2005 F-3
Consolidated Statements of Operations for the year ended March 31, 2005, the
three months ended March 31, 2004, the year ended December 31, 2003 and the
period from inception, August 19, 1999, through March 31, 2005 F-4
Consolidated Statements of Changes in Shareholders'
Deficit for the period from inception, August 19, 1999,
through March 31, 2005 F-5
Consolidated Statements of Cash Flows for the year ended March 31, 2005, the
three months ended March 31, 2004, the year ended December 31, 2003 and the
period from inception, August 19, 1999, through March 31, 2005 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Condensed Balance Sheet - June 30, 2005 (unaudited) F-24
Consolidated Condensed Statements of Operations (unaudited) - For the
three months ended June 30, 2005 and 2004 and for the period from
inception (August 19, 1999) to June 30, 2005 F-25
Consolidated Condensed Statements of changes in Shareholders' Deficit
(unaudited) - For the period from inception (August 19, 1999) to June 30, 2005 F-26
Consolidated Condensed Statements of Cash Flows (unaudited) - For the three
months ended June 30, 2005 and 2004 and for the period from inception
(August 19, 1999) June 30, 2005 F-27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Skreem Entertainment Corporation:
We have audited the accompanying consolidated balance sheet of Skreem
Entertainment Corporation (the "Company") as of March 31, 2005, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year then ended, and for the period from inception, August 19,
1999, through March 31, 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Skreem
Entertainment Corporation as of March 31, 2005, and the consolidated results of
its operations and its cash flows for the for the year then ended, and for the
period from inception, August 19, 1999, through March 31, 2005, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is in the development stage and
has suffered recurring losses from operations and had a net capital deficit,
which raises substantial doubt about its ability to continue as a going concern.
Management plans to continue funding the operation through an affiliate owned by
a major shareholder of the Company. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Ham, Langston & Brezina, L.L.P.
Houston, Texas
June 22, 2005
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Skreem Entertainment Corporation
We have audited the accompanying consolidated statements of operations,
shareholders' deficit and cash flows of Skreem Entertainment Corporation (a
development stage company) (the "Company"), for the three months ended March 31,
2004 and the year ended December 31, 2003 and for the period from August 19,
1999 (date of inception) through March 31, 2004. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
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 audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of its operations and
cash flows of Skreem Entertainment Corporation for the three months ended March
31, 2004 and the year ended December 31, 2003 and for the period August 19, 1999
(date of inception) through March 31, 2004 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is in the development stage and
has suffered recurring losses from operations and had a net capital deficit,
which raises substantial doubt about its ability to continue as a going concern.
Management plans to continue funding the operation through an affiliate owned by
a major shareholder of the Company. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Thomas Leger & Co. L.L.P.
July 21, 2004
Houston, Texas
F-2
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
March 31, 2005
ASSETS
Current assets:
Cash and cash equivalents $ 52,195
Accounts receivable 114,257
Prepaid assets and deposits 35,616
-----------
Total current assets 202,068
Property and equipment, net 9,871
-----------
Total assets $ 211,939
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 64,046
Related party payable 9,254
Accrued interest payable - affiliates and shareholder 84,893
Notes payable - shareholder 845,000
Notes payable - affiliates 918,620
Notes payable -other 100,000
Deferred revenue 35,328
-----------
Total current liabilities 2,057,141
-----------
Shareholders' deficit
Preferred stock, par value $0.001, 1,000,000
shares authorized, no shares issued and outstanding -
Common stock, par value $0.001, 50,000,000
shares authorized, 23,107,856 shares issued
and outstanding 23,108
Paid-in capital 1,860,823
Deficit accumulated during the development stage (3,729,133)
-----------
Total shareholders' deficit (1,845,202)
-----------
Total liabilities and shareholders' deficit $ 211,939
===========
The accompanying notes are an integral part
of these consolidated financial statements
F-3
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Three Months Year Ended Inception to
March 31, Ended March December 31, March 31,
2005 31, 2004 2003 2005
----------- ------------ ------------ ------------
Revenues $ 120,862 $ - $ 376 $ 123,788
Operating expenses (1,310,933) (149,470) (470,331) (2,410,863)
General and administrative
expenses (318,150) (47,071) (195,280) (998,821)
Impairment of loan receivable - - - (130,000)
----------- ---------- ---------- -----------
Loss from operations (1,508,221) (196,541) (665,235) (3,415,896)
Interest expense (84,248) (9,453) (71,129) (313,237)
----------- ---------- ---------- -----------
Net loss $(1,592,469) $ (205,994) $ (736,364) $(3,729,133)
=========== ========== ========== ===========
Basic and diluted net loss
per share $ (0.06) $ (0.01) $ (0.06)
=========== ========== ==========
Weighted average shares
outstanding 24,813,714 24,733,180 12,054,795(1)
=========== ========== ==========
(1) Number of shares outstanding to reflect reverse merger and for comparison
purposes only.
The accompanying notes are an integral part
of these consolidated financial statements
F-4
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
from inception, August 19, 1999, through March 31, 2005
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
Balance at inception,
August 19, 1999 - $ - $ - $ - $ -
Issuance of common stock 20,000 20 - - 20
Net loss - - - (84,021) (84,021)
---------- ---------- ---------- ----------- -----------
Balance at December 31, 1999 20,000 20 - (84,021) (84,001)
Net loss - - - (230,879) (230,879)
---------- ---------- ---------- ----------- -----------
Balance at December 31, 2000 20,000 20 - (314,900) (314,880)
Net loss - - - (494,816) (494,816)
---------- ---------- ---------- ----------- -----------
Balance at December 31, 2001 20,000 20 - (809,716) (809,696)
Net loss - - - (384,590) (384,590)
---------- ---------- ---------- ----------- -----------
Balance at December 31, 2002 20,000 20 - (1,194,306) (1,194,286)
Reclassification of debt to
equity 43,000 43 1,581,940 - 1,581,983
Net loss - - - (736,364) (736,364)
---------- ---------- ---------- ----------- -----------
Balance at December 31, 2003 63,000 63 1,581,940 (1,930,670) (348,667)
Effect of issuance of common
stock and recapitalization
in reverse acquisition
transaction 25,943,925 25,944 (25,944) - -
Net loss - - - (205,994) (205,994)
---------- ---------- ---------- ----------- -----------
Balance at March 31, 2004 26,006,925 26,007 1,555,996 (2,136,664) (554,661)
Proceeds from issuance of
common stock 603,856 604 301,324 - 301,928
Cancellation of shares (3,502,925) (3,503) 3,503 - -
Net loss - - - (1,592,469) (1,592,469)
---------- ---------- ---------- ----------- -----------
Balance at March 31, 2005 23,107,856 $ 23,108 $1,860,823 $(3,729,133) $(1,845,202)
========== ========== ========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements
F-5
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Three Months Year Ended Inception to
March 31, Ended March December 31, March 31,
2005 31, 2004 2003 2005
----------- ----------- ------------ ------------
Cash flows from operating activities:
Net loss $(1,592,469) $ (205,994) $ (736,364) $(3,729,133)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 8,465 1,273 6,220 40,880
Impairment of loan receivable - - - 130,000
Accrued interest payable converted to
equity - - - 208,405
Expanses paid by shareholder and
affiliate 53,026 - - 53,026
Changes in operating assets and
liabilities:
Increase in accounts receivable (114,257) - - (114,257)
Decrease (increase) in prepaid
expenses and deposits (15,695) 4,408 (24,328) (35,595)
Increase in accounts payable and
accrued liabilities 30,159 22,580 11,307 73,300
Increase in interest payable to
affiliates 69,236 9,453 71,095 84,873
Increase in deferred revenue 35,328 - - 35,328
----------- ---------- ---------- -----------
Net cash used in operating
activities (1,526,207) (168,280) (672,070) (3,253,173)
----------- ---------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment (11,440) - (3,497) (50,751)
Loan receivable - - - (130,000)
----------- ---------- ---------- -----------
Net cash used by investing
activities (11,440) - (3,497) (180,751)
----------- ---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 301,928 - - 301,928
Proceeds from notes payable-other 365,000 - - 365,000
Proceeds from notes payable-shareholder 880,000 - - 880,000
Proceeds from notes payable to affiliates 475,000 156,591 687,000 2,424,191
Principal payments on notes payable to
affiliates (90,000) - - (140,000)
Principal payments on notes payable-other (265,000) - - (265,000)
Principal payments on notes payable-
shareholder (80,000) - - (80,000)
----------- ---------- ---------- -----------
Net cash provided by financing
activities 1,586,928 156,591 687,000 3,486,119
----------- ---------- ---------- -----------
Net increase (decrease) in cash and
cash equivalents 49,281 (11,689) 11,433 52,195
Cash and cash equivalents, beginning of
year 2,914 14,603 3,170 -
----------- ---------- ---------- -----------
Cash and cash equivalents, end of year $ 52,195 $ 2,914 $ 14,603 $ 52,195
=========== ========== ========== ===========
The accompanying notes are an integral part
of these consolidated financial statements
F-6
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of the Business and Merger
Stanford Capital Corporation (Stanford) was incorporated under the laws
of the State of Delaware on June 11, 1992. During January 2004, Stanford
acquired all of the issued and outstanding shares of common stock of
Skreem Entertainment Corporation (Skreem) in exchange for 22,000,000 post
reverse split shares of common stock, par value $0.001 per share, to the
holders of Skreem's common stock. The transaction is considered a reverse
merger and Skreem became a wholly owned subsidiary of Stanford. Stanford
and Skreem are collectively referred to as "the Company". On March 16,
2004 the Company filed a Certificate of Amendment with the Delaware
Secretary of State changing the Company's name to Skreem Entertainment
Corporation and reverse splitting the Company's shares on a one (1) for
five (5) basis. The financial statements herein reflect the effect of the
reverse stock split. The proforma effects of the reverse merger are not
material to the consolidated financial statements.
Skreem is a development stage company that was incorporated in Nevada on
August 19, 1999. Skreem was formed to promote, finance and manage artists
and projects in the music industry and is located in the State of
Florida.
Basis of Presentation and Consolidation
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America. The Company has elected to continue the fiscal year of the legal
acquirer (registrant). As the transaction is deemed a reverse merger,
this gives rise to the three month transition period ended March 31,
2004.
The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiary. All significant intercompany
balances and transactions, including intercompany profits and unrealized
profits and losses are eliminated on consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and on deposit at a
major financial institution. The Company considers highly liquid
investments with original maturities of three months or less when
purchased to be cash equivalents.
Advances to Artists
The Company advances monies to artists upon the artist signing the
"Exclusive Recording Artist Agreement." An advance paid to an artist
shall be reported as an asset if the past performance and current
popularity of the artist to whom the advance is made provide a sound
basis for estimating that the amount of the advance will be recoverable
from future royalties to be earned by the artist. Any portion of advances
that subsequently appear not to be fully recoverable from future
royalties to be earned by the artist shall be charged to expense during
the period in which the loss becomes evident.
F-7
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies,
Continued
Property and Equipment
Property and equipment are stated at cost. Provisions for depreciation
are computed using the double-declining method based on the estimated
useful lives of the assets, generally three to seven years. Expenditures
that increase the value or extend the life of the asset are capitalized,
while cost of maintenance and repairs are expensed as incurred. Leasehold
improvements are amortized on a straight-line basis over the shorter of
the useful life of the improvement or the term of the lease. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or
loss is recognized.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
144, "Accounting for the Impairment or Disposal of Long-lived Assets,"
the Company examines the possibility of decrease in value of fixed assets
when events or changes in circumstances reflect the fact that their
recorded value may not be recoverable.
Record Masters
A record master borne by the Company is reported as a cost of production
when the past performance and current popularity of the artist does not
provide a sound basis for estimating that the cost will be recovered from
future sales.
Revenue Recognition
Revenue is recognized in accordance with Staff Accounting Bulletin No.
104 (SAB 104) when persuasive evidence of an arrangement exists, the
price to the buyer is fixed or determinable; delivery has occurred or
services have been rendered or the license period has begun; and
collectibility is reasonably assured.
Revenue from the distribution of recordings under license and
distribution agreements is recognized as earned under the criteria
established by Statement of Financial Accounting Standard No. 50.Revenue
is generally recognized when the Company receives an "accounting" of
recordings sold with payment from the licensee. In the event the Company
has not received an "accounting" from the licensee and if the Company has
information related to the licensed use of recordings that would result
in the revenue being fixed and determinable, and collection is reasonably
assured, then revenue is recognized in the periods in which the license
revenue is earned. Minimum guarantees (advances) received from licensees
are recorded as deferred revenue and are amortized over the performance
period, which is generally the period covered by the agreement.
Advertising Costs
All costs related to general advertising are charged to expense as
incurred. For the year ended March 31, 2005, the Company recorded total
advertising expense of $116,046. There were no significant advertising
expenses incurred during the three months ended March 31, 2004 and year
ended December 31, 2003.
F-8
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies,
Continued
Operating expenses
Operating expenses include music production costs, artist compensation
costs, and other operating expenses. The Company enters into production,
promotion and related consulting agreements in the ordinary course of
business.
Use of Estimates
The preparation of financial statements in conformity with general
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of 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.
Income Taxes
From inception of the Company through August 31, 2003, the Company had
elected to be taxed under Subchapter S of the Internal Revenue Code. As a
result, corporate income or loss passes through to the shareholder and
therefore, no provision for federal or state income taxes has been
recorded by the Company. On August 31, 2003, the Company converted
certain debt and accrued interest owed to affiliates to equity. The
affiliates were a corporation and a partnership that made the Company
ineligible to be taxed under subchapter S of the Internal Revenue Code.
Subsequent to August 31, 2003, the Company accounts for income tax using
Statements of Financial Accounting (SFAS) No. 109 "Accounting for Income
Taxes."
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board, or FASB,
issued Statement of Financial Accounting Standards No. 123R "Share-Based
Payment" (SFAS 123R). This statement revises SFAS No. 123, supercedes APB
No. 25, and requires companies to recognize the cost of employee stock
options and other awards of stock-based compensation based on the fair
value of the award as of the grant date. Currently, this type of
compensation expense is not reflected in the Company's Consolidated
Statements of Operations. The effective date of this pronouncement is as
of the beginning of the first interim or annual period that begins after
December 15, 2005. The Company plans to adopt the requirements of SFAS
123R effective January 1, 2006.
F-9
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies,
Continued
Recent Accounting Pronouncements, continued
In December 2004, FASB published the following two final FASB Staff
Positions, effective immediately. 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," giving guidance on applying 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. FAS 109-2
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004" provides
guidance on the Act's repatriation provision. The Company is in the
process of reviewing FAS 109-1 and FAS 109-2; however, at this time the
Company does not believe that the adoption of FAS 109-1 or FAS 109-2 will
have a material impact on its consolidated financial position, results of
operations or cash flows.
In November 2004, FASB Emerging Issues Task Force (EITF) reached a
consensus in applying the conditions in Paragraph 42 of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets, in
Determining Whether to Report Discontinued Operations" (EITF 03-13).
Evaluation of whether operations and cash flows have been eliminated
depends on whether (1) continuing operations and cash flows are expected
to be generated, and (2) the cash flows, based on their nature and
significance, are considered direct or indirect. This consensus should be
applied to a component that is either disposed of or classified as held
for sale in fiscal periods beginning after December 15, 2004. The Company
does not believe that the adoption of EITF 03-13 will have a material
impact on its consolidated financial position, results of operations or
cash flows.
In November 2004, FASB issued SFAS No. 151, "Inventory Costs - An
Amendment of ARB No. 43, Chapter 4" (SFAS No. 151). SFAS No. 151 amends
the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, handling
costs, and wasted material (spoilage). Among other provisions, the new
rule requires that items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs be recognized as
current-period charges regardless of whether they meet the criterion of
"so abnormal" as stated in ARB No. 43. SFAS No. 151 is effective for
fiscal years beginning after June 15, 2005 and is required to be adopted
by the Company in the first quarter of fiscal 2006, beginning on January
1, 2006. The Company is currently evaluating the effect that the adoption
of SFAS No. 151 will have on its consolidated financial position, results
of operations and cash flows, but do not expect SFAS No. 151 to have a
material impact.
F-10
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies,
Continued
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
sustained losses of $1,592,469, $205,994, and $736,364,for the year ended
March 31, 2005, the three months ended March 31, 2004, and the year ended
December 31, 2003 respectively. The Company had an accumulated deficit of
$3,729,133 at March 31, 2005. These factors raise substantial doubt about
the ability of the Company to continue as a going concern for a
reasonable period of time. The Company is highly dependent on its ability
to continue to obtain investment capital and loans from an affiliate and
shareholder in order to fund the current and planned operating levels.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to continue receiving investment capital and loans from an
affiliate and shareholder to complete promotion of the Company's artists,
continue production of music and achieve a level of success that will
enable it to sustain its operations. No assurance can be given that the
Company will be successful in these efforts.
2. Property and Equipment
Property and equipment is comprised of the following at March 31, 2005:
Furniture $ 18,161
Music and computer equipment 28,604
----------
46,765
Less: accumulated depreciation (36,894)
----------
$ 9,871
==========
Depreciation expense was $ 8,465, $1,273, and $6,220, for the year ended
March 31, 2005, the three months ended March 31, 2004, and the year ended
December 31, 2003, respectively.
3. Deposits
At March 31, 2005, the Company had deposits of $15,366 for the rental of
a vehicle and $11,006 for the rental of housing for the Artists and
Manager of "3rd Wish" and "Pat Moe".
F-11
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Income Taxes
From inception of the Company through August 31, 2003, the Company had
elected to be taxed under Subchapter S of the Internal Revenue Code. As a
result, corporate income or loss passes through to the shareholder and
therefore, no provision for federal or state income taxes was recorded by
the Company. On August 31, 2003, the Company converted certain debt and
accrued interest owed to affiliates to equity. The affiliates were a
corporation and a partnership that made the Company ineligible to be
taxed under subchapter S of the Internal Revenue Code. Subsequent to
August 31, 2003, the Company accounts for income tax using Statements of
Financial Accounting (SFAS) No. 109 "Accounting for Income Taxes."
The following table sets forth a reconciliation of federal income tax for
the year ended March 31, 2005, the three months ended March 31, 2004, and
the year ended December 31, 2003:
Year Ended Three Months Year Ended
March 31, Ended March December 31,
2005 31, 2004 2003
---------- ------------ ----------
Loss before income taxes $(1,592,469) $ (205,994) $ (736,364)
----------- ---------- ----------
Income tax benefit computed
at statutory rates (541,439) (70,038) (250,363)
Valuation allowance 540,596 69,322 83,210
Losses passed through to
Shareholders - - 167,153
Permanent differences, non-
deductible expenses 843 716 -
----------- ---------- ----------
Tax benefit $ - $ - $ -
=========== ========== ==========
As of March 31, 2005, the Company has net operating loss carryforwards of
approximately $2,038,613. The carryforwards begin to expire in the year
2023. The Company's net operating loss carry forwards may be subject to
annual limitations, which could reduce or defer the utilization of the
losses as a result of an ownership change as defined in section 382 of
the Internal Revenue Code. The tax effects of the temporary differences
between reportable financial statement income and taxable income are
recognized as a deferred tax asset and liability.
Significant components of the deferred tax assets are set out below along
with a valuation allowance to reduce the net deferred tax asset to zero.
In order to comply with generally accepted accounting principles,
management has decided to establish the valuation allowance because of
the potential that the tax benefits underlying deferred tax asset may not
be realized. Significant components of the Company's deferred tax asset
at March 31, 2005 are as follows:
Net operating loss carryforwards $ (693,128)
Less: valuation allowance 693,128
----------
Net deferred tax assets $ -
==========
F-12
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Notes Payable
Shareholder
On May 26, 2004 the Company borrowed $100,000 from Sugarcreek Capital,
LLC. The terms of the note call for repayment of $104,000 on or before
July 30, 2004. As security for the loan, Jeffrey D. Martin, a major
stockholder, put up his 1/3 interest in Osceola Partners. On August 19,
2004 the note payable to Sugarcreek Capital, LLC was transferred to
Jeffrey D. Martin, a major stockholder, in exchange for his 1/3 interest
in Osceola Partners. This note is payable on demand.
During the year ended March 31, 2005, Jeffrey D. Martin loaned the
Company $825,000. The notes are payable on demand and bear interest at
the rate of 8% per year. Accrued interest at March 31, 2005 was $17,144.
Total principal payments of these notes were $80,000 during the year
ended March 31, 2005. The dates and amounts of these individual note
agreements entered into during the year ended March 31, 2005 and
outstanding are as follows:
Date of Note Amount
May 24, 2004 $ 75,000
July 2, 2004 30,000
August 26, 2004 5,000
November 4, 2004 80,000
November 11, 2004 20,000
November 22, 2004 15,000
December 3, 2004 10,000
December 9, 2004 20,000
December 13, 2004 20,000
December 16, 2004 4,000
February 1, 2005 61,000
February 14, 2005 100,000
February 15, 2005 15,000
February 25, 2005 60,000
March 10, 2005 25,000
March 16, 2005 80,000
March 21, 2005 25,000
March 22, 2005 10,000
March 23, 2005 25,000
March 29, 2005 30,000
March 30, 2005 10,000
March 31, 2005 25,000
----------
Total $ 745,000
==========
F-13
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Notes Payable, continued
Affiliates
The Company's Board of Directors held a meeting on August 30, 2003 and
unanimously approved a proposal received from Martin Consultants, Inc. and
JT Investments, Ltd., affiliates of the Company, to convert the debt and
accrued interest owed by the Company to equity. Martin Consultants, Inc.
and JT Investments, Ltd. are 100% and 50%, respectively owned by Jeffrey D.
Martin. The notes payable of $1,373,600 and related accrued interest of
$208,383 were reclassified to equity on August 31, 2003 and Martin
Consultants, Inc. was issued 43,000 shares (pre-merger) of common stock.
On January 27, 2004, the Company borrowed $39,592 from JT Investments.
The note is unsecured, bears interest at the rate of 8% per year and is
payable on demand. The entire principal balance is outstanding at March
31, 2005. The Company recorded interest expense of $564 and $3,167
related to the note for the three months ended March 31, 2004 and year
ended March 31, 2005, respectively.
On November 18, 2004, the Company borrowed $25,000 (unsecured) from
Jeffrey Martin Real Estate Co., a company owned by Jeffrey D. Martin. The
note bears interest at the rate of 8% per year. The note and related
interest expense of $895 were paid during the year ended March 31, 2005.
At March 31, 2005, the balance of notes payable to Martin Consultants,
Inc., a company owned by Jeffrey D. Martin, was $879,028. The notes bear
interest at the rate of 8% per year and are secured by assets of the
Company. The Company recorded interest expense of $ $45,162, $8,248, and
$6,205 related to these notes for the year ended March 31, 2005, the
three months ended March 31,2004 and year ended December 31, 2003,
respectively. The dates and amounts of the individual note agreements
with Martin Consultants, Inc. that remain outstanding at March 31, 2005
are as follows:
Date of Note Amount
December 31, 2003 $ 304,000
January 7, 2004 20,000
February 15, 2004 20,000
February 25, 2004 20,000
March 8, 2004 10,000
March 11,2004 12,000
March 15,2004 10,000
March 24,2004 15,000
March 31, 2004 10,000
April 6, 2004 10,000
April 12, 2004 10,000
July 23, 2004 20,000
July 30, 2004 10,000
January 7, 2005 400,000
March 31, 2005 8,028
----------
Total $ 879,028
==========
F-14
5. Notes Payable, continued
Others
On August 19, 2004 the Company borrowed $200,000 from Sugarcreek Capital,
LLC. The Note was payable on December 30, 2004 and bore interest at the
rate of 8% per year. Jeffrey D. Martin personally guaranteed this note.
The note and related interest expense of $6,000 was paid during January
2005.
On August 3, 2004 the Company borrowed $50,000 under a line of credit
with an individual. Interest on the line of credit varies monthly. The
line of credit is payable on demand and bore interest at a rate of
approximately 6.5% per year during the year ended March 31, 2005. Jeffrey
D. Martin personally guaranteed this line of credit. The line of credit
and related interest expense of $1,619 were paid during February 2005.
On October 4, 2004, the Company borrowed $15,000 from Market Management,
Inc. (MMI). The note is unsecured, payable on demand, and bears interest
at a rate of 6% per year. The balance of the note and related interest
expense of $232 were paid during January 2005.
On January 24, 2005, the Company borrowed $100,000 from MMI. The note is
unsecured, payable on demand and bears interest at a rate of 10% per
year. The Company recognized interest expense of $1,835 during the year
ended March 31, 2005, related to this note.
6. Capital Transactions
The Company has offered a Private Placement Memorandum ("PPM") that
offers for sale a maximum of 3,000,000 and a minimum of 1,000,000 shares
of its common stock, $.001 par value at $.50 per share ("the Offering").
The shares are offered on a "best efforts" basis. The Offering will be
made in reliance upon an exemption from registration under the federal
securities laws provided by Regulation D as promulgated by the United
States Securities and Exchange Commission ("SEC"). The Offering will
terminate upon the earlier of (i) the sale of the 3,000,000 shares or
(ii) May 31, 2004 unless extended by the Company for 120 days. The
Company did extend the offering for 120 days and issued 603,856 shares
with proceeds of $301,928. The Company amended the PPM reducing the share
minimum to 100,000 shares. The offering concluded after the 120 day
extension.
The offering was extended for 120 days and the minimum reduced to 100,000
shares because the minimum of 1,000,000 had not been met by May 31, 2004.
All shareholders who purchased shares prior to the amendment had the option
to receive a return of their proceeds. None elected to do so.
On October 6, 2004 3,502,925 shares of common stock were returned to the
treasury and cancelled.
7. Related Party Transactions
Related party payables at March 31, 2005, consisted of $9,254 for health
insurance as of March 31, 2005. Additionally, notes payable to affiliates
and a major shareholder at March 31, 2005 are presented at Note 5.
The Company promotes an artist who is the son of the Company's major
shareholder. Total advances to the son are approximately $376,756 as of
March 31, 2005.
On March 1, 2003, the Company entered into an agreement with All Star
Consulting that established a fee of $5,000 per month, plus rent of an
apartment and lease of a car, for services rendered as a Manager of
Artists in Germany. Effective January 2005, the agreement was amended to
increase the fee paid to All Star Consulting to $6,500 per month. Tony
Harrison, a Vice President and Director of the Company, owns All Star
consulting. In connection with the agreement, the Company expensed
promotion fees of approximately $64,500, $15,000 and $50,000 for the year
ended March 31, 2005, three months ended March 31, 2004, and the year
ended December 31, 2003, respectively.
8. Operating Leases
The Company leases a vehicle and housing in Germany for the Artists and
Manager of "3rd Wish". Rent expense under these leases was $68,999,
$13,205 and $42,637 for the year ended March 31, 2005, the three months
ended March 31, 2004 and the year ended December 31, 2003 respectively.
F-15
Future minimum non-cancelable lease payments to be made through March 31,
2006 are approximately $68,000 at March 31, 2005.
9. Nu-Sol Agreement And Impairment
During May 2000, the Company entered into a financing agreement with
Nu-Sol Productions, Inc. (NU-SOL). The purpose of the agreement is for
NU-SOL to produce, manufacture, market, and commercially exploit the
first LP by Precious Francis "Precious" entitled "Big Girls Don't Cry"
and singles derived from the LP (the Property). The Company funded costs
and expenses of $130,000 with respect to the production, manufacturing,
marketing, and exploitation of the Property. Under terms established by
the NU-SOL agreement, net revenues are to be distributed first to the
Company, until the Company recoups 100% of the $130,000 advanced plus an
additional $39,000. Thereafter, the Company receives 30% of all net
revenues. The Company originally recorded the advance to NU-SOL as a loan
receivable, but during 2001, the Company deemed the advance uncollectible
and recognized an impairment charge.
10. Distribution And Service Agreements
During May 2004, the company entered into a five and one-half year
Distribution and Service Agreement with Cheyenne Records GmbH (Cheyenne).
The agreement grants Cheyenne certain exclusive rights to distribute and
sell recordings by 3rd Wish in Germany, Switzerland and Austria. Under
the agreement, Cheyenne is to receive a distribution and service fee of
45% of all net receipts (gross receipts less Value Added Tax of
approximately 16%). The agreement requires Cheyenne to perform certain
services including booking commercial concerts and concert tours,
securing personal appearances of "3rd Wish", securing advertising,
endorsements and related activities of "3rd Wish", and music
publishing/sub-publishing throughout the territory. In consideration for
these services except music publishing/sub-publishing, Cheyenne is to
receive 35% of all net receipts paid by third parties. The agreement
provides for the Company/Cheyenne to split music publishing revenues on a
75%/25% basis. Cheyenne reported that as of December 31, 2004
approximately 202,000 copies of the "3rd Wish" recordings had been sold
and the Company recorded license revenue of $115,227 for the year ended
March 31, 2005.
11. License Agreements
On October 11, 2004, the Company entered into a fifteen-year license
agreement with Three8 Music Limited (Three8). The terms of the license
agreement grant Three8 all rights to the single release by "3rd Wish"
entitled "Obsession" in the United Kingdom and Eire, for which the
Company earns royalties of 19% calculated on 100% sales of Three8's
published dealer price less certain packaging deductions. Additionally,
for any third party licensing or digital delivery, the Company is to
receive 50% of Three8's net United Kingdom sourced royalty receipts. In
connection with the license agreement, the Company received a $15,000
advance that was initially recorded as deferred revenue and will be
recognized as revenue as license fees are earned under the agreement. At
March 31, 2005, the accompanying financial statements reflect license
fees of $500 and deferred revenue of $14,500 related to this agreement.
On November 12, 2004, the Company entered into a five year license
agreement with NRJ Music (NRJ). The license agreement grants NRJ the
exclusive right to the audio and/or audiovisual recordings of "3rd Wish"
for the purpose of reproducing them on all media in France, Dom Tom,
Andorra, Monaco, and Belgium. In consideration of the exclusive rights
granted, NJR shall pay the Company a royalty for sales (less returns) of
19-22% in France, Dom Tom, Andorra and Monaco and 13-15% in Belgium. In
addition the Company may earn additional royalties related to phonograms,
videograms, and other digital media as defined in the agreement. In
connection with the license agreement, the Company received a $16,822
advance that was initially recorded as deferred revenue and will be
recognized as revenue as license fees are earned under the agreement. At
March 31, 2005, the accompanying financial statements reflect license
fees of $1,402 and deferred revenue of $15,420 related to this agreement.
F-16
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. License Agreements, continued
On November 26, 2004, the Company entered into a five-year license
agreement with Shock Records Pty Ltd (Shock). The license agreement
grants Shock the exclusive right to the single release by "3rd Wish"
entitled "Obsession" in Australia and New Zealand. Under the license
agreement the Company is to receive royalties of 18-22% of net sales,
which excludes any sales tax and includes any discounts. Shock retains
the right to license the recording for third party, compilation and
synchronization use in the territory and the Company shall receive 50% of
any third party income. Shock retains exclusive right to copy, extract,
digitally encode, sell, distribute, and otherwise exploit the recording
in digital format via any interactive technology. In connection with the
license agreement, the Company received a $5,150 advance that was
initially recorded as deferred revenue and will be recognized as revenue
as license fees are earned under the agreement. At March 31, 2005, the
accompanying financial statements reflect license fees of $429 and
deferred revenue of $4,721 related to this agreement.
On December 14, 2004, the Company entered into a three-year license
agreement with NMC Music Ltd. (NMC). The license agreement grants NMC
exclusive rights to the single release by "3rd Wish" entitled "obsession"
in Israel. The Company shall receive royalties of 18% calculated on 100%
of net sales.
On January 17, 2005, the Company entered into a three-year license
agreement with Megaliner Records (Megaliner). The license agreement
grants Megaliner exclusive rights to the single release by "3rd Wish"
entitled "Obsession" including all available remixes. The territories
covered by the license agreement with Megaliner includes Russia,
Azerbaijan, Armenia, Georgia, Moldova, Kazakstan, Krygystan, Tajikistan,
Uzbekistan, Turkmenistan, Ukraine, Republic of Belarus, Lithuania, Lativa
and Estonia. Under the terms of the agreement the Company is to receive
royalties of 20% of the published dealer price with no deductions
allowed. In addition the Company/Megaliner shall split any third party
income and broadcasting income on a 60%/40% basis. In connection with the
license agreement, the Company received an advance of $750 and will
record the advance as revenue as earned under the agreement.
On February 14, 2005, the Company entered into a license agreement with
VIDISCO. The license agreement grants VIDISCO exclusive rights to the
single release by "3rd Wish" entitled "Obsession" in Portugal. The
Company shall receive royalties of 18% calculated on 100% net sales.
F-17
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Music Video Production Agreements
During the year ended March 31, 2005, the Company entered into Music
Video Production Agreements with 1171 Production Group (Production
Company). Production Company produced music videos embodying performances
by "3rd Wish" and "Pat Moe'. As of March 31, 2005 all contractual
obligations have been completed and the Company recorded total video
production expenses of $406,525 related to these agreements.
13. Content License Agreement
On September 10, 2004, the Company entered into a Content License
Agreement with JAMBA!AG (JAMBA) for the distribution of mobile content
including ring tones, wallpaper, and logos through the JAMBA service and
JAMBA Network. The Content License Agreement is non-exclusive and covers
the territories of Germany, Switzerland, and Austria. The term of the
agreement commences on the date of the agreement and terminates upon a
three month written notice by either party. In consideration of the
authorizations granted to JAMBA in the agreement, JAMBA will pay the
Company a license fee from all paid and successfully completed downloads
of content by end users as set forth in the agreement, which shall be
calculated from the net revenue (revenue less value added tax.) The
Company has not recorded any revenue related to this agreement. In
accordance with SAB 104, the Company will record revenue related to the
Content License Agreement when the license revenue is fixed or
determinable and collectibility is reasonably assured.
14. Video Ringtone And Promotion Video License Agreement
On March 9, 2005, the Company entered into a Framework Master and Video
Ringtone and Promotion Video License Agreement ( Framework Agreement)
with Jamster International Sarl (Jamster) whereas Jamster desires to
distribute Master Ringtones and Video Ringtones of certain of the
Company's tracks to include excerpts of certain of the Company's
promotion video clips into such television advertising campaigns. The
video description, license period, territory, exclusivity and any other
rights granted to Jamster shall be described in each case by signature of
an individual written order form. The term of the Framework Agreement
shall remain effective unless terminated by either of the parties. In
consideration of the rights granted in the order form(s), Jamster shall
pay the Company for each fully paid and completed download of the
Ringtone in its monophonic, polyphonic Master and Video Ringtone version
a lump sum of $0.40 for Master Ringtones/Video Ringtones and $0.15 for
tones which trigger a new subscription between end user consumer and
distributor as compensation for the use of the video. The Company has not
recorded any revenue related to this agreement. In accordance with SAB
104, the Company will record revenue related to the Framework when the
license revenue is fixed or determinable and collectibility is reasonably
assured.
F-19
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Publishing Agreement
On January 17, 2002, the Company entered into a publishing agreement with
Broadcast Music, Inc. (BMI) for the period from July 1, 2001 to June 30,
2006. In accordance with the agreement, the Company hereby sells, assigns
and transfers to BMI, its successors or assigns all rights which the
Company owns or acquires publicly to perform, and to license others to
perform, anywhere in the world and part or all musical compositions; the
non-exclusive right to record, and to license others to record, any part
or all of any of the musical compositions on electrical transcriptions,
wire, tape, film or otherwise, but only for the purpose of performing
such musical compositions publicly by means of radio and television or
for archive or audition purposes; and the exclusive right to adapt or
arrange any part or all of any of the musical compositions for
performance purposes, and to license others to do so. As consideration
for all rights granted to BMI hereunder, BMI agrees to pay the Company
upon the basis of current performance rates generally paid by BMI for its
affiliated publishers for similar performances. The Company has not
recorded any revenue related to the agreement. In accordance with SAB No.
104 the Company will record publishing revenues when the revenue is fixed
or determinable and collectibility is reasonably assured.
16. Commitments
Exclusive Artist Recording Agreements
At March 31, 2005, the Company had entered into long-term Exclusive
Artist Recording Agreements with five artists, which include the three
Artists of "3rd Wish", the Artist "PatMoe" and the Artist "Precious Dawn
Francis" for the purpose of engaging the exclusive personal services of
the Artists for making master sound recordings for distribution in any
medium. The territory for the agreements shall be worldwide. All master
recordings made by the Artists during the terms of the agreements shall
be recorded by the Artists on the Company's behalf, and all phonograph
records and related performances shall be the entire property of the
Company; the Company shall have the right to secure sound recording
copyright; and the Company and its licensees shall have the sole and
exclusive right to use the recordings throughout the world or any part
thereof in any mannerit sees fit. The Company may pay all specifically
approved recording costs in connection with the master recordings made
hereunder, and all recording costs shall be deemed fully recoupable
advances to the Artists and shall be deducted from any and all royalties
payable to the Artist by the Company under this or any and all royalties
payable to the Artists by the Company. Any and all monies paid to or on
behalf of the Artists during the term of the agreement shall be fully
recoupable, non-returnable advances unless otherwise expressly agreed in
writing between the Company and the Artists. The Company has the right,
but not the obligation to have the Artists participate in the creation of
music videos and 100% of any and all monies expended by or advanced by
the Company for the production of music videos shall constitute
additional fully recoupable advances hereunder. The Company shall own any
and all rights in and to said music videos in perpetuity.
F-20
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Commitments, continued
Exclusive Artist Recording Agreements, continued
In its sole discretion, the Company may choose, at any time during the
term of the agreements, to license master recordings made by the Artists
to third parties on a flat fee or royalty basis, or to enter into a
distribution agreement with a third party distributor for the
distribution of phonograph records embodying master recordings recorded
by the Artists through normal retail channels in the United States and
worldwide. With respect to master recordings of the Artists licensed to
third parties on a flat-fee basis, the Company shall pay the Artists
20-50% of the net amount received by the Company under such license. With
respect to master recordings of the Artists licensed to third parties on
a royalty basis, and with respect to phonograph recordings released
through a distributor selected by the Company, the Company shall pay the
Artists the lesser of 20-50% of the Company's net earned royalty receipts
under such license or distribution agreement, or 20-50% of the basic
album or single rate as defined in the agreements. Further, in its sole
discretion, the Company may choose to commercially release phonograph
records through the Company's own distribution network. In such event,
the Company agrees to pay the Artists royalties based on the basic album
or singe rate as defined in the agreements. For phonograph recordings
that are exported or sold outside the United States and through record
clubs or similar plans, the Artists shall be paid a royalty of 20-50% of
the amounts provided of the above mentioned amounts. In addition, the
Artists may earn royalties related to licenses for musical compositions,
music video licenses and merchandising.
At March 31, 2005, the Artists had earned royalties of approximately
$29,000, based on the year end reported licensing revenues. However, the
Company is not obligated to pay any royalties until total advances to
Artists of $1,140,737 at March 31, 2005 (plus any future advances) have
been recouped.
Music Publishing Agreements
At March 31, 2005, the Company had entered into long-term Music
Publishing Agreements with four individual Writers, which include the
three Artists of "3rd Wish" and the Artist "PatMoe". The Company engaged
the Writers to render the Writer's exclusive services as songwriters and
composers based upon terms and conditions set forth in the agreements. In
accordance with the agreements, the Writers grant all rights to all
musical compositions written or owned by the Writers and all musical
compositions shall be the Company's exclusive property as sole owner. The
Company shall pay royalties to the Writers based on various terms and
conditions set forth in the agreements. There have been no royalties
earned by the writers related to the agreements.
F-21
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Commitments, continued
Personal Management Agreement
At March 31, 2005, the Company had entered into long-term Personal
Management Agreements with four Artists, which include the three Artists
of "3rd Wish" and the Artist "PatMoe". The Company accepts the engagement
as the Artists' sole and exclusive personal management company in
connection with all activities in the entertainment industries throughout
the world, including but not limited to their services as musicians,
songwriters, actors, publishers, packagers or performers in any medium
now known or hereafter devised. For personal management services
performed, the Artists agree to pay the Company 15% of all gross
compensation earned or received as a result of activities in the
entertainment industry. However, the Company shall not be entitled to
commissions by the Artists from the sale, license, or grant of any
literary or music rights to the Company or any person, firm, or
corporation owned or controlled by the Company. During the year ended
March 31, 2005, the Company earned commissions of $3,241, all related to
live performances.
17. Supplemental Disclosures Of Cash Flow Information
During the year ended March 31, 2005, approximately $15,000 was paid for
interest. No cash was paid for interest during the three months ended
March 31, 2004 and year ended December 31, 2003.
No cash was paid during the year ended March 31, 2005, three months ended
March 31, 2004, and for the year ended December 31, 2003 for income
taxes.
Non-cash financing transactions:
A reclassification of notes payable and accrued interest to equity of
$1,581,983 was approved by the Board of Directors during 2003 and is
presented at Note 5.
18. Concentrations Of Risk And Major Customer
The Company is economically dependent on an affiliate owned by the
Company's major shareholder.
The Company is dependent on the success of the Artists. The talent would
be difficult to replace.
The license revenues of $115,227 for the year ended March 31, 2005
related to the Distribution and Service Agreement with Cheyenne accounted
for approximately 95% of total revenues.
F-22
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Comparative Financial Information
The comparative statements of operations for the years ended March 31,
2005 and 2004 are as follows:
2004
2005 (Unaudited)
Revenues $ 120,862 $ 176
Expenses
Operating expenses 1,310,933 588,745
General and administrative expenses 318,150 166,083
------- -------
Loss from operations (1,508,221) (754,652)
Interest expense (84,248) (57,836)
----------- ----------
Net Loss $(1,592,469) $ (812,488)
=========== ==========
Basic and Diluted Loss per share $ (0.06) $ (0.05)
=========== ==========
Basic and Diluted Weighted Average
shares outstanding 24,813,714 16,408,277(1)
=========== ===========
(1) Number of shares outstanding to reflect reverse merger and for
comparison purposes only.
20. Subsequent Events
During April 2005, the Company entered into a 5.5 year Distribution and
Service Agreement with Cheyenne Records GMbH (Cheyenne). The agreement
grants Cheyenne certain exclusive rights to distribute and sell
recordings of the artist "Pat Moe" in Germany, Switzerland and Austria.
Cheyenne is to receive a distribution and service fee of 30% to 36% of
all net receipts (gross receipts less Value Added Tax of approximately
16%). In addition, Cheyenne will perform certain services including
booking commercial concerts and concert tours, securing personal
appearances of "Pat Moe", securing advertising, endorsements, and related
activities of "Pat Moe" and music publishing /subpublishing throughout
the territory. In consideration for these services, except music
publishing/subpublishing, Cheyenne is to receive 15-30% of all net
receipts. The Company/Cheyenne shall split music publishing revenues on a
75%/25% basis.
On June 14, 2005, the Company entered into a business management
agreement with Mr. Andy Lai for services performed in Asia and shall
continue in perpetuity until written notice of termination is given by
either party. Mr. Lai shall act as Business Manager and services shall
include contract negotiations, securing recordings distribution,
arranging live performances and tours, securing of sponsorships, as well
as other business activities that are necessary for the advancement of
the artists that are represented by the Company. The Company agrees to
compensate Mr. Lai ten percent (10%) of the net revenues collected as a
direct result of his negotiations in Asia and should the Company through
its own resources enter into a recording or distribution agreement with a
major company and the agreement includes Asia, Mr. Lai shall be
compensated five percent (5%) of the net revenues resulting from said
agreement.
F-23
Skreem Entertainment Corporation
(A Development Stage Company)
Consolidated Condensed Balance Sheet
June 30, 2005
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 14,720
Prepaid assets and deposits 34,059
--------
Total Current Assets 48,779
Property and Equipment, net 8,979
--------
Total Assets $ 57,758
========
LIABILITIES AND SHAREHOLDERS ' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities $ 144,585
Related party payable 9,254
Deferred revenue 19,337
Accrued interest payable - shareholder and affiliates 114,901
Notes payable - shareholder 1,064,000
Notes payable - affiliates 933,620
Notes payable - other 100,000
---------
Total Current Liabilities 2,385,697
Shareholders' Deficit
Prefer red stock, par value $0.001, 1,000,000
shares authorized, no shares issued and outstanding -
Common stock, par value $0.001, 50,000,000
shares authorized, 23,107,856 shares
issued and outstanding 23,108
Additional Paid In Capital 1,860,823
Deficit accumulated in the development stage (4,211,870)
-----------
Total Shareholders' Deficit (2,327,939)
-----------
Total Liabilities and Deficit $ 57,758
===========
F-24
Skreem Entertainment Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Operations
For Three Months Ended June 30, 2005 and 2004
And Period from August 19, 1999 (Inception) to June 30, 2005
(Unaudited)
3 Months Ended 3 Months Ended Inception to
June 30, 2005 June 30, 2004 June 30, 2005
--------------- --------------- --------------
Revenues $ 22,759 $ - $ 146,547
Expenses
Operating expenses (362,823) (238,172) (2,773,686)
General and administrative (106,166) (93,550) (1,104,987)
Impairment of loan receivable - - (130,000)
---------- -------- -----------
Total expense (468,989) (331,722) (4,008,673)
---------- -------- -----------
Loss from Operations (446,230) (331,722) (3,862,126)
Interest expense (36,507) (10,989) (349,744)
--------- -------- -----------
Net Loss $(482,737) $ (342,711) $(4,211,870)
========== ========== ===========
Weighted Average Shares
Outstanding 23,107,856 26,244,100
========== ==========
Loss Per Share -
basic and diluted $ (0.02) $ (0.01)
========== ==========
F-25
Skreem Entertainment Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Changes in Shareholders' Deficit
From August 19, 1999 (Date of inception) to June 30, 2005
Paid
Common Stock In Retained
Shares Amount Capital Deficit Total
------- -------- -------- --------- -------
Balance at inception, August 19, 1999 - $ - $ - $ - $ -
Issuance of common stock 20,000 20 - - 20
Net Loss - - - (84,021) (84,021)
------ -------- ------- --------- ---------
Balance at December 31, 1999 20,000 20 - (84,021) (84,001)
Net loss - - - (230,879) (230,879)
------ -------- -------- --------- ---------
Balance at December 31, 2000 20,000 20 - (314,900) (314,880)
Net loss - - - (494,816) (494,816)
------ -------- -------- --------- ---------
Balance at December 31, 2001 20,000 20 - (809,716) (809,696)
Net loss - - - (384,590) (384,590)
------ -------- -------- --------- ---------
Balance at December 31, 2002 20,000 20 - (1,194,306) (1,194,286)
Reclassification of debt to equity 43,000 43 1,581,940 - 1,581,983
Net loss - - - (736,364) (736,364)
------ -------- -------- --------- ---------
Balance at December 31, 2003 63,000 63 1,581,940 (1,930,670) (348,667)
Effect of issuance of common stock
and recapitalization in reverse
acquisition transaction 25,943,925 25,944 (25,944) - -
Net loss - - - (205,994) (205,994)
--------- -------- -------- --------- ---------
Balance at March 31, 2004 26,006,925 26,007 1,555,996 (2,136,664) (554,661)
Proceeds from issuance of
common stock 603,856 604 301,324 - 301,928
Cancellation of shares (3,502,925) (3,503) 3,503 - -
Net loss - - - (1,592,469)(1,592,469)
--------- -------- --------- --------- ---------
Balance at March 31, 2005 23,107,856 23,108 1,860,823 (3,729,133) (1,845,202)
Net loss - - - (482,737) (482,737)
---------- -------- ---------- ----------- ----------
Balance at June 30, 2005 23,107,856 $ 23,108 $1,860,823 $ (4,211,870) $(2,327,939)
========== ======== ========== =========== ==========
F-26
Skreem Entertainment Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Cash Flows
For Nine Months Ended June 30, 2005 and 2004
And Period from August 19, 1999 (Inception) to June 30, 2005
(Unaudited)
3 Months Ended 3 Months Ended Inception to
June 30, 2005 June 30, 2004 June 30, 2005
---------------- ---------------- -----------------
Cash Flows from Operating Activities
Net Loss $ (482,737) $ (342,711) $ (4,211,870)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation expense 892 1,271 41,772
Impairment of loan receivable - - 130,000
Accrued interest payable converted to equity - - 208,405
Expenses paid by shareholder and affiliate 35,000 - 88,026
Changes in Operating assets and liabilities:
Decrease in accounts receivable 114,257 - -
Increase in prepaid expenses
And deposits 1,557 - (34,038)
Increase (decrease) in accounts payable and
Accrued liabilities 80,538 (6,231) 153,838
Increase in interest payable to affiliates 30,008 10,989 114,881
(Decrease) increase in deferred revenue (15,990) - 19,338
-------- -------- ---------
Total Adjustments 246,262 6,029 722,222
-------- -------- ---------
Net Cash Used in Operating Activities (236,475) (336,682) (3,489,648)
Cash Flows from Investing Activities
Payments for purchase of equipment - - (50,751)
Loan receivable - - (130,000)
-------- -------- ---------
Net Cash Used in Investing Activities - - (180,751)
Cash Flows from Financing Activities
Proceeds from issuance of stock - 266,828 301,928
Proceeds from notes payable - other - - 365,000
Proceeds from notes payable - shareholder 184,000 195,000 1,064,000
Proceeds from notes payable - affiliates 15,000 - 2,439,191
Principal payments on notes payable to affiliates - - (140,000)
Principal payments on notes payable to others - - (265,000)
Principal payments on notes payable to affiliates - (65,000) (80,000)
-------- -------- --------
Net Cash Provided by Financing Activities 199,000 396,828 3,685,119
Net increase(decrease) in cash and
cash equivalents (37,475) 60,146 14,720
Cash and cash equivalents at beginning of period 52,195 2,915 -
-------- -------- ---------
Cash and cash equivalents at end of period $ 14,720 $ 63,061 $ 14,720
======== ======== =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-27
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of Skreem
Entertainment Corporation have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
inancial information and with the instructions to Form 10QSB and Item 310(b) of
Regulation S-B. They do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation, have been included in the accompanying
unaudited consolidated financial statements. Operating results for the periods
presented are not necessarily indicative of the results that may be expected for
the full year.
These unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and footnotes, which are included as
part of consolidated financial statements as of March 31, 2005 included in the
Company's Form 10KSB.
Note 2 - ACCOUNTING POLICY FOR REVENUE RECOGNITION
Revenue is recognized in accordance with Staff Accounting Bulletin No. 104 (SAB
104) when persuasive evidence of an arrangement exists, the price to the buyer
is fixed or determinable; delivery has occurred or services have been rendered
or the license period has begun; and collect ability is reasonably assured.
Revenue from the distribution of recordings under license and distribution
agreements is recognized as earned under the criteria established by Statement
of Financial Accounting Standard No 50. Revenue is generally recognized when the
Company receives an "accounting" of recordings sold with payment from the
licensee. In the event the Company has not received an "accounting" from the
licensee and if the Company has information related to the licensed use of
recordings that would result in the revenue being fixed and determinable, and
collection is reasonably assured, then revenue is recognized in the periods in
which the license revenue is earned. Minimum guarantees (advances) received from
licensees are recorded as deferred revenue and are amortized over the
performance period, which is generally the period covered by the agreement.
Note 3 - NOTES PAYABLE
Shareholder
During the quarter ended June 30, 2005, Jeffrey D. Martin, a major stockholder
loaned the Company $219,000. The note is payable on demand and bears interest at
the rate of 8% per annum. Interest on this note begins to accrue on July 1,
2005.
Affiliates
During the quarter ended June 30, 2005, the company borrowed $15,000 from Am-Pac
Investments. The note is payable on demand and bears interest at a rate of 8%
per annum. Interest on this note begins to accrue on July 1, 2005. Am-Pac
Investments is 100% owned by Jeffrey D. Martin, a major shareholder of the
company.
SKREEM ENTERTAINMENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 4 - GOING CONCERN
The accompanying consolidated condensed financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
sustained losses of $ 482,737 for the quarter ended June 30, 2005. The Company
had an accumulated deficit of $4,211,870 at June 30, 2005. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern for a reasonable period of time. The Company is highly dependent on its
ability to continue to obtain investment capital and loans from a major
shareholder and an affiliate in order to fund the current and planned operating
levels. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to continue receiving investment capital
from a shareholder and an affiliate and obtaining loans to complete promotion of
the Company's artists, continue production of music and achieve a level of
success that will enable it to sustain its operations. No assurance can be given
that the Company will be successful in these efforts.
Note 5 - BUSINESS MANAGEMENT AGREEMENT
On June 14, 2005, the Company entered into a business management agreement with
Mr. Andy Lai for services performed in certain countries in Asia and shall
continue in perpetuity until written notice of termination is given by either
party. Mr. Lai shall act as Business Manager and services shall include contract
negotiations, securing recordings distribution, arranging live performances and
tours, securing of sponsorships, as well as other business activities that are
necessary for the advancement of the artists that are represented by the
Company. The Company agrees to compensate Mr. Lai ten percent (10%) of the net
revenues collected as a direct result of his negotiations in Asia and should the
Company through its own resources enter into a recording or distribution
agreement with a major company and the agreement includes certain countries in
Asia, Mr. Lai shall be compensated five percent (5%) of the net revenues
resulting from said agreement. The Company has not recorded any transactions
related to this agreement.
Note 6 - DISTRIBUTION AGREEMENT
During April 2005, the Company entered into a 5.5 year Distribution and Service
Agreement with Cheyenne Records GMbH (Cheyenne). The agreement grants Cheyenne
certain exclusive rights to distribute and sell recordings of the artist "Pat
Moe" in Germany, Switzerland and Austria. Cheyenne shall receive a distribution
and service fee of 30% to 36% of all net receipts (gross receipts less Value
Added Tax of approximately 16%). In addition, Cheyenne will perform certain
services including booking commercial concerts and concert tours, securing
personal appearances of "Pat Moe", securing advertising, endorsements, and
related activities of "Pat Moe" and music publishing /sub publishing throughout
the territory. In consideration for these services, except music publishing/sub
publishing, Cheyenne shall receive 15-30% of all net receipts. The
Company/Cheyenne shall split music publishing revenues on a 75%/25% basis. The
Company has not recorded any revenue related to this agreement.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company has had no disagreements with its certified public accountants
with respect to accounting practices or procedures or financial disclosure. The
Company did however change its certifying accountants from David T. Thomson P.C.
to Thomas Leger & Co. LLP in March of 2004, and from Thomas Leger & Co. LLP, to
Ham, Langston & Brezina LLP in January of 2005.
(i) On March 3, 2004, the Registrant dismissed David T. Thomson, PC from its
position as the Company's independent accountants.
(ii) The audit report of David T. Thomson, PC, on April 10, 2003, for the year
ended March 31, 2002 contained no adverse opinion, disclaimer of opinion or
modification of the opinion.
(iii)The Registrant's Board of Directors participated in and approved the
decision to change independent accountants.
(iv) In connection with its audit for the most recent fiscal year and the
interim period until the date of dismissal , there have been no
disagreements with David T. Thomson, PC on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure, which disagreement if not resolved to the satisfaction of David
T. Thomson, PC would have caused them to make reference thereto in their
report on the financial statements.
(v) During the most recent fiscal year and the interim period until the date of
dismissal , there have been no reportable events (as defined in Regulation
S-K Item 304 (a)(1)(v)).
(vi) The Registrant requested that David T. Thomson, PC furnish it with a letter
addressed to the SEC stating whether or not it agrees with the above
statements.
(vii)On January 7, 2005, the Registrant dismissed Thomas Leger & Co., LLP from
its position as the Company's independent accountants.
(viii) The audit report of Thomas Leger & Co., LLP, on July 21, 2004, for the
balance sheet as of March 31, 2004, and the related consolidated
statements of operations, shareholders' deficit and cash flows for the
three months ended March 31, 2004 and the years ended December 31, 2003
and 2002 and for the period from August 19, 1999 (date of inception)
through March 31, 2004 contained no adverse opinion, disclaimer of
opinion or modification of the opinion other than the substantial doubt
about the Company's ability to continue as a going concern.
(ix)The Registrant's Board of Directors participated in and approved the
decision to change independent accountants.
(x) In connection with its audit for the most recent fiscal year and the
interim period until the date of dismissal , there have been no
disagreements with Thomas Leger & Co., LLP on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure, which disagreement if not resolved to the satisfaction of Thomas
Leger & Co., LLP would have caused them to make reference thereto in their
report on the financial statements.
46
(xi) During the most recent fiscal year and the interim period until the date of
dismissal , there have been no reportable events (as defined in Regulation
S-K Item 304 (a)(1)(v)).
(xii) The Registrant requested that Thomas Leger & Co., LLP furnish it with a
letter addressed to the SEC stating whether or not it agrees with the above
statements
(xiii) New independent accountants
On January 7, 2005, the Registrant engaged Ham, Langston, & Brezina LLP to
audit its financial statements for the year ended March 31, 2005. During
the two most recent fiscal years and through March 31, 2005, the Registrant
has not consulted with Ham, Langston, & Brezina LLP regarding (i) the
application of accounting principles to a specified transaction, either
completed or proposed or the type of audit opinion that might be rendered
on the Registrant's financial statements, and no written report or oral
advise was provided to the Registrant by concluding there was an important
factor to be considered by the Registrant in reaching a decision as to an
accounting, auditing or financial reporting issue; or (ii) any matter that
was either the subject of a disagreement, as that term is defined in item
304 (a)(1)(iv) of Regulation S-K and the related instructions to Item 304
of Regulation S-K, or a reportable event, as that term is defined in Item
304 (a)(1)(v) of Regulation S-K.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation provide that, to the fullest extent permitted by
law, none of our directors or officers shall be personally liable to us or our
shareholders for damages for breach of any duty owed to our shareholders or us.
Florida law provides that a director shall have no personal liability for any
statement, vote, decision or failure to act, regarding corporate management or
policy by a director, unless the director breached or failed to perform the
duties of a director. A company may also protect its officers and directors from
expenses associated with litigation arising from or related to their duties,
except for violations of criminal law, transactions involving improper benefit
or willful misconduct. In addition, we shall 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 or
indemnification of any of our controlling persons, directors or officers that
would affect his or her liability in that capacity.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, or persons controlling us pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
SEC, that type of indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
There is no pending litigation or proceeding involving any of our directors or
officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
47
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Subject to any future contingencies, the following table is an itemization of
all expenses that we have incurred or we expect to incur in connection with the
issuance and distribution of the securities being offered hereby. Items marked
with an asterisk (*) represent estimated expenses. We have agreed to pay all the
costs and expenses of this offering.
Item expense
SEC Registration Fee $ 405
Legal Fees and Expenses* 25,000
Printing registration statement and other documents* $ 1,595
Accounting Fees and Expenses* $ 8,000
-------
Total $ 35,000
=======
*Estimated Figures
RECENT SALES OF UNREGISTERED SECURITIES
During the first and second quarters of the year ended March 31, 2005, the
Company sold, pursuant to an exemption from registration under rule 505 of Reg.
D, 603,856 shares of its common stock for proceeds of $301,928. The Company
prepared a Private Placement Memorandum to serve as an offering prospectus,
which was furnished to potential investors prior to sale as required by Rule
502. There were a total of 16 purchasers. The shares issued in connection with
this offering are restricted shares bearing a legend requiring the holding of
the shares for investment purpose and permitting resale only in the event the
shares are the subject of an effective registration statement or in accordance
with the resale safe harbor provisions of Rule 144.
EXHIBITS
Exhibit Number Exhibit Description
1.1 Articles of Incorporation(1)
1.2 Bylaws(1)
5.1 Legal Opinion of Vanderkam & Associates(2)
10.1 Personal Management Agreement - Justin Martin (3)
This document represents the agreement between the Company and Justin Martin. It
grants the Company the right to manage the artist and grants the Company rights
to 15% of all revenue generated by the musician. The contract expires March 1,
2009. Justin Martin is a related party to the Company to the extent that his
father is the Company's largest shareholder.
10.2 Personal Management Agreement - Enrique Gonzalez (3)
This document represents the agreement between the Company and Enrique Gonzalez.
It grants the Company the right to manage the artist and grants the Company
rights to 15% of all revenue generated by the musician. The contract expires
March 1, 2009. Included in 10.1
10.3 Personal Management Agreement - Alex Acosta (3)
This document represents the agreement between the Company and Alex Acosta. It
grants the Company the right to manage the artist and grants the Company rights
to 15% of all revenue generated by the musician. The contract expires March 1,
2009. Included in 10.1
10.4 Personal Management Agreement - Patrick Williams (PatMoe) (3)
This document represents the agreement between the Company and Patrick Williams.
It grants the Company the right to manage the artist and grants the Company
rights to 15% of all revenue generated by the musician. The contract expires
January 1, 2010.
10.5 Exclusive Artist Recording Agreement - Justin Martin (3)
This document represents the agreement between the Company and Justin Martin. It
engages the personal services of The Artist as a performing artist for the
purpose of making Master Sound Recordings for distribution in any medium. The
term is for a period required to complete one album and is extendable at the
Company's discretion to include the musicians first five albums. The artist will
receive varying compensation depending on the medium and where the recording is
sold or licensed. The compensation varies from $.02 per record to 75% of
revenues from sales, less costs to record and produce. The musician will not
record for any other organization for a period of five years after the
completion of an album for the Company. Justin Martin is a related party to the
Company to the extent that his father is the Company's largest shareholder.
10.6 Exclusive Artist Recording Agreement - Enrique Gonzalez (3)
This document represents the agreement between the Company and Enrique Gonzalez.
It engages the personal services of The Artist as a performing artist for the
purpose of making Master Sound Recordings for distribution in any medium. The
term is for a period required to complete one album and is extendable at the
Company's discretion to include the musicians first five albums. The artist will
receive varying compensation depending on the medium and where the recording is
sold or licensed. The compensation varies from $.02 per record to 75% of
revenues from sales, less costs to record and produce. The musician will not
record for any other organization for a period of five years after the
completion of an album for the Company.
10.7 Exclusive Artist Recording Agreement - Alex Acosta (3)
This document represents the agreement between the Company and Alex Acosta. It
engages the personal services of The Artist as a performing artist for the
purpose of making Master Sound Recordings for distribution in any medium. The
term is for a period required to complete one album and is extendable at the
Company's discretion to include the musicians first five albums. The artist will
receive varying compensation depending on the medium and where the recording is
sold or licensed. The compensation varies from $.02 per record to 75% of
revenues from sales, less costs to record and produce. The musician will not
record for any other organization for a period of five years after the
completion of an album for the Company.
10.8 Exclusive Artist Recording Agreement - Patrick Williams (PatMoe) (3)
This document represents the agreement between the Company and Patrick Williams.
It engages the personal services of The Artist as a performing artist for the
purpose of making Master Sound Recordings for distribution in any medium. The
term is for a period required to complete one album and is extendable at the
Company's discretion to include the musicians first five albums. The artist will
receive varying compensation depending on the medium and where the recording is
sold or licensed. The compensation varies from $.02 per record to 75% of
revenues from sales, less costs to record and produce. The musician will not
record for any other organization for a period of five years after the
completion of an album for the Company.
10.9 Music Publishing Agreement - Justin Martin (3)
This document represents the agreement between the Company and Justin Martin in
his capacity as a writer/composer of music. It grants the Company the exclusive
right to sell, license and distribute music written or composed by the writer.
Compensation varies from $.05 per unit sold to 50% of revenues from the sale or
licensing depending on the location of sale and the circumstances. The contract
expires March 1, 2009. Justin Martin is a related party to the Company to the
extent that his father is the Company's largest shareholder.
10.10 Music Publishing Agreement - Enrique Gonzalez (3)
This document represents the agreement between the Company and Enrique Gonzalez
in his capacity as a writer/composer of music. It grants the Company the
exclusive right to sell, license and distribute music written or composed by the
writer. Compensation varies from $.05 per unit sold to 50% of revenues from the
sale or licensing depending on the location of sale and the circumstances. The
contract expires March 1, 2009.
10.11 Music Publishing Agreement - Alex Acosta (3)
This document represents the agreement between the Company and Alex Acosta in
his capacity as a writer/composer of music. It grants the Company the exclusive
right to sell, license and distribute music written or composed by the writer.
Compensation varies from $.05 per unit sold to 50% of revenues from the sale or
licensing depending on the location of sale and the circumstances. The contract
expires March 1, 2009.
10.12 Music Publishing Agreement - Patrick Williams (PatMoe) (3)
This document represents the agreement between the Company and Patrick Williams
in his capacity as a writer/composer of music. It grants the Company the
exclusive right to sell, license and distribute music written or composed by the
writer. Compensation varies from $.05 per unit sold to 50% of revenues from the
sale or licensing depending on the location of sale and the circumstances. The
contract expires January 1, 2010.
10.13 Licensing Agreement - Cheyenne Records (3)
This document represents the agreement between the Company and Cheyenne records.
It grants Cheyenne the exclusive right to produce and distribute 3rd Wish's
music in Germany, Switzerland, and Austria. In exchange for the right, Cheyenne
submits all revenue to the Company reserving royalties of between 20% and 45% of
receipts. This contract generated 95% of the Company's revenue for the year
ended March 31, 2005.
10.14 Master Promissory Note - Jeffrey Martin (3)
This document represents the agreement between Jeffrey Martin and the Company
for the loans and advances made to the Company. Jeffrey Martin is the Company's
largest shareholder.
10.15 Master Promissory Note -Martin Consultants (3)
This document represents the agreement between Martin Consultants and the
Company for the loans and advances made to the Company. Martin Consultants is
controlled by Jeffrey Martin, the Company's largest shareholder.
10.16 Master Promissory Note - JT Investments (3)
This document represents the agreement between JT Investments and the Company
for the loans and advances made to the Company. JT Investments is controlled by
Jeffrey Martin.
23.1 Consent of Thomas Leger, Certified Public Accountants (4)
23.2 Consent of Vanderkam & Associates included in Exhibit 5.1 (3)
23.3 Consent of Ham, Langston, Brezina LLP, Certified Public Accountants (4)
(1) This document was filed with the form 8-K filed on April 7, 2004 and is
incorporated herein by reference.
(2) This document was filed with the form SB-2
amendment No.2 filed on July 12, 2005 and is incorporated herein by reference.
(3) This document was filed with the form SB-2 amendment No. 3 filed on August
17, 2005 and is incorporated herein by reference.
(4) This document was filed with the form SB-2 amendment No. 4 filed on
September
19, 2005 and is incorporated herein by reference.
UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
a. Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
b. Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement;
c. Include any additional or changed material information on the plan of
distribution.
2. That, for determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. To file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
4. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
48
5. In the event that a claim for indemnification against such liabilities, other
than the payment by the Registrant of expenses incurred and paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the securities being registered hereby, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
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 of filing of Form SB-2 and authorized this registration
statement to be singed on its behalf by the undersigned, in the City of Orlando,
State of Florida on July 8, 2005.
/s/ Charles Camorata
-----------------------------
Date: October 3, 2005 By: Charles Camorata,
President and Chief Executive Officer
Date: October 3, 2005 /s/ Karen Pollino
-----------------------------
By: Karen Pollino,
Chief Financial Officer, Controller
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 date stated.
SIGNATURE TITLE DATE
---------- ----- -----
/s/ Charles Camorata President/Director October 3, 2005
--------------------
Charles Camorata
/s/ Karen Pollino CFO/ Director/Controller October 3, 2005
-----------------
Karen Pollino
49