UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number: 33-18143
PEAK ENTERTAINMENT HOLDINGS, INC.
(Name of small business issuer in its charter)
NEVADA 87-0449399
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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Bagshaw Hall, Bagshaw Hill, Bakewell, Derbyshire, UK DE45 1DL
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 44-1629-814555
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: None.
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the 90 past days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year: $1,544,797.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
PEAK ENTERTAINMENT HOLDINGS, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 3
Item 2. Description of Property 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 17
Item 6. Management's Discussion and Analysis 18
Item 7. Financial Statements 33
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 64
Item 8A. Controls and Procedures. 65
Item 8B. Other Information 65
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act 67
Item 10. Executive Compensation 70
Item 11. Security Ownership of Certain Beneficial Owners and Management 71
Item 12. Certain Relationships and Related Transactions 73
Item 13. Exhibits 74
Item 14. Principal Accountant Fees and Services 78
Signatures 79
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Overview
We are a Nevada corporation named Peak Entertainment Holdings, Inc.
Prior to April 2003, we were known as Palladium Communications, Inc. and we operated a telecommunications business. In April 2003, we sold all of our former telecommunications business and purchased our present entertainment business pursuant to a reverse acquisition with Peak Entertainment Ltd., a United Kingdom registered company.
We only recently began our current business operations on April 22, 2003 when we acquired the business of Peak Entertainment, Ltd. Peak Entertainment Ltd. is a United Kingdom registered company incorporated in November 2001 that conducted a media and entertainment business. In 2001 and through most of 2002, Peak Entertainment Ltd. was in its start-up stages. Peak Entertainment Ltd. began its entertainment activities and licensing activities in about February 2002, and its consumer product activities in about April 2002 and began generating from consumer product sales in the last quarter of 2002.
Our current business is developing, marketing and selling television shows and toy and gift products focused on the children's media and leisure market. We have a limited history of revenues and significant operational losses to date, as well as an accumulated shareholder deficit.
Our current business is to develop, market and sell television shows and toy and gift products focused on the children's media and leisure market. Our primary strength is in the conception and development of character concepts that we believe children will find appealing. Our business objective is to take a character concept and develop the concept into a television show, a movie, a video game, a toy, apparel, or other product. We operate with three principal divisions: entertainment, licensing, and consumer products. Our activities include or will include development, production and distribution of television shows for children, licensing intellectual property rights to our television shows, and the manufacture and distribution of toy and gift products. We are currently focusing on two television projects, Muffin the Mule and Monster Quest which are in various stages of production, Muffin the Mule is completed and aired in the United Kingdom in September 2005and the other two projects are not yet ready for airing on television. In 2005, we entered into an agreement with Maverick Entertainment Group Plc, a United Kingdom based company, to represent Maverick Entertainment's broadcast, licensing and merchandising rights to Muffin the Mule, that launched to air in the United Kingdom in Fall 2005, that was commissioned by the British Broadcasting Corporation (BBC). Maverick also granted to Peak certain broadcast, licensing and merchandising rights to Snailsbury Tails, which is another BBC commissioned television series that is currently airing in various international territories.
We are currently developing with an intent to sell the following toy and gift products: Muffin the Mule toy merchandise, and Pretty Pony Club gift pony molds and are developing toy lines for Monster Quest, Countin' Sheep, Snailsbury Tails and The Wumblers television shows in anticipation of their anticipated merchandise launches in 2006/7.
Our principal offices are located at Bagshaw Hall, Bagshaw Hill, Bakewell, Derbyshire, United Kingdom, and our telephone number is 44-1629-814555. We maintain a web site at: http://www.peakentertainment.net.
Organization History
Peak Entertainment Holdings, Inc. was originally incorporated as Corvallis, Inc. in the state of Nevada on September 28, 1987 to seek business opportunities.
On March 31, 2003, we effected a 100 for 1 reverse stock split. As a result of the reverse split, the 211,907,574 shares of our common stock that were issued and outstanding became 2,119,195 shares issued and outstanding.
In April 2003, Palladium Communications sold its telecommunications business to Palladium Consulting Group, LLC for $75,000. The assets sold to Palladium Consulting Group consisted of substantially all of Palladium Communication's assets, including all carrier agreements, sales agent agreements, and equipment. The retained assets included cash and notes receivable. Palladium Consulting Group assumed certain of our liabilities, including our payables for phone systems and equipment and a lease for office facilities. Palladium Communications retained liabilities in connection with outstanding convertible debentures. As a result of the transaction, Palladium Communications had substantially no assets and had significant liabilities, consisting of the retained convertible debentures and accrued interest.
On April 22, 2003, Palladium Communications acquired the business of Peak Entertainment Ltd., together with its subsidiaries. Palladium Communications exchanged 19,071,684 shares of its common stock for all of the shares of Peak Entertainment Ltd. in a transaction viewed as a reverse acquisition. The shares issued to the holders of Peak Entertainment Ltd. constituted 90 percent of our outstanding shares. At the closing of the reverse acquisition, Palladium Communications appointed the principals of Peak Entertainment, Ltd., as officers and directors of Palladium Communications, and the former directors and officers of Palladium Communications resigned.
Upon consummation of the acquisition of Peak Entertainment, Ltd., the founders of Peak Entertainment, Ltd., Wilf and Paula Shorrocks, were appointed directors and officers of Palladium. The former directors and officers of Palladium Communications resigned as of the acquisition date.
On May 14, 2003, Palladium Communications Inc. changed its corporate name to Peak Entertainment Holdings, Inc.
As of December 31, 2005, we had 31,852,108 shares of common stock issued and outstanding. As of we have not been subject to bankruptcy, receivership or other similar proceeding.
Business Overview
We develop, market and sell television shows and toy and gift products focused on the children's media and leisure market.
Strategy
Our business plan is to develop, market and sell television shows and toy and gift products focused on the children's entertainment market. Our planned activities include the development, production and distribution of television shows targeted for the children's entertainment market, the licensing of intellectual property rights related to our television shows, and the manufacturing and sales of consumer products related to our television shows.
Our business objective is to develop a character or entertainment concept into a media product, such as into a television show, a movie, or a book, and to build the media product into a popular brand among children and either sell items ourselves such as a video game, a toy, or apparel, or license merchandise rights to third parties for manufacture and sale by third parties. We anticipate that we will rely on third parties such as animation and television production companies to co-produce entertainment shows, and broadcast companies to broadcast our television shows. We believe that this business model will enable us to develop a character and product idea from its concept stages, through development, manufacturing, and promotion stages, to the consumer product, while maintaining control of the character concept and product ideas, so that we will be able to control and coordinate broadcast, promotions and product launches.
Structure and Business Initiatives
We operate within one business segment, namely childrens media, with three main sources of income: entertainment, licensing, and consumer products.
Entertainment
Entertainment is currently focusing on three television shows, two of which we are responsible for production. All three shows are in the pre-production or production stages. We anticipate that we will generate revenues from the distribution of television shows to broadcasting companies and other media outlets. The key costs are substantial animation and production costs in getting television episodes produced. We will initially seek to introduce the planned television shows in the United Kingdom, United States, Canada, Europe, Australia and New Zealand.
Monster Quest
Monster Quest is an animated television series based upon the history and heritage of 'Monsters' from Medusa, Mynator and Cyclops of mythological times to the modern classics of Frankenstein, Dracula and Werewolf.
The television project is in pre-production stages with our in-house computer graphics studio creating the models, frames, characters and environments. Our production team, in conjunction with our co-production partners, will produce 26 thirty-minute episodes.
We are to provide via third party funding, the initial first stages of the pre-production funding, either in cash or services, for each of the 26 episodes. The project is currently in pre-production with storyboards and models being prepared. We are actively seeking sources of financing to fund the project with Persistence of Vision in conjunction with the Malaysian Government, but have no such firm commitments to date. A delay in receipt of funding will likely delay the timetable for production. Assuming the receipt of funding by June 2006, we anticipate production for delivery of the first thirteen episodes by April 2007 and the next thirteen by October 2007. If sufficient funding is not available shortly, the timetable for production of the episodes will likely be re-scheduled for completion for Fall 2007 or Spring 2008.
We intend to distribute this series of 26 animated programs in various markets. We currently have a broadcast contract signed with Good Morning Television in the United Kingdom (known as GMTV), for terrestrial broadcast rights for a period of five years ending August 2008 in the United Kingdom markets in exchange for an aggregate license fee of $393,000 payable through July 2005. GMTV has committed to running the episodes from April 2006 through March 2007 that we anticipate extending if production is further delayed.
We will seek to distribute programs in other countries, including the United States, although no such agreements have been reached to date.
The Wumblers
The Wumblers are a sweet natured, whimsical collection of cartoon characters. The Wumblers is an educational and entertainment show geared toward pre-school aged children.
We entered into an entertainment production agreement, dated as of December 16, 2003, with The Silly Goose Company, LLC for the production of animated television episodes for a certain intellectual property entitled "The Wumblers". Pursuant to an agreement dated April 28, 2003, we were entitled to all exploitation rights in The Wumblers including merchandise and distribution rights. We had to finance or obtain financing for the episodes. Funding sources will share copyright interests in the television episodes according to the allocation of net proceeds. We had the right to produce other episodes based on the licensed intellectual property. We had the right to exploit the licensed property worldwide in perpetuity.
On January 9, 2004, we entered into an Agreement for the Provision of Co Production Services with Cosgrove Hall Films Ltd. for the co-production of 52 eleven minute episodes of an animated television program for children provisionally entitled "The Wumblers." We were providing the intellectual property, format and concept for the television episodes, and Cosgrove Hall Films will supply the production services. Cosgrove Hall Films will be paid for its production services. The costs of the production of the episodes are projected to be approximately $3,500,000.
We have completed the production of one pilot episode to date. We anticipate that the remaining episodes will be commenced by April 2006, subject to receipt of financing for production costs.
On March 6, 2006 we entered into an agreement with Silly Goose to release our rights previously granted to us pursuant to an April 28, 2003 agreement and a December 16, 2003 entertainment production agreement between the parties to The Wumblers allowing financing to be provided by third parties and production to be completed. In return, we are to receive a percentage of the net profits from the entity exploiting the Wumblers project, as set forth below, provided, however, that payment to Peak of such net profit participation shall attend on and be paid after the financing parties in such entity have recouped their direct investment.
(i) If 4Kids, or a wholly-owned or controlled affiliate of 4Kids,
is the majority financier of the Wumblers project, the
percentage retained by Peak above shall be 15%;
(ii) If 4Kids is not the majority financier of the Wumblers
project, the percentage retained by Peak above shall be 15%,
and Peak shall retain the United Kingdom marketing rights on a
35% of gross receipts basis
(iii) If 4Kids is not the majority financier, and if the parties
hereto agree that Peak shall retain a percentage of 7.5%, then
Peak shall not retain representation rights for The Wumblers
for the United States and Canada, and Peak shall retain all
other worldwide rights on a 35% basis for the United Kingdom
and 40% for the rest of the world.
(iv) If 4Kids is not the majority financier, and if the parties
hereto agree that Peak shall retain a percentage of 8%, then
Peak shall not retain representation rights for The Wumblers
for the United States and Canada, and Peak shall retain other
rights on a 35% basis for the United Kingdom and 40% for
Europe, Australia, South America and South Africa.
(v) If 4Kids is not the majority financier, and if the parties
hereto agree that Peak shall retain a percentage of 9%, then
Peak shall not retain representation rights for The Wumblers
for the United States and Canada, and Peak shall retain other
rights on a 35% basis for the United Kingdom and 40% for
France, Spain, Italy, Australia and Mexico.
(vi) If 4Kids is not the majority financier, and if the parties
hereto agree that Peak shall retain a percentage of 10%, then
Peak shall not retain representation rights for The Wumblers
for the United States and Canada, and Peak shall retain other
rights on a 35% basis for the United Kingdom and 40% for
Australia.
Muffin the Mule
Muffin the Mule began life in 1933 as an un-named character in the `Hogarth's Puppet's' puppet circus and 13 years later he was privileged to be chosen by Annette Mills (sister of Sir John Mills) to appear in a BBC programme called Children's Hour. He made his TV debut on October 20, 1946 and became an instant favourite, with the claiming him as `the first ever star to be made by British Television"
Such was his popularity, Muffin was credited for beginning the post-war industry in character merchandise with toys, games, books and gifts all produced in recognition of his immense appeal. Loved equally by adults and children alike in the 1950's, it is that heritage that has been captured to appeal to nostalgic parents and new audiences alike.
To celebrate the 60th anniversary of Muffin's first appearance on British television, the BBC has commissioned 40 brand new animated episodes to be broadcast in 2006. Maverick Entertainment has invested $4 million to produce 26 ten minute episodes, with a further 14 episodes expected in 2006. Subsequent to the yearend 2005, Peak Entertainment became the licensing agent for certain of Maverick Entertainment's intellectual property, including Muffin the Mule. 2006 is the 60th anniversary of `Muffin the Mule' and to commemorate his `iconic brand status' the BBC commissioned 40 new animated episodes that they intend to launch on CBBC from September 2005.
Aimed at pre-schoolers, the new Muffin television series is true to the original concept with classic storytelling that will retain his lovable charm and characteristics whilst appealing to the more sophisticated requirements of today's children by giving Muffin a fresh lease of life. Joining him in his adventures will be nine friends, including Peregrine the Penguin, Louise the Lamb and Oswald the Ostrich who were all original puppet characters in the 1940's TV show.
Initial viewing figures on BBC where very strong and this resulted in the episodes being rescheduled to air in March 2006 and further broadcasts during the anniversary year of 2006. Peak have signed merchandising deals with Maverick Entertainment for UK publishing and DVD rights, Character Options Ltd, for a range of associated toys, Martin Yaffe Ltd, for associated toys and childrens products, Zoo Digital Ltd, for associated interactive PC games, Future Publishing Ltd, for associated Comics and Newsstand Specials and are currently negotiating various broadcast, merchandise and licensing agreements both in the United Kingdom and internationally.
Tattoo - The Marked Man
This is a proposed project in the very early stages of development. Tattoo is an action-adventure concept character involving a hero character and tattoos which can become three-dimensional. We made some previous efforts and agreements to move this project forward with Stan Lee and POW! Entertainment, but the parties have disagreed on how to proceed and we did not make a $250,000 payment in furtherance of the project. Accordingly, and because other more developed projects have moved forward, this project remains in the early stages of development.
Licensing
This comprises the licensing and sublicensing of intellectual properties to and from third parties. We intend to license or sub-license our products for use by others in other mediums, such as in video games, apparel, toys, and other merchandise.
We have an in-house licensing team headed by our licensing director, Alan Shorrocks. We have entered into agreements with several international agents and intend to further develop a network of international agents for the international promotions of our products.
We entered into license agreements with Character Option Ltd, Video Collection International Ltd, Radica Ltd, Zoo Digital Publishing Limited and Impact International Ltd 2004 for Monster Quest products, with Toontastic Publishing for magazine use of our Pretty Pony Club concepts, and with CCA Group for our Countin' Sheep products for use in greeting cards and via our licensing agent The Sharpe Company with Cadaco in the United States and Canada for our Countin' Sheep collectable plush toy products.
Licensing has not generated significant revenues to date. We anticipate that it will become much more active once we have produced sufficient episodes of our television shows so that broadcasting of the shows can commence. After broadcasting, and subject to a receptive audience, we believe that licensing may become our principal source of revenues.
The principal revenues for this division are anticipated to be a customary 35% commission we receive from all revenue received from licensing entertainment properties to broadcasters, toy and gaming companies, and other manufacturers such as clothing and home entertainment. Revenue is earned from selling licenses for our non-entertainment driven properties. The key costs for are staff, travel, toy and good production costs, and costs for attendance at annual toy and licensing trade shows internationally.
We intend to expand the licensing of our products through:
o A consumer public relations campaign; and
o Related marketing programs.
International toy fairs, such as MIP TV in Cannes, France in April 2004, have provided an ideal forum to display our products. We also attend the New York Licensing Show in June 2004 and will build on that platform with our partners 4Kids Entertainment at the New York Licensing Show in June 2005 and the European Licensing Show in October 2005.
Consumer Products
Consumer products have historically been our primary source of revenues operated primarily through three wholly-owned subsidiaries:
o Cameo Collectables - for the sale of gift and
collectibles items;
o Jusco Toys - for the manufacture and production of toys
and other consumer products; and
o Wembley Sportsmaster - for a range of leisure toys (not
yet launched).
Currently and historically we manufacture and sell the following products:
Cameo Collectables
o Countin' Sheep toy products in the United Kingdom and
United States markets since January 2003;
o Mini Flora toy products in the United Kingdom market
since January 2003; and
o Pretty Pony Club products (mold ponies) in the United
Kingdom market since December 2002.
Our consumer products are sold primarily with the assistance of various independent sales agents to toy stores and gift stores.
Jusco Toys
Our Jusco Toys subsidiary, works with third party manufacturers and distributors, to make toys and other consumer products.
We acquired Jusco Toys in April 2002, to acquire its inventory and its manufacturing capabilities. Jusco will be used primarily to manufacture products for third parties, some of which may be our licensees.
We are currently developing toy lines and pre-production samples for our new television shows, Monster Quest, The Wumblers and Muffin the Mule. We expect to sell these lines either directly to retailers/distributors or under license with master toy licensees on a worldwide or territory basis and have started to make formal representations now that we have specific broadcast deals in place.
Wembley Sportsmaster
This subsidiary is not currently active, and we have no definitive plans for this subsidiary in fiscal year 2005 or at any time in the near future. We acquired the assets of Wembley Sportmaster primarily for its trademarks. Our future intent is to eventually launch a range of balls, leisure toys, inflatable pools and play products under the Wembley Sportsmaster banner. We have no current plans or timetable for utilizing this division or the trademarks, and it could be many years before we do so.
Design Studio Team
We have set up an in-house design studio team, with designers and artists, equipped with an animation studio. The team is involved in character creation, storyboard development, and animation production. The team is also involved in preparing marketing literature to support our licensing activities, and in toy design, packaging and display solutions to support our consumer products.
Intellectual Property Rights
We have acquired the following rights:
o Shorrocks Portfolio Worldwide - from Wilf and Paula Shorrocks, in a license agreement dated April 30, 2002, for royalties of 10% of the net selling price, payable quarterly, in perpetuity. The guaranteed minimum royalty payable for rights to the portfolio in perpetuity is $1,000,000. We are to pay a minimum of $12,500 per quarter beginning September 30, 2004, credited against the guaranteed minimum.
o The Wumblers - from The Silly Goose Company, LLC. We entered into an entertainment production agreement, dated as of December 16, 2003, with The Silly Goose Company, LLC for the production of animated television episodes for certain intellectual property entitled "The Wumblers". Pursuant to an agreement dated April 28, 2003, we are entitled to all exploitation rights in The Wumblers including merchandise and distribution rights. On March 6, 2006, we entered into an Agreement with Silly Goose to release our rights to The Wumblers allowing finance to be provided by third parties and production to be completed. In return, we are to receive a percentage of the net profits from the entity exploiting the Wumblers project, as set forth below, provided, however, that payment to Peak of such net profit participation shall attend on and be paid after the financing parties in such entity have recouped their direct investment.
(i) If 4Kids, or a wholly-owned or controlled affiliate of 4Kids,
is the majority financier of the Wumblers project, the
percentage retained by Peak above shall be 15%;
(ii) If 4Kids is not the majority financier of the Wumblers
project, the percentage retained by Peak above shall be 15%,
and Peak shall retain the United Kingdom marketing rights on a
35% of gross receipts basis
(iii) If 4Kids is not the majority financier, and if the parties
hereto agree that Peak shall retain a percentage of 7.5%, then
Peak shall not retain representation rights for The Wumblers
for the United States and Canada, and Peak shall retain all
other worldwide rights on a 35% basis for the United Kingdom
and 40% for the rest of the world.
(iv) If 4Kids is not the majority financier, and if the parties
hereto agree that Peak shall retain a percentage of 8%, then
Peak shall not retain representation rights for The Wumblers
for the United States and Canada, and Peak shall retain other
rights on a 35% basis for the United Kingdom and 40% for
Europe, Australia, South America and South Africa.
(v) If 4Kids is not the majority financier, and if the parties
hereto agree that Peak shall retain a percentage of 9%, then
Peak shall not retain representation rights for The Wumblers
for the United States and Canada, and Peak shall retain other
rights on a 35% basis for the United Kingdom and 40% for
France, Spain, Italy, Australia and Mexico.
(vi) If 4Kids is not the majority financier, and if the parties
hereto agree that Peak shall retain a percentage of 10%, then
Peak shall not retain representation rights for The Wumblers
for the United States and Canada, and Peak shall retain other
rights on a 35% basis for the United Kingdom and 40% for
Australia.
o Muffin the Mule - We entered into a representation agreement, dated March 1, 2005, with Maverick Entertainment Group Plc, pursuant to which we acquired, on a worldwide basis, other than for video, DVD and publishing rights in the United Kingdom and Ireland, the right to exploit television broadcasting rights for Muffin the Mule, and the right to negotiate with and grant manufacturers and other interested parties licenses in relation to the manufacture and distribution of merchandise. We are entitled to 35% of gross receipts in the UK and 40% of gross receipts in the rest of the world. The agreement expires on February 28, 2008, subject to automatic renewal if a minimum (pound)500,000 in royalties has been paid to Maverick.
We have licensed the following rights to third parties:
o Monster Quest for videograms - We entered into an agreement, dated
April 29, 2004 and as amended in June 2004, with Video Collection
International Limited. Under the agreement, we licensed exclusive
videogram rights to the Monsters Quest television series. For
purposes of the agreement, the term videogram rights refer to the
right to distribute the television shows through videocassette, DVD,
CD-ROM, laser disk, video-on-demand, electronic and similar
technology. The performance of the agreement by Video Collection
International is subject to various conditions, such as that we
obtain a commitment to broadcast episodes of the television series
beginning in 2006, that we enter into a toy license with a third
party, and that we arrange for the production of collectible toy
figures. Under the agreement, we are to conduct a marketing campaign
in connection with the television broadcast of at least UK
(pound)500,000, and publish a comic book and a book in 2006. The
license territory is the United Kingdom and Ireland. We are entitled
to receive royalties of 15% of gross receipts for most products. The
royalty rate may be 7.5% for products sold by direct mail, or 25%
for certain premium products. The agreement provides for an advance
royalty of UK (pound)100,000, of which we received UK (pound)20,000
upon entering the agreement. The remainder of the advance royalty is
receivable in installments based on future events, such as
completion of broadcasting of episodes and launching of toy
products. The agreement is to expire seven years from the first
release of a videogram. No videogram has been released to date.
o Monster Quest for electronic games - We entered into a license agreement, dated December 12, 2003 and as amended in January 2004 and June 2004, with Radica U.K. Ltd. Under the agreement, we licensed certain rights to Monster Quest in connection with the sale of certain electronic handheld games. The license territory is the United Kingdom, Channel Islands and Eire. We are to receive royalties of 8% to 10% of the net selling price. The license term is four years from December 2003.
o Monster Quest for DS Game Boy - We entered into a license agreement, dated October 4, 2004, with Zoo Digital Publishing Limited. Under the agreement, we licensed certain rights to Monster Quest in connection with the sale of Game Boy games. The license territory is worldwide. We are to receive royalties of $1.50 per unit sold. The license term is three years from first publication of the product.
o Countin' Sheep for greeting cards - We entered into a license
agreement, dated February 10, 2003, with CCA Group Ltd. Under the
agreement, we licensed the right to intellectual property called
Countin' Sheep in connection with the sale of greeting cards. The
license territory is the United Kingdom, Channel Islands and
Ireland. We are to receive royalties of 10% of the net selling
price. We are entitled to a guaranteed minimum royalty of UK
(pound)10,000. We received an advance royalty of UK (pound)5,000 in
February 2003. The license expires on January 31, 2006.
Pretty Pony Club - to Toontastic Publishing Ltd., pursuant to a license agreement dated December 5, 2002, and renewed in 2004, and on September 1, 2005. Under the agreement, we licensed the right to intellectual property called Pretty Pony Club in connection with the sale of comic books. The license territory is the United Kingdom and Ireland. We are to receive royalties of 4% of the net sales price and 5% of Toontastic purchase price on covermounts manufactured by a third party of Pretty Pony Club toys. There is no minimum guaranteed royalty under the renewed license. The license expires on August 31, 2006.
o Pretty Pony Club - We entered into a license agreement dated February 1, 2005 with Color Media International. Under the agreement, we licensed the right to intellectual property called Pretty Pony Club in connection with the sale of comic books. The license territory is Serbia and Montenegro. We are to receive royalties of 5% of the net sales price. The minimum guaranteed royalty is UK (pounds) 10,000 plus VAT, payable quarterly over the term of the license. The license expires on January 31, 2007.
o Muffin the Mule - We entered into a license agreement dated April 20, 2005 with Character Options Ltd. Under the agreement, we licensed the right to Muffin The Mule intellectual property for use in connection with the sale of toy products, not yet specified. The license territory is the United Kingdom, Channel Islands, and Ireland. We are to receive royalties of 10% of the sales price. The minimum guaranteed royalty is UK (pounds) 100,000. The license period is for three years.
o Muffin the Mule - We entered into a license agreement dated July 2005 with Future Publishing Limited. Under the agreement, we licensed the right to Muffin The Mule intellectual property for use in connection with the sale of a magazine. The license territory is the United Kingdom, Ireland, Northern Ireland, Channel Islands, and the Isle of Man. We are to receive royalties of 6% of the cover price less VAT on sales of the magazine after the first six issues. The minimum guaranteed royalty is UK (pounds) 22,500 plus VAT payable in five installments, with the first installment payable at the time of the publication of the seventh issue and payable quarterly thereafter. The license period is for two years from the first publication date.
o Muffin the Mule - We entered into a license agreement dated August 16, 2005 with Martin Yaffe International Ltd. Under the agreement, we licensed the right to Muffin The Mule intellectual property for use in connection with the sale of rocking horse and stick horse toys. The license territory is the United Kingdom and Ireland. We are to receive royalties of 10% of the net sales price or 12% of F.O.B. price. The minimum guaranteed royalty is UK (pounds) 7,500 plus VAT payable quarterly over the term of the license. The license expires on December 31, 2007.
o Muffin the Mule - We entered into a license agreement, dated
September 1, 2005, with Fun2Learn Ltd. Under the agreement, we
licensed the right to Muffin The Mule intellectual property for use
in connection with children's coin operated rides. The license
territory is the United Kingdom. We are to receive royalties of UK
(pounds) 100 per unit. The minimum guaranteed royalty is UK (pounds)
2,000 plus VAT payable quarterly over the term of the license. The
license expires on December 31, 2007.
o Muffin the Mule - We entered into a license agreement, dated September 5, 2005, with ZOO Digital Publishing Limited. Under the agreement, we licensed the right to Muffin The Mule intellectual property for use in connection with an interactive DVD game. The license territory is worldwide. We are to receive royalties of 10% of the net selling price. The license expires seven years after the first release of the product.
Distribution and Sales Rights
We have entered into the following distribution and sales rights:
o We entered into a distribution agreement, dated July 1, 2003, with Perfectly Plush Inc., a Canadian company, whereby Perfectly Plush would serve as exclusive distributor of our Countin' Sheep products in Canada. Under the agreement, Perfectly Plush is to pay us a royalty of 10% of the net selling price, which is included in the purchase shipment price. Perfectly Plush shall pay to us 25% of the value of the invoice on placement of order, 25% on release from port of shipment and the remaining balance on release of products from port of entry for orders on the first 54,000 pieces. For subsequent orders, Perfectly Plush shall pay us 25% of the value of the invoice on placement of order, 25% on release from port of shipment, 25% on release of products from port of entry, and the remaining balance within 45 days of receipt of shipment. The agreement expired on December 31, 2004.
o We entered into a distribution agreement, dated January 20, 2003 and
as amended on June 17, 2004, with Character Options Ltd., whereby it
would serve as exclusive distributor of our `Monster Quest' products
in the United Kingdom, Channel Islands and Eire. Under the
agreement, Character Options paid a non-refundable advance of UK
(pound)100,000, credited against royalty payments, and is to pay us
a royalty of 10% of the net selling price. We are entitled to a
guaranteed minimum royalty of UK (pound)150,000 if 26 episodes of
`Monster Quest' are broadcast on GMTV or satellite television by
June 30, 2006. The agreement expires on June 30, 2007.
o We entered into a representation agreement, dated August 19, 2003, with Haven Licensing Pty Ltd. for the use of Monster Quest Brand, excluding television and video distribution, in Australia and New Zealand. The commission rate is 30% of gross receipts. The agreement expires on December 31, 2006.We entered into a representation agreement, dated September 17, 2003, with Character Licensing & Marketing for the use of Monster Quest Brand, excluding television and video distribution, in South Africa. The commission rate is 30% of gross receipts. The agreement expires on September 16, 2005.
o We entered into a representation agreement, dated October 31, 2003, with Kidz Entertainment, for the use of Monster Quest Brand, in the Nordic Region of Europe. The commission rate is 30% of gross receipts. The agreement expires on December 31, 2006.
o We entered into a distribution agreement, dated April 27, 2004, with Cadaco, located in Chicago, Illinois, whereby Cadaco would serve as exclusive distributor of our Countin' Sheep products in the United States. Under the agreement, Cadaco is to pay us a royalty of 10% of the net selling price. The agreement expires on December 31, 2006.
o We entered into a Merchandise License Agreement dated December 14, 2004 further granting Cadaco the rights to manufacture `Countin Sheep' associated toys and games in the United Stated. The agreement has a $75,000 license guarentee based on 10% of net sales generated by Cadaco of which Peak will receive 65% net of agents commission. The agreement had a $50,000 advance royalty payment received on signature of which Peak received 65%.
o We entered into a representation agreement, dated August 2, 2004, with Blue Chip Brands Pty Ltd., located in Australia, granting Blue Chips, in connection with our Countin' Sheep products, the non-exclusive right to negotiate with manufacturers and other interested parties licenses for merchandising rights in Australia for a period ending on December 31, 2006. The commission rate is 30% of gross royalty on all products other than the plush toy range, for which the commission rate if 1.5% of gross receipts.
o We entered into a representation agreement, dated March 1, 2005, with Maverick Entertainment Group plc (UK), pursuant to which we acquired, on a worldwide basis, other than for video, DVD and publishing rights in the United Kingdom and Ireland, the right to exploit television broadcasting rights for Muffin the Mule and for Snailsbury Tails, and the right to negotiate with and grant manufacturers and other interested parties licenses in relation to the manufacture and distribution of merchandise. We are entitled to 35% of gross receipts in the UK and 40% of gross receipts in the rest of the world. The agreement expires on February 28, 2008, subject to automatic renewal if a minimum (pound)500,000 in royalties has been paid to Maverick.
o We entered into an agreement, dated March 7, 2005, with 4Kids Entertainment, Inc. The territory covered by the agreement is the United States. The term of the agreement is March 7, 2005 through December 31, 2011. Pursuant to the agreement, we granted to 4Kids certain exclusive television broadcast and home video rights to 52 episodes of the television series The Wumblers. 4Kids is to use reasonable commercial efforts to cause the series to be broadcast on network television in the territory for a minimum of 52 broadcasts commencing on or before January 1, 2007. As to broadcasts for which 4Kids controls the programming schedule or distribution method, revenues derived by 4Kids shall be retained 100% by 4Kids and such revenues shall not be deemed net series income. Revenues derived by 4Kids from broadcasts in the territory that 4Kids does not control is to be divided as follows: 35% to 4Kids and 65% to Peak. With respect to home video sales, we are entitled to a royalty of 15% of net wholesale sale price if the wholesale price is greater than $10 per unit and 10% of the net wholesale price if the wholesale price is $10 or less per unit. We also appointed 4Kids as our exclusive agent in the territory during the term to represent all merchandising, publishing and promotional rights to the series and all characters and elements contained in the series. 4Kids is to pay us $125,000 as a nonrefundable license fee and $125,000 as an advance against royalties, payable as follows: $4,807 as license fee and as an advance per episode upon delivery and acceptance by 4Kids of each of the episodes. The $125,000 advance shall be offset against Peak's share of royalties.
We are entitled to 60% and 4Kids is entitled to 40% of the series net income from the exploitation of the home video rights and merchandising rights derived in the territory. Series net income is defined as gross receipts from the exploitation or license by 4Kids of the home video rights and the merchandising, less certain production costs, and less actual out-of-pocket expenses, excluding overhead expenses, incurred by 4Kids in connection with the exploitation of the television and merchandising rights, and less third party out-of-pocket syndication costs paid by 4Kids. Series net income does not include any advertising revenue received by 4Kids from the sale of advertising on any 4Kids controlled broadcasts. 4Kids has an annual option to license television rights and home video rights to at least thirteen additional episodes per broadcast season. The term is to be extended for an additional year upon exercise of such option. If Peak does not produce additional episodes and 4Kids desires to produce such additional episodes, 4Kids shall have the right to do so on terms and conditions to be negotiated in good faith by the parties. We also granted to 4Kids the non-exclusive right to represent and negotiate worldwide or multi-territory licenses, for which advances, royalties and guarantees from such licenses generated in the United States will be considered series net income, and advances, royalties and guarantees from such licenses generated outside the United States or are attributable to sales outside the United States are to be divided as follows: 15% to 4Kids and 85% to Peak. On March 6, 2006, we entered into an agreement with Silly Goose to release our rights to The Wumblers allowing financing to be provided by third parties and production to be completed. Following our agreement with Silly Goose dated March 6, 2006, this agreement has been assigned back to Silly Goose.
o We entered into a representation agreement with Dubreq Ltd dated October 5, 2005 for exclusive worldwide exploitation rights to their brand Stylophone. Under the terms of the agreement we the right to manufacture or license the Stylophone brand and have agreed to pay Dubreq a royalty of 10 percent of net sales generated with no minimum guarantee payable by Peak. The contract is due to expire on December 31, 2008.
Competitive Environment
We have many competitors internationally across three principal areas of our proposed business: entertainment, licensing and consumer products.
Competitors include large companies who operate with similar business strategies to ours, but on a much larger scale, such as Vivendi with its Universal Studios and Time Warner Inc. with Warner Brothers. These large companies have an integrated business approach to their properties, with television, film, licensed toys and merchandise, and have a competitive advantage because they own or are significant partners in worldwide broadcast companies and have direct access to their consumers internationally. Similarities can be observed within the United Kingdom with the BBC, which commissions television shows, controls its own channel and content, and has its own licensing and consumer products division, BBC Worldwide, which exploits the rights and places the content internationally.
Other competitors include companies that do not have their own broadcast facilities, as we do not, and therefore do not enjoy the competitive advantages that broadcast companies like Vivendi and Time Warner have. These smaller broadcast-independent companies include H.I.T. Entertainment, 4Kids Entertainment, DIC Entertainment and Saban. These smaller firms have created many of the well-known and currently popular properties, such as 4Kids Entertainment's Pokemon, H.I.T.'s Bob The Builder, and Saban's Power Rangers. Pokemon, since its appearance in 1998, has generated sales of $15 billion through 2003. Nickelodeon's Rugrats and Fox Kids/Saban's Power Rangers both launched in 1992, and remain well-known brands to this day.
Most of our competitors operate in the same three primary business lines as we do: entertainment, licensing and consumer products; and they do so on an international scale. Successful companies have gained visibility through coordinated marketing efforts in various segments of the market, and do not rely on generating revenues from television licensing and distribution income, but also on income from product licensing and merchandise sales. Successful television shows in one territory also tend to be successful in other territories, and the ability to license the brand and to sell consumer products is related to the popularity and the success of the television shows. Accordingly, the same companies and the same brands tend to dominate the market in each of the three business segments of the children's market: entertainment, licensing and consumer products.
Many companies and brands do not succeed in this highly competitive market. The international broadcast arena has witnessed a demand for more and more content over recent years as the proliferation of new television channels continues.
Principal Suppliers
In 2005, we were not dependent on any particular supplier.
Dependence on Major Customers
In our fiscal year ended December 31, 2005, Muffin The Mule represented approximately 47% of our revenues.
Government Regulation
Our toy and related products sold in the United States are subject to the provisions of The Consumer Product Safety Act, The Federal Hazardous Substances Act, The Flammable Fabrics Act, and the regulations promulgated thereunder. The Consumer Product Safety Act empowers the Consumer Product Safety Commission to take action against hazards presented by consumer products, including the formulation and implementation of regulations and uniform safety standards. The Consumer Product Safety Commission has the authority to seek to declare a product "a banned hazardous substance" under the Consumer Product Safety Act and to ban it from commerce. The Consumer Product Safety Commission can file an action to seize and condemn an "imminently hazardous consumer product" under the Consumer Product Safety Act and may also order equitable remedies such as recall, replacement, repair or refund for the product. The Federal Hazardous Substances Act provides for the repurchase by the manufacturer of articles which are banned. Consumer product safety laws also exist in some states and cities within the United States and in Canada, Australia and Europe. We vigorously seek to maintain compliance with the Consumer Product Safety Act, the Federal Hazardous Substances Act, the Flammable Fabrics Act, international standards, and our own standards. Notwithstanding the foregoing, there can be no assurance that all of our products are or will be hazard free. Any material product recall could have an adverse effect on our results of operations or financial condition, depending on the product, and could affect sales of other products.
The Children's Television Act of 1990 and the rules promulgated thereunder by the United States Federal Communications Commission, as well as the laws of certain countries, place certain limitations on television commercials during children's programming. We, of course, seek to comply in all respects with these laws and regulations.
Compliance with Environmental Laws
Not applicable.
Employees
As of December 31, 2005, we employed a total of 12 employees, 11 on a full-time basis, 1 on a part-time basis. 6 are management level employees, 3 are clerical, and 3 employed as designers.
ITEM 2. DESCRIPTION OF PROPERTY
We lease approximately 3,000 square feet of space for our Bakewell, England headquarters pursuant to a one year lease at approximately $6,059 per month. We believe that our facilities are adequate for our present purposes. Our offices are adequately covered by insurance for claims arising out of such occupancies.
ITEM 3. LEGAL PROCEEDINGS
As at December 31, 2005, we are not a party to any material pending legal proceeding, other than ordinary routine litigation incidental to our business and except as described below.
In 2002, we entered into an agreement with CK Supermarket to provide working capital on a short-term basis secured against certain inventory of our subsidiary, Jusco UK Ltd. The lender has a security interest on the assets of our subsidiary, Jusco UK Ltd., but does not have a security interest in our parent company or our other subsidiaries. The debt was originally due on January 10, 2003. At March 31, 2004, it was envisaged that the loan would be repaid in 2004 from revenues from the sale of inventory. In May 2004, the lender notified us regarding immediate payment of the balance owed. As of May 2004, we were in discussions with the lender regarding the repayment of the debt through a combination of cash from the sale of certain inventory and the issuance of our securities and for us to guarantee the repayment by Jusco UK Ltd. At December 31, 2004, the balance was $386,095 including interest of $115,596. On or about May 6, 2005, CK Supermarket commenced a legal proceeding before the Supreme Court of the State of New York, County of New York, Index No. 05-601612, seeking payment of $376,482 plus interest. We intend to vigorously contest the pending proceeding, which we believe has several technical defenses, particularly as to the forum and certain allegations that are believed to be material and erroneous. However, ultimately, we anticipate that a properly instituted lawsuit in a proper venue is likely to result in payment obligations of the subsidiary to CK Supermarket, and if not paid by our subsidiary, then we may be required to pay such obligation if so determined by a proper forum.
On January 26, 2004, we entered into an agreement with POW! Entertainment LLC for the development and exploitation of the property "Tattoo - the Marked Man". We have the worldwide distribution and merchandising rights in perpetuity and the agreement describes a payment of $250,000 to fund project development. The payment was subject to certain deliverables from POW! upon which payment was anticipated to be made on the earlier of August 31, 2004 or ten business days after the effective date of our registration statement filed in February 2004. Stan Lee is to develop the concept, based on characters created by the Shorrocks. The project was geared toward creating a motion picture based on the character. The parties were to share all profits received from the project, after deduction of expenses, and in addition, POW would have been entitled to any executive producer fees from theatrical and television releases. We have not yet paid the amounts due to POW! under the agreement, and it appears that the transaction has been abandoned. We believe that we have meritorious defenses to any potential claims.
On August 13, 2004, in a labor action entitled Thomas Bernard Skahill v. Peak Entertainment Holdings, Inc. before the Labor Commissioner of the State of California, the Company was ordered to pay $24,358.27 in wages, expenses, penalties, and interest in connection with an employment claim. We are informed that the matter was confirmed as a judgment on or about October 15, 004 by the Superior Court of the State of California in the amount of $24,938.57. The financial statements include an accrual of $9,166 in relation to this claim.
We are informed that on or about April 6, 2004, James E. Skahill and Marie A. Skahill filed a complaint for damages for breach of contract against Peak Entertainment Ltd. before the Superior Court of the State of California for the County of Los Angeles, Northeast District, Case No. GC033622 alleging breach of a lease and seeking damages in an amount to be determined. We believe that the matter was not properly commenced with proper service upon Peak Entertainment Ltd. We have not submitted a response to the matter before the Superior Court of the State of California. We are unaware of the present status of the matter before the Superior Court of the State of California and we are unable to evaluate the likelihood of an unfavorable outcome, nor provide an estimate of the amount or range of potential loss.
On January 5, 2004, we completed a transaction, pursuant to a Settlement Agreement and Release dated as of December 22, 2003, with former debenture holders: AJW Partners, LLC, New Millennium Capital Partners II, LLC, AJW Offshore, Ltd, and AJW Qualified Partners, LLC. Pursuant to the terms of the settlement agreement, the former debenture holders had the right, thirteen months after the closing of the transaction, to provide notice to the Company of an exercise of a "put" right pursuant to which we would buy from the former debenture holders all of the 1,000,000 shares of common stock issued to them pursuant to the settlement agreement, at the price of $0.75 per share. Pursuant to the terms of the settlement agreement, the former debenture holders were to provide us with written notice if they wished to exercise the put right after thirteen months and prior to one year and two months after the closing of the transaction, at the expiration of which, the put right was to terminate. Closing on the put was to occur within ten business days from receipt of notice of the put. On or about January 10, 2005, the former debenture holders submitted a notice to exercise the put right. On or about January 26, 2005, the former debenture holders resent the January 10, 2005 notice to exercise the put right. We believe that the notice was not properly submitted in accordance with the notice procedures provided in the settlement agreement. Accordingly, we considered the notice ineffective and did not honor the notice. In 2005, the former debenture holders commenced a legal proceeding before the Supreme Court of the State of New York, County of New York, Index No. 05-600993, seeking payment of $750,000. We intend to contest this matter vigorously as we believe we have a meritorious defense to the claims. If we do not prevail, we may ultimately be required to repurchase 1,000,000 shares from the debenture holders for $750,000 plus interest and costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is quoted on the OTC Bulletin Board under the symbol "PKEH". For the periods indicated, the following table sets forth the high and low closing prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Prices prior to April 22, 2003 are not related to our current business operations, but reflect a predecessor business, Palladium Communications Inc., a business that we sold in April 2003 and no longer conduct.
Fiscal Quarter Ended High Low -------------------- ---- --- March 31, 2004 0.90 0.40 June 30, 2004 0.56 0.11 September 30, 2004 0.48 0.09 December 31, 2004 0.41 0.12 March 31, 2005 0.50 0.30 June 30, 2005 0.35__ 0.30__ September 30, 2005 0.35__ 0.30__ December 31, 2005 0.40__ 0.30__ |
Holders
As of December 31, 2005, we had approximately 573 record holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
Dividends
We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.
Transfer Agent
The transfer agent for our common stock is American Stock Transfer & Trust Company.
Recent Sales of Unregistered Securities
On October 1, 2005, in a transaction deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering, we entered into a consulting agreement with CEOcast, Inc., pursuant to which we agreed to issue 200,000 shares of our common stock in connection with the agreement, and 182,000 shares of common stock in connection with balance due under a prior agreement with CEOcast dated September 1, 2004. The agreement is for a term of six months.
In the three months ended December 31, 2005, we sold to fifteen accredited investors 105.50 units of our securities for $1,055,000. In February 2006, we sold to two accredited investors an additional 22.50 units of our securities for $225,000. Each unit, at a price of $10,000, consists of: (i) a 12% $10,000 convertible debenture, convertible into shares of common stock at $0.30 per share, and (ii) warrants to purchase 25,000 shares of the Company's common stock. Interest on the principal amount of the debenture will accrue at the simple interest rate of 12% per year computed on the basis of a 360 day year. Interest is payable at maturity in cash. The debenture will mature in 18 months from issue, unless earlier due. The debentures are secured by assets of our company, to the extent not already encumbered. We agreed not to grant any other person, after the closing upon the private placement pursuant to which the units were offered, a priority security interest in our company's assets for so long as the debentures remain outstanding, except with the consent of 2/3 of the outstanding face amount of holders of the debentures. Consent of a two-thirds majority of the holders of our debentures will be required for (i) any sale by the company of substantially all of our assets unless the proceeds of such sale are used to repay the debentures, (ii) any merger of the company with another entity, where we are not the surviving corporation, unless as part of such transaction the debentures will be repaid, or (iii) certain other actions materially affecting the debentures that require approval of the debenture holders under the corporations laws of the State of Nevada. The warrants will be exercisable for a period of five years into shares of common stock at $0.30 per share. We granted the investors certain piggyback registration rights with respect to the shares of common stock underlying the warrants purchased, agreeing to seek registration of the eligible shares in a registration statement that we file at a future date. We used the proceeds for general corporate purposes. We are to issue approximately 853,333 warrants, exercisable for five years from February 14, 2006 at $0.30 per share, to the placement agent as compensation. We relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) under the Securities Act.
In January 2006, the Company issued to Lou Schneider in connection with business consulting services warrants to purchase 200,000 shares of common stock, exercisable for three years at $0.50 per share. We relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) under the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"FORWARD-LOOKING" INFORMATION
This report on Form 10-KSB contains certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which represent our expectations and beliefs, including, but not limited to statements concerning the Company's expected growth. The words "believe," "expect," "anticipate," "estimate," "project," and similar expressions identify forward-looking statements, which speak only as of the date such statement was made. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors.
INTRODUCTORY STATEMENT
Unless otherwise stated, the discussion and analysis refers to the business of Peak Entertainment Ltd., which we acquired on April 22, 2003 in a transaction viewed as a reverse acquisition, and does not refer to the operations for our former business which was sold in April 2003. Under applicable accounting principles, the historical financial statements of Peak Entertainment Ltd. became those of the Company.
Our current business plan is centered on the production of television shows geared for the children's entertainment market. Once our planned television shows are produced, we believe that we can generate revenue through the sale of broadcast rights of those shows. We also intend to license intellectual property rights created from the television shows and offer for sale merchandise related to the television shows.
We have not generated significant revenues in this period because we had not yet funded the television shows upon which we plan our exploitation of the related intellectual rights portfolio. Our ability to convert current negotiations to executed contracts is dependent upon such progress with the television shows. We have delayed the production of the associated toys and merchandise for the television shows, and this has compromised our ability to generate sales in these areas.
The following discussion and analysis should be read in conjunction with the information set forth in the audited financial statements for the year ended December 31, 2005.
With limited available capital, we have produced initial episodes of our planned television shows and we believe that we will now be viewed more favorably by potential capital sources and believe that we should have better success in raising much needed capital to fund full production of the planned television shows.
Further, we have diversified the way in which we seek to finance some of our television show production budgets, and during this year we have focused on third party co-production financing. The delay in obtaining from, and limited capital provided by, third party co-production financiers has delayed our planned production timetable, but has been successful in significantly reducing the internal cash expenditure of Peak.
We have entered into an agreement with Maverick Entertainment Group Plc., and have certain exploitation rights to certain of its intellectual property: Muffin the Mule and Snailsbury Tails, both of which the British Broadcasting Corporation commissioned television episodes. Peak expects to exploit these television shows aggressively in 2006 and anticipate increased revenues via their licensing and manufacturing divisions as a result.
We, and third party financiers, have financed over $1,600,000 for the production of The Wumblers, and we were expecting to finance the balance of the production budget ($1,900,000) with the support of Silly Goose Company and third parties. The Wumblers has been licensed to 4Kids Entertainment LLC for broadcast, home entertainment (video/DVD), licensing and merchandising rights in the United States, and we expect to utilize 4Kids Entertainment's prominence in the industry to market and promote The Wumblers. Pursuant to our restructuring of our agreement with Silly Goose on March 6, 2006, the Company was no longer to provide the additional financing required to complete the Wumblers production and this responsibility along with certain exploitation rights were returned to Silly Goose in return for the percentage of the net profits from the new entity exploiting the Wumblers.
We have still yet to raise the requisite capital for the television shows in order to complete production in earnest and it is still a factor that until we raise sufficient capital to produce the planned television shows, we do not expect to generate any significant revenues from any of our lines of business. If we are is unable to raise capital to produce its television shows, we intend to alter our business plan to focus on licensing our intellectual property to third parties, and on the sale of toys and consumer goods.
SALE OF FORMER BUSINESS
Prior to April 2003, we were known as Palladium Communications Inc. and conducted a telecommunications business.
In April 2003, we sold off substantially all of our assets and certain of our liabilities to Palladium Consulting Group, LLC, in exchange for $75,000. The assets sold consisted of substantially all of our assets used in our telecommunications business, including all of our carrier agreements, sales agent agreements, and equipment, which business we discontinued on April 22, 2003. The assets that we retained included cash and notes receivable, which were nominal amounts. The liabilities assumed by Palladium Consulting Group, Inc. consisted primarily of payment for phone systems and other equipment and a lease for office facilities. We retained substantially all of the liabilities, consisting primarily of outstanding debentures and accrued interest. As a result of the transaction, we were essentially a shell company with no assets and with substantial liabilities related to outstanding debentures.
On April 22, 2003, we acquired the business of Peak Entertainment Ltd., a United Kingdom company, by acquiring all of the outstanding shares of Peak Entertainment Ltd. in a transaction viewed as a reverse acquisition.
The purpose of these corporate transactions was to try to create some value for our shareholders. It is the understanding of our current management that the former principals of Peak Entertainment Holdings, Inc. sought to discontinue its business operations as a publicly-held entity, and the principals of Peak Entertainment Ltd. sought access to financing, which it had difficulty obtaining as a privately-held company.
CURRENT BUSINESS
Our business operations are primarily in three areas of the children's entertainment and leisure market: production of television shows; licensing of entertainment concepts and characters; and sale of merchandise products. Since inception, we have not generated significant revenues and we will require substantial working capital to execute our business plan.
Our current business plan is centered on the production of television shows geared for the children's entertainment market. Once our planned television shows are produced, we believe that we will be able to generate revenue through the sale of broadcast rights of those shows. We also intend to license intellectual property rights created from the television shows and offer for sale merchandise related to the television shows.
The year ended December 31, 2005 was an extremely difficult time for us. We had very little operating capital to fund the production of planned television shows, and focused on raising capital from third parties to fund the production of the television shows. We experienced difficulty in raising capital in 2003, 2004 and 2005 from potential capital sources. We believe that this difficulty was due to the terms of convertible debentures outstanding in 2003, which contained terms very favorable to the debenture holders, and made potential financiers reluctant to provide capital to us. Accordingly, we entered into discussions with the debenture holders and repurchased those debentures in January 2004.
We believed that with the repurchase in January 2004 of debentures that were outstanding at December 31, 2003, our capital structure would be viewed more favorably by potential capital sources, and that we would have better success in 2004 in raising much needed capital to fund production of the planned television shows. However, in 2004, we continued to experience difficulty in raising capital on terms acceptable to us, as many potential financiers sought further development of our business prior to committing capital.
The difficulty in raising capital in 2003 and 2004 has delayed our projected timetable for the distribution of our planned television series. Due to lack of capital, we were unable to fund production of a single television episode show in 2003 and produced only one episode in 2004. The delay in producing television shows, in turn, has delayed and compromised our ability to license intellectual property rights and sell toys and merchandise based on the television shows.
Until we raise sufficient capital to produce our planned television shows, we do not expect to generate any significant revenues from any of our lines of business. If we are unable to raise capital to produce our planned television shows, we intend to alter our business plan to focus on licensing intellectual property to third parties, and on the sale of toys and other consumer goods.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2004
REVENUES
Consolidated net revenues increased 32% to $1,544,797 for the year ended December 31, 2005 from $1,166,156 for the year ended December 31, 2004.
In 2005, we were primarily focused on the raising of capital, .Our intention is to begin aggressively marketing toy products associated with Muffin the Mule and our other television projects once adequate financing has been obtained for the production of the television shows. We have negotiated various representation agreements with licensees, and attended worldwide trade shows and retail presentations to raise the profile of our products in order to seed the markets in anticipation of the television show launches.
We are still in the early exploitation stages of licensing Muffin the Mule in the United Kingdom and although contracts have been signed we do not anticipate significant revenues until the later part of 2006 and into 2007. The early production stages of our other two television shows, have delayed revenues expected and until we have completed production of the shows and are in a position to generate revenues from the sales of broadcast rights for the shows, we do not have an adequate basis for projecting revenues, nor identifying trends or demands. This applies for all main lines of our business, as our business plan is centered around the television shows.
COST OF REVENUE
For the year ended December 31, 2005, cost of revenues was $461,934 as compared to $596,651 in 2004, a decrease of 23%. Cost of revenues as a percentage of revenues decreased to 30% in 2005 as compared to 51% in 2004. Cost of revenue is primarily made up of labor costs, inventory, transport and royalties due on licenses.
We anticipate that our cost of revenue with respect to income from entertainment and consumer products will increase significantly in 2005 as we enter into the production stages of more television show episodes and increased marketing efforts for the sale of consumer goods. It is anticipated that the cost of revenue for our television shows will initially increase in relation to our entertainment revenues, until such time that the television episodes are completed, at which time the significant costs will have been incurred. Since costs for entertainment comprise mostly of non-recurring episode production costs, we expect such costs to decrease as a percentage of revenues as we distribute the shows and generate revenues from more and more markets. It is anticipated that the cost of revenue for our consumer products will increase in direct relation to an increase in revenues.
GROSS PROFIT
Gross profit for the twelve months ended December 31, 2005 was $1,082,863, or 70% of revenues, as compared to $569,505 or 49% of revenues, for the same period in 2004.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative costs were $2,733,864 for the year ended December 31, 2005 compared to $2,343,790 for the year ended December 31, 2004. As a percentage of revenues, selling, general and administrative costs decreased to 177% for the year ending December 31, 2005 from 201% for the year ending December 31, 2004. The following table summarizes the costs incurred in 2005.
Operation Expense ($) % of Total Cost --------- ----------- --------------- General Costs 1,289,687 47% Employee Compensation 670,802 25% Legal and Professional 587,073 21% Travel and Entertainment 186,301 7% TOTAL 2,733,864 100% |
The significant and noteworthy expenses were principally costs incurred from legal, accounting and other professional services related to the ongoing SEC filings and investment within the company. Such costs have been a significant factor affecting the business operations at a time when we lack sufficient revenues from operations to finance the production of our television shows and rely upon financing from third parties. We will continue to incur such expenses in 2006 as the company is in the financing stages of its animation projects and general investment into the company. We anticipate that expenses for legal, accounting and other professional services will continue to be a significant factor in 2006, due to our continuing need to raise capital and our securities law reporting obligations as a publicly-held company.
DEPRECIATION AND AMORTIZATION. Depreciation for the year ended December 31, 2005 was $120,129 as compared to $22,580 for the same period in 2004. The increase is in direct relationship with the expansion of our capital spending on equipment.
Amortization for the year ended December 31, 2005 was $950,039 as compared to $407,647 for the same period in 2004. The increase is in direct relationship with amortization of licensing rights, debentures and warrants.
NET LOSS
Our net loss increased from $1,993,942, or $1.077 loss per share, in the year ended December 31, 2004 to $5,059,948, or $0.15 loss per share, in 2005.The increase in net loss is significantly attributable to penalty shares issued, amortization of warrants and conversion of debentures.
LIQUIDITY AND CAPITAL RESOURCES
Cash Requirements
Our revenues have been insufficient to cover our operating expenses. Since inception, we have been dependent on loans from the Company's officers and on private placements of the Company's securities in order to sustain operations.
Management expects to satisfy our liquidity needs on a short-term basis through private placements of the Company's securities, including the issuance of debt. There can be no assurances that the proceeds from private placements or other capital transactions will continue to be available, that revenues will increase to meet our cash needs, that a sufficient amount of our securities can or will be sold, or that any common stock purchase options/warrants will be exercised to fund our operating needs.
As of December 31, 2005, we had commitments for capital and other expenditures aggregating $8,176,489 included in current and long term liabilities, payable over a maximum 20 year period. Those commitments and the amounts payable in 2005, giving effect to terms amended in 2005, are summarized in the following table.
Contractual Liability Amounts payable Contract Terms
Obligations as of 12/31/05 within 12 months and Notes
Short term loan - $ 377,016 $ 377,016 20% interest per annum. Was secured by
CK Supermarkets inventory, part sold and monies used to
part pay balance.
Accounts Payable - $1,373,377 $1,373,377 Refers to various payables (composed
Various significantly of various ordinary business
expenses, as well as legal, accounting, and
other professional fees).
Stock holders' advances $ 480,948 $ 100,000 No pre-set repayment terms through 3/2004.
account - Shorrocks
In 2004, we entered into a promissory note,
payable in installments. First payment due
on 1/2005 and to be repaid in full not later
than 2008.
Short Term License $ 68,961 $ 68,961
Debentures - including $ 2,441,885 $ 0 Discount and interest on the debentures.
interest and discount includes the principal amount of the
debentures
Other - including Tax and $2,245,487 $1,904,534 Various costs payable within 2005
Social security and accruals including UK employment taxes and UK
value added tax.
Long Term License - Shorrocks 928,815 $ 50,000 10% royalty payable quarterly in
perpetuity. Guarantee of $1,000,000, with
no established payment term.
Pay from royalties from licenses to third
parties over the term of the contract.
In 2004, the Company amended the license
agreement to establish a minimum quarterly
royalty payment of $12,500 due beginning
September 30, 2004.
P.O.V (Malaysia) $260,000 To be determined Animation costs for Monster Quest.
based upon the level
of financing
received within 2006.
-------
TOTAL $8,176,489 $3,717,010
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You will note that $1,409,763 or 17% of the total commitments as of December 31 2005, is committed to the principals of Peak in promissory notes or long-term licenses and a further 30% is committed to the holders of outstanding debentures.
We rely on short-term outside funding to meet our short-term liquidity needs, as the internal cash flows generated by licensing alone has been insufficient to fully meet our short-term liquidity needs. We anticipate that in fiscal year 2006, we will be in position to meet our short-term and long-term liquidity needs through the internal cash flows generated from broadcast sales from our current entertainment projects, Monster Quest and Muffin The Mule, which are scheduled for production in summer 2006. However, our gross profit for the year ended December 31, 2005 represented only 29 % of our commitments payable within twelve months. Our current operations did not generate any significant revenues and our principal planned products are still in production stages, we are in constant need of cash to pay for our ordinary operating expenses, and more significantly, to pay for the production costs of three projects currently in various stages of production. Accordingly, until our entertainment projects can be funded and full television production activities commenced, we will continue to rely on short-term outside funding. If we are unable to obtain funding for the projects, we may be forced to curtail or terminate operations.
Sources and Uses of Cash
For the twelve months ended December 31, 2005, we had a net operating loss of $4,219,753 and an overall net loss of $3,935,500. At December 31, 2005, we had $315,010 in cash and had a working capital outflow of $1,616,950.
Sources and Uses of Cash from Operating Activities
For the twelve months ended December 31, 2005, cash flows from operating activities resulted in negative cash flows of $1,616,950. The cash outflow from losses was increased due to the effects of the amortization of discount on debentures of 2,448,623 along with an increase in accounts receivable of 2,516,358 and offset by an increase in accounts payable and other accrued liabilities of 1,638,840. Cash used in operations also arises from an increase of $2,516,358 in accounts receivable a decrease of $1,638,840 in accounts payable and other accrued liabilities and a decrease of $345,906 in other current assets.
It is necessary for us to obtain additional capital from outside sources to allow us to move forward with our operations and proposed new products. We believe that our future growth is dependent on the degree of success of current operations in generating revenues. Our ability to meet the obligations under the contractual terms of our existing agreements, and the ability to obtain additional funding for our operations, the sale of which, in turn, it is anticipated, should produce cash inflows in line with our expectations from our broadcast, licensing and merchandising activities.
Management expects to satisfy our liquidity needs on a short-term basis through the continuing support of the directors, outside financings, and the subsequent expected sales growth from our various company activities. We anticipate meeting our long-term liquidity needs through the internal cash flows generated by ongoing sales growth from projects such as our current entertainment project Monster Quest. Furthermore, we will attempt to limit our long-term liquidity needs through the continuance of cost control measures applied to our operations.
Sources and Uses of Cash from Investing Activities
Cash flows from investing activities resulted in negative cash flows of $164,130 in the twelve months ended December 31, 2005, a decrease from cash flows of ($1,010,590) in fiscal 2004. In the twelve months ending December 31, 2005, cash applied to investing activities included $35,714 toward plant and equipment.
In 2006, our focus will be on production and investment in new product licenses from third parties. We may expend significant resources in investing activities in 2006.
Cash for our initial start-up expenses was obtained primarily from advances from two of our directors, Wilf and Paula Shorrocks.
Sources and Uses of Cash from Financing Activities
Cash flows from financing activities resulted in positive cash flows of $1,543,426 in the twelve months ended December 31, 2005, compared to same period in 2004 of negative $399,970. In 2006, we intend to continue to rely upon capital raised from third party investors in private placements to fund our operations, as well as any entertainment production financing partners we can obtain. Entertainment production financing partners will share in the proceeds of the sale of the produced product.
Whereas, in 2003, the primary source of funds were loans from our officers, in 2005, we relied upon capital raised from the sale of securities, including convertible debentures and common stock, to fund our operations. In 2006, we intend to continue to rely upon capital raised from third party investors in private placements to fund the Company's operations, as well as any entertainment production financing partners we can obtain. Entertainment production financing partners will share in the proceeds of the sale of the produced product.
SHORT TERM BORROWINGS. In 2002, we had net cash provided from short term financing agreements totaling $264,600. This was an agreement to provide working capital on a short-term basis secured against certain inventory of our subsidiary, Jusco UK Ltd. At December 31, 2005, the balance was $377,016, which includes interest and storage charges. The debt was originally due on January 10, 2003. In May 2004, the lender notified us regarding immediate payment of the balance owed. We are in discussion with the lender regarding the repayment of the debt through a combination of cash from the sale of certain inventory and the issuance of our securities. In the event the repayment issue is not resolved, the lender could institute a legal proceeding against our subsidiary, Jusco UK Ltd, seeking repayment. The lender has a security interest on the assets of our subsidiary, Jusco UK Ltd., but does not have a security interest in our parent company or our other subsidiaries. As we have previously targeted the assets of Jusco UK Ltd. for use in repaying the lender, we believe that a proceeding against our subsidiary, Jusco UK Ltd. would not have a material effect on our operations.
On August 10 and August 22, 2005, we had a bridge loan from Harry Edelson and Crown Northern Way, both of the loans bared interest at 10%. The principal amount and accrued interest was paid on January 4, 2006.
On May 6, 2005, we entered into Securities Purchase Agreements with four accredited investors. Pursuant to the agreements, we sold a principal amount of $360,000 in 12% convertible debentures and 432,000 common stock purchase warrants, exercisable for five years at $0.50 per share, for gross proceeds of $360,000. The debentures mature in 270 days from May 6, 2005. The debentures were to mature earlier upon future different funding by us of any dollar amount equaling 15% more than amounts closed pursuant to the private placement. The debentures accrue interest at the rate of 12% per year, compounded annually, and was payable at maturity. The principal amount of the debentures may be converted into shares of common stock at the conversion price of $0.30 per share. The conversion price for the debentures may be adjusted downward for issuances of securities by us at prices below the lower of $.30 per common share, or fair market value for such securities as determined at the time of issuance. For late payment, there will be a cash penalty equal to 1.5% of the outstanding principal amount of the debentures, compounded monthly for each month that payment in full is not effected, up to a maximum cash penalty equal to 9% of the outstanding principal amount of the debentures, and, in addition, there will be monthly reduction in warrant exercise price of the warrants at the rate of 2.5% and up to a maximum of 20% reduction in the exercise price. The obligations of the Company under the debentures are secured by security interest rights in substantially all of the Company's assets, to the extent not already encumbered. The debentures matured in our fourth quarter 2005, and remains unpaid.
In the three months ended December 31, 2005, we sold to fifteen accredited investors 105.50 units of our securities for $1,055,000. In February 2006, we sold to two accredited investors an additional 22.50 units of our securities for $225,000. Each unit, at a price of $10,000, consists of: (i) a 12% $10,000 convertible debenture, convertible into shares of common stock at $0.30 per share, and (ii) warrants to purchase 25,000 shares of the Company's common stock. Interest on the principal amount of the debenture will accrue at the simple interest rate of 12% per year computed on the basis of a 360 day year. Interest is payable at maturity in cash. The debenture will mature in 18 months from issue, unless earlier due. The debentures are secured by assets of our company, to the extent not already encumbered. We agreed not to grant any other person, after the closing upon the private placement pursuant to which the units were offered, a priority security interest in our company's assets for so long as the debentures remain outstanding, except with the consent of 2/3 of the outstanding face amount of holders of the debentures. Consent of a two-thirds majority of the holders of our debentures will be required for (i) any sale by the company of substantially all of our assets unless the proceeds of such sale are used to repay the debentures, (ii) any merger of the company with another entity, where we are not the surviving corporation, unless as part of such transaction the debentures will be repaid, or (iii) certain other actions materially affecting the debentures that require approval of the debenture holders under the corporations laws of the State of Nevada. The warrants will be exercisable for a period of five years into shares of common stock at $0.30 per share. We used the proceeds for general corporate purposes. We are to issue approximately 853,333 warrants, exercisable for five years from February 14, 2006 at $0.30 per share, to the placement agent as compensation.
STOCKHOLDER ADVANCES. From time to time, Mr. and Mrs. Shorrocks loaned money to Peak to fund day-to-day operations, as well as for the acquisition of certain properties. Since inception through December 31, 2003, the Shorrocks loaned to Peak an aggregate of $916,634. The debt has incurred a foreign exchange loss of $75,597. As of December 31, 2005, the Shorrocks are now owed $480,948. These monies were loaned without interest and did not have a due date, and were due on demand. In March 2004, we gave the Shorrocks a promissory note for the monies due establishing a repayment schedule. The amount due is to be repaid in installments, consisting of six periodic payments of $25,000 from January 31, 2005 through September 30, 2006, two payments of $100,000 on March 31, 2007 and September 30, 2007, and the balance due on January 31, 2008. The promissory note provides for earlier repayment of any unpaid balance subject to various future financial results of the Company, such as the Company obtaining shareholders' equity in excess of 150% of the amount due, or positive net income from operations in excess of 150% of the amount due.
ISSUANCE OF CONVERTIBLE DEBENTURES AND REPURCHASE OF 2002 AND 2003 CONVERTIBLE DEBENTURES. In April 2003, immediately following the sale of the Company's predecessor telecommunications business to Palladium Consulting Group, we had outstanding convertible debentures in the principal amount of $215,000 and warrants to buy 645,000 shares of common stock. These securities had been sold by the Company's predecessor business in February 2002 and we retained these liabilities following the sale of the Company's former telecommunications business.
On April 22, 2003, following the acquisition of Peak Entertainment Ltd., we sold to the same investors of the outstanding convertible debentures additional convertible debentures in the principal amount of $785,000 and warrants to buy 1,570,000 shares of our common stock.
We sold the debentures in April 2003 to raise operating capital and used the proceeds for the payment of licensing commitments and general working capital.
The conversion terms of the debentures provided that the debentures could be converted into shares of our common stock at the lower of $1.00 or a 50% discount to the trading price of the common stock. Accordingly, the conversion price was continuously adjustable, with no minimum or floor conversion price set. Therefore, our obligation to issue shares upon conversion of debentures was essentially limitless.
These debentures represented a large amount of debt relative to our identifiable liquid assets. As of January 1, 2004, we had an aggregate of approximately $1,000,000 in 12% convertible debentures outstanding, with outstanding interest payable of approximately $249,010. We determined that it would be preferable to repurchase these debentures; and, we did so, as described below, so these debentures are no longer outstanding.
In the months after April 2003 through December 2003, we had very little success in raising capital from third parties to fund our operations. This inability was due, in part, to the conversion terms of the outstanding debentures. Potential financiers were unwilling to commit capital to us because of the conversion terms of the outstanding debentures, since the debenture holders could convert their debentures into a significant and potentially limitless number of our shares at a significant discount to the market price of our common stock. In order to raise capital, we needed to seek an amendment of the conversion terms of the debentures or repurchase the debentures.
On January 5, 2004, we completed a transaction with former debenture holders in which we repurchased from the former debenture holders an aggregate of $1,000,000 principal amount of 12% convertible debentures and 2,215,000 common stock purchase warrants, which represented all of the securities that they purchased pursuant to Securities Purchase Agreements dated as of February 28, 2002 and April 22, 2003. We paid the former debenture holders $1,000,000 in cash and 1,000,000 shares of our unregistered common stock for the repurchase of the securities. The $1,000,000 payment to the former debenture holders consisted of $500,000 in cash, and $500,000 by promissory notes, which was paid in full on March 22, 2004. In order to make such payment, we used $250,000 that we had in operating capital, and $750,000 that we raised through the sale of securities. The former debenture holders had the right to make us buy from them all of the 1,000,000 shares of common stock issued to them, at the price of $0.75 per share. The right expired in March 2005. We also paid $10,000 of the former debenture holders' fees and expenses in connection with the transaction. As more fully discussed at Item 3 Legal Proceedings, we are currently in dispute with the former debenture holders.
The 8% convertible debentures issued in January 2004 are substantially different from the repurchased debentures. The most material difference in the debentures is that the repurchased debentures could be converted at a fluctuating rate at a substantial discount to the market price of our common stock into an undeterminable amount of shares of common stock whereas the new debentures are convertible at a fixed rate into a fixed number of shares of common stock. Other differences are that the repurchased debentures accrued interest at 12% whereas the new debentures accrue interest at 8%, the repurchased debentures were due in 2004 whereas the new debentures mature in 2007.
In July 2004, debentures in principal amounts totaling $541,500 were converted into 1,805,500 shares of common stock. We may need approximately $1,008,500, plus accrued interest, to pay off the remaining debentures and accrued interest in January 2007. We do not presently have the cash to pay that amount and our present revenues and gross profit levels make it unreasonable to think that our present operations are capable of producing cash streams to pay the debt in 2007. We do not have any specific plan to pay the debentures or the accrued interest. We believe that the holders of the debentures are likely to convert the debentures into shares of common stock prior to their maturity in 2007. If the debentures are not converted prior to 2007, we anticipate that by January 2007 our operations will be producing sufficient revenues and cash flow to pay off the debt, because it is highly unlikely that we will continue to be in operation in 2007 if we are unable to resolve our going concern issues in 2005 or 2006. The first interest payment on the 8% convertible debentures was due in January 2005, and if our operating revenues are insufficient to pay the interest, or if the interest amount is not converted into common stock, we will seek to resolve payment of interest through a promissory note, issuance of other securities, or some other similar arrangement. We elected to accrue the interest payment due January 2005 until another interest payment period.
Although we repurchased the 12% debentures in January 2004, we have current liabilities related to the repurchased debentures reported on our December 31, 2003 balance sheet of $838,279. Because we financed the repurchase primarily through the sale of new 8% convertible debentures due January 2007, we may need approximately $1,860,000 to pay off the debentures and accrued interest in January 2007 if none of the debentures are converted into the Company's common stock, however, we believe that the holders of the debentures are likely to convert the debentures, including accrued interest, into shares of common stock prior to maturity of the 8% debentures in 2007. The first interest payment on the 8% convertible debentures was due until January 2005. We elected to accrue the interest payment for another interest payment period.
SALES OF SECURITIES IN 2004
On January 5, 2004, we sold $1,500,000 in 8% convertible debentures due January 5, 2007 and 3,000,000 common stock purchases warrants. The purchase price totaled $1,500,000, of which $750,000 was paid in cash, and $750,000 by promissory notes, which were paid in July 2004. The principal amount of the debentures, plus any accrued and unpaid interest on them, may be converted into shares of common stock at the conversion price of $0.30 per share. Annual interest payments on the debentures are due on January 7 of each year, commencing January 7, 2005. At our option, interest payments may be accrued beyond the annual interest payment date, in which event the debenture holder shall have the option to accrue the interest payment then due to another interest payment period, or cause us to issue common stock in exchange for interest. The warrants are exercisable at a price of $0.50 per share. After the tenth consecutive business day in which our common stock trades at $3.00 or greater, the warrants become redeemable at $0.10 per warrant. We agreed to file such a registration statement for the resale of the underlying shares and, in the event that the registration statement was not declared effective within 120 days, to issue, as a penalty, approximately 100,000 shares of common stock for each $500,000 investment for each subsequent month period in which the registration statement had not been declared effective. In September 2004, we issued a total of 275,000 shares to investors as a result of this agreement. As reported above, in July 2004, debentures in principal amounts totaling $541,500 were converted into 1,805,500 shares of common stock. The remaining debentures are protected by security interests in substantially all of our collateral. We will need the approval of the debenture holders in order to grant security interest rights to third parties that are senior to or on par with these debentures. We used $750,000 of the proceeds for the retirement of previously issued 12% debentures discussed above. We did not pay the interest due January 7, 2005 in cash in 2005. Certain debenture holders elected to convert their accrued interest into shares of common stock and other debentures holders did not make an election and their interest is to be accrued until the next payment period or converted to common stock at a later date.
On January 29, 2004, we entered into a Securities Purchase Agreement with an individual investor. Pursuant to the agreement, we sold $50,000 in 8% convertible debentures due January 29, 2007 and 100,000 common stock purchase warrants. The purchase price was $50,000. The principal amount of the debentures, plus any accrued and unpaid interest on the debentures may be converted into shares of common stock at the conversion price of $0.30 per share. Annual interest payments on the debentures are due on January 29 of each year, commencing January 29, 2005. At our option, interest payments may be accrued beyond the annual interest payment date, in which event the debenture holder shall have the option to accrue the interest payment then due to another interest payment period, or cause us to issue common stock in exchange for interest. We used the proceeds for working capital purposes. On January 26, 2005, the investor converted these $50,000 in debentures, plus $4,000 in accrued interest, into an aggregate of 180,000 shares.
On March 10, 2004, the Company entered into Securities Purchase Agreements with eleven accredited investors. Pursuant to the agreements, the Company sold an aggregate of 1,000,000 shares of common stock and 600,000 common stock purchase warrants, exercisable for three years at $0.75 per share, for a total purchase price of $500,000. Legend Merchant Group, Inc. acted as the placement agent for these transactions. All of the purchasers were pre-existing customers of Legend Merchant Group. We paid Legend a fee of $25,000, and 100,000 common stock purchase warrants exercisable for three years at $0.50 per share and 60,000 common stock purchase warrants exercisable for three years at $0.75 per share, for its services. We agreed to seek registration of the resale of the shares of common stock and the shares underlying the warrants in the amendment to our registration statement initially filed in February 2004, or in a separate registration statement, and to incur cash and other penalties for late effectiveness of such a registration statement. No such penalties were incurred. We used the proceeds from the sale of securities for working capital purposes.
On April 28, 2004, we entered into an agreement with Laura Wellington, whereby we exchanged a debt of $250,000 owed to Ms. Wellington in exchange for 500,000 shares of common stock. Ms. Wellington had loaned $250,000 to us on or about October 2003, which we used for working capital purposes.
On July 23, 2004, we entered into an agreement with Laura Wellington, whereby we exchanged a debt of $194,000 owed to Ms. Wellington in exchange for 388,000 shares of common stock. Ms. Wellington had loaned $194,000 to us on or about April 25, 2004, which we used for working capital purposes.
On September 28, 2004, we entered into Securities Purchase Agreements with three accredited persons for the sale of 1,666,666 shares of common stock and 1,750,000 common stock purchase warrants, exercisable for three years at $0.50 per share, for the aggregate purchase price of $500,000.
SALES OF SECURITIES IN 2005
On May 6, 2005, we entered into Securities Purchase Agreements with four accredited investors. Pursuant to the agreements, we sold a principal amount of $360,000 in 12% convertible debentures and 432,000 common stock purchase warrants, exercisable for five years at $0.50 per share, for gross proceeds of $360,000. The debentures mature in 270 days from May 6, 2005. The debentures were to mature earlier upon future different funding by us of any dollar amount equaling 15% more than amounts closed pursuant to the private placement. The debentures accrue interest at the rate of 12% per year, compounded annually, and was payable at maturity. The principal amount of the debentures may be converted into shares of common stock at the conversion price of $0.30 per share. The conversion price for the debentures may be adjusted downward for issuances of securities by us at prices below the lower of $.30 per common share, or fair market value for such securities as determined at the time of issuance. For late payment, there will be a cash penalty equal to 1.5% of the outstanding principal amount of the debentures, compounded monthly for each month that payment in full is not effected, up to a maximum cash penalty equal to 9% of the outstanding principal amount of the debentures, and, in addition, there will be monthly reduction in warrant exercise price of the warrants at the rate of 2.5% and up to a maximum of 20% reduction in the exercise price. The obligations of the Company under the debentures are secured by security interest rights in substantially all of the Company's assets, to the extent not already encumbered. The debentures matured in our fourth quarter 2005, and remains unpaid.
On August 10, 2005, we sold to one accredited investor a 10% convertible promissory note in the principal amount of $100,000 due November 8, 2005, and warrants to purchase 333,333 shares of common stock. The principal amount and accrued interest on the note were convertible into shares of common stock at the conversion price of $0.30 per share. The warrants are exercisable at a price of $0.30 per share until August 10, 2008. Our obligations under the note were protected by a subordinated lien on our intellectual property, that is subordinate to the liens of prior lenders. We used the proceeds for general corporate purposes. The note was repaid on January 4, 2006.
On August 22, 2005, we sold to one accredited investor a 10% convertible promissory note in the principal amount of $100,000 due November 21, 2005, and warrants to purchase 333,333 shares of common stock. The principal amount and accrued interest on the note were convertible into shares of common stock at the conversion price of $0.30 per share. The warrants are exercisable at a price of $0.30 per share until August 22, 2008. Our obligations under the note are protected by a subordinated lien on our intellectual property, that is subordinate to the liens of prior lenders. We used the proceeds for general corporate purposes. The note was repaid on January 4, 2006.
In the three months ended December 31, 2005, we sold to fifteen accredited investors 105.50 units of our securities for $1,055,000. In February 2006, we sold to two accredited investors an additional 22.50 units of our securities for $225,000. Each unit, at a price of $10,000, consists of: (i) a 12% $10,000 convertible debenture, convertible into shares of common stock at $0.30 per share, and (ii) warrants to purchase 25,000 shares of the Company's common stock. Interest on the principal amount of the debenture will accrue at the simple interest rate of 12% per year computed on the basis of a 360 day year. Interest is payable at maturity in cash. The debenture will mature in 18 months from issue, unless earlier due. The debentures are secured by assets of our company, to the extent not already encumbered. We agreed not to grant any other person, after the closing upon the private placement pursuant to which the units were offered, a priority security interest in our company's assets for so long as the debentures remain outstanding, except with the consent of 2/3 of the outstanding face amount of holders of the debentures. Consent of a two-thirds majority of the holders of our debentures will be required for (i) any sale by the company of substantially all of our assets unless the proceeds of such sale are used to repay the debentures, (ii) any merger of the company with another entity, where we are not the surviving corporation, unless as part of such transaction the debentures will be repaid, or (iii) certain other actions materially affecting the debentures that require approval of the debenture holders under the corporations laws of the State of Nevada. The warrants will be exercisable for a period of five years into shares of common stock at $0.30 per share. We used the proceeds for general corporate purposes. We are to issue approximately 853,333 warrants, exercisable for five years from February 14, 2006 at $0.30 per share, to the placement agent as compensation.
CASH MANAGEMENT
The Company will use its cash to meet certain expenses necessary to operate, such as payment of employee salaries, taxes, and ordinary business expenses such as office rent. The Company will also use cash to make payments on short term borrowings, contractually obligated payments on license arrangements and other accounts payable, although the Company will seek to renegotiate the timing and payment schedule of certain license arrangements.
After paying for ordinary expenses, to the extent that the Company has available cash, including cash received from financing arrangements, significantly all of its cash will be applied to the production of the television episodes. We have been in negotiations with co-production partners for all of our television episodes. The total cost of each show will be formalized by way of a cashflow budget, payable over a period of 12 to 36 months. This will be monitored in detail. It will be a requirement of any of our partners to supply us with an actual budget statement on a monthly basis compared to the agreed budget. It is imperative that the Company does not increase the budget by significant amounts and that it tries to keep within the budget as much as it can. We have implemented tight procedures to ensure that the cash management has sufficient controls.
PLAN OF OPERATIONS TO ADDRESS GOING CONCERN
Our ability to continue as a going concern is an issue raised as a result of historical losses from operations, cash flow deficits and a net capital deficiency. As a result of the foregoing, the auditors have expressed substantial doubt about our ability to continue as a going concern.
We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans from various financial institutions where possible. Our continued net operating losses and stockholders' deficit increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful. The primary issues management will focus on in the immediate future to address this matter include:
o seeking institutional investors for equity investments;
o complete negotiations to secure short term financing through
promissory notes or other debt instruments on an as needed basis;
o focusing on, and continue to expand, revenues, through sales of
consumer products and pre-sales on our projects in development;
o renegotiate payments terms of existing contractual obligations;
o develop co-production financing opportunities for our entertainment
projects;
o consider third-party licensing alliances for the products in our
entertainment division; and
o seek acquisition and partnership opportunities with third party
companies to expand our fully integrated media business
o restructuring of the operations of the company including the primary
currency from sterling to dollars to significantly reduce the
current auditing and administration costs.
To address these issues, in 2006, we have entered into agreements with various investment banking companies to assist us in raising capital. We believe we are close to securing $1,000,000 in short term funding to meet the operational needs of the business. We have entered into a preliminary agreement with Maverick Entertainment Plc, and expect to enter into more formal discussions about potentially combining our businesses during 2006. We anticipate increased revenues from having our first completed TV series to exploit later in 2006 with Muffin the Mule. We have made arrangements to restructure our UK operations and reduce the costs and associated debts and are changing are functional currency from sterling to dollars and intend to appoint US based auditors and advisors to streamline our operations and reduce costs.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements 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. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, intangible assets, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies are described in the notes to the consolidated financial statements included in this document for the fiscal year ended December 31, 2005.
Certain significant accounting policies and estimates inherent in the preparation of our financial statements include policies and estimates with regards to revenue recognition, capitalization of film and television costs, and currency.
(1) Revenue Recognition.
Revenue from the production of television entertainment is recognized in accordance with Statement of Position 00-2 "Accounting by Producers or Distributors of Film". Under this guidance, the Company recognizes revenue from the sale of television entertainment when all of the following conditions are met:
(a) persuasive evidence of a sale or licensing arrangement with a customer exists,
(b) the television episode is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery,
(c) the license period of the arrangement has begun and the customer can begin its exploitation, exhibition or sale, and
(d) the arrangement fee is fixed or determinable.
While this accounting treatment has not been material in our past operations, from time to time, we expect to receive funds in advance to produce television show episodes, the production of which could take from one to three years. Advances received will not be recorded as revenues until the revenue recognition conditions are met.
Revenue from character licensing arrangements is recognized over the life of the agreement. Revenue from the sale of character related consumer products is recognized at the time of shipment when title of the products passes to the customer. Amounts received in advance are recorded as unearned revenue until the earnings process is complete.
(2) Film and Television Costs.
The Company capitalizes the costs of developing film and television projects in accordance with Statement of Position 00-2 "Accounting by Producers or Distributors of Film". These costs will be amortized using the individual-film-forecast-computation method, which amortizes costs in the same ratio that current period actual revenue bears to estimated remaining unrecognized ultimate revenue at the beginning of the current fiscal year. The Company has recorded no amortization to date as revenue has yet to be recognized.
(3) Functional currency and treatment of foreign currency translation.
Due to the majority of our operations being based in the United Kingdom, the British Pound has been selected as our functional currency.
Transactions denominated in foreign currencies are translated at the year-end rate with any differences recorded as foreign currency transaction gains and losses and are included in the determination of net income or loss. The Company has translated the financial statements into US Dollars. Accordingly, assets and liabilities are translated using the exchange rate in effect at the balance sheet date, while income and expenses are translated using average rates. Translation adjustments are reported as a separate component of stockholders' equity (deficit).
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities" and in December 2003, a revised interpretation was issued (FIN No. 46, as revised). In general, a variable interest entity ("VIE") is a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities FIN 46, as revised, requires a VIE to be consolidated by a company if that company is designated as the primary beneficiary. The interpretation applies to VIEs created after January 31, 2003, and for all financial statements issued after December 15, 2003 for VIEs in which an enterprise held a variable interest that it acquired before February 1, 2003. The adoption of FIN 46, as revised, did not have a material effect on the Company's financial position or results of operations.
In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No 123, "Share-Based Payment" ("SFAS Statement 123R") which replaces SFAS No 123, "Accounting for Stock-Based Compensation," and supercedes APB Opinion No 25, "Accounting for Stock Issued to Employees." This statement requires that all share-based payments to employees be recognized in the financial statements based on their fair values on the date of grant. SFAS No 123R is effective as of the beginning of the first interim or annual reporting period that begins after December 31, 2005 and applies to all awards granted, modified, repurchased or cancelled after the effective date. The Company is evaluating the requirements of SFAS 123R and expects that its adoption will not have a material impact on the Company's consolidated results of operations and earnings per share.
In December of 2004, the FASB issued SFAS No 153, "Exchanges of Nonmonetary Assets - an Amendment of APB Opinion No 29" (SFAS 153). SFAS 153 eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the first quarter of 2006. The Company does not believe that the adoption of SFAS 153 will have a material impact on the Company's consolidated results of operations or financial condition.
ITEM 7 - FINANCIAL STATEMENTS
Unaudited
TABLE OF CONTENTS
Page
----
Report of independent registered public accounting firm 33
Consolidated balance sheets 34
Consolidated statements of operations 35
Consolidated statements of changes in stockholders' equity (deficit) 36
Consolidated statements of comprehensive loss 37
Consolidated statements of cash flows 38
Notes to the consolidated financial statements 40
|
PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
Year Ended Year Ended
December 31, December 31,
2004 (Restated) 2005
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,235 315,010
Accounts receivable 498,187 891,953
Inventory 91,743 --
Other current assets 861,728 3,330,226
----------- -----------
Total current assets $ 1,461,893 4,537,189
Deferred professional fees 205,834 190,434
Plant and equipment, net 259,649 201,637
Intangible assets, net of amortization 1,972,683 1,777,683
----------- -----------
$ 3,900,059 6,706,943
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY/ (DEFICIT)
CURRENT LIABILITIES
Short term borrowing $ -- 200,000-
Advances from factor -- --
Account payable 1,301,439 1,373,377
Stockholders' advance account 752,522 480,948
Licenses fees payable 67,831 68,961
Other accrued liabilities 2,290,729 2,651,764
----------- -----------
Total current liabilities $ 4,412,521 4,775,050
LONG TERM LIABILITIES
License fees payable 1,234,119 1,188,815
Convertible debentures 330,652 2,212,624
----------- -----------
Total long term liabilities $ 1,564,771 3,401,439
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $0.001 - 900,000,000
Shares authorized, 21,774,212 and 29,040,955 issued
and outstanding $ 29,050 31,860
Additional paid in capital 4,576,739 8,857,059
Retained earnings (deficit) (5,927,940) (10,987,889)
Other comprehensive income (755,082) 629,424
----------- -----------
Total stockholders' equity (deficit) (2,077,233) (1,469,546)
----------- -----------
$ 3,900,059 6,706,943
=========== ===========
|
See accompanying notes to consolidated financial statements.
PEAK ENTERTAINEMNT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Year ended Year ended
December 31, December 31,
2004 (Restated) 2005
----------- -----------
Revenue 1,166,156 1,544,797
Cost of revenue
Cost of Goods Sold 596,651 461,934
----------- -----------
Total cost of revenue 596,651 461,934
Gross profit 569,505 1,082,863
Operating expenses
Selling, general and administrative 2,343,790 2,733,864
Depreciation and amortization 430,227 1,070,168
Non Cash Charges 1,498,584
Total operating expenses 2,774,017 5,302,616
----------- -----------
Loss from operations (2,204,512) (4,219,753)
Gain/ (loss) on settlement of
convertible
debentures and accrued interest 37,559
444,031
Foreign exchange gain 371,113 0.00
Interest expense (604,574) 240,412
--
----------- -----------
Net loss (1,993,942) (4,497,724)
=========== ===========
Basic and diluted net loss per
share $ (0.077) (0.14)
Weighted average common shares
outstanding 25,942,440 31,852,108
=========== ===========
|
See accompanying notes to consolidated financial statements.
PEAK ENTERTAINMENT HOLDINGS INC,
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Unaudited
Shares Common stock Additional Retained Accumulated Total
paid in Earnings Other
capital deficit comprehensive
income /
(loss)
---------- ------------ ----------- ----------- ------------- -----------
19,071,684 19,075 (19,072) (967,451) (71,530) (1,038,978)
Balance, December 31, 2002
2,702,528 2,702 1,669,913 -- -- 1,672,615
Issuance of stock, warrants,
debentures
-- -- -- (2,966,547) -- (2,966,547)
Net loss
(368,109) (368,109)
Cumulative translation adjustment -- -- -- --
-- -- -- --
21,774,212 $21,777 $1,650,841 ($3,933,998) ($439,639) ($2,701,019)
========== ======= ========== ============ ========== ============
Balance, December 31,2003
Buy-back of debentures 1,000,000 1,000 (1,001,000) -- -- (1,000,000)
2,666,666 2,667 2,522,334 -- -- 2,525,001
Issuance of convertible
debentures
1,805,000 1,805 539,695 -- -- 541,500
Conversion of debentures
632,077 638 133,655 -- -- 134,293
Issuance of warrants in exchange
for future consulting service
888,000 888 443,112 -- -- 444,000
Issuance of common stock and
warrants in exchange for
cancellation of short-term debt
275,000 275 123,475 -- -- 123,750
Issuance of penalty shares
-- -- 9,295 -- -- 9,295
Stan Lee (Unvested)
-- -- 155,332 -- -- 155,332
Vintage Filings
-- -- -- (1,993,942) -- (1,993,942)
Net loss
-- -- -- -- (315,443) (315,443)
---------- ------- ---------- ------------ ---------- -----------
Cumulative translation adjustment -- -- --
-- -- --
29,040,955 $29,050 $4,576,739 ($5,927,940) ($755,082) ($2,077,233)
========== ======= ========== ============ ========== ===========
Balance, December 31, 2004
(Restated)
Conversion of debentures 416,388 416 120,529 -- -- 120,945
Issuance of warrants in exchange 594,765 595 546,313 -- 546,907
for future consulting services
Issuance of common stock and 0 0 0 -- -- 0
warrants in exchange for
cancellation of short term debt
Issuance of penalty shares 1,800,000 1,800 798,200 -- -- 800,000
Issuance of warrants 0 0 2,815,278 -- -- 2,815,278
Net loss (4,497,724) (4,497,724)
Cumlative translation adjustment 822,280 822,280
Balance, December 31, 2005 31,852,108 31,861 8,857,059 (10,425,664) 67,198 (1,469,546)
|
See accompanying notes to consolidated financial statements.
PEAK ENTERTAINEMNT HOLDINGS, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Unaudited
Year ended Year ended
December 31, December 31,
2004 (Restated) 2005
-------------- --------------
Net loss $ (1,993,942) (4,497,724/(4
Cumulative translation adjustment (755,082) (822,280)
------------ --------------
Comprehensive loss $ (2,749,024) (5,320,004)
============ ==============
|
See accompanying notes to consolidated financial statements.
PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Year ended Year ended
December 31, December 31,
2004 (Restated) 2005
----------- -----------
Cash flows from operating activities
Net loss $(1,993,942) (3,935,500)
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation 22,580 93,726
Amortization of intangible assets 407,647 323,416
Foreign exchange gain/(loss) 371,113 --
Amortization of discount on debentures 232,790 2,448,623
Gain on settlement of debentures (883,033) 37,559
Non-cash common stock expenses -- --
Non-cash professional and consulting fees 1,497,360 546,907
Loss on sale of intangibles 578,337 --
Changes in working capital:
Accounts receivable (459,726) (2,516,358)
Inventories 163,577 91,743
Other current assets (223,823) (345,906)
Accounts payable and other accrued liabilities (150,161) 1,638,840
----------- -----------
Net cash used in operating activities (437,281) (1,616,950)
=========== ===========
Cash flows from investing activities:
Purchase of plant and equipment (71,029) (35,714)
Purchase of intangibles -- (128,416)
Proceeds from sale of plant and equipment 3,565 --
Issue of debentures 1,078,054
----------- -----------
Net cash (used in)/ provided by investing
activities 1,010,590 (164,130)
=========== ===========
|
See accompanying notes to consolidated financial statements.
PEAK ENTERTAINMENT HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(CONTINUED)
Year ended Year ended
December 31, December 31,
2004 (Restated) 2005
---------- ----------
Cash flows from financing activities:
Short term borrowing, net (160,028) 200,000
Stockholders' advances account (239,942) (271,574)
Advances from factor, net -- --
Convertible debentures -- --
Issue of debentures * 1,615,000
---------- ----------
Net cash provided by/(used in) financing
activities (399,970) 1,543,426
========== ==========
Cumulative translation adjustment (315,443) 542,429
========== ==========
Increase in cash and cash equivalents (142,104) 304,775
Cash and cash equivalents, beginning of period 152,339 10,235
---------- ----------
Cash and cash equivalents, end of period $ 10,235 315,010
========== ==========
Supplemental disclosures of cash flow information
Interest Paid $ 1,182 --
========== ==========
Purchases of licenses through issuance of long
term liabilities $ (407,036) --
========== ==========
Accounting for reserve acquisition -- --
========== ==========
Issuance of shares in settlement of liability 444,000 --
========== ==========
|
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
1 Description of Business and Future Prospects
Peak Entertainment Holdings, Inc, formerly Peak Entertainment Ltd, was
formed on November 20, 2001 as an integrated media group focused on
children. Its activities include the production of television
entertainment, character licensing and consumer products development,
including toy and gift manufacturing and distribution. Integration
enables Peak Entertainment Holdings, Inc to take property from concept
to consumer in-house, controlling and co-ordinating broadcast,
promotions and product launches (toys, apparel, video games, etc.) to
build market momentum and worldwide brand quality. The accompanying
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going
concern. As shown in the financial statements, at December 31, 2005 and
for the twelve months then ended, the Company has suffered recurring
losses, negative cash flows from operations, negative working capital,
an accumulated deficit of $10,987,888 and a stockholders' deficiency of
$1,469,546.
As shown in the accompanying financial statements, the Company incurred
a net loss of $5,059,948 during the current period. Current economic
conditions have limited the ability of the Company in acquiring
additional equity capital.
In response to economic conditions, management has implemented expense
reduction and revenue enhancements as well as initiated additional
investor financing. Specifically, management has implemented reductions
on the salaries of senior management. Also, nonessential capital
expenditures, travel and other expenses have either been eliminated or
postponed. Management has shifted its corporate and business
development activities to focus strategic resources. To that end, the
Company continues to pursue a three million dollar bridge financing
round directed toward existing and strategic investors. Management
believes the combination of these actions maximizes the probability of
the Company's ability to remain in business. A portion of that capital
has been secured recently but it is still uncertain at this stage
whether the Company will be totally successful in accomplishing these
objectives. Without this capital there is some uncertainty about the
Company's ability to continue as a going concern though management are
close to completing this transaction following the appointment of
credible merchant bankers and management consultants. The financial
statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
The Company has developed a business plan to increase revenue by
capitalizing on its integrated media products. The Company is in
constant discussions with outside sources to provide the required funds
to cover operational costs. This continuous need raises substantial
doubt about the Company's ability to continue in existence. The
financial statements do not contain any adjustments that might result
from the outcome of this uncertainty. While the Company is optimistic
that it can execute its business plan, there can be no assurance that;
a) increased sales necessary to obtain profitability will
materialize, and
b) the Company will be able to raise sufficient cash to fund the
additional working capital requirements.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
2 Restatement of Financial Statements:
The staff of the Division of Corporation Finance of the Securities and
Exchange Commission (the "Commission") issued comments on June 9, 2005
to the Company in connection with its review of the Company's Annual
Report on Form 10-KSB/A for the year ended December 31, 2004 filed on
May 16, 2005.
Based on these comments and discussions with the Commission, and after
consultation with the Company's independent registered public
accounting firm, Garbutt & Elliott Limited, the Company's management
recommended, and its Board of Directors determined on June 24, 2005,
that it restate its financial statements for the year ended December
31, 2004. As a result, the financial statements issued by the Company
for the year ended December 31, 2004 should no longer be relied upon.
The Company's determination to restate these previously issued
financial statements stems from comments from the Commission requesting
information related to (i) the accounting of pre-production labor
costs, and (ii) the nature, source, and basis for measurement of
foreign exchange gain (loss).
Certain errors were made in the recording of pre-production expenses in
connection with pre-production revenue in the year ended December 31,
2004, resulting in an increase in cost of revenues of $253,495 and a
reduction in selling, general and administrative costs of the same
value. The restatement adjustments record pre-production labor and
associated costs connected to pre-production revenue, which were
previously included within selling, general and administrative costs,
as direct costs of revenues. This adjustment reduces selling, general
and administration costs by $253,495 and increases costs of revenues by
$253,495.
The foreign exchange gain arose from two sources: (i) translation
adjustments, and (ii) adjustments arising from the Company's functional
currency being UK pounds, which is the principal source of the foreign
exchange gain (loss). A foreign exchange loss of $32,263 arising from
the Company's functional currency being UK Pounds had been incorrectly
included within foreign exchange gain within the consolidated
statements of operations rather than the cumulative translation
adjustment within the consolidated statements of comprehensive loss.
The restatement adjustment reflects an additional element of the
foreign exchange gain within the Statements of Comprehensive Loss
rather than in the Statements of Operations. This had the effect of
increasing the foreign exchange gain within the consolidated statements
of operations by $32,263 and increasing the cumulative translation loss
within the consolidated statements of comprehensive loss by $32,263.
The above items resulted in a reduction in net loss for the year ended
December 31, 2004 of $32,263 offset by a similar increase in loss from
cumulative translation adjustment such that the comprehensive loss for
the year ended December 31, 2004 and the consolidated balance sheet
totals at December 31, 2004 remain unchanged.
On January 19, 2005, the Company filed its restated financial
statements for the year ended December 31, 2004. The Commission issued
further comments on January 25, 2006 in connection with the review of
the Company's restatement of its 2004 financial statements. The
Commission has asked further questions and requires the Company to
provide computational basis for the calculations of the exchange gain
including the consolidated statement of operations. The Company is
currently reviewing the matters raised by the Commission.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
3 Summary of Significant Accounting Policies
(A) Principals of Consolidation and Combination
The accompanying consolidated financial statements include the accounts of Peak Entertainment Limited, Jusco Toys Ltd, Jusco UK Ltd, Wembley Sportsmaster Ltd and Cameo Collectables Ltd after elimination of inter-company transactions and balances. Peak Entertainment Limited, Jusco Toys Ltd, Jusco UK Ltd, Cameo Collectables Ltd and Wembley Sportsmaster Ltd are wholly-owned subsidiaries of Peak Entertainment Holdings, Inc.
Cameo Collectables Ltd was formed on August 20, 2002 and was owned by Wilfred and Paula Shorrocks until February 7, 2003 when Peak Entertainment Holdings, Inc acquired the whole of the share capital of Cameo Collectables Ltd. Prior to February 7, 2003 the financial statements of Cameo Collectables Ltd were combined with Peak Entertainment Holdings, Inc as both entities were under common control.
(B) Basis of Preparation
The consolidated financial statements presented for 2004 herein are restated, but not the 2005 consolidated financial statements.
The financial statements have been prepared on a going concern basis, the validity of which depends upon future funding being available. The validity of the going concern concept is also dependent upon the continued support of the directors.
Should such support be withdrawn and funding not made available, the company may be unable to continue as a going concern. Adjustments would have to be made to reduce the value of assets to their recoverable amount to provide for any further liabilities which might arise and to reclassify fixed assets as current assets.
(C) Risks and Uncertainties
The entertainment/media industry is highly competitive. The Company competes with many companies, including larger, well capitalized companies that have significantly greater financial and other resources. The Company's success is dependent upon the appeal of its entertainment products. Consumer preferences with respect to entertainment products are continuously changing and are difficult to predict. Therefore, the Company's success will depend on its ability to redesign, restyle and extend the useful life of products and to develop, introduce and gain customer acceptance of new entertainment products. The Company's ability, or inability, to manage these risk factors could influence future financial and operating results.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
3 Summary of Significant Accounting Policies (continued)
(D) Revenue Recognition
The Company generates revenues from three distinct sources; the license fees generated from the production of television entertainment, character licensing and sales of character related consumer products. Revenue from the production of television entertainment is recognized in accordance with Statement of Position 00-2 "Accounting by Producers or Distributors of Film". Under this guidance, the Company recognizes revenue from the sale of television entertainment when all of the following conditions are met:
1. Persuasive evidence of a sale or licensing arrangement with a customer exists,
2. The television episode is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery,
3. The license period of the arrangement has begun and the customer can begin its exploitation, exhibition or sale, and
4. The arrangement fee is fixed or determinable.
Revenue from character licensing arrangements is recognized over the life of the agreement. Revenue from the sale of character related consumer products is recognized at the time of shipment when title of the products passes to the customer. Amounts received in advance are recorded as unearned revenue until the earnings process is complete.
(E) Intangible assets and amortization
Intangible assets are stated at cost less accumulated amortization and any provision for impairment. Amortization is provided on intangible fixed assets over their expected useful lives as follows:
Trade marks - 10 years Website development costs - 3 years
Licensing rights are amortised on a straight line basis over the term of the agreement, which range from 3 years - 20 years.
Web Site Development Costs
In March 2000, EITF No. 00-02, Accounting for Website Development Costs, was issued which addresses how an entity should account for costs incurred related to website development. EITF 00-02 distinguishes between those costs incurred during the development, application and infrastructure development stage and those costs incurred during the operating stage. The Company expenses all costs incurred during the development and operating stages. The Company evaluates costs incurred during the applications and infrastructure development stage using the guidance in Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use".
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
3 Summary of Significant Accounting Policies (continued)
(F) Plant and equipment
Plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided on plant and equipment over their expected useful lives as follows:
Fixtures & fittings - 10 years Moulds and tooling - 5 years Computer equipment & software - 4 years |
Costs associated with the repair and maintenance of plant and equipment are expensed as incurred.
(G) Film and television costs
The Company capitalizes the costs of developing film and television projects in accordance with Statement of Position 00-2 "Accounting by Producers or Distributors of Film". These costs will be amortized using the individual-film-forecast-computation method, which amortizes costs in the same ratio that current period actual revenue bears to estimated remaining unrecognized ultimate revenue at the beginning of the current fiscal year. The Company has recorded no amortization to date as revenue has yet to be recognized.
(H) Asset Impairment
The Company periodically evaluates the carrying value of long-lived assets when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such an asset is separately identifiable and is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.
(I) Cash Equivalents
For purposes of the statements of cash flows, all temporary investments purchased with a maturity of three months or less are considered to be cash equivalents. The Company maintains bank accounts in the United States of America and United Kingdom. The balances held in these accounts are $312,320, and UK(pound)1,493.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
3 Summary of Significant Accounting Policies (continued)
(J) Inventories
Inventory is valued at the lower of cost or market, with cost being determined on the first-in, first-out basis. The Company reviews the book value of slow-moving items, discounted product lines and individual products to determine if these items are properly valued. The Company identifies these items and assesses the ability to dispose of them at a price greater than cost. If it is determined that cost is less than market value, then cost is used for inventory valuation. If market value is less than cost, then the Company establishes a reserve for the amount required to value the inventory at the market value. It the Company is not able to achieve its expectations of the net realizable value of the inventory at its current value, the Company adjusts its reserve accordingly. Inventory is comprised entirely of finished goods.
(K) Foreign currencies
The Company uses the British Pound as its functional currency. Transactions denominated in foreign currencies are translated at the year-end rate with any differences recorded as foreign currency transaction gains and losses and are included in the determination of net income or loss. The Company has translated the financial statements into US Dollars. Accordingly, assets and liabilities are translated using the exchange rate in effect at the balance sheet date, while income and expenses are translated using average rates. Translation adjustments are reported as a separate component of stockholders' equity (deficit).
(L) Income taxes
Income taxes are provided based on the liability method of accounting pursuant to Statement of Financial Accounting Standards No 109 "Accounting for Income Taxes" ("SFAS 109"). In accordance with SFAS No 109, deferred tax assets are recognised for deductible temporary differences and operating loss carry forwards, and deferred tax liabilities are recognised for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
(M) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from such estimates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
3 Summary of Significant Accounting Policies (continued)
(N) Earnings Per Share
Earnings per share is based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity.
Basic and diluted earnings per share are the same during the year ended December 31, 2004 and 2005 as the impact of dilutive securities is antidilutive. There were 12,586,166 warrants to purchase shares of the Company's common stock outstanding as of December 31, 2005.
(O) Warrants
The Company issues warrants to purchase shares of its common stock in exchange for services and in combination with the sale of convertible debentures. The Company accounts for warrants issued in exchange for services in accordance with EITF 96-18 "Accounting for Equity Instruments that are Issued to other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services". The Company records expenses based on the fair value of the equity instruments. The Company measures the fair value of the equity instruments using the stock price and other measurement assumptions as of the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete.
For the purposes of calculating earnings per share, the Company has retroactively restated its outstanding common stock based upon the stock split declared on April 22, 2003.
The Company accounts for warrants issued in combination with convertible debentures in accordance with the provisions of EITF 00-27 "Application of EITF 98-5 to Certain Convertible Instruments". Under the provisions of EITF 00-27, the Company allocates the total proceeds received between the convertible debentures and the warrants based on their relative fair value at the date of issuance.
(P) Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities" and in December 2003, a revised interpretation was issued (FIN No. 46, as revised). In general, a variable interest entity ("VIE") is a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46, as revised requires a VIE to be consolidated by a company if that company is designated as the primary beneficiary. The interpretation applies to VIEs created after January 31, 2003, and for all financial statements issued after December 15, 2003 for VIEs in which an enterprise held a variable interest that it acquired before February 1, 2003. The adoption of FIN 46, as revised, did not have a material effect on the Company's financial position or results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
3 Summary of Significant Accounting Policies (continued)
(P) Recent Accounting Pronouncements (continued)
In December 2004, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No
123, "Share-Based Payment" ("SFAS Statement 123R") which
replaces SFAS No 123, "Accounting for Stock-Based
Compensation," and supercedes APB Opinion No 25, "Accounting
for Stock Issued to Employees." This statement requires that
all share-based payments to employees be recognized in the
financial statements based on their fair values on the date of
grant. SFAS No 123R is effective as of the beginning of the
first interim or annual reporting period that begins after
December 31, 2005 and applies to all awards granted, modified,
repurchased or cancelled after the effective date. The Company
is evaluating the requirements of SFAS 123R and expects that
its adoption will not have a material impact on the Company's
consolidated results of operations and earnings per share.
In December of 2004, the FASB issued SFAS No 153, "Exchanges
of Nonmonetary Assets - an Amendment of APB Opinion No 29"
(SFAS 153). SFAS 153 eliminates the exception for nonmonetary
exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do
not have commercial substance. SFAS 153 is effective for
fiscal years beginning after June 15, 2005 and is required to
be adopted by the Company in the first quarter of 2006. The
Company does not believe that the adoption of SFAS 153 will
have a material impact on the Company's consolidated results
of operations or financial condition.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
4 Significant current assets and liabilities
Included within current assets and current liabilities are the following significant balances:
December 31, December 31,
2004 2005
========= =========
Other current assets
Prepaid consulting -- --
Accrued royalty income 826,242 1,236,795
Monies in Escrow -- --
Other current assets 35,486 2,093,431
========= =========
861,728 3,330,226
========= =========
Accounts payable
UK professional fees 373,613 357,303
US professional fees 222,160 351,644
Stock supplies - Countin' Sheep -- 226,422
TV animation costs - Monster Quest 129,689 --
Other accounts payable 575,977 438,008
========= =========
1,301,439 1,373,377
========= =========
Other accrued liabilities
Consultancy fees 196,513 175,522
Wumblers pilot show costs 111,448 --
Deferred royalties income 957,060 1,132,099
Sales and payroll taxes 409,195 395,560
Debenture interest 100,802 229,261
Legal fees --
Other accrued liabilities 515,611 719,322
========= =========
2,290,629 2,651,764
========= =========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
5 Plant and Equipment
Plant and equipment comprise the following:
2003 2004 2005
Fixtures and fittings $135,966 $ 74,051 66,141
Moulds and tooling 105,674 123,124 109,969
Computer equipment & software 41,405 103,699 106,492
-------- -------- --------
283,045 300,874 282,602
Accumulated depreciation 84,800 41,225 80,965
-------- -------- --------
198,245 259,649 201,637
======== ======== ========
The Company can now utilize the moulds and tooling acquired from the
acquisition of Jusco Toys Ltd (Hong Kong). The Company owns other
moulds and tooling included above that has a cost of $9,299, which it
is currently using and hence depreciating.
6 Intangible Assets
Intangible assets comprise the following at December 31, 2005.
Cost Accumulated Total
Amortization
Licenses 1,220,047 232,717 987,330
Trademarks 114,595 7,191 107,404
Film and television costs 682,949 -- 682,949
--------- --------- ---------
2,017,591 239,908 1,777,683
========= ========= =========
|
Intangible assets comprise the following at December 31, 2004.
Cost Accumulated Total
amortization
Licences $1,365,959 $ 193,214 $1,172,745
Trademarks 136,642 9,947 126,695
Film and television costs 663,814 - 663,814
Website costs 24,930 15,501 9,429
---------- --------- ----------
$2,191,345 $ 218,662 $1,972,683
========== ========= ==========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
6 Intangible Assets (continued)
As of December 31, 2005, the estimated aggregate amortization expense,
based on current levels of intangible assets for the succeeding five
years is as follows:
$
December 31, 2005 80,606
December 31, 2006 391,838
December 31, 2007 391,838
December 31, 2008 391,838
December 31, 2009 386,877
December 31 ,2010 $346,877
7 Short Term Borrowings
On July 10, 2002, the Company borrowed $240,000 from an individual
lender. The debt bears interest at 20% per year. The debt and all
accrued interest was originally due on January 10, 2003. The debt has
not been fully repaid and is due upon demand. Accordingly, the
outstanding debt of $177,117 and all accrued interest totaling $199,901
is included in short term borrowings. The debt is collateralized by
certain inventory of the Company's subsidiary, Jusco UK Ltd.
In November 2003, the Company borrowed $250,000 from an individual
lender. There were no terms for repayment and no interest was charged
to the Company during the quarter. On April 28, 2004, the Company
entered into an agreement whereby it exchanged the debt of $250,000 for
500,000 shares of common stock. See note 10.
8 Advances from Factor
On January 13, 2003 the Company entered into an invoice factoring
agreement with IFT London Ltd ("IFT"). Under the agreement, the Company
specifically identified receivables that it wanted to receive advances
on and submitted them to IFT. Once IFT approved the receivables that
were submitted, the Company received 70% of the invoice amount.
Customers were then instructed to pay IFT directly. When the customer
paid the entire outstanding balance to IFT, the Company received the
remaining 30% of the invoice amount, less a financing charge equal to
8% of the total invoice amount. The Company no longer factors
receivables through this agreement.
On October 2, 2003 Cameo Collectables Limited entered into an invoice
factoring agreement with Arbuthnot Commercial Finance Ltd ("ACF").
Under the agreement, the Company identified receivables that it wanted
to factor and submitted them to ACF. Once ACF approved the receivables
that were submitted it purchased the receivables with recourse and
invoiced the customers direct. ACF paid 100% of the invoice amount to a
current account on the collection date. Customers paid ACF directly.
ACF's financing charge of 1.75% of the total invoice amount was debited
to the current account. The Company was entitled to withdraw any credit
balance on the current account representing cleared funds.
The Company accounted for this arrangement in accordance with Statement
of Financial Accounting Standard No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."
Under the agreement any invoice not paid 6 months after the date on
which it was due to be paid can be re-sold back to the Company.
Accordingly, the Company recorded the advances received as a liability
until the customer invoice is paid in full. In addition, the Company
recognized the interest charge in full at the time the initial advance
was received. The assets of Cameo Collectables Limited are pledged as
security to Arbuthnot Commercial Finance Limited.The above agreements
ceased on the 21 January 2005.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
9 Amortized Debentures
Convertible debentures are comprised of the following as at December
31, 2004:
Old convertible debentures $
Balance at December 31, 2003 754,774
Settlement and release agreement (754,774)
=======
New convertible debentures:
Amortized debt discount quarter ended March 31, 2004 120,424
Amortized debt discount quarter ended June 30, 2004 128,586
Released on conversions during quarter ended
September 30, 2004 (90,104)
Amortized debt discount quarter ended September 30, 2004 87,035
Amortized debt discount quarter ended December 31, 2004 84,747
Balance at December 31, 2004 330,652
========
Amortized debt discount quarter ended March 31, 2005 79,047
Amortized debt discount quarter ended June 30, 2005 109,574
Amortized debt discount quarter ended September 30, 2005 110,293
Amortized debt discount quarter ended December 31, 2005 184,499
Balance at December 31, 2005 483,413
10 Commitments
|
The Company leases buildings under non-cancelable operating leases. Future minimum lease payments under those leases are as follows at December 31, 2005
Rent expense for all operating leases charged against earnings amounted to $69,028 in 2003 and $57,109 in 2004 and $71,816 in 2005.
11 Contingent Liabilities
As at December 31, 2005, we are not a party to any material pending legal proceeding, other than ordinary routine litigation incidental to our business and except as described below.
In 2002, we entered into an agreement with CK Supermarket to provide working capital on a short-term basis secured against certain inventory of our subsidiary, Jusco UK Ltd. At December 31, 2004, the balance was $377,016 including interest of $199,901. The debt was originally due on January 10, 2003. At March 31, 2004, it was envisaged that the loan would be repaid in 2004 from revenues from the sale of inventory. In May 2004, the lender notified us regarding immediate payment of the balance owed. We have been and remain in discussion with the lender regarding the repayment of the debt through a combination of cash from the sale of certain inventory and the issuance of our securities. In the event the repayment issue is not resolved, the lender could institute a legal proceeding against our subsidiary, Jusco UK Ltd, seeking repayment. The lender has a security interest on the assets of our subsidiary, Jusco UK Ltd., but does not have a security interest in our parent company or our other subsidiaries.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
11 Contingent Liabilities (continued)
As CK Supermarket has previously targeted the assets of Jusco UK Ltd. for use in repaying the lender, we believe that a proceeding against our subsidiary, Jusco UK Ltd. would not have a material effect on our operations.
On January 26, 2004, we entered into an agreement with POW! Entertainment LLC for the development and exploitation of the property "Tattoo - the Marked Man". We have the worldwide distribution and merchandising rights in perpetuity and the agreement describes a payment of $250,000 to fund project development. The payment was subject to certain deliverables from POW! upon which payment was anticipated to be made on the earlier of August 31, 2004 or ten business days after the effective date of our registration statement filed in February 2004. Stan Lee is to develop the concept, based on characters created by the Shorrocks. The project was geared toward creating a motion picture based on the character. The parties were to share all profits received from the project, after deduction of expenses, and in addition, POW would have been entitled to any executive producer fees from theatrical and television releases. We have not yet paid the amounts due to POW! under the agreement, and it appears that the transaction has been abandoned. We believe that we have meritorious defenses to any potential claims.
On August 13, 2004, in a labor action entitled Thomas Bernard Skahill
v. Peak Entertainment Holdings, Inc. before the Labor Commissioner of
the State of California, the Company was ordered to pay $24,358.27 in
wages, expenses, penalties, and interest in connection with an
employment claim. We are informed that the matter was confirmed as a
judgment on or about October 15, 004 by the Superior Court of the State
of California in the amount of $24,938.57.
We are informed that on or about April 6, 2004, James E. Skahill and Marie A. Skahill filed a complaint for damages for breach of contract against Peak Entertainment Ltd. before the Superior Court of the State of California for the County of Los Angeles, Northeast District, Case No. GC033622 alleging breach of a lease and seeking damages in an amount to be determined. We believe that the matter was not properly commenced with proper service upon Peak Entertainment Ltd. We have not submitted a response to the matter before the Superior Court of the State of California. We are unaware of the present status of the matter before the Superior Court of the State of California and we are unable to evaluate the likelihood of an unfavorable outcome, nor provide an estimate of the amount or range of potential loss.
On January 5, 2004, we completed a transaction, pursuant to a Settlement Agreement and Release dated as of December 22, 2003, with former debenture holders: AJW Partners, LLC, New Millennium Capital Partners II, LLC, AJW Offshore, Ltd, and AJW Qualified Partners, LLC. Pursuant to the terms of the settlement agreement, the former debenture holders had the right, thirteen months after the closing of the transaction, to provide notice to the Company of an exercise of a "put" right pursuant to which we would buy from the former debenture holders all of the 1,000,000 shares of common stock issued to them pursuant to the settlement agreement, at the price of $0.75 per share. Pursuant to the terms of the settlement agreement, the former debenture holders were to provide us with written notice if they wished to exercise the put right after thirteen months and prior to one year and two months after the closing of the transaction, at the expiration of which, the put right terminates. Closing on the put was to occur within ten business days from receipt of notice of the put. On or about January 10, 2005, the former debenture holders submitted a notice to exercise the put right. On or about January 26, 2005, the former debenture holders resent the January 10, 2005 notice to exercise the put right. We believe that the notice was not properly submitted in accordance with the notice procedures provided in the settlement agreement. Accordingly, we considered the notice ineffective and did not honor the notice. In 2005, the former debenture holders instituted a legal proceeding to enforce their put rights. We intend to contest the matter vigorously. We may be required to pay $750,000 for repurchase of 1,000,000 shares of common stock from the former debenture holders, plus potential interest and costs, if we lose such threatened litigation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
12 Transactions with related parties
The relationship between the Company and its related parties are:
Wilfred and Paula Shorrocks are deemed to be related parties as they are directors and shareholders of Peak Entertainment Holdings, Inc.
Terence Herzog and Michael Schenkein are deemed to be related parties as they are principals of Agora Capital Partners Inc, a management consulting company. They were directors of Peak Entertainment Holdings, Inc. Terence Herzog is a shareholder of Peak Entertainment Holdings, Inc. In December 2004, Mr. Herzog and Mr. Schenkein resigned as directors of the Company.
During the period the company had the following transactions with its related parties:
a) Wilfred and Paula Shorrocks
i) Movements on stockholders' advances account
Balance due by company, December 31, 2003 $916,634
Repayments (247,390)
Foreign exchange loss (5,320)
Balance due by the Company, December 31, 2004 $ 752,522
Cash advances 41,810
Repayments (237,787)
Foreign exchange loss (75,597)
-------
Balance due by the Company at December 31, 2005 $ 480,948
=======
|
Interest amounting to $20,338 in the year to December 31, 2005 and $21,472 in the year to December 31, 2004 has been accrued.
On March 24, 2004, the Company signed a promissory note which established a repayment schedule for the amounts advanced by the stockholders. The amount advanced is to be repaid in installments of $25,000 on January 31, 2005, May 31, 2005, September 30, 2005, December 31, 2005, March 31, 2006 and September 30, 2006 and installments of $100,000 on March 31, 2007 and September 30, 2007, with any balance to be repaid in full on January 31, 2008.
Interest will accrue commencing July 1, 2005 on any unpaid balance, at 8% per annum.
The promissory note provides for earlier repayment of any unpaid balance subject to various future financial results of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
12 Transactions with related parties (continued)
ii) License agreement
On April 30, 2002, the Company entered into a license agreement with Wilfred and Paula Shorrocks whereby the Company acquired the exclusive rights to apply various intellectual properties to the manufacture, distribution and sale of products on a worldwide basis. Under the terms of the agreement the Company has undertaken to pay to Wilfred and Paula Shorrocks a guaranteed minimum royalties amount of US $1,000,000, with the agreement treated for accounting purposes as due to expire on December 31, 2023. On April 14, 2004, the Company entered into an amendment of the license agreement which established a minimum quarterly royalty payment of $12,500 beginning September 30, 2004. This liability is included in license fees payable and the related asset is included in intangible assets.
On February 25, 2002, the Company entered into a license agreement for rights to Monsters In My Pocket from Morrison Entertainment Group, Inc., in which Wilfred and Paula Shorrocks were also parties. Pursuant to the agreement, Wilfred and Paula Shorrocks were individually entitled to a certain percentage of the revenues. The Company was entitled to 10% of the revenues from the United States, 35% of the revenues from the United Kingdom, and 40% of the revenues from other territories. Morrison Entertainment Group was entitled to 60% of the revenues from the United States, 32.5% of the revenues from the United Kingdom, and 30% of the revenues from other territories. The Shorrocks were entitled to 30% of the revenues from the United States, 32.5% of the revenues from the United Kingdom, and 30% of the revenues from other territories. The revenue allocation referred to revenues from character and merchandise licensing and sales activities, and the allocation was to be adjusted for entertainment production financing terms. In October 2004, Morrison Entertainment Group sent the Company a notice terminating any and all agreements with the Company. On December 22, 2004, the Company entered into an agreement with Morrison Entertainment Group, whereby the parties dissociated the Company's Monster Quest property and products from Morrison Entertainment Group's Monster In My Pocket property and products. Any and all agreements between the parties entered into prior to December 22, 2004, including license agreements, were terminated.
b) Terence Herzog and Michael Schenkein
i) Consulting services
From March 2003 through June 2004, Agora Capital Partners Inc, through Terence Herzog and Michael Schenkein, has provided management consulting services to the Company. The Company paid aggregate fees of $nil in the year to December 31, 2004 and $46,000 in the year to December 31, 2003.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
13 Convertible Debt and Warrants
On July 24, 2003, pursuant to a consulting agreement with POW! Entertainment LLC and Stan Lee, the Company issued to POW warrants to purchase 750,000 shares of the Company's common stock exercisable for five years at $0.35 per share in exchange for consulting services to be provided over a three year term. Warrants to purchase 375,000 shares of common stock vested upon execution of the consulting agreement, and the remaining warrants to purchase 375,000 shares of common stock vested on July 24, 2004. POW has the right to demand registration of the shares of common stock underlying the warrant at the Company's expense, although no demand had been received at the date of this report.
The warrants have been valued using the Black-Scholes Option Model. The value of the warrants that vested immediately was $390,000 on the date of grant. The value of these warrants has been recorded as deferred professional fees and will be amortized to earnings ratably over the three year service period.
The value of the warrants that were subject to future vesting, and vested on July 24, 2004, were determined at the end of each reporting period. The Company recorded the expense for each quarter based on the value of the warrants at the end of each reporting period. For the quarter ended June 30, 2004, the Company recorded an expense of $10,918 related to these warrants, and for the six months ended June 30, 2004, the Company recorded an expense of $9,295.
On July 15, 2003, pursuant to a consulting agreement with Mr Jack Kuessous, the Company issued to Mr Kuessous warrants to purchase 240,000 shares of the Company's common stock with an exercise price of $1.20 per share in exchange for consulting services over a one year period. The warrants vested immediately upon execution of the consulting agreement. The warrants have been valued using the Black-Scholes Option Model and had a value of $263,983 on the date of grant. The value of these options has been recorded as a current asset and has been fully amortized to earnings.
On December 17, 2003, the exercise price of the warrants held by Mr. Kuessous was changed from $1.20 per share to $0.50 per share. The amount to be expensed over the remaining service period related to the $1.20 warrants was the remaining unamortized fair value of the $0.50 warrants as of December 17, 2003, plus the amount by which the fair value of the $1.20 warrants valued as of December 17, 2003 was greater than the fair value of the $0.50 warrants immediately before the terms were modified. The Company used the Black-Scholes Option Model and determined that the value of the $0.50 warrants immediately prior to the conversion of the terms was essentially the same as the $1.20 warrants granted on December 17, 2003. Accordingly, the Company has now fully amortized the original value of $263,983.
In July 2003, Mr Kuessous advanced the Company $100,000. On December 17, 2003, the Company entered into a "Cancellation of Debt in Exchange for Securities Agreement", whereby Mr Kuessous cancelled the $100,000 owed to him by the Company in exchange for 583,333 shares of common stock of the Company and 150,000 common stock purchase warrants with an exercise price of $0.50 per share. The warrants vested immediately and are exercisable over a three year period. The warrants have been valued using the Black-Scholes Option Model and had a value of $79,449 at the date of grant and the common stock had a value of $332,500 on the date of issuance. The total value of the common stock and warrants is $411,995 and was compared with the $100,000 carrying value of the advances, resulting in an additional expense of $311,995, which was included in selling, general and administrative expenses in 2003.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
13 Warrants (continued)
On January 5, 2004, the Company completed a "Settlement Agreement and Release" with former holders of 12% convertible debentures. Under the agreement, the Company exchanged $1,000,000 and 1,000,000 shares of unregistered common stock in return for the surrender of an aggregate of $215,000 principal amount of 12% convertible debentures, accrued interest and warrants to purchase 645,000 shares of common stock, issued pursuant to a "Securities Purchase Agreement" dated as of February 28, 2002, and an aggregate of $785,000 principal amount of 12% convertible debentures, accrued interest and warrants to purchase 1,570,000 shares of common stock, issued pursuant to a "Securities Purchase Agreement" dated as of April 22, 2003. The $1,000,000 consisted of $500,000 paid on January 5, 2004 and $500,000 in promissory notes, which was subsequently paid on March 22, 2004. The agreement provided that, after a period of thirteen months from January 2004, all of the 1,000,000 shares of common stock still owned at that time by the former debenture holders may be put to the Company at a price $0.75 per share, on an all-or-none basis, for a one month period. The Company also paid for $10,000 of the former debenture holders' legal fees and expenses in connection with the transaction.
The Company accounted for this transaction in accordance with EITF 00-27 "Application of Issue 98-5 to Certain Convertible Instruments". Accordingly, the Company first allocated the consideration paid based on the fair value of the warrants to be repurchased and the beneficial conversion features as of January 5, 2004. Any remaining consideration was used to offset the carrying value of the convertible debentures and accrued interest and resulted in a gain on the extinguishment of the debt. The Company determined that the fair value of the warrants to be repurchased and the beneficial conversion features at January 5, 2004 exceeded the total consideration to be paid of $1,580,000. Accordingly, the Company recorded a gain on the extinguishment of the convertible debentures and accrued interest. In accordance with FAS 133, the 1,000,000 shares of common stock are considered an embedded derivative instrument and recorded as equity.
On January 5, 2004, the Company entered into "Securities Purchase Agreements" with four accredited investors. Pursuant to the agreements, the Company sold $1,500,000 in 8% convertible debentures due January 5, 2007 and 3,000,000 common stock purchase warrants, exercisable for five years at $0.50 per share. The purchase price totaled $1,500,000, of which $750,000 was paid in cash, and $750,000 by promissory notes. The principal amount of the debentures, plus any accrued and unpaid interest on the debentures, may be converted into shares of common stock at the conversion price of $0.30 per share. The conversion price may be adjusted downward for issuances of securities by the Company at prices below the lower of $0.50 per common share, or fair market value for such securities as determined at the time of issuance. Annual interest payments on the debentures are due on January 7 of each year, commencing January 7, 2005. At the option of the Company, interest payments may be accrued beyond the annual interest payment date, in which event the debenture holder shall have the option to accrue the interest payment then due for another interest payment period, or cause the Company to issue common stock in exchange for interest. Unless upon 75 days prior written notice, the debenture and warrant holder may not convert the debentures or warrants for shares of common stock to the extent that such conversion would cause it to beneficially own 4.9% or more of our then issued and outstanding common stock. After the tenth consecutive business day in which the common stock trades at $3.00 or greater, the warrants become redeemable at $0.10 per warrant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
13 Warrants (continued)
The warrants have been valued using the Black-Scholes Option Model at a value of $1,649,901 at the date of grant. A discount of the full amount of the debt was recorded and will be amortized over the life of the debt of approximately 3 years.
During the quarter to September 30, 2004, $541,000 of the 8% convertible debentures was converted at $0.30 per share into 1,805,000 shares of common stock. A loss on conversion of $481,395 was recognized during that quarter.
On January 23, 2004, the Company entered into an agreement for services to be provided over twelve months with Vintage Filings, LLC. It issued 300,000 common stock purchase warrants, which vested immediately and are exercisable for three years at $0.50 per share pursuant to the agreement. The warrants have been valued using the Black-Scholes Option Pricing Model and have a value of $224,988 at the date of grant. The value of the warrants will be recorded as additional selling, general and administrative expenses ratably over the twelve month service period.
On January 29, 2004, the Company entered into a "Securities Purchase Agreement" with Shai Stern. Pursuant to the agreement, it issued $50,000 in 8% convertible debentures due January 29, 2007 and 100,000 common stock purchase warrants. The principal amount of the debentures, plus any accrued and unpaid interest on the debentures, may be converted into shares of common stock at the conversion price of $0.30 per share. Annual interest payments on the debenture are due on January 29 of each year, commencing with January 29, 2005. At the option of the Company interest payments may be accrued beyond the annual interest payment date, in which event the debenture holder shall have the option to accrue the interest payment then due for another interest payment period, or cause the Company to issue common stock in exchange for interest. The warrants are exercisable for three years at a price of $0.50 per share. After the tenth consecutive business day in which the common stock trades at $3.00 or greater, the warrants become redeemable at $0.10 per warrant. On January 26, 2005, Mr. Stern converted these $50,000 in debentures, plus $4,000 in accrued interest, into an aggregate of 180,000 shares.
The warrants have been valued using the Black-Scholes Option Pricing Model and have a value of $51,997 at the date of grant. The Company has recorded these debentures and warrants in accordance with the provisions of EITF 00-27 "Application of Issue 98-5 to Certain Convertible Instruments". Under the provisions of EITF 00-27, the Company has allocated the total proceeds received between the convertible debentures and the warrants based on their relative fair value at the date of issuance. The Company has then estimated the intrinsic value of the beneficial conversion feature. The Company has determined that the intrinsic value of the beneficial conversion feature exceeds the face value of the debt and accordingly, the Company has recorded a debt discount of $50,000. The debt discount will be amortized as interest expense over the life of the debentures, which is three years.
On September 28, 2004, the Company entered into a "Securities Purchase Agreement" with three accredited persons. Pursuant to the agreements, the Company sold 1,666,666 shares of common stock and 1,750,000 common stock purchase warrants, exercisable for three years at $0.50 per share, for an aggregate purchase price of $500,000.
Prior to the termination date, the warrant shall be callable, under the circumstances described below, at the discretion of the company, for $0.10 per warrant. The Company's right to call shall be exercisable commencing upon the day following the tenth consecutive business day during which the Company's common stock has traded at prices of, or in excess of, $1.75 per share, subject to adjustment for stock splits, dividends, subdivisions, reclassification and the like, with weekly volume of such trading being in excess of the total number of shares represented by this warrant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
13 Warrants (continued)
In the event the Company exercises its right to call the warrants, the Company shall give the Holder written notice of such decision. In the event that the Holder does not exercise all or any part of the warrants or the Company does not receive the warrant from the Holder within 30 days from the date on the notice to the Holder of the Company's intension to redeem the warrant, then the warrant shall be deemed canceled, and the holder shall not be entitled to further exercise thereof or to the redemption fee.
The value of the stock and warrants is made more difficult due to the call provision of the warrant, which reduces the value of the warrant. The Company recognizes that due to the call provision it is inappropriate to value the warrant using the Black-Scholes Option Model. The Company has calculated the fair value of the common stock at a price of $0.21 per share, being the trading price at September 28, 2004. The remaining proceeds of $150,000 have been allocated as the value of the warrants at the date of the grant.
On January 4, 2005, the Company entered into a consulting agreement with Salvani Investments, pursuant to which it issued 1,000,000 warrants, exercisable for 5 years at $0.50 per share, in exchange for business consulting and investor relations services. The warrants have been valued using the Black-Scholes option model at a value of $298,831.08 at the date of grant. The value of these warrants has been recorded as deferred professional fees and will be amortized to earnings ratably over one year.
On January 5, 2005, the Company sold to Dan Brecher 250,000 warrants, exercisable for three years at $0.50 per share, for $2,500. These warrants were valued by using the Black-Scholes option model at a value of $74,707.77 at the date of grant. The value of these warrants has been recorded as an expense to non cash legal fees.
On March 1, 2005, the Company entered into a loan agreement for $500,000 with Tayside Trading Ltd. Pursuant to the loan agreement, the Company issued 500,000 warrants, exercisable for five years at $0.50 per share, to the lender. The Company also granted the lender an option exercisable commencing with the date of return of the $500,000 and expiring two weeks thereafter, to acquire, at the purchase price of $100,000, (i) shares of the Company's common stock at $0.30 per share (333,333 shares) and (ii) warrants to purchase 200,000 shares of common stock, exercisable for five years at $0.50 per share. The Company agreed to grant the lender, as collateral, rights to the Company's intellectual property, to the extent not already encumbered. The Company used the funds to fund a $500,000 letter of credit, which was subsequently terminated in April 2005. The principal amount of the loan was returned in April 2005, with accrued interest still owed. As the principal was not paid by March 30, 2005, as penalty, in April 2005, the Company issued 1,800,000 shares as a late payment penalty. These warrants have been valued using the Black-Scholes option pricing model at a value of $184,377.11 at the date of grant. The value of these warrants has been recorded as an expense to non cash finance charges.
On March 2, 2005, the Company issued 50,000 warrants, exercisable for five years at $0.50 per share, to Aaron M. Lasry in return for business consulting services. These warrants have been valued using the Black-Scholes option pricing model at a value of $17,438.74 at the date of Grant and has been recorded in non cash compensation.
On May 6, 2005, we entered into Securities Purchase Agreements with four accredited investors. Pursuant to the agreements, we sold a principal amount of $360,000 in 12% convertible debentures and 432,000 common stock purchase warrants, exercisable for five years at $0.50 per share, for gross proceeds of $360,000. The debentures mature in 270 days from May 6, 2005. The debentures were to mature earlier upon future different funding by us of any dollar amount equaling 15% more than amounts closed pursuant to the private placement. The debentures accrue interest at the rate of 12% per year, compounded annually, and was payable at maturity. The principal amount of the debentures may be converted into shares of common stock at the conversion price of $0.30 per share. The conversion price for the debentures may be adjusted downward for issuances of securities by us at prices below the lower of $.30 per common share, or fair market value for such securities as determined at the time of issuance.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
13 Warrants (continued)
For late payment, there will be a cash penalty equal to 1.5% of the outstanding principal amount of the debentures, compounded monthly for each month that payment in full is not effected, up to a maximum cash penalty equal to 9% of the outstanding principal amount of the debentures, and, in addition, there will be monthly reduction in warrant exercise price of the warrants at the rate of 2.5% and up to a maximum of 20% reduction in the exercise price. The obligations of the Company under the debentures are secured by security interest rights in substantially all of the Company's assets, to the extent not already encumbered. The debentures matured in our fourth quarter 2005, and remains unpaid.
The warrants have been valued using the Black-Scholes option pricing model at a value of $172,800 at the date of grant. The value of these warrants has been recorded as an expense to non-cash finance charges. It was amortized over the life of the debenture.
On August 10, 2005, we sold to one accredited investor a 10% convertible promissory note in the principal amount of $100,000 due November 8, 2005, and warrants to purchase 333,333 shares of common stock. The principal amount and accrued interest on the note were convertible into shares of common stock at the conversion price of $0.30 per share. The warrants are exercisable at a price of $0.30 per share until August 10, 2008. Our obligations under the note were protected by a subordinated lien on our intellectual property, that is subordinate to the liens of prior lenders. We used the proceeds for general corporate purposes. The note was repaid on January 4, 2006. The loan was accounted for as a liability and the interest was accrued as an expense. The warrants were valued using the Black-Scholes option pricing model at a value of $100,000 at the date of grant. The value of these warrants has been recorded as an expense to non-cash finance charges and amortized over the life of the debenture.
On August 22, 2005, we sold to one accredited investor a 10% convertible promissory note in the principal amount of $100,000 due November 21, 2005, and warrants to purchase 333,333 shares of common stock. The principal amount and accrued interest on the note were convertible into shares of common stock at the conversion price of $0.30 per share. The warrants are exercisable at a price of $0.30 per share until August 22, 2008. Our obligations under the note are protected by a subordinated lien on our intellectual property, that is subordinate to the liens of prior lenders. We used the proceeds for general corporate purposes. The note was repaid on January 4, 2006. The loan was accounted for as a liability and the interest was accrued as an expense. The warrants were valued using the Black-Scholes option pricing model at a value of $100,000 at the date of grant. The value of these warrants has been recorded as an expense to non-cash finance charges and amortized over the life of the debenture.
In the three months ended December 31, 2005, we sold to fifteen accredited investors 105.50 units of our securities for $1,055,000. Each unit, at a price of $10,000, consists of: (i) a 12% $10,000 convertible debenture, convertible into shares of common stock at $0.30 per share, and (ii) warrants to purchase 25,000 shares of the Company's common stock. Interest on the principal amount of the debenture will accrue at the simple interest rate of 12% per year computed on the basis of a 360 day year. Interest is payable at maturity in cash. The debenture will mature in 18 months from issue, unless earlier due. The debentures are secured by assets of our company, to the extent not already encumbered. We agreed not to grant any other person, after the closing upon the private placement pursuant to which the units were offered, a priority security interest in our company's assets for so long as the debentures remain outstanding, except with the consent of 2/3 of the outstanding face amount of holders of the debentures. Consent of a two-thirds majority of the holders of our debentures will be required for (i) any sale by the company of substantially all of our assets unless the proceeds of such sale are used to repay the debentures, (ii) any merger of the company with another entity, where we are not the surviving corporation, unless as part of such transaction the debentures will be repaid, or (iii) certain other actions materially affecting the debentures that require approval of the debenture holders under the corporations laws of the State of Nevada. The warrants will be exercisable for a period of five years into shares of common stock at $0.30 per share. We used the proceeds for general corporate purposes. The debentures have been recorded as a liability and the interest has been accrued as a non-cash expense in the profit and loss account.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
13 Warrants (continued)
These warrants have been valued using the Black-Scholes option pricing model at a value of $2,164,954.80 at the date of grant. The value of these warrants will be amortized over their life to the profit and loss account.
14 Share transactions
On February 11, 2004, the Company entered into a financial advisor agreement with Ameristar International Capital, Inc. It issued 100,000 shares of common stock as an initial equity fee pursuant to the agreement. These shares had a fair value of $43,000 at the date of grant. The Company has recorded the value of the common stock as an expense, as there is no continuing benefit.
In 2003, the Company entered into an agreement with William Ivers in connection with business consulting services, relating to the preparation of a written business plan rendered by Mr Ivers. In exchange for these services, the Company agreed to pay $19,012 in cash and issue 16,667 shares of common stock at a future date. On February 12, 2004, the Company issued 16,667 shares of common stock to Mr Ivers at a value of $8,333 at the date of grant. Accordingly, the Company expensed the value of the shares at December 31, 2003 and recorded a corresponding liability.
In 2003, the Company entered into an agreement with Lou Schneider in connection with business consulting services, related to establishing potential apparel-related licensing relationships with third parties, rendered by Mr Schneider. In exchange for these services, the Company agreed to issue 20,000 shares of common stock at a future date. On February 12, 2004, the Company issued 20,000 shares of common stock to Mr Schneider at a value of $10,000 at the date of grant. Accordingly, the Company expensed the value of the shares at December 31, 2003 and recorded a corresponding liability.
In 2003, the Company entered into an agreement with Rolin Inc to provide financial advisory services in exchange for common stock of the Company. On February 12, 2004, the Company issued an aggregate of 20,409 shares of common stock to Rolin Inc. These shares had a fair value of $10,204 at the date of grant. The Company has recorded the transaction as professional fees expensed in the quarter ended March 31, 2004.
On March 10, 2004, the Company entered into "Securities Purchase Agreements" with eleven accredited investors. Pursuant to the agreements, the Company sold an aggregate of 1,000,000 shares of common stock and 600,000 common stock purchase warrants, exercisable for three years at $0.75 per share, for a total purchase price of $500,000.
Legend Merchant Group, Inc acted as the placement agent for the above transaction. All of the purchasers were pre-existing customers of Legend Merchant Group. The Company paid Legend a fee of $25,000, and 100,000 common stock purchase warrants exercisable for three years at $0.50 per share and 60,000 common stock purchase warrants exercisable for three years at $0.75 per share, for its services. The warrants have been valued using the Black-Scholes Option Pricing Model and have a value of $92,794 at the date of grant which was March 10, 2004 The total fee of $117,744 has been offset against the proceeds of the offering.
On April 28, 2004, the Company entered into an agreement with Laura Wellington, whereby it exchanged a debt of $250,000 owed to Ms Wellington for 500,000 shares of common stock. Ms Wellington had loaned $250,000 to the company in November 2003. The total value of the common stock at the date of grant was $250,000 compared with the $250,000 carrying value of the advance, so there was no additional expense.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
14 Share transactions
On July 23, 2004, the Company entered into an agreement with Laura Wellington, whereby it exchanged a debt of $194,000 owed to Ms Wellington for 388,000 shares of common stock. The total value of the common stock at the date of the grant was $194,000 compared with the $194,000 carrying value of the debt, so there was no additional expense.
On August 17, 2004, the Company issued 75,001 shares to Portfolio PR in connection with professional services provided. The shares had a value of $18,750 at the date of the grant. The Company expensed $36,000 as professional fees during the quarter, being the value of professional services received, and recognized a profit of $17,250 on issue of the shares.
On September 1, 2004, the Company entered into a consultancy agreement with CEOcast, Inc. to provide consultancy services for a six month period commencing September 1, 2004, in exchange for 400,000 shares of common stock of the Company. These shares had a value of $44,000 at the date of grant.
In April and June 2005, the Company issued 212,765 shares of restricted common stock to Crescent Fund, LLC in return for financial consulting services. These shares were valued at $96,276 based on the fair market value of the stock on the date of grant.
In May 2005, the Company issued 78,397 shares of restricted common stock to Dan Brecher for the conversion of accrued interest.
In June 2005, the Company issued 157,991 shares of restricted stock to Platinum Partners for the conversion of accrued interest on outstanding debentures.
On October 1, 2005, the Company entered into a consulting agreement with CEOcast, Inc., pursuant to which the Company issued 200,000 shares of our common stock in connection with the agreement, and 182,000 shares of common stock in connection with balance due under a prior agreement.
15 Reverse Acquisition
On April 22, 2003, Palladium Communications, Inc. ("Palladium') (a US public company) issued 19,071,684 shares of its common stock for all of the outstanding common stock of Peak Entertainment Holdings, Inc. Immediately prior to the transaction, Peak Entertainment Holdings, Inc authorized a stock split so that the outstanding shares of common stock were increased from 2 to 19,071,684. Immediately after the transaction, the shareholders of Peak Entertainment Holdings, Inc (Wilf and Paula Shorrocks) owned approximately 90% of the outstanding common stock of Palladium. This transaction has been accounted for as a reverse acquisition of a public shell. The accounting for a reverse acquisition with a public shell is considered to be a capital transaction rather than a business combination. That is, the transaction is equivalent to the issuance of common stock by Peak for the net monetary assets of Palladium, accompanied by a recapitalization. Palladium's net deficit has been recorded at carryover basis and no goodwill was generated in the transaction. The net deficit of Palladium, $215,500, at the time of transaction is included in stockholders' equity. The other side of this transaction is to add $215,500 in liabilities related to convertible debentures to the historical financial statements of Peak Entertainment Holdings Inc. The historical financial statements of the "registrant" become those of Peak Entertainment Holdings, Inc. Subsequent to the transaction, Palladium changed its name to Peak Entertainment Holdings,
Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
16 Stockholders' Equity
Immediately following the reverse acquisition on April 22, 2003, the Company entered into an agreement for the issuance of up to $785,000 in convertible debentures and warrants to purchase 1,570,000 shares of the Company's common stock. The Company received $300,000 at the time of execution of the agreement for the issuance of the debentures and warrant and received the remainder of $250,000 on June 26, 2003 and $235,000 on July 11, 2003. The debentures and warrants were subsequently repurchased in January 2004.
The debentures carried interest at 12%, matured one year from the date of issuance and were convertible at the option of the holder at the lower of $1.00 or 50% of the average of the three lowest intra-day trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. The warrants were exercisable for five years at $0.31 per share.
The Company recorded these debentures and warrants in accordance with the provisions of EITF 00-27 "Application of Issue 98-5 to Certain Convertible Instruments". Under the provision of EITF 00-27, the Company allocated the total proceeds received between the convertible debentures and the warrants based on their relative fair values at the date of issuance. The Company then estimated the intrinsic value of the beneficial conversion feature resulting from the ability of the debenture holders to convert at a 50% discount. As a result, the Company recorded a debt discount of $785,000. The debt discount was amortized as interest expense over the life of the debentures of one year.
On February 28, 2002, Palladium, the predecessor to Peak Entertainment Holdings, Inc entered into an agreement pursuant to which Palladium issued $215,000 in convertible debentures and issued warrants to purchase 645,000 shares of the Company's common stock exercisable for five years at $0.31 per share. These debentures and warrants were subsequently repurchased in January 2004.
17 Subsequent Events
In January 2006, the Company issued to Lou Schneider in connection with business consulting services warrants to purchase 200,000 shares of common stock, exercisable for three years at $0.50 per share.
In January 2006, the Company issued an aggregate of 171,096 shares of restricted common stock to debenture holders for the conversion of accrued interest.
In January 2006, the Company issued 666,666 shares of restricted stock to a debenture holder for the conversion of a principal amount of $200,000 of debentures.
In February 2006, we sold to two accredited investors 22.50 units of our securities for $225,000. Each unit, at a price of $10,000, consists of: (i) a 12% $10,000 convertible debenture, convertible into shares of common stock at $0.30 per share, and (ii) warrants to purchase 25,000 shares of the Company's common stock. Interest on the principal amount of the debenture will accrue at the simple interest rate of 12% per year computed on the basis of a 360 day year. Interest is payable at maturity in cash. The debenture will mature in 18 months from issue, unless earlier due. The debentures are secured by assets of our company, to the extent not already encumbered. We agreed not to grant any other person, after the closing upon the private placement pursuant to which the units were offered, a priority security interest in our company's assets for so long as the debentures remain outstanding, except with the consent of 2/3 of the outstanding face amount of holders of the debentures. Consent of a two-thirds majority of the holders of our debentures will be required for (i) any sale by the company of substantially all of our assets unless the proceeds of such sale are used to repay the debentures, (ii) any merger of the company with another entity, where we are not the surviving corporation, unless as part of such transaction the debentures will be repaid, or (iii) certain other actions materially affecting the debentures that require approval of the debenture holders under the corporations laws of the State of Nevada. The warrants will be exercisable for a period of five years into shares of common stock at $0.30 per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2005
Unaudited
17 Subsequent events (continued)
We used the proceeds for general corporate purposes. We are to issue approximately 853,333 warrants, exercisable for five years from February 14, 2006 at $0.30 per share, to the placement agent as compensation.
On 2 March 2006 administrators where appointed by Goodband,Viner,Taylor (GVT) a major creditor of the United Kingdom registered company, Peak Entertainment Ltd. In April 2003, Peak Entertainment Holdings Inc acquired the assets, material contracts and intellectual property rights of Peak Entertainment Ltd, and since then have used the UK company only as an operating company for accounting, UK tax and employee transactions.
As the assets, material contracts and intellectual property rights are held in the US Holding company management decided, after taking advise, to liquidate the United Kingdom company and buy back certain nominal assets, primarily fixtures and fittings, from the administrators.
The transaction is still on going but it is management's intention to streamline the operating of the business, reducing the balance sheet liabilities by at least $1,200,000 and are looking at further options in the operating functionality of the company going forward. To date no material commercial contractual change has been made by the company as a result of this action and management believe that to be the case on going.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 20, 2004, we notified Goodband Viner Taylor, our independent public accountants, that we were terminating its audit services, effective as of that date. The Company's Board of Directors approved such decision.
Goodband Viner Taylor's opinion in its report on the Company's financial statements for the years ended December 31, 2002 and December 31, 2003 expressed substantial doubt with respect to the Company's ability, at that time, to continue as a going concern. During the years ended December 31, 2002 and December 31, 2003, and the three month period ended March 31, 2004, Goodband Viner Taylor did not issue any other report on the financial statements of the Company which contained any adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except as to going concern issues. Furthermore, during such periods and through the date of termination, August 20, 2004, there were no disagreements with Goodband Viner Taylor within the meaning of Instruction 4 to Item 304 of Regulation S-B under the Securities Exchange Act of 1934 on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Goodband Viner Taylor, would have caused them to make reference in connection with their opinion to the subject matter of the disagreement in connection with any report they might have issued.
On August 20, 2004, the Company engaged Garbutt & Elliott Ltd., York, United Kingdom, as its independent public accountants. The Company did not previously consult with Garbutt & Elliott Ltd. regarding any matter, including but not limited to:
o 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 Company's financial statements; or
o any matter that was either the subject matter of a disagreement (as
defined in Item 304(a)(1)(iv) of Regulation S-B and the related
instructions) or a reportable event (as defined in Item 304(a)(1)(v)
of Regulation S-B).
ITEM 8A. CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fourth quarter of fiscal year 2005 ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 8B. OTHER INFORMATION
On December 22, 2004, we entered into an agreement with Morrison Entertainment Group, whereby the parties dissociated our Monster Quest property and products from Morrison Entertainment Group's Monster In My Pocket property and products. Any and all agreements between the parties entered into prior to December 22, 2004, including license agreements, were terminated. We have informed licensees of the discontinuation of the use of Monster In My Pocket.
On March 1, 2005, we entered into a non-binding letter of intent with Maverick Entertainment Group plc (UK ) concerning a possible business combination of the parties. The proposed transaction is presently contemplated to involve an exchange of shares of the parties and is to occur by June 30, 2005. The terms of the transactions have not been clearly defined, and no further progress on the terms has been addressed.
The staff of the Division of Corporation Finance of the Securities and Exchange Commission issued comments on June 9, 2005 to the Company in connection with its review of the Company's Annual Report on Form 10-KSB/A for the year ended December 31, 2004 filed on May 16, 2005. Based on these comments and discussions with the Commission, and after consultation with the Company's independent registered public accounting firm, the Company's management recommended, and its Board of Directors determined on June 24, 2005, that it will restate its financial statements for the year ended December 31, 2004. As a result, the financial statements issued by the Company for the year ended December 31, 2004 should no longer be relied upon. The Company's determination to restate these previously issued financial statements stems from comments from the Commission requesting information related to (i) the accounting of pre-production labor costs, and (ii) the nature, source, and basis for measurement of foreign exchange gain (loss). The Company is working with its independent auditors to complete the review of the accounting matters and quantify the impact on the financial statements that were previously filed. The Company does not believe that the changes will materially adversely affect the Company's results of operation for the year ended December 31, 2004. Once this review is complete, the Company will restate its 2004 year end financial statements. The Company expects to complete its review of this matter shortly.
On January 19, 2005, the Company filed its restated financial statements for the year ended December 31, 2004. The Commission issued further comments on January 25, 2006 in connection with the review of the Company's restatement of its 2004 financial statements. The Commission has asked further questions and requires the Company to provide computational basis for the calculations of the exchange gain including the consolidated statement of operations. The Company is currently reviewing the matters raised by the Commission.
On 2 March 2006 administrators where appointed by Goodband,Viner,Taylor (GVT) a major creditor of the United Kingdom registered company, Peak Entertainment Ltd.
In April 2003, Peak Entertainment Holdings Inc acquired the assets, material contracts and intellectual property rights of Peak Entertainment Ltd, and since then have used the UK company only as an operating company for accounting, UK tax and employee transactions.
As the assets, material contracts and intellectual property rights are held in the US Holding company management decided, after taking advise, to liquidate the United Kingdom company and buy back certain nominal assets, primarily fixtures and fittings, from the administrators.
The transaction is still on going but it is management's intention to streamline the operating of the business, reducing the balance sheet liabilities by at least $1,200,000 and are looking at further options in the operating functionality of the company going forward. To date no material commercial contractual change has been made by the company as a result of this action and management believe that to be the case on going.
On March 8, 2006, we entered into an agreement with The Silly Goose Company, LLC, dated March 6, 2006, pursuant to which the parties have agreed for the return to Silly Goose of proprietary rights to The Wumblers preschool television series previously granted to us pursuant to an April 28, 2003 agreement and a December 16, 2003 entertainment production agreement between the parties.
We will maintain a financial interest in The Wumblers. Assuming 4Kids is a majority investor in the funding of The Wumblers project, Peak retains the right to receive 15% of 100% of the proceeds in connection with the exploitation of The Wumblers project. Payment to us of such percentage is to be paid (a) after the investors in The Wumblers project have recouped their direct investment, (b) after crediting prior funders in the aggregate amount of $1,170,000 for prior development of The Wumblers project, and (c) after the distribution to Laura Wellington of $45,000 for consulting fees. After payments from The Wumblers project has been made of the amounts provided for in (a), (b) and (c) above, Peak shall receive such a percentage of 100% of net profits, as set forth below, calculated from the first dollar of net profits received by the entity exploiting The Wumblers project:
(i) If 4Kids, or a wholly-owned or controlled affiliate of 4Kids, is the
majority financier of the Wumblers project, the percentage retained
by Peak above shall be 15%;
(ii) If 4Kids is not the majority financier of the Wumblers project, the
percentage retained by Peak above shall be 15%, and Peak shall
retain the United Kingdom marketing rights on a 35% of gross
receipts basis
(iii) If 4Kids is not the majority financier, and if the parties hereto
agree that Peak shall retain a percentage of 7.5%, then Peak shall
not retain representation rights for The Wumblers for the United
States and Canada, and Peak shall retain all other worldwide rights
on a 35% basis for the United Kingdom and 40% for the rest of the
world.
(iv) If 4Kids is not the majority financier, and if the parties hereto
agree that Peak shall retain a percentage of 8%, then Peak shall not
retain representation rights for The Wumblers for the United States
and Canada, and Peak shall retain other rights on a 35% basis for
the United Kingdom and 40% for Europe, Australia, South America and
South Africa.
(v) If 4Kids is not the majority financier, and if the parties hereto
agree that Peak shall retain a percentage of 9%, then Peak shall not
retain representation rights for The Wumblers for the United States
and Canada, and Peak shall retain other rights on a 35% basis for
the United Kingdom and 40% for France, Spain, Italy, Australia and
Mexico.
(vi) If 4Kids is not the majority financier, and if the parties hereto
agree that Peak shall retain a percentage of 10%, then Peak shall
not retain representation rights for The Wumblers for the United
States and Canada, and Peak shall retain other rights on a 35% basis
for the United Kingdom and 40% for Australia.
Silly Goose has withdrawn and revoked its February 13, 2006 letter. Pursuant to the agreement, the parties have released each other from any obligations and any claims one party may have had against the other. The agreement is subject to conditions before its effectiveness and Peak's right to terminate the agreement by sending a notice by March 20, 2006.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
OUR MANAGEMENT
The persons listed in the table below are our present directors and executive officers.
Name Age Position
---- --- --------
Wilfred Shorrocks 56 Chairman, Chief Executive Officer
and Director
Paula Shorrocks 54 Vice President - Design and Development,
and Director
Phil Ogden 38 Vice President - Managing Director, and Director
Alan Shorrocks 44 Vice President - Licensing Division
Nicola Yeomans 35 Vice President - Finance
|
Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Currently, there are three persons serving on our board of directors.
Officers are elected by the Board of Directors and serve until their successors are appointed by the Board of Directors.
MANAGEMENT PROFILE
Wilfred Shorrocks, Chairman and Chief Executive Officer
Mr. Shorrocks, co-founded Peak Entertainment Ltd. in November 2001 and he became Chairman, Chief Executive Officer and a director of Peak Entertainment Holdings, Inc. in April 2003. Prior to that, Mr. Shorrocks was co-founder of Just Group, Plc., where he acted as its Chief Executive Officer from 1987 to 2001. At Just Group, Mr. Shorrocks was responsible for all areas of activity relating to development and creation of concepts through to intellectual property acquisition, corporate acquisition, and financing activities. In January 2002, about five months subsequent to his August 2001 departure from Just Group, Just Group entered into administration, a process similar to the Chapter 11 bankruptcy process. In 1980, he founded Acamas Toys, a developer of toys, and he sold his ownership of Acamas Toys in 1987. From 1973 to 1980, Mr. Shorrocks worked in sales at what was, at that time, the world's largest toy maker, Dunbee Combex Marx, makers of Sindy dolls and Hornby railways, and he became Sales & Marketing Director for the Burbank sales division of Dunbee Combex Marx. He is the spouse of Paula Shorrocks, and the brother of Alan Shorrocks.
Paula Shorrocks, Vice President - Design and Development, and Director
Ms. Shorrocks, co-founded Peak Entertainment Ltd. in November 2001 and she became Vice President and a director of Peak Entertainment Holdings, Inc. in April 2003. Prior to that, Ms. Shorrocks was co-founder of Just Group, Plc., where she acted as its Commercial Director from 1987 to 2001. At Just Group, Ms. Shorrocks identified opportunities and then secured rights to represent blue chip companies as licensing agent for their brands. In January 2002, about five months subsequent to her August 2001 departure from Just Group, Just Group entered into administration, a process similar to the Chapter 11 bankruptcy process. Before co-founding Just Group, Ms. Shorrocks taught Business Studies at The Harwich School, Essex and West Gloucester College of Further Education (1978-1987). She also was the Marketing Manager for Acamas Toys. She is the spouse of Wilfred Shorrocks.
Phil Ogden, Vice President - Managing Director, and Director
Mr. Ogden, joined Peak Entertainment Ltd. in November 2001 and he became Vice President and a director of Peak Entertainment Holdings, Inc. in April 2003. From October 1998 to October 2001, Mr. Ogden served as Sales and Marketing Director of Just Group, Plc, in a non-executive capacity, at Just Group Plc. Prior to working at Just Group, Mr. Ogden developed his sales and marketing experience with Seymour International, a division of UK's leading magazine distributor, Frontline, from 1989 to 1998. Mr. Ogden was employed as an Account Director with the responsibility for the strategic and commercial success of a portfolio of Seymour's premier clients, including Dennis, Paragon, FT Magazines (Investors Chronicle) and TimeWarner.
Alan Shorrocks, Vice President - Licensing Division
Mr. Shorrocks, has been Vice President - Licensing Division of Peak Entertainment Ltd. since November 2001 and he became Vice President of Peak Entertainment Holdings, Inc. in April 2003. Prior to that time, Mr. Shorrocks was Licensing Director. in a non-executive capacity, of Just Group Plc. from 1991 through October 2001. Before joining Just Group, Mr. Shorrocks ran his own companies specializing in the leisure and surfing markets and was exclusive United Kingdom importer/ distributor for various branded merchandise including Quicksilver from the early 1980's. He sold his company Victory along with the United Kingdom rights to market Victor Wetsuits in 1991. He is the brother of Wilf Shorrocks.
Nicola Yeomans, Vice President - Finance
Ms. Yeomans joined Peak Entertainment in June 2002 as company accountant. She became Vice President - Finance of Peak Entertainment Holdings Inc. in January 2004 and serves as the principal person in charge of accounting and financials. Prior to that time, she was an accountant, in a non-executive capacity, for Just Group Plc from July 1997 to December 2001. Before joining Just Group Plc, Ms. Yeomans trained as an accountant for the entertainment arm of the BBC (British Broadcasting Corporation) at their London headquarters. She qualified as a Certified Chartered Accountant (A.C.C.A) in October 1998. She is currently studying towards a Masters Degree (M.B.A) in international business studies and corporate finance.
INSOLVENCY OF JUST GROUP PLC
In January 2002, Just Group Plc, a United Kingdom company, entered into administration, a process similar to the Chapter 11 bankruptcy process in the United States. Wilf and Paula Shorrocks were executive officers at Just Group in 2001, and their employment at Just Group ended in August 2001. Alan Shorrocks, Phil Ogden and Nicola Yeomans also had worked at Just Group, in non-executive level positions, prior to joining Peak Entertainment.
TERMINATION OF EMPLOYMENT FROM JUST GROUP PLC (UK) AND LEGAL PROCEEDINGS AGAINST JUST GROUP PLC
In August 2001, Wilf Shorrocks and Paula Shorrocks were dismissed from their officer and director positions at Just Group Plc, purportedly on the basis of internal disagreement on accounting policy and breaches of employment contract and fiduciary duties, allegations which the Shorrocks deny. In November 2001, Wilf Shorrocks and Paula Shorrocks instituted claims for breach of employment contract, wrongful dismissal, and in the case of Paula Shorrocks, a claim of sex discrimination against Just Group before the High Court of Justice, Queen's Bench Division, in the United Kingdom, and claims of unfair dismissal before the Nottingham Employment Tribunal in the United Kingdom. The proceedings against Just Group were stayed due to Just Group Plc entering into administration in January 2002. In 2004, Just Group Plc submitted its defense denying the claims on the basis of breaches of employment contract and fiduciary duties and Just Group asserted counterclaims for unjust enrichment and restitution. In May 2004, the parties entered into a settlement of all claims, whereby the Shorrocks are to receive payment based on an agreed total amount of UK (pound)175,000, payment of which is subject to the terms of Just Group's arrangement with its creditors.
BOARD COMMITTEES AND MEETINGS
During the fiscal year that ended on December 31, 2005, the Board of Directors held one meeting, attended or participated in by all of the directors. Other matters were undertaken by written consent by the Board of Directors.
The Board of Directors are responsible for matters typically performed by an audit committee. We do not have a separate audit committee, nor any other committee, of the Board of Directors. No person serving on our Board of Directors qualifies as a financial expert. We seek to attract persons with financial experience to serve on our Board of Directors and we intend to form an audit committee of the Board of Directors during our fiscal year 2006.
We have not yet adopted a code of ethics applicable to our directors, officers and employees. However, we expect to adopt a code of ethics during our fiscal year 2006.
We presently do not have a separate nominating committee of the Board of Directors for the selection of directors, and do not have a nominating committee charter. Presently, all such actions are performed by the entire Board of Directors.
OTHER INFORMATION ABOUT DIRECTORS
Other than as reported, none of the directors are directors of other reporting companies, are associated by family relationships, or have been involved in legal proceedings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Peak's directors
and executive officers, and persons who own more than ten percent of Peak's
common stock, to file with the SEC initial reports of beneficial ownership and
reports of changes in beneficial ownership of Peak's common stock. Such persons
are also required by SEC regulations to furnish Peak with copies of all such
Section 16(a) forms they file. Based solely on a review of the copies of such
reports furnished to Peak, Peak is not aware of any material delinquencies in
the filing of such reports.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following tables set forth certain information regarding our Chief Executive Officer and each of our most highly compensated executive officers whose total annual salary and bonus for the past three fiscal years exceeded $100,000:
Fiscal
Name and Principal Position Year Salary Bonus Other (1)
--------------------------- ---- ------ ----- ---------
Wilfred Shorrocks,(2) 2005 $36,000 $0 $0
Chief Executive Officer 2004 9,074 $0 0
Chief Executive Officer 2003 7,556 0 0
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(1) Does not include repayment of advances made by the executive to us.
(2) We intend to enter into an employment agreement with Mr. Shorrocks and
other executive officers during our 2006 fiscal year.
Director Compensation
We do not have a compensation plan for directors. We may adopt one during our 2006 fiscal year.
Employee Stock Option
During our fiscal year 2006, we intend to adopt and implement, subject to stockholder approval, an employee stock incentive plan, whereby we may issue shares of common stock and stock options to our employees and consultants. We intend for the plan to cover the issuance of an amount equal to, or up to 10% of our outstanding shares of common stock.
Option Grants in Fiscal 2004
No options were granted to employees, including executive officers and directors, during the year ended December 31, 2005.
Option Exercises in Fiscal 2005 and Year End Option Values
No options were held by employees, including executive officers and directors, during the year ended December 31, 2005.
Employment Agreement with Executive Officer
We do not have a written employment agreement with any of our executive officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of December 31, 2006, the shares of our common stock beneficially owned by
o by each person who is known by us to beneficially own more than 5%
of our common stock;
o by each of our officers and directors; and
o by all of our officers and directors as a group.
This information was determined in accordance with Rule 13(d)-3 under the Securities Exchange Act of 1934, and is based upon the information provided by the persons listed below. As of March 8, 2006, we had 32,689,870 shares of common stock issued and outstanding.
All persons named in the table have the sole voting and dispositive power with respect to common stock beneficially owned. Beneficial ownership of shares of common stock that are acquirable within 60 days upon the exercise or conversion of stock options, warrants, or other convertible securities are listed separately. For each person named in the table, the calculation of percent of class gives effect to those additional shares acquirable within 60 days.
The address of each of the persons named in the table, unless otherwise indicated, is c/o Peak Entertainment, Ltd. Bagshaw; Hall, Bagshaw Hill, Bakewell, Derbyshire, UK DE45 1DL.
-------------------------------------------------- ----------------------- -------------------- -------------
Additional Shares
Name and Address Amount and Nature Acquirable Percent
of Beneficial Owner of Beneficial Owner Within 60 days Of Class
-------------------------------------------------- ----------------------- -------------------- -------------
Wilfred Shorrocks (1)(2)(3) 8,361,899 0 26.8%
Paula Shorrocks (1)(2)(3) 8,361,899 0 26.8%
Phil Ogden (1) 476,792 0 1.5%
Alan Shorrocks (1)(3) 476,792 0 1.5%
Nicola Yeomans (1) 0 0 0%
Platinum Partners Global Macro Fund LP (4)(5) 1,440,116 2,833,333 12.0%
152 West 57th Street
New York, NY 10019
Dan Brecher (5)(6) 1,213,001 1,570,000 8.1%
c/o Law Offices of Dan Brecher
99 Park Ave
New York, NY 10016
-------------------------------------------------- ----------------------- -------------------- -------------
All officers and directors as a group (5 persons) 17,677,382 0 54.1%
-------------------------------------------------- ----------------------- -------------------- -------------
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(1) Officer and/or director of Peak.
(2) For purposes of reporting beneficial ownership in the table, the ownership
of shares of common stock by Wilfred and Paula Shorrocks are listed
separately. Wilfred and Paula Shorrocks are each other's spouse.
Accordingly, each may be deemed the beneficial owner of the shares held by
the other.
(3) Alan Shorrocks is the brother of Wilfred Shorrocks. Alan Shorrocks
disclaims beneficial ownership of shares held by Wilfred and Paula
Shorrocks. Each of Wilfred and Paula Shorrocks disclaims beneficial
ownership of shares held by Alan Shorrocks.
(4) Platinum Partners Global Macro Fund LP owns $400,000 in principal amount
of 8% convertible debentures, which are convertible at $0.30 per share
into 1,333,333 shares, and warrants exercisable at $0.50 per share into
1,500,000 shares. Does not include shares potentially issuable for accrued
interest on the debentures.
(5) Person is subject to an agreement restricting the ability to convert
debentures or exercise warrants so that the person would not own more than
4.9% of our common stock at a given time.
(6) Mr. Brecher owns $171,000 in principal amount of 8% convertible
debentures, which are convertible at $0.30 per share, into 570,000 shares,
and warrants exercisable at $0.50 per share into 1,000,000 shares. Does
not include shares potentially issuable for accrued interest on the
debentures.
We do not have any arrangements that may result in a change in control.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes stock options and warrants, granted as compensation and excluding securities issued in connection with financing activities, outstanding as of December 31, 2005.
Number of securities to Weighted average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available for
Plan category warrants and rights warrants and rights future issuance
------------- ------------------- ------------------- ---------------
Equity compensation plans approved by 0 $0 0
securities holders
Equity compensation plans not 2,290,000 $0.__ 0
approved by security holders
Total 2,290,000 $0.__ 0
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Plans Not in the Shareholder Approved Category
In July 2003, pursuant to a consulting agreement with POW! Entertainment LLC and Stan Lee, we issued to POW warrants to purchase 750,000 shares of our common stock, exercisable for five years at $0.35 per share. Warrants to purchase 375,000 shares vested upon execution of the consulting agreement, and the remaining warrants to purchase the remaining 375,000 shares vested in July 2004.
In December 2003, we entered into an Amendment to the Consulting Agreement, dated as of December 17, 2003, amending a July 2003 consulting agreement with Jack Kuessous pursuant to which we issued to Kuessous warrants to purchase 240,000 shares of common stock, exercisable for three years at $1.20 per share. Under the amendment, we issued warrants to purchase 240,000 shares of common stock, exercisable for three years at $0.50 per share in exchange for the previously issued warrants.
On January 23, 2004, we entered into an agreement for services with Vintage Filings, LLC. We issued 300,000 common stock purchase warrants, exercisable for three years at $0.50 per share pursuant to the agreement.
On January 4, 2005, we entered into a consulting agreement with Salvani Investments, pursuant to which we issued 1,000,000 warrants, exercisable for 5 years at $0.50 per share, in exchange for services.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, Mr. and Mrs. Shorrocks loaned money to Peak Entertainment to fund day-to-day operations, as well as for the acquisition of certain properties. Since company inception through December 31, 2002, the Shorrocks loaned to Peak Entertainment an aggregate of $972,386. As of December 31, 2005 we owed $480,948 to the Shorrocks. These monies are loaned without interest and do not have a due date, and are due on demand. In March 2004, we gave the Shorrocks an unsecured promissory note for the monies due establishing a repayment schedule. The amount due is to be repaid in installments, consisting of six periodic payments of $25,000 from January 31, 2005 through September 30, 2006, two payments of $100,000 on March 31, 2007 and September 30, 2007, and the balance due on January 31, 2008. The promissory note provides for earlier repayment of any unpaid balance subject to various future financial results of Peak Entertainment, such as Peak Entertainment obtaining a shareholders' equity in excess of 150% of the amount due, or positive net income from operations in excess of 150% of the amount due.
On April 30, 2002, we entered into a license agreement with Wilfred and Paula Shorrocks whereby we acquired from the Shorrocks the exclusive rights to apply various intellectual properties to the manufacture, distribution and sale of products on a worldwide basis. Under the terms of the agreement, we undertook to pay to Wilfred and Paula Shorrocks 10% of the royalties payable quarterly in perpetuity, with a guaranteed minimum royalties amount of $1,000,000. There were no set payment terms in the original license agreement for payment of the minimum royalties. In April 2004, the Company amended the license agreement to establish a minimum quarterly royalty payment of $12,500, to be credited against the guaranteed minimum, due beginning September 30, 2004. Through December 31, 2005 the Shorrocks elected to defer receipt of the quarterly payments.
On April 22, 2003, Peak Entertainment Ltd., together with its subsidiaries, was acquired by Palladium Communications, Inc., a Nevada corporation, which subsequently changed its name to Peak Entertainment Holdings, Inc. Under the terms of the agreement, we acquired 100 percent of Peak Entertainment Ltd's stock in exchange for the issuance by us of 19,071,684 shares of our common stock to the holders of Peak Entertainment Ltd. The new shares constituted 90 percent of the outstanding shares of Peak Entertainment Holdings, Inc. after the acquisition. Officers and directors who received shares pursuant to the acquisition are:
o Wilfred Shorrocks, 8,486,899 shares;
o Paula Shorrocks, 8,486,899 shares;
o Phil Ogden, 476,792 shares;
o Alan Shorrocks, 476,792 shares; and
o Terence Herzog, 743,585 shares.
On October 3, 2003, each of Wilf and Paula Shorrocks gifted 125,000 shares to Cary Fields.
On October 6, 2003, Terence Herzog gifted an aggregate of 178,500 shares to six persons, none of whom are affiliates of the Company.
Two former outside directors of the Company, Terence Herzog and Michael Schenkein, are principals of Agora Capital Partners, Inc., a management consulting company. From March 2003 through March 2004, Agora Capital Partners, through Terence Herzog and Michael Schenkein, provided management consulting services to the Company. The Company paid aggregate fees of $46,000 in 2003 for such consulting services. Terence Herzog and Michael Schenkein resigned as directors in December 2004.
ITEM 13. EXHIBITS
Exhibits required to be filed by Item 601 of Regulation S-B are included in Exhibits to this Report as follows:
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Reorganization between Corvallis and USAOneStar, dated October 31, 2000
(Incorporated by reference to Exhibit 2.1 of Form 10-QSB filed on November 14, 2000)
2.2 Agreement and Plan of Reorganization between USAOneStar and Palladium, dated August 31, 2001
(Incorporated by reference to Exhibit 2.1 of Form 8-K filed on September 14, 2001)
2.3 Agreement and Plan of Acquisition by and among Palladium Communications, Inc., Peak Entertainment, Ltd.,
Wilfred Shorrocks and Paula Shorrocks, made as of the 22nd day of April, 2003 (Incorporated by reference
to Exhibit 10.1 of Form 8-K filed on May 7, 2003)
2.4 Asset Purchase Agreement, dated as of April 22, 2003, between Palladium Communications, Inc. and
Palladium Consulting Group LLC (Incorporated by reference to Exhibit 2.4 of Form SB-2 filed on February
2, 2004)
3(i)(1) Articles of Incorporation of Corvallis, Inc. (Incorporated by reference to Exhibit 4 of Form S-18 filed
on November 9, 1987.)
3(i)(2) Articles of Merger for Corvallis, Inc. (Incorporated by reference to Exhibit 3(i)(2) of Form 10-KSB
filed on April 15, 2005)
3(i)(3) Certificate of Amendment to Articles of Incorporation of Corvallis, Inc. (Incorporated by reference to
Exhibit 3(i)(3) of Form 10-KSB filed on April 15, 2005)
3(i)(4) Certificate of Amendment to Articles of Incorporation of USAOneStar.Net, Inc. (Incorporated by reference
to Exhibit 3(i)(4) of Form 10-KSB filed on April 15, 2005)
3(i)(5) Articles of Share Exchange (Incorporated by reference to Exhibit 3(i)(5) of Form 10-KSB filed on April
15, 2005)
3(i)(6) Certificate of Amendment to Articles of Incorporation of Palladium Communications, Inc. (Incorporated by
reference to Exhibit 3(i)(6) of Form 10-KSB filed on April 15, 2005)
3(ii)(1) Bylaws (Incorporated by reference to Exhibit 5 of Form S-18 filed on November 9, 1987)
3(ii)(2) Resolution dated October 20, 2000 amending bylaws (Incorporated by reference to Exhibit 3.1 of Form 10-Q
filed on November 14, 2000)
3(ii)(3) Bylaws, as amended and restated (Incorporated by reference to Exhibit 3.1 of Form 10-KSB filed on April
27, 2004)
4.1 Securities Purchase Agreement, dated as of February 2002 (Incorporated by reference to Exhibit 4.1 of
Form SB-2 filed on February 2, 2004)
4.2 Amendment to Securities Purchase Agreement, dated June 17, 2003 (Incorporated by reference to Exhibit
4.2 of Form SB-2 filed on February 2, 2004)
4.3 Securities Purchase Agreement, dated as of April 22, 2003 (Incorporated by reference to Exhibit 4.3 of
Form SB-2 filed on February 2, 2004)
4.4 Disclosure Schedules to Securities Purchase Agreement dated April 22, 2003 (Incorporated by reference to
Exhibit 10.1 of Form 10-QSB filed on November 26, 2003)
4.5 January 2004 Securities Purchase Agreement for $1,000,000 (Incorporated by reference to Exhibit 4.5 of
Form SB-2 filed on February 2, 2004)
4.6 January 2004 Securities Purchase Agreement for $500,000 (Incorporated by reference to Exhibit 4.6 of
Form SB-2 filed on February 2, 2004)
4.7 January 2004 Securities Purchase Agreement for $50,000 (Incorporated by reference to Exhibit 4.7 of Form
SB-2 filed on February 2, 2004)
4.8 Form of Securities Purchase Agreement, dated as of March 3, 2004 (Incorporated by reference to Exhibit
10.2 of Form 10-KSB filed on April 27, 2004)
4.9 Stock Purchase Warrant Agreement issued to Legend Merchant Group in connection with Securities Purchase
Agreement, dated as of March 3, 2004 (Incorporated by reference to Exhibit 10.3 of Form 10-KSB filed on
April 27, 2004)
4.10 September 2004 Securities Purchase Agreement for $500,000 (Incorporated by reference to Exhibit 4 of
Form 8-K filed on October 1, 2004)
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4.11 Form of Warrant issued January 5, 2005(Incorporated by reference to Exhibit 4.1 of Form 10-QSB/A filed
on June 6, 2005)
4.12 Loan Agreement, dated March 1, 2005 (Incorporated by reference to Exhibit 4.12 of Form 10-KSB filed on
April 15, 2005)
4.13 Form of Warrant issued March 2, 2005 (Incorporated by reference to Exhibit 4.13 of Form 10-KSB filed on
April 15, 2005)
4.14 Form of Securities Purchase Agreement, May 2005 (Incorporated by reference to Exhibit 4.1 of Form 8-K
filed on July 15, 2005)
4.15 Securities Purchase Agreement, August 10, 2005 (Incorporated by reference to Exhibit 4.2 of Form 10-QSB
filed on August 17, 2005)
4.16 Securities Purchase Agreement, August 22, 2005 (Incorporated by reference to Exhibit 4.3 of Form 10-QSB
filed on November 23, 2005)
4.17 Form of Agreements related to sale of Units of Securities, October 2005 (Incorporated by reference to
Exhibit 4.4 of Form 10-QSB filed on November 23, 2005)
10.1 License Agreement with Wilf and Paula Shorrocks, dated April 30, 2002 (Incorporated by reference to
Exhibit 10.1 of Form SB-2/A filed on May 3, 2004)
10.2 Amendment to Shorrocks License Agreement dated as of April 2004 (Incorporated by reference to Exhibit
10.7 of Form 10-KSB filed on April 27, 2004)
10.3 License Agreement with Jesco Imports, Inc., dated June 1, 2002 (Incorporated by reference to exhibit
10.8 of Form SB-2 filed on February 2, 2004)
10.4 Memorandum of an Agreement, dated July 10, 2002 with CK's Supermarket (Incorporated by reference to
Exhibit 10.4 of Form 10-KSB filed on April 15, 2005)
10.5 License Agreement with Toontastic Publishing Ltd, dated December 5, 2002 (Incorporated by reference to
Exhibit 10.9 of Form SB-2 filed on February 2, 2004)
10.6 License Agreement with Toontastic Publishing Ltd., Renewal, dated April 1, 2004 (Incorporated by
reference to Exhibit 10.5 of Form 10-KSB filed on April 27, 2004)
10.7 Distribution Agreement, dated January 20, 2003, with Character Options Ltd. (Incorporated by reference
to Exhibit 10.11 of Form SB-2 filed on February 2, 2004)
10.8 Amendment, dated June 2004, to Distribution Agreement with Character Options Ltd., dated January 20,
2003 (Incorporated by reference to Exhibit 10.37 of Form 10-KSB filed on April 15, 2005)
10.9 License Agreement with Character Options Ltd., dated April 20, 2005 (Incorporated by reference to
Exhibit 10.2 of Form 10-QSB filed on November 23, 2005)
10.10 License Agreement with CCA Group Ltd., dated February 10, 2003 (Incorporated by reference to Exhibit
10.34 of Form SB-2/A filed on June 7, 2004)
10.11 Agreement between Peak Entertainment Ltd. and GMTV of the London Television Centre, dated February 17,
2003 (Incorporated by reference to Exhibit 10.13 of Form SB-2 filed on February 2, 2004)
10.12 Amendment, dated June 2004, to Distribution Agreement with GMTV, dated February 17, 2003 (Incorporated
by reference to Exhibit 10.38 of Form 10-KSB filed on April 15, 2005)
10.13 Distribution Agreement, dated July 1, 2003 with Perfectly Plush Inc. (Incorporated by reference to
Exhibit 10.15 of Form SB-2 filed on February 2, 2004)
10.14 Consulting Agreement with POW! Entertainment and Stan Lee dated July 2003 (Incorporated by reference to
Exhibit 10.2 of Form 10-QSB filed on November 26, 2003)
10.15 Consulting Agreement, dated July 2003, with Jack Kuessous with Form of Warrant (Incorporated by reference
to Exhibit 10.3 of Form 10-QSB filed on November 26, 2003)
10.16 International Representation Agreement with Haven Licensing Pty Ltd, dated August 19, 2003 (Incorporated
by reference to Exhibit 10.16 of Form SB-2 filed on February 2, 2004)
10.17 International Representation Agreement with Character Licensing & Marketing, dated September 17, 2003
(Incorporated by reference to Exhibit 10.17 of Form SB-2 filed on February 2, 2004)
10.18 International Representation Agreement with Kidz Entertainment, dated October 31, 2003 (Incorporated by
reference to Exhibit 10.18 of Form SB-2 filed on February 2, 2004)
10.19 License Agreement with Radica UK Ltd., dated December 12, 2003 (Incorporated by reference to Exhibit
10.19 of Form SB-2 filed on February 2, 2004)
10.20 Amendment, dated January 2004, to License Agreement with Radica UK Ltd. dated December 12, 2003
(Incorporated by reference to Exhibit 10.24 of Form 10-KSB filed on April 15, 2005)
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10.21 Amendment, dated June 2004, to Distribution Agreement with Radica UK Ltd. dated December 12, 2003
(Incorporated by reference to Exhibit 10.36 of Form 10-KSB filed on April 15, 2005)
10.22 Amended Consulting Agreement, dated as of December 17, 2003, with Jack Kuessous (Incorporated by
reference to Exhibit 10.4 of Form SB-2 filed on February 2, 2004)
10.23 Cancellation of Debt Agreement, dated December 2003, with Jack Kuessous (Incorporated by reference to
Exhibit 10.5 of Form SB-2 filed on February 2, 2004)
10.24 Settlement of Debt Agreement (Incorporated by reference to Exhibit 10.6 of Form SB-2 filed on February
2, 2004)
10.25 Agreement for the Provision of Co Production Services with Cosgrove Hall Films Ltd., dated January 9,
2004 (Incorporated by reference to Exhibit 10.21 of Form SB-2 filed on February 2, 2004)
10.26 Agreement with POW! Entertainment, entered January 2004 (Incorporated by reference to Exhibit 10.23 of
Form SB-2 filed on February 2, 2004)
10.27 Agreement for Services with Vintage Filings, LLC, dated January 23, 2004 (Incorporated by reference to
Exhibit 10.25 of Form SB-2 filed on February 2, 2004)
10.28 Financial Advisor Agreement with Ameristar International Capital, Inc. dated February 11, 2004
(Incorporated by reference to Exhibit 10.1 of Form 10-KSB filed on April 27, 2004)
10.29 Financial Advisor Agreement with Source Capital Group, Inc. dated March 23, 2004 (Incorporated by
reference to Exhibit 10.4 of Form 10-KSB filed on April 27, 2004)
10.30 Promissory Note to Shorrocks dated March 2004 (Incorporated by reference to Exhibit 10.6 of Form 10-KSB
filed on April 27, 2004)
10.31 Cancellation of Debt in Exchange for Securities Agreement with Laura Wellington entered into April 2004
(Incorporated by reference to Exhibit 10.33 of Form SB-2/A filed on May 3, 2004)
10.32 International Representation Agreement with The Sharpe Company Inc., dated April 22, 2004 (Incorporated
by reference to Exhibit 10.6 of Form 10-QSB filed on August 26, 2004)
10.33 Distribution Agreement with Cadaco, dated April 27, 2004 (Incorporated by reference to Exhibit 10.7 of
Form 10-QSB filed on August 26, 2004)
10.34 Agreement with Video Collection International Limited, dated April 29, 2004 (Incorporated by reference
to Exhibit 10.35 of Form SB-2/A filed on June 7, 2004)
10.35 Amendment, dated June 2004, to Distribution Agreement with Video Collection International Ltd., dated
April 29, 2004 (Incorporated by reference to Exhibit 10.39 of Form 10-KSB filed on April 15, 2005)
10.36 Agreement for the Provision of Co Production Services Re: "Monster Quest - The Quest" with Persistence
Of Vision Sdn Bhd., dated May 18, 2004 (Incorporated by reference to Exhibit 10.3 of Form 10-QSB filed
on December 16, 2004)
10.37 Cancellation of Debt in Exchange for Securities Agreement with Laura Wellington, dated July 23, 2004
(Incorporated by reference to Exhibit 10.8 of Form 10-QSB filed on August 26, 2004)
10.38 Consultant Agreement with CEOcast, Inc. dated as of September 1, 2004 (Incorporated by reference to
Exhibit 10.4 of Form 10-QSB filed on December 16, 2004)
10.39 Distribution Agreement with Impact International Ltd 2004, dated as of November 1, 2004 (Incorporated by
reference to Exhibit 10.42 of Form 10-KSB filed on April 15, 2005)
10.40 License Agreement with Zoo Digital Publishing Limited, dated October 4, 2004 (Incorporated by reference
to Exhibit 10.43 of Form 10-KSB filed on April 15, 2005)
10.41 Consulting Agreement with Salvani Investments, dated as of January 4, 2005 (Incorporated by reference to
Exhibit 10.45 of Form 10-KSB filed on April 15, 2005)
10.42 Form of International Representation Agreement, dated August 2, 2004, with Blue Chip Brands Pty Ltd.
(Incorporated by reference to Exhibit 10.46 of Form 10-KSB filed on April 15, 2005)
10.43 Letter of Intent with Maverick Entertainment Group plc, dated March 1, 2005, and Representation
Agreement, dated March 1, 2005 (Incorporated by reference to Exhibit 10.47 of Form 10-KSB filed on April
15, 2005)
10.44 The Wumblers Deal Memo with 4Kids Entertainment, Inc. dated March 7, 2005 (Incorporated by reference to
Exhibit 10.48 of Form 10-KSB filed on April 15, 2005)
10.45 License Agreement with Color Media International, dated February 1, 2005 (Incorporated by reference to
Exhibit 10.1 of Form 10-QSB filed on November 23, 2005)
10.46 License Agreement with Future Publishing Limited, July 2005 (Incorporated by reference to Exhibit 10.3
of Form 10-QSB filed on November 23, 2005)
10.47 Television License Agreement with HOP! Channel Ltd., dated July 11, 2005 (Incorporated by reference to
Exhibit 10.4 of Form 10-QSB filed on November 23, 2005)
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10.48 License Agreement with Martin Yaffe International Ltd, dated August 16, 2005 (Incorporated by reference
to Exhibit 10.5 of Form 10-QSB filed on November 23, 2005)
10.49 License Agreement with Toontastic Publishing Ltd., Renewal, dated September 1, 2005 (Incorporated by
reference to Exhibit 10.6 of Form 10-QSB filed on November 23, 2005)
10.50 License Agreement with Fun2Learn Ltd., dated September 1, 2005 (Incorporated by reference to Exhibit
10.7 of Form 10-QSB filed on November 23, 2005)
10.51 Consultant Agreement with CEOcast, October 1, 2005 (Incorporated by reference to Exhibit 10.8 of Form
10-QSB filed on November 23, 2005)
10.52 License Agreement with Morrison Entertainment Group, Inc., dated February 25, 2002 (Incorporated by
reference to Exhibit 10.7 of Form SB-2 filed on February 2, 2004)
10.53 Agreement made as of December 22, 2004 with Morrison Entertainment Group, Inc. (Incorporated by
reference to Exhibit 10.44 of Form 10-KSB filed on April 15, 2005)
10.54 Agreement, dated April 28, 2003, with The Silly Goose Company, LLC (Incorporated by reference to Exhibit
10.14 of Form SB-2 filed on February 2, 2004)
10.55 Entertainment Production Agreement, dated as of December 16, 2003, with The Silly Goose Company, LLC
(Incorporated by reference to Exhibit 10.20 of Form SB-2 filed on February 2, 2004)
10.56 Agreement with Silly Goose Company, dated March 6, 2006 (Incorporated by reference to Exhibit 10 of Form
8-K filed on March 14, 2006)
10.57* Representation Agreement with Dubreq Limited, dated October 5, 2005
10.58* License Agreement with Zoo Digital Publishing Limited dated September 2005
11 Statement Concerning Computation of Per Share Earnings is hereby incorporated by reference to "Financial
Statements" of Part II - Item 7, contained in this Form 10-KSB.
16 Letter on change in certifying accountant (Incorporated by reference to Exhibit 16 of Form 8-K/A filed
on September 3, 2004)
21 List of Subsidiaries (Incorporated by reference to Exhibit 21 of Form SB-2 filed on February 2, 2004)
31.1* Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
31.2* Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a)
32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
Fees for audit services provided by Garbutt & Elliott Ltd., our current principal independent registered public accounting firm, during the years ended December 31, 2004 and 2005 were $92,477 and $72,790, respectively. Fees for audit services provided by Goodband Viner Taylor, our former principal accountant, during the year ended December 31, 2004 were $148,348.
Audit services consisted primarily of the annual audits, review of our financial statements, and services that are normally provided by our accountants in connection with statutory and regulatory filings or engagements for those fiscal years.
Audit-Related Fees
There were no fees billed for services reasonably related to the performance of the audit or review of our financial statements outside of those fees disclosed above under the caption Audit Fees for fiscal years ended December 31, 2004 and 2005.
Tax Fees
Fees for tax services provided by Garbutt & Elliott Ltd., our current principal independent registered public accounting firm, during the years ended December 31, 2004 and 2005 were $0 and $0, respectively. Fees for tax services provided by Goodband Viner Taylor, our former principal accountant, during the year ended December 31, 2004 was $0.
Tax services related primarily to the preparation of company tax filings with regulatory agencies.
All Other Fees
There were no other fees billed for services.
Audit Committee Procedure
The Board of Directors is responsible for matters typically performed by an audit committee. We do not have a separate audit committee of the Board of Directors. The Board of Directors considered whether, and determined that, the auditor's provision of non-audit services was compatible with maintaining the auditor's independence. All of the services described above for fiscal years ended 2004 and 2005 were approved by the Board of Directors. We intend to continue using our principal accountant, Garbutt & Elliott Ltd., solely for audit and audit-related services, tax consultation and tax compliance services, and, as needed, for due diligence in acquisitions and similar transactions.
Pre-Approval Policies and Procedures
The Board of Directors approved all of the services described above, and all fees paid. The Board of Directors did not have pre-approval policies and procedures in place during our fiscal years ended 2004 and 2005. In fiscal year 2006, we intend to implement a policy whereby, we will, prior to engaging our accountants to perform a particular service, obtain an estimate for the service to be performed and begin pre-approving all services.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PEAK ENTERTAINMENT HOLDINGS, INC.
By: /s/ WILFRED SHORROCKS
---------------------
Wilfred Shorrocks,
Chairman and Chief Executive Officer
Dated: April 6, 2006
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In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILFRED SHORROCKS President, Chairman, and Chief Executive Officer April 6, 2006 --------------------------- Wilfred Shorrocks /s/ PAULA SHORROCKS Vice President and Director April 6, 2006 --------------------------- Paula Shorrocks /s/ PHIL OGDEN Vice President and Director April 6, 2006 --------------------------- Phil Ogden /s/ ALAN SHORROCKS Vice President April 6, 2006 --------------------------- Alan Shorrocks /s/ NICOLA YEOMANS Vice President April 6, 2006 --------------------------- (Principal Financial Officer) Nicola Yeomans |
EXHIBIT 10.57
REPRESENTATION AGREEMENT
THIS AGREEMENT is made on the 5th day of OCT 2005
BETWEEN
1. DUBREQ LIMITED of 1 St John's Square, Glastonbury, Somerset, BA6 9LJ
("Principal")
2. PEAK ENTERTAINMENT LIMITED of Bagshaw Hall, Bagshaw Hill, Bakewell, DE45 1DL.
("Licensor")
1. DEFINITIONS
The following terms shall have the following meanings for the purposes of the Agreement:
1.1 "Accounting Day":
1.2 "Intellectual Property" means the intellectual property listed on Schedule 1
1.3 "Intellectual Property Merchandising Rights" the right to use the Intellectual Property during the Term of this Agreement and all trade marks, copyright and design rights therein in connection with the manufacture, distribution, sale, exploitation and advertising of merchandise.
1.4 "Business": the negotiation of Licenses of Merchandising Rights by the Licensor as agent for the Principal and all matters related thereto.
1.5 "Brand Merchandising Rights" the right to use the brand associated with the Intellectual Property and agreed upon from time to time and developed by the Principal during the Term of this Agreement and all trademarks and copyright therein in connection with the manufacture, distribution, sale, exploitation and advertising of merchandise in connection with the Intellectual Property.
1.6 "Commission" the Commission payable to the Licensor is 35% of gross receipts in the UK and 40% of gross receipts in the rest of the world.
1.7 "Expiry Date" 31st December 2008
1.8 "Gross Royalty" the gross royalty actually received from a Licensee pursuant to a License together with (where applicable) an amount equal to the benefit or value of any available tax credit, repayment, exemption, allowance or deduction (available as a consequence of or in connection with such credit, repayment, exemption or allowance) whether pursuant to any domestic or local tax legislation or regulation or pursuant to any applicable double taxation treaty and whether or not such tax credit, repayment, exemption, allowance or deduction has been claimed.
1.9 "License" a License upon the Licensor's standard form of Licence
Agreement to use the Merchandising Rights granted by Licensor to a
licensee within the Territory during the Term, a copy of which is
attached, as amended from time to time by agreement in writing between
the parties.
1.10 "Licensee" means a person or company to whom the right to exploit the
Merchandising Rights has been given.
1.11 "Merchandising Rights" the rights to license the Intellectual Property
merchandising rights to third parties or subsidiaries/divisions of Peak
Entertainment Ltd.
1.12 "Quarter" means a three month period ending on 31st March, 30th June,
30th September and 31st December.
1.13 "Term" the period starting on the date of this Agreement and ending on
(and including) the Expiry Date unless earlier determined as provided
in this Agreement.
1.14 "The Territory" means the world.
1.15 "The Parties" mean the Principal and the Licensor.
1.16 "Principal" means the person or persons who own the Intellectual
Property
1.17 "Licensor" means the company who has been granted the right from the
Principal to grant Licenses to Licensees in relation to the
Intellectual Property
2. GRANT AND RESERVATIONS
2.1 Subject as provided below the Principal grants to the Licensor for the
Term the right to negotiate with and grant manufacturers and other
interested parties in the Territory Licences in relation to the
manufacture and distribution in the Territory of merchandise pursuant
to the terms of this Agreement.
2.2 Without prejudice to the remaining provisions of this Agreement
Principal reserves the right:
2.2.1 to vary its standard form licences in respect to any one or
more prospective licensees;
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2.2.2 at its sole discretion to decline without giving reasons to
consenting to the Licensor entering into any one or more
Licences negotiated by the Licensor on its behalf;
2.2.3 to exclude certain products included under this Agreement (see
Schedule 2 Excluded Products);
3. PRINCIPAL'S OBLIGATIONS
The Principal agrees severally with the Licensor throughout the Term:
3.1 Support and Information
To support the Licensor in its efforts to promote Business and in
particular to supply samples of artwork, promotional material,
drawings, and general information relating to the Merchandising Rights
as are available to it upon the execution hereof and shall keep the
Licensor reasonably so supplied throughout the Term provided that the
Principal shall not be obliged to incur any cost in providing such
support.
3.2 Advertising and Promotion
3.2.1 To refer to the Licensor any enquiries from prospective
licensees or other leads in the Territory.
3.2.2 To supply to the Licensor information which may come into its
possession which may assist the Licensor in carrying on the
Business.
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3.3 Maintenance of Rights
Subject to Clause 4.5 of this Agreement to maintain its Merchandising Rights during the Term and not to cause or permit anything which may damage or endanger them or its title to them or assist or suffer others to do so or to consult with the Licensor if the Merchandising Rights are or appear likely to be damaged or endangered.
4. LICENSOR'S OBLIGATIONS
The Licensor agrees with the Principal throughout the Term as follows:
4.1 Diligence
At all times to work diligently to protect the interests of the Principal and the Intellectual Property.
4.2 Scope of activity and authority
4.2.1 Not to describe itself as agent or representative of the
Principal except as expressly authorised by this Agreement.
4.2.2 Not to pledge the credit of the Principal in any way.
4.2.3 Not to make any commission or demand or receive payment from a
licensee for the grant or renewal of a Licence apart from the
agreed Commission.
4.2.4 Not to make any representations or give any warranties to
prospective licensees other than to those contained in the
terms of the Licence.
4.3 Promotion
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To use its best endeavors to induce manufacturers to make use of the Merchandising Rights in relation to the manufacture, promotion or sale of goods in particular by:
4.3.1 personal visits to and correspondence with potential
licensees;
4.3.2 advertising and distribution of publicity matter subject
however to the specific prior approval in writing in all cases
by the Principal of the form of such advertising and publicity
matter;
4.3.3 attendance at trade shows and other sales outlets;
4.3.4 preparing a licensing brochure for the Intellectual Property
within a reasonable period of the date of this Agreement in a
form approved by the Principal in writing prior to use.
4.4 Licences and Approvals
4.4.1 Before entering into any Licence to provide details of the
proposed Licensee to the Principal.
4.4.2 Only to enter into Licences with Licensees in the terms of a
licence in a form which has been agreed with the Principal in
and not to agree any amendments to the Licence without the
consent of the Principal.
4.4.3 Forthwith on a Licence being entered into with a Licensee to
provide to the Principal a true copy of the Licence.
4.4.4 Before permitting the commencement of manufacture to submit to
the Principal for approval a sample of each design to be used
on products, a sample of any written material to be used on
products, a sample of any packaging material and (where the
product is to be sold with confectionery) a sample of all
printing inks and constituent elements of the product (e.g.
resin for PVC collectibles). If the design is approved by the
Principal the Licensor will further submit to the Principal
for approval a sample of each product bearing the approved
design together with packaging. The Licensor shall not
authorize any Licensee to manufacture any product bearing a
design not so approved. Prior to sale to ensure that all
necessary safety certificates and licences are obtained and a
copy forwarded to the Principal.
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4.4.5 If the Licensor shall breach any of the terms of this Clause
4.4 and such breach if capable of remedy is not remedied
within 30 days of receipt of a written notice of such breach
from the Principal this shall entitle the Principal to
terminate this Agreement forthwith without further notice.
4.5 Protection of Property
4.5.1 Not to cause or permit anything which may damage or endanger
the Merchandising Rights or the Principal's title to them or
assist or allow others to do so.
4.5.2 To notify the Principal of any suspected infringement of
Merchandising Rights.
4.5.3 To take such reasonable action as the Principal (as
appropriate) may direct at the expense of the Licensor in
relation to such infringement.
4.5.4 To compensate the Principal for any use by the Licensor of the
Merchandising Rights otherwise than in accordance with this
Agreement.
4.5.5 To ensure that each Licence includes an indemnity for the
Licensor against any liability incurred to third parties for
any use of the Merchandising Rights otherwise than in
accordance with this Agreement and the Licence.
4.5.6 On the expiry or termination of this Agreement forthwith to
cease to use the Merchandising Rights save as expressly
authorised by the Principal in writing.
4.5.7 To apply for registration of the Merchandising Rights as a
trade mark (where appropriate) at the Licensor's expense (in
any part of the world) on behalf of the Principal
4.5.8 Not to use the Merchandising Rights otherwise than as
permitted by this Agreement.
4.5.9 Not to use any name or mark similar to or capable of being
confused with any part of the Merchandising Rights.
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4.5.10 Not to use the Merchandising Rights except directly in the
Business.
4.5.11 Not to use any part of the Merchandising Rights or any
derivation of it in its trading or corporate name.
4.5.12 To hold any additional goodwill generated by the Licensor for
the Merchandising Rights or the Business as bare trustee for
the Principal.
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4.6 Good Faith
In all matters to act loyally and faithfully toward the Principal.
4.7 Compliance
4.7.1 To obey the Principal's reasonable orders and instructions in relation to the conduct of the Business.
4.7.2 To conduct the Business in an orderly and businesslike manner maintaining at its own expense an office and organisation suitable and sufficient for the proper timely and efficient conduct of its obligations under this Agreement and to comply in the conduct of the business with all applicable laws, bylaws and requirements of any governmental or regulatory authority applicable to the Business.
4.8 Disclosures
On entering into this or any other agreement or transaction with the Principal during the Term or any extensions of it to make full disclosure of all material circumstances and of everything known to it respecting the subject matter of the relevant contract or transaction which would be likely to influence the conduct of the Principal including in particular the disclosure of other agencies in which the Licensor is interested directly or indirectly.
4.9 Secrecy
4.9.1 Not at any time during or after the Term to divulge or allow
to be divulged to any person any confidential information
relating to the Business or affairs of the Principal other
than to persons who have signed a secrecy undertaking in the
form approved by the Principal.
4.9.2 Not to permit any person to act or assist in the Business
until such a person has signed such undertaking.
4.10 Accounts
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To keep accurate and separate records and accounts in respect of the conduct of the Business and in accordance with good accountancy custom and practice in England and in particular:
4.10.1 Have them audited by qualified auditors once a year during
the Term.
4.10.2 Submit copies of audited accounts to the Principal on an
annual basis no later than the 60th day following the end of
its financial year (30th April each year).
4.10.3 Keep said accounting records for not less than six years.
4.10.4 No later than four months after the end of each Accounting
Day supply to the Principal an auditors unqualified
certificate confirming that the Licensor has remitted to the
Principal the correct amounts of monies due under this
Agreement.
4.10.5 Permit a qualified accountant appointed by the Principal such
qualified accountant to include the Internal Audit Department
of the Principal to inspect the said accounting records for
the purpose of verifying the amounts payable at all reasonable
times.
4.11 Payment of Monies
4.11.1 The Licensor shall diligently collect royalties due from
Licensees.
4.11.2 The Licensor shall within forty five (45) days of the end of
each quarter or such other period agreed between all the
Parties from time to time supply to the Principal a schedule
showing royalties received and an estimate of royalties
outstanding from licensees together with an aged analysis of
outstanding monies together with details of actions taken to
recover such outstanding monies.
4.11.3 The Licensor shall immediately and in any event within 7 days
following receipt of an invoice in respect of the same
following the end of each Quarter (or such other period agreed
between all the Parties from time to time) pay by direct
telegraphic transfer into an account nominated by the
Principal (as set out below) royalties received by the
Licensor (after deducting Commission due to the Licensor) in
such prior Quarter. Such monies shall become due from the date
of invoice.
Bank Details:
Bank:
Sort Code:
Account Name:
Account Number:
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4.11.4 The Agent shall pay interest if it shall make a late payment
of monies previously received by the Licensor at the rate of
4% per annum above the base rate for the time being of Lloyds
Bank Plc.
4.12 Customer List
To keep a list of actual and potential Licensees and to supply a copy
of it to the Principal upon request.
4.13 Inspection of Books and Premises
To permit the Principal or its representatives at all reasonable times
to inspect all things material to the Business and to take copies of
any relevant document and for this purpose enter any premises used in
connection with the Business.
4.14 Assignment
Not to assign charge or otherwise deal with this Agreement in any way
without consent of the Principal.
4.15 Delegation
Not to delegate any duties or obligations arising under this Agreement
otherwise than may be expressly permitted under its terms.
4.16 Pay Expenses
To pay all expenses of and incidental to the carrying on of the
Business.
4.17 Information
To provide the Principal within 30 days of the end of each Quarter with
the following information:
4.17.1 details of royalty received;
4.17.2 a forecast of royalties to be received in the next three
months;
4.17.3 details of royalty due and not paid;
4.17.4 a licensee progress statement; and
4.17.5 stocks of Licensed Products.
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4.18 Sales Targets
The Licensor shall meet the sales targets agreed from time to time with
the Principal. For the avoidance of doubt the targets agreed shall be
for net royalties being gross royalties after deduction of commission
and distribution expenses only.
5. TERMINATION
5.1 This Agreement shall terminate automatically on the Expiry Date and
in the case of Clauses 5.2 to 5.7 inclusive, forthwith upon service
of written notice to that effect.
5.2 Breach
If any of the parties fails to comply with any of the terms and
conditions of this Agreement and such failure if capable of remedy is
not remedied within thirty (30) days of receipt of a written notice of
such failure that the party not in default may terminate this Agreement
by giving 30 days notice to the other.
5.3 Insolvency
If the Licensor goes into either compulsory or voluntary liquidation
(save for the purpose of reconstruction or amalgamation) or if an
administrator or administrative receiver is appointed in the respect of
the whole or any part of its assets or if the Licensor makes assignment
for the benefit of or composition with its creditors generally or
threatens to do any of these things (or any judgment is made against
the Licensor or any similar occurrence in any jurisdiction affected the
Licensor).
6. TERMINATION CONSEQUENCES
6.1 Procedure
On the termination of this Agreement the Licensor undertakes:
6.1.1 to return to the Principal all samples, drawings, publicity,
promotional and advertising material used in the Business;
6.1.2 not to make any further use nor reproduce nor exploit in any
way the Merchandising Rights or the Principal's name or any
mark or representation confusingly similar to the
Merchandising Rights.
6.2 Commission on Termination
6.2.1 Provided that termination is not due to a breach of this
Agreement by the Agent the Agent shall be entitled:
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6.2.1.1 to Commission in respect of Licences granted before
the date of termination but (subject to 6.2.1.2 below)
not in respect of Licences granted by the Principal
after that date notwithstanding that the Licensor may
have been responsible in whole or in part for the
negotiation of the terms of any such Licence.
6.2.1.2 In respect of renewals of Licences granted prior to
termination that Licensor shall be entitled to receive
Commission under the renewed licence at the rate of
50% of the Commission it would have received had this
Agreement not been terminated but limited to a period
of 2 years following the date of renewal of the
Licence provided that the new Licence is in respect of
the Products identical to the Products licensed to the
previous Licence negotiated by the Licensor.
6.2.2 If termination is due to a breach by the Licensor then the
Licensor shall not be entitled to commission in respect of
sales by licensees after the date of termination.
6.2.3 On termination for whatever reason the Licensor shall cease to
be entitled to collect royalties from licensees and instead
the Principal shall collect such royalties and shall then
account to the Licensor for the commission within 14 days of
the Principal's receiving royalties from Licensees. On
termination the Licensor shall pass to the Principal all its
records relating to collection of royalties and in particular
information relating to outstanding royalties.
6.3 Existing Rights
The expiry or termination of this Agreement shall be without prejudice
to any rights which have already accrued to either of the parties under
this Agreement.
7. INDEMNITY
7.1 The Licensor shall indemnify the Principal against all actions, claims,
costs, damages and expenses which it may suffer to sustain as a result
of actions of the Licensor which have not been authorised by the
Principal..
7.2 The Principal shall indemnify the Licensor against all actions, claims,
costs, damages and expenses arising out of the Licensor's use of the
Intellectual Property in accordance with terms of this Agreement.
8. INSPECTION
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The Licensor shall permit the Principal at all reasonable times to
inspect the Licensor's premises in order to satisfy itself that the
Licensor is complying with its obligations under this Agreement.
9. MISCELLANEOUS
9.1 No Waiver
No waiver by the Principal of any of the Licensor's obligations under
this Agreement shall be deemed effective unless made by the Principal
in writing nor shall any waiver by the Principal in respect of any
breach be deemed to constitute a waiver of or consent to any subsequent
breach by the Licensor of its obligations.
9.2 Notices
Any Notice to be served on either of the Parties by the other shall be
sent by pre-paid Recorded Delivery or Registered Post or by facsimile
to the address stated in Clause 1 and shall be deemed to have been
received by the addressee within 72 hours.
9.3 Arbitration
All questions or differences whatsoever touching this Agreement shall
be referred to a single arbitrator to be agreed upon by the Parties,
or, failing agreement, to be appointed by the then President of the Law
Society, such arbitrator to have all powers conferred on arbitrators by
the Arbitration Act 1950 or any statutory modification or re-enactment
of it for the time being.
9.4 Choice of Law
This Agreement shall be governed by English Law in every particular
including formation and interpretation and shall be deemed to have been
made in England.
10. TRANSMISSION OF BENEFIT
This Agreement shall be binding upon and inure to the benefit to the
Principal and its successors and assigns.
11. ENTIRE UNDERSTANDING AND VARIATION
11.1 This Agreement embodies the entire understanding of the
parties in respect of the matters contained or referred to in
it and there are no promises, terms, conditions or obligations
oral or written, expressed or implied other than those
contained in this Agreement.
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11.2 No other variation or amendment of this Agreement or oral promise or commitment related to it shall be valid unless committed to in writing and signed by the Principal.
12. FORCE MAJEURE
If the performance of this Agreement is prevented, restricted or interfered with by reason of circumstances beyond the reasonable control of the party obliged to perform it, the party so affected upon giving proper notice to the other party shall be excused from performance to the extent of the prevention, restriction or interference but the party so affected shall use its best efforts to avoid or remove such causes of non-performance and shall continue performance under the Agreement with the utmost dispatch whenever such causes are removed or diminished.
13. HEADINGS
The headings of conditions are for convenience of reference only and shall not affect their interpretation.
SIGNED BY
/s/ --------------------------------------------- FOR AND ON BEHALF OF THE PRINCIPAL |
SIGNED BY
/s/ P. Shorrocks --------------------------------------------- FOR AND ON BEHALF OF THE LICENSOR |
SCHEDULE 1
INTELLECTUAL PROPERTY
STYLOPHONE and all associated Intellectual Property created by Dubreq Limited
EXHIBIT 10.58
LICENCE AGREEMENT NUMBER:MTM006
SUMMARY OF TERMS
The Licensee: Name: Zoo Digital Publishing Limited Address: 20 Furnival Street Sheffield
S1 4QT
Contact: Andy Scrivener
tel: 0114 2413700
fax: 0114 241 3701
e-mail: a.scrivener@zoodigitalpublishing.com
The Property: Muffin The Mule
The Principal: Maverick Entertainment Group PLC and SMPL
The Licensor: Peak Entertainment Ltd
Address: Bagshaw Hall
Bakewell
Derbyshire DE45 1DL
Contact: Paula Shorrocks
tel: +44(0)1629 814555
fax: +44(0)1629 813539
e-mail: p.shorrocks@peakentertainment.co.uk
The Products: Interactive DVD game incorporating the Property
Product Package Any packaged or boxed product that incorporates the
Product
Channels of Distribution: All channels and media of distribution and promotion
The Territory: Exclusive Worldwide
The Term: 7 years from first release
Advance Royalty: (pound)10,000 + VAT on Signature
Guaranteed Royalty: None other than the above advance
Royalty Rate: 10 % of Net Selling Price
Number of Samples: 20 of each Product
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This LICENCE AGREEMENT is made this day of 2005 between:
THE PARTIES:
1. PEAK ENTERTAINMENT LTD, Bagshaw Hall, Bakewell, Derbyshire, DE45 1DL
("the Licensor")
2. THE LICENSEE: whose full name and trading or registered address is referred to on the Summary of Terms Sheet ("the Licensee")
RECITALS
(A) The Licensor controls all rights of exploitation in the Property.
(B) The Licensee wished to obtain a licence to manufacture, market, sell and distribute the Products and Product Packages incorporating the Property and the Licensor has agreed to grant such right.
1. DEFINITIONS
"The Intellectual Property" - means copyright, trade mark and other rights in the Property.
"Net Selling Price" - means the gross price at which the Licensee sells any Product in an arms length transaction less only Value Added Tax and normal trade discounts or in the case of any Product Package the gross price at which the distributor of said Product Package sells in an arms length transaction less only Value Added Tax and normal trade discounts.
"Notice" - means notice in writing served in accordance with the provisions of sub-clause 15.4.
"The Royalties" - means the payments to be made to the Licensor by the Licensee under Clause 4.
"The Specifications" - means the specifications set out in the first schedule.
"The Style Guide" - means the documents provided by the Licensor to the Licensee from time to time giving details of the Property including the papers that have been given to the Licensee before the signing of this Agreement.
The words referred to in the first column of the Summary of Terms shall have the meanings attributed to them in the second column of the Summary of Terms Sheet.
2. GRANT
2.1 In consideration of the obligations undertaken by the Licensee under this Agreement the Licensor grants to the Licensee an exclusive licence to apply the Property to the manufacture, marketing, distribution and sale of the Products and Product Packages in the Territory in accordance with the Specifications and the Style Guide and under the terms of this Agreement in the Territory.
2.2 The Licensee shall have the right to purchase audio and video materials of the animated episodes to use in the development of the Products and Product Packages.
2.3 The Licensor reserves all rights not specifically granted herein including the right to grant licences of the Property to other licensees in the Territory in respect of other product categories.
3. TERM
This Agreement shall be for the Term unless terminated earlier in accordance with Clause 9 herein.
4. ROYALTIES
4.1 In consideration of the rights granted by the Licensor the Licensee shall pay to the Licensor the Royalty for each unit of the Products and each Product Package unit sold by the Licensee. By way of a fully recoupable advance of Royalties, the Licensee shall pay the Licensor the Advanced Royalty upon signature of this Agreement by both parties and receipt of the Licensor's corresponding VAT invoice.
4.2 The Licensee shall within 30 days of the 31th March, 30th June, 30th September and 31th December in each year deliver to the Licensor a statement giving particulars of all sales of the Products and Product Packages effected by the Licensee since the last statement date (and in respect of the first statement; since the date of this Agreement) and showing the total royalty payable to the Licensor for the previous quarter. The form of the statement is set out in the second Schedule. On receipt of such a report, the Licensor shall be entitled to raise an invoice for the amount of the Royalties due as shown in such royalty statement. The amount of the Licensor's invoice shall be paid by the Licensee within 30 days of its receipt by the Licensee.
4.3 The Licensee shall keep and maintain detailed accurate accounts and
records so as to show the quantity and Net Selling Price of Products
and Product Packages sold, used or otherwise disposed of by the
Licensee for each royalty period giving separately the figures for
each of the Product and/or Product Package. The Licensor shall have
the right at reasonable hours, and on giving the Licensee reasonable
notice (which shall not be less than 5 working days), to appoint a
representative (being a qualified, certified or chartered
accountant) to audit the said accounts and records and if such audit
reveals a discrepancy it shall be collected forthwith. It is further
agreed that if such audit reveals an underpayment of 5% or more of
the amount actually due by the Licensee, the Licensee shall within
14 days of the date of the relevant invoice pay the Licensor's
reasonable auditing fees and expenses up to a maximum amount of
(pound)2000 in addition to any other payments due and interest on
the discrepancy at 4% above the base lending rate from time to time
of National Westminster Bank Plc. In all other cases, the full costs
of the audit shall be borne by the Licensor.
4.4 All sums payable by the Licensee to any person pursuant to this Agreement shall be paid free and clear of all deductions (except normal trade discounts) or withholdings whatsoever, save only as may be required by any applicable law and save as provided otherwise elsewhere in this Agreement.
5. SPECIFICATION AND QUALITY
5.1 The Licensee shall manufacture the Products and Product Packages according to the Specifications and the Style Guide or such other specifications as the Licensor may from time to time substitute with the prior consent of the Licensee and at all times ensure that the Products and Product Packages are of the highest quality attainable within the Specifications, in particular the Licensee is to ensure that the Products and Product Packages comply in all respects with the provisions of the relevant toy safety regulations (where applicable) and all other relevant statutes, regulations in respect of safety and quality.
5.2 The Licensee shall submit for the Licensor's written approval samples of the Products, any articles to be sold with the Products and all packaging material, display, advertising or publicity material and shall refrain from distribution, sales or publication of any of the Products until such approval
shall have been first had and obtained. The Licensor reserves the right to require the Licensee to make any alterations that the Licensor may require to such items. If the Licensor fails to notify the Licensee of its disapproval of any materials submitted by the Licensee under this Clause 5.2 within 10 calendar days (not working days) of receipt of such materials by the Licensor then the relevant materials shall be deemed to have been approved by the Licensor for the purposes of this Clause 5.2
5.2.1 The Licensee shall comply with this Clause 5.2 at each and every stage of development of the Products identified as follows:
PRODUCT PACKAGING
Rough visual of concept Rough visual of concept
Hand/Sample/Prototype Rough artwork
Pre-production sample Finished artwork
Production sample Artwork Proof
Finished production packaging
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5.2.2 Approval will be granted by the Licensor based on design, quality and compliance with the Style Guide and the copyright lines and all designs must be consistent with the identity and image of the Property.
5.2.3 Approval is not granted on the basis of any safety or fitness for purpose aspect of the Products as such aspects are the sole responsibility of the Licensee.
5.3 The Licensee shall ensure that all units of the Products including their wrappings and packaging are of the same description as the sample approved by the Licensor in accordance with Clause 5.2.
5.4 The Licensee shall supply to the Licensor the Number of Samples of the Products free of charge within three months of the first production of the Products.
5.5 If the Licensee employs a third party to manufacture the Products or any Product Package the Licensee shall:
5.5.1 ensure that the manufacturer is contractually obliged only manufactures the Product and/or Product Package for the Licensee;
5.5.2 ensure that title to any plates or dies manufactured specially for production of the Products and/or Product Package are the property of the Licensee and shall be returned to the Licensee by the manufacturer on demand; and
5.5.3 ensure that any Products manufactured meet the Specifications.
5.6 If the Licensee or its third party manufacturer require imagery or artwork additional to the Style Guide, the Licensee agrees to pay the price quoted from time to time by the Licensor in respect thereof.
6. USE AND PROTECTION OF INTELLECTUAL PROPERTY
6.1 Every unit of the Products and all packaging, advertising and point of sale materials used in connection therewith and which incorporates the Intellectual Property shall bear the following statement which shall not be varied in any way by the Licensee without prior written consent of the Licensor:
"(C) 200- Maverick Entertainment Group plc and SMPL. Licensed by Peak Entertainment Ltd "
6.2 The Licensee shall not use any of the Property as part of the Licensee's name or the name of any entity associated with it without the prior written consent of the Licensor.
6.3 The Licensee shall not during the subsistence of this Agreement or at any time thereafter register or use any of the Intellectual Property in its own name as proprietor.
6.4 The Licensee recognises the Licensor's title to the Intellectual Property and shall not claim any right title or interest in the Intellectual Property or any part of it save as is granted by this Agreement. Any Intellectual Property right that the Licensee shall acquire to the Products is hereby assigned to the Licensor and, if appropriate, the Licensee shall enter into a legal assignment of such Intellectual Property without payment.
6.5 The Licensee recognizes that the copyright lines in any literary, artistic, musical or dramatic work generated or arising from the activities of the Licensee under this Agreement including the source code in any of the Products and Product Packages (other than the Intellectual Property) shall be the property of the Licensor and the Licensee with full title guarantee hereby assigns such copyright and all rights related thereto to the Licensor (including by way of future assignment).
6.6 The Licensee shall promptly call to the attention of the Licensor the use of any part of the Property by any third party or any activity of any third party which might be in the opinion of the Licensee amount to infringement or passing off.
6.7 The Licensee shall not assign the benefit of this Agreement or grant any sub-licence without prior written consent of the Licensor other than a sub-license of the manufacturing and publishing rights granted to the Licensee to its nominated third party replicator and publisher, respectively.
6.8 Save as provided in Clause 6.5, any logo derived by the Licensee from the Intellectual Property or any part of it shall be held by the Licensee on trust for the Licensor and at the Licensor's request shall be assigned to the Licensor without compensation.
6.9 The Licensee shall not, except with the prior written consent of the Licensor, make use of the name of the Licensor in any connection otherwise than is expressly permitted by this Agreement.
6.10 If required by law, the Licensee will join with the Licensor to become a registered user of the Intellectual Property or any part of it.
7. LICENSEE'S OBLIGATION AS TO MARKETING
7.1 The Licensee shall ensure that the Products shall be on sale to the trade within eighteen months of the commencement date of the Term.
7.2 The Licensee shall ensure so far as it is reasonable practicable that the Products are not supplied for resale as an integral part of any other product other than to the Licensee and shall not be supplied either directly or indirectly to other manufacturers or to hawkers, peddlers, street vendors and the like or to any person intending to distribute the Products either as an integral part of any other product or gratuitously.
7.3 The Licensee shall at all times use its reasonable endeavors to promote and sell the Products in the Territory.
7.4 The Licensee shall only market and sell Products in an ethical manner having regard at all times to the image and reputation of the Property and shall therefore use good taste at all times.
7.5 The Licensee shall only use the Property as permitted by this Agreement or by the Licensor.
7.6 The Licensee shall distribute and sell the Products only through the Distribution Channels as specified in Clause 1 of this Agreement.
8. ACTION AGAINST THIRD PARTIES
8.1 The Licensee shall have no right to take action against third parties in respect of the Intellectual Property and if required to do so by the Licensor the Licensee shall co-operate fully with the Licensor in any such action the Licensee's expenses incurred in doing so being borne by the Licensor.
8.2 All damages shall be the exclusive property of the Licensor provided that the Licensee shall be entitled to set-off any expenses which is able to claim from the Licensor pursuant to Clause 8.1.
8.3 Any decisions to take action against third parties shall be solely at the discretion of the Licensor.
9. TERMINATION
Without prejudice to any right or remedy either party may have against the other for breach or non-performance of this Agreement, each party shall have the right to immediately terminate this Agreement by serving the other party with written notice to that effect in the following circumstances.
9.1 On the other party committing a breach of any provision of this Agreement and failing to remedy such breach within 30 days of receiving written notice specifying the breach and requiring remedy thereof;
9.2 if the other party shall have any distress or executor levied upon it's goods or effects;
9.3 on the other party becoming unable to pay its debts with the meaning of Section 123 Insolvency Act 1986, passing any resolution to wind itself up or if a Receiver or an Administrative Receiver of the other party's undertaking, property or assets or any part thereof is appointed or if an application is made for the appointment of an Administrator of the other party, or if the Directors of the other party propose a composition of debts or scheme of arrangements (other than by way of a bona fide restructuring).
9.4 on the other party for any reason whatever nature being substantially prevented from performing or becoming unable to perform its obligations under this Agreement.
9.5 on the other party assigning, sub-contracting or attempting to sub-contract or assign this Agreement other than as permitted by this Agreement;
9.6 if control of the Licensee shall pass from the present shareholders or owned or controlled by other persons other than the Licensee's current management whom the Licensor shall in its absolute discretion regard as unsuitable; and
9.7 if the other party ceases or threatens to cease carrying on it's usual business for a period in excess of thirty (30) working days consecutively.
10. TERMINATION CONSEQUENCES
10.1 Upon termination of this Agreement whether by expiry of the Term or by termination by either party pursuant to Clause 9, the Licensee shall forthwith discontinue manufacture of the Products.
10.2 If the Licensee shall have any remaining stocks of the Products or Product Packages at the time of termination they may be disposed of by the Licensee in compliance with the terms of this Agreement for three months after termination but not otherwise.
10.3 Any Products or Product Packages in the course of manufacture or in respect of which an order has been placed by the Licensee at the time of termination or expiry may be completed and disposed of in compliance with Clause 10.2 of this Agreement but not otherwise.
11. LICENSORS WARRANTY
Licensor represents and warrants to the Licensee that:
11.1 It has and will have throughout the Term of this Agreement, the right to exploit the Property in all media throughout the Territory and is and will throughout the Term be fully authorized to grant to the Licensee the rights granted to it under this Agreement.
11.2 The rights granted herein do not violate or infringe any agreements, rights or obligations existing, or to be created during the Term, of any person, firm or corporation.
12. INDEMNITY
12.1 The Licensee shall indemnify and hold harmless the Licensor from and against any liability, loss, claim or proceedings whatsoever arising under any statute or at Common Law in respect of personal injury to or the death of any person and any injury or damage to any property real or personal arising from the sale of the Products unless such liability arises from the neglect or default of the Licensor.
12.2 The Licensor shall indemnify and hold harmless the Licensor from and against any liability, loss, claim or proceedings whatsoever arising under any statute or at Common Law arising as a result of a breach of any of the warranties and representations of the Licensor set out in Clause 11.
12.3 The Licensee shall have in force Public and Product Liability Insurance for not less than the equivalent of (pound)1 million with a reputable insurer.
12.4 The policies of insurance shall be shown to the Licensor whenever it requests together with satisfactory evidence of payment of premiums.
12.5 Neither party shall be liable to the other under this Agreement in breach of contract, tort (including negligence and breach of statutory duty) or otherwise for any special loss including direct loss of profits nor for any indirect or consequential damages, costs or expenses of any nature whatsoever incurred or suffered by that other party including, without limitation, economic loss or other loss of turnover, indirect loss of profits, business interruption, loss of sales, loss of opportunity, loss of anticipated savings, loss of data and/or loss or inaccuracy of information other than fraudulent misrepresentation) or loss of goodwill.
12.6 Northing in this Agreement shall limit either party's liability to the other in respect of any claims:
12.6.1 for death or personal injury caused by the negligence of such party;
12.6.2 resulting from any fraud including without limitation fraudulent misrepresentation made by such party; or 12.6.3 for which liability may not otherwise lawfully be limited or excluded.
12.7 Subject to clauses 12.5 and 12.6 above, the entire liability of each Party under or in connection with this Agreement shall be limited to an aggregate amount of (pound)1,000,000.
13. MISCELLANEOUS
13.1 No Waiver
No waiver by the Licensor of any of the Licensee's obligations under this Agreement shall be deemed effective unless made by the Licensor in writing nor shall any waiver by the Licensor in respect of any breach be deemed to constitute waiver of or consent to any subsequent breach by the Licensee of it's obligations.
13.2 Severance
In the event that any provision of this Agreement is declared by any judicial proceedings or other competent authority to be void, voidable or illegal the remaining provisions shall continue to apply unless either party decides that the effect is to defeat the original intentions of the parties in which case it shall be entitled to terminate the Agreement by 30 days notice in which event the provisions of Clause 10 shall apply.
13.3 No Agency or Partnership
The parties are not partners nor joint venturers nor is the Licensee entitled to act as the Licensor's agent nor shall the Licensor be liable in respect of any representation act or omission of the Licensee whatever nature.
13.4 Notices
Any Notice to be served on either of the Parties by the other shall be sent by pre-paid recorded delivery or registered post or by facsimile to the address stated in Clause 1 and shall be deemed to have been received by the addressee with (three) 3 working days after posting or 24 hours of transmission if sent by facsimile.
13.5 Choice of Law
This Agreement shall be governed by English law in every particular including formation and interpretation and shall subject to the jurisdiction of the English Courts.
14. TRANSMISSION OF BENEFIT
14.1 This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.
14.2 Neither party may not assign or sub-licence the rights contained in this Agreement, save as provided otherwise in this Agreement.
15. INTEREST
If any sums due hereunder remain unpaid for a period in excess of 30 days after they have become due to the Licensor the unpaid balance will accrue interest at the rate of 4% per annum above the base rate for the time being of Barclays Bank Plc.
16. FORCE MAJEURE
If the performance of this Agreement is prevented, restricted or interfered with by reason of circumstances beyond the reasonable control of the party obliged to perform it the party so affected upon giving proper notice to the other party shall be excused from performance to the extent of prevention, restriction or interference but the party so affected shall use its best efforts to avoid or remove such causes of non-performance and shall continue performance under the Agreement with the utmost dispatch whenever such causes are removed or diminished.
17. HEADINGS
The headings of conditions are for convenience of reference only and shall not affect their interpretation.
18. ENTIRE UNDERSTANDING AND VARIATION
18.1 This Agreement embodies the entire understanding of the parties in respect of the matters contained or referred to in it and there are no promises, conditions or obligations oral or written, expressed or implied other than those contained in this Agreement.
18.2 No variation or amendment of this Agreement or oral promise or commitment related to it shall be valid unless committed to writing and signed by a director of the Owner.
20. THE CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
This Agreement does not create any right enforceable by any person nor a party to it provided that a person who is the permitted assignee or a successor to the Licensor is deemed to be a party to this Agreement.
FIRST SCHEDULE
SPECIFICATIONS
The Product shall be manufactured to a standard no lower than the sample provided by the Licensee to the Licensor in accordance with Clause 5.2.
The material used in the manufacturing the Product shall be of no lower quality than that used in the sample provided by the Licensee to the Licensor in accordance with Clause 5.2.
The colour and depiction of the material shall be as specified in the Style Guide
SIGNED BY /s/ P. Shorrocks FOR AND ON BEHALF OF THE LICENSOR SIGNED BY /s/ 20.09.05 FOR AND ON BEHALF OF THE LICENSEE |
SECOND SCHEDULE
PEAK ENTERTAINMENT LTD
FROM:
DATE:
ROYALTY PERIOD:
PROPERTY:
TERRITORY:
----------------------- ------------------------- ----------------------- ------------------------- ---------------------
PRODUCT DESCRIPTION PIECES SOLD DURING TOTAL GROSS SALES TOTAL GROSS SALES VALUE TOTAL GROSS SALES
PERIOD VALUE AT START OF AT END OF PERIOD VALUE FOR PERIOD
PERIOD
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----------------------- ------------------------- ----------------------- ------------------------- ---------------------
----------------------- ------------------------- ----------------------- ------------------------- ---------------------
----------------------- ------------------------- ----------------------- ------------------------- ---------------------
----------------------- ------------------------- ----------------------- ------------------------- ---------------------
----------------------- ------------------------- ----------------------- ------------------------- ---------------------
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---------------------------------------- ----------------------- -----------------
PRODUCT DESCRIPTION ROYALTY % LESS ADVANCES NOT TOTAL PAYABLE
CLAIMED
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---------------------------------------- ----------------------- -----------------
---------------------------------------- ----------------------- -----------------
---------------------------------------- ----------------------- -----------------
---------------------------------------- ----------------------- -----------------
---------------------------------------- ----------------------- -----------------
PLUS VAT
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TOTAL
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Please complete in capital letters and return to:
Peak Entertainment Ltd
Bagshaw Hall, Bagshaw Hill, Bakewell, Derbyshire, DE45 1DL
EXHIBIT 31.1
CERTIFICATION
I, Wilfred Shorrocks, certify that:
1. I have reviewed this report on Form 10-KSB for the fiscal year ended December 31, 2005 of Peak Entertainment Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [omitted];
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 6, 2006
/s/ Wilfred Shorrocks
----------------------------
Wilfred Shorrocks
Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATION
I, Nicola Yeomans, certify that:
1. I have reviewed this report on Form 10-KSB for the fiscal year ended December 31, 2005 of Peak Entertainment Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [omitted];
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 6, 2006
/s/ Nicola Yeomans
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Nicola Yeomans
Principal Financial Officer
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EXHIBIT 32.1
CERTIFICATION
PURSUANT TO SECTION 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350
In connection with the Annual Report of Peak Entertainment Holdings, Inc. (the "Company") on Form 10-KSB for the fiscal year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date therein specified (the "Report"), the undersigned, Wilfred Shorrocks, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Wilfred Shorrocks -------------------------- Wilfred Shorrocks Chief Executive Officer Date: April 6, 2006 |
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO SECTION 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350
In connection with the Annual Report of Peak Entertainment Holdings, Inc. (the "Company") on Form 10-KSB for the fiscal year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date therein specified (the "Report"), the undersigned, Nicola Yeomans, as Principal Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Nicola Yeomans --------------------------- Nicola Yeomans Principal Financial Officer Date: April 6, 2006 |