-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cj7jib/hfEwVpPzJATNp1sf/Cf6M6Oz5hsWbyGKtiL1DFxtEHF2Ny4gK1mADeh6U a1CO8+gPx94/C+6OuicOrQ== 0000950116-06-000815.txt : 20060317 0000950116-06-000815.hdr.sgml : 20060317 20060317080746 ACCESSION NUMBER: 0000950116-06-000815 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060131 FILED AS OF DATE: 20060317 DATE AS OF CHANGE: 20060317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIMEDIA ENTERTAINMENT GROUP INC CENTRAL INDEX KEY: 0001163680 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 571107699 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-49865 FILM NUMBER: 06694028 BUSINESS ADDRESS: STREET 1: 101 CHARLES DRIVE CITY: BRYN MAWR STATE: PA ZIP: 19010 BUSINESS PHONE: (610) 520-3050 MAIL ADDRESS: STREET 1: 101 CHARLES DRIVE CITY: BRYN MAWR STATE: PA ZIP: 19010 FORMER COMPANY: FORMER CONFORMED NAME: US PATRIOT INC DATE OF NAME CHANGE: 20011214 10QSB 1 ten-qsb.txt 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended January 31, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File No. 000-49865 TRIMEDIA ENTERTAINMENT GROUP, INC. - -------------------------------------------------------------------------------- (Name of Small Business Issuer) DELAWARE 14-1854107 - --------------------------------- ---------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 1080 N. DELAWARE AVENUE, 8TH FLOOR PHILADELPHIA, PENNSYLVANIA 19125 - ---------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) (215) 426-5536 --------------------------------------------------------- (Registrant's Telephone Number, including Area Code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 filings requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] There were 47,060,011 issued and outstanding shares of the registrant's common stock, par value $.0001 per share, at March 14, 2006.
TRIMEDIA ENTERTAINMENT GROUP, INC. ---------------------------------- INDEX ----- Page ---- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets at January 31, 2006 (unaudited) and October 31, 2005 (audited)............................................................... 2 Consolidated Statements of Operations for the Three Months Ended January 31, 2006 and January 31, 2005 (unaudited)....................................... 3 Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2006 and January 31, 2005 (unaudited)....................................... 4 Notes to Consolidated Financial Statements................................... 6 Item 2. Management's Discussion and Analysis......................................... 10 Item 3. Controls and Procedures...................................................... 17 Part II. Other Information Item 1. Legal Proceedings............................................................ 17 Item 2. Changes in Securities and Use of Proceeds.................................... 17 Item 3. Defaults Upon Senior Securities.............................................. 17 Item 6. Exhibits and Reports on Form 8-K............................................. 18
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------
TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 31, 2006 AND OCTOBER 31, 2005 January 31, October 31, 2006 2005 ------------ ------------ (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash $ 32,535 $ 34,703 Miscellaneous receivables 15,615 16,547 Prepaid expenses 279,494 275,075 ------------ ------------ 327,644 326,325 PROPERTY AND EQUIPMENT - Net 254,311 298,737 CAPITALIZED FILM COSTS 139,481 133,910 OTHER ASSETS 9,625 27,695 ------------ ------------ TOTAL ASSETS $ 731,061 $ 786,667 ------------ ------------ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Term loans $ 2,619,208 $ 2,144,208 Line of credit 2,901,190 - Accounts payable and accrued expenses 1,347,589 1,223,097 Taxes payable 17,501 17,501 Advances from distributors 150,029 180,954 Due to stockholder 22,282 24,082 Deferred revenue - 3,185 ------------ ------------ 7,057,799 3,593,027 LONG-TERM DEBT - 2,881,820 LOANS PAYABLE - STOCKHOLDER 1,100,000 1,100,000 ------------ ------------ TOTAL LIABILITIES 8,157,799 7,574,847 ------------ ------------ STOCKHOLDERS' DEFICIT Preferred stock, $0.0001 par value; 20,000,000 shares authorized; none and 1,000,000 shares issued and outstanding in 2006 and 2005 - - Common stock, $0.0001 par value; 100,000,000 shares authorized; 47,060,011 and 45,560,011 shares issued and outstanding in 2006 and 2005 4,707 4,557 Additional paid-in capital 13,236,376 13,116,527 Accumulated deficit (20,667,821) (19,909,264) ------------ ------------ TOTAL STOCKHOLDERS' DEFICIT (7,426,738) (6,788,180) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 731,061 $ 786,667 ============ ============
See accompanying notes to consolidated financial statements. 2 TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JANUARY 31, 2006 AND 2005 (UNAUDITED) 2006 2005 ----------- ----------- NET REVENUE $ 39,944 $ 2,262 DIRECT COSTS 110,982 114,668 ----------- ----------- GROSS LOSS 71,038 112,406 OPERATING EXPENSES 668,276 2,565,192 ----------- ----------- LOSS FROM OPERATIONS 739,314 2,677,598 OTHER INCOME (EXPENSE) (19,243) 2,848 ----------- ----------- NET LOSS $ 758,557 $ 2,674,750 =========== =========== BASIC AND DILUTED LOSS PER SHARE $ 0.02 $ 0.09 =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES 46,225,011 29,606,391 =========== =========== See accompanying notes to consolidated financial statements. 3
TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JANUARY 31, 2006 AND 2005 (UNAUDITED) 2006 2005 --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(758,557) $(2,674,750) Adjustment to reconcile net loss to net cash used in operating activities Foreign currency exchange loss 19,370 - Common stock issued for services - 13,940 Depreciation and amortization 44,425 53,247 (Increase) decrease in assets Miscellaneous receivable 932 - Film costs (5,571) (24,468) Prepaid expenses 115,581 (142,495) Other assets 18,070 - Advances to artists - (230,000) Increase (decrease) in liabilities Accounts payable and accrued expenses 124,492 (67,719) Advances from (to) distributors (30,925) 84,294 Deferred revenue (3,185) (1,167) --------- ----------- Net cash used in operating activities (475,368) (2,989,118) --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Due to (from) stockholder (1,800) 5,301 --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings on long-term debt - 3,109,585 Payments on demand notes - (93,000) Net borrowings on term loans 475,000 - Net proceeds from sale of stock - 127,977 --------- ----------- Net cash provided by financing activities 475,000 3,144,562 --------- ----------- NET INCREASE (DECREASE) IN CASH (2,168) 160,745 CASH - BEGINNING OF PERIOD 34,703 185,096 --------- ----------- CASH - END OF PERIOD $ 32,535 $ 345,841 ========= ===========
See accompanying notes to consolidated financial statements. 4
TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) THREE MONTHS ENDED JANUARY 31, 2006 AND 2005 (UNAUDITED) 2006 2005 -------- -------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR: Interest $ 22,612 $ - ======== ======== SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for prepaid expenses $120,000 $ - ======== ======== Warrants issued for prepaid consulting services $ - $338,000 ======== ======== Issuance of common stock for subscription receivable: Common stock $ - $ 67 Additional paid-in capital - 299,933 -------- -------- Subscription receivable $ - $300,000 ======== ========
See accompanying notes to consolidated financial statements. 5 TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2006 (UNAUDITED) NOTE 1 - FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared by Trimedia Entertainment Group, Inc. ("Trimedia") and Subsidiaries (collectively, "the Company"). These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the Summary of Accounting Policies included in the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2005 which the Company filed with the Securities and Exchange Commission on March 1, 2006 (the "Annual Report".) Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The Notes to Financial Statements included in the Annual Report should be read in conjunction with the accompanying interim financial statements. The interim operating results for the three months ended January 31, 2006 may not necessarily be indicative of the operating results expected for the full year. Basis of Presentation - --------------------- The consolidated financial statements include the accounts of Metropolitan Recording Inc., Snipes Production, LLC and Ruffnation Films LLC. Ruffnation Music is a wholly owned company that operates the record division of the company. In July 2003, the Company formed TME, a wholly owned foreign production company. In January 2004, the Company formed two Delaware corporations, Trimedia Film Group, Inc. and TM Film Distribution, Inc., in anticipation of potential future financing transactions. As of January 31, 2006, TME was inactive. In October 2004, the Company formed Four Point Play Productions, LLC. All material inter-company transactions have been eliminated in consolidation. Loss Per Share - -------------- The Company follows SFAS 128, "Earnings Per Share," resulting in the presentation of basic and diluted loss per share. The basic loss per share calculations include the change in capital structure for all periods presented. For the three months ended January 31, 2006 and 2005, the basic and diluted loss per share are the same, since the assumed conversion of the convertible preferred stock (in 2005), stock options and warrants would be antidilutive because the Company experienced a net loss for such periods. NOTE 2 - GOING CONCERN The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception, the Company has incurred significant losses and, as of January 31, 2006 had accumulated losses of $20,667,821. For the three months ended January 31, 2006, the Company's net loss was $758,557. In addition, the Company had negative working capital of $3,828,965 at January 31, 2006 and experienced negative cash flow from operations of $475,368 for the three months ended January 31, 2006. The Company may incur further operating losses and experience negative cash flow in the future. Achieving profitability and positive cash flow depends on the Company's ability to generate sufficient revenues from its films and recording studio and its ability to raise additional capital. There can be no assurances that the Company will be able to generate sufficient revenues or raise additional capital to achieve and sustain profitability and positive cash flow in the future. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. 6 TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2006 (UNAUDITED) NOTE 2 - GOING CONCERN (Continued) The Company has no firm commitments for funding its operations. The Company has historically relied principally on equity financing and loans from its principal stockholder and third parties to meet its cash requirements. The Company intends to raise additional capital from the sale of its securities. However, there can be no assurances that the company will be successful in raising sufficient capital to have a material positive effect of the company's operations and cash flow. The Company has outstanding debt in the aggregate principal amount of approximately $6,620,398 as of January 31, 2006. The Company has granted security interests in substantially all of its assets to secure its obligations to repay approximately $5,520,398 of this indebtedness. Accordingly, the Company will require a significant amount of cash to fund the present operations and to continue to grow the business. As the Company's operations grow, the Company's financing requirements are expected to grow proportionately and the Company projects the continued use of cash in operating activities for the foreseeable future. Therefore, the Company is dependent on continued access to external sources of financing. The current financing strategy is to pursue loans and to sell equity securities to raise a substantial amount of working capital. The Company also plans to leverage investment in film and music productions through operating credit facilities, co-ventures and single-purpose production financing. The Company plans to obtain financing commitments, including, in some cases, foreign distribution commitments to cover, on average, at 50% of the budgeted third-party costs of a project before commencing production. The Company plans to outsource required services and functions whenever possible. The Company also plans to use independent contractors and producers, consultants and professionals to provide those services necessary to operate the corporate and business operations in an effort to avoid build up of overhead infrastructures, to maintain a flexible organization and financial structure for productions and ventures and to be responsive to business opportunities worldwide. The Company believes that it will be necessary for the Company to raise at least $10,000,000 in order to meet the anticipated cash requirements through January 31, 2007. There can be no assurance that the Company will be successful in its efforts to raise this amount of additional financing. In the event that the Company is unable to raise these funds, the Company will then be required to delay its plans to grow its business and the Company will rely on its net revenues to fund its operations. There can be no assurance that such funding will be generated or available on terms acceptable to the Company, or at all, or that the commercial exploitation of the Company's products will be economically profitable for the Company. These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern. Significant additional funding will be required during fiscal 2006 to meet expected negative operating cash flows. NOTE 3 - LOAN PAYABLE - STOCKHOLDER Loans payable - stockholder consist of an unsecured demand note payable to Christopher Schwartz, accruing interest at 7% per annum. Interest expense, associated with this note for the three months ended January 31, 2006 and 2005 was $19,350 and $19,250. Christopher Schwartz does not intend to call this note during the next fiscal year and therefore the note is reflected on the balance sheet as a non-current liability. 7 TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2006 (UNAUDITED) NOTE 4 - TERM LOANS During the three months ended January 31, 2006, the Company borrowed $475,000 in additional funds as part of a convertible note payable entered into with a third party lender in May 2005. Interest only, at 12% per annum, is due monthly with outstanding principal to be paid in a lump sum on May 30, 2006. The holder of the note has the right to convert all or part of the outstanding principal amount of the note into common stock of the Company at a conversion price of $0.50 per share. The conversion price is subject to adjustment upon occurrence of certain events as defined in the agreement. As of January 31, 2006, approximately $146,000 of interest is in arrears and recorded as part of accrued expenses. NOTE 5 - STOCKHOLDERS' EQUITY In December 2005, the Company issued 1,500,000 shares of its common stock in exchange for a one year consulting agreement valued at $120,000. NOTE 6 - INCOME TAXES There is no income tax benefit for the losses for the three months ended January 31, 2006 and 2005 since management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of such benefits. 8 TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2006 (UNAUDITED) NOTE 7 - BUSINESS SEGMENTS The Company follows SFAS No. 131, "Disclosures About Segments of and Enterprise and Related Information" which requires the Company to provide certain information about their operating segments. The Company has two reportable segments: recording studio and film production. Summarized financial information concerning the Company's reportable segments, which are based in the United States, is reflected in the following table:
Recording Film Segment Consolidated Studio Production Total Corporate Total --------- ---------- ---------- ---------- ------------ Three Months Ended January 31, 2006 - --------------------------------- Net sales $ 7,813 $ 32,131 $ 39,944 $ - $ 39,944 Loss from operations 148,375 53,497 201,872 537,442 739,314 Total assets 238,116 278,498 516,614 214,447 731,061 Depreciation and amortization 43,206 1,219 44,425 - 44,425 Capital expenditures - - - - - Three Months Ended January 31, 2005 - --------------------------------- Net sales $ 1,095 $ 1,167 $ 2,262 $ - $ 2,262 Loss from operations 57,504 1,534,339 1,591,843 1,085,755 2,677,598 Total assets 339,344 691,763 1,031,107 874,615 1,905,722 Depreciation and amortization 51,625 1,622 53,247 - 53,247 Capital expenditures - - - - - January 31, ------------------------- Reconciliations 2006 2005 - --------------------------------- --------- ------------ Total segment operating loss $(201,872) $ (1,591,843) Corporate overhead expenses (537,442) (1,085,755) Other income (expense) (19,243) 2,848 --------- ------------ Total consolidated net loss $(758,557) $ (2,674,750) ========= ============
NOTE 8 - SUBSEQUENT EVENT On March 13, 2006, the Company converted a $250,000 promissory note receivable from Pure Games, Inc. into 250,000 shares of common stock of Pure Games, Inc. This note receivable was written-off during the year ended October 31, 2005. The converted shares currently do not have a determinable value. 9 CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-QSB includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "expect," "plan," anticipate," believe," estimate," continue," or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those in our other Securities and Exchange Commission filings, including our Annual Report on Form 10-KSB filed on March 1, 2006. The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes thereto included elsewhere in this report. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - ------ The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to the risks discussed in this report. OVERVIEW - -------- We are a multimedia entertainment company that has film and music operations. We completed production of Snipes in Fiscal 2002 and released it in Fiscal 2003 through Charles Street, our co-venture with Sony BMG. Snipes had a limited theatrical release followed by release of the DVD/VHS of the film. In addition, through a distribution agreement with New Line Television, Inc., Snipes was aired on VH-1, the music television channel. While we continued to recognize revenues from Snipes in Fiscal 2004, we did not recognize the same level of revenues that we recognized in Fiscal 2003. In Fiscal 2005, we re-released Snipes as a combination DVD/CD package through Charles Street and we distributed Train Ride, a film produced by a third party and released a CD by our recording artists, the Spin Doctors. In Fiscal 2006, we anticipate assisting Gerry Anderson Productions PLC in the multimedia exploitation of the New Captain Scarlet series, commencing production of our new movie Four Point Play and releasing CDs by our music artists Kulcha Don and Kristy Frank. We presently do not have sufficient cash to implement our business plan. We have experienced this lack of liquidity throughout Fiscal 2004, Fiscal 2005 and the first quarter of Fiscal 2006, causing us to be unable to produce any additional feature films. We believe that we need to raise or otherwise obtain at least $10,000,000 in additional financing in order to satisfy our existing obligations and implement our business plan. If we are successful in obtaining such financing, we may require an additional nine to twelve months in order to complete production of additional feature films or music projects for release and distribution. Accordingly, in order to generate revenues in Fiscal 2006, we may need to rely on other sources of revenue such as acquiring the rights to distribute and exploit feature films, music projects and other entertainment content produced by third parties. If we are not successful in obtaining additional financing, we will not be able to complete the projects we have planned for Fiscal 2006 or continue to implement our business plan. The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes thereto included in this Form 10-QSB. CRITICAL ACCOUNTING POLICIES - ---------------------------- In presenting our financial statements in conformity with accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it will likely result in a material adverse impact to our consolidated results of operations, financial position and in liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. 10 Revenue Recognition -------------------- We recognize revenue from the sale or licensing of films and nonrefundable minimum guarantees from customers upon meeting all recognition requirements of Statement of Position ("SOP") 00-2, "Accounting by Producers or Distributors of Films". According to SOP 00-2, an entity should recognize revenue from a sale or licensing arrangement of a film when all of the following conditions are met: o persuasive evidence of a sale or licensing arrangement with a customer exists; o the film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery; o the license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale; o the arrangement fee is fixed or determinable; and o collection of the arrangement fee is reasonably assured. If we do not meet any one of the preceding conditions, then we will defer recognizing revenue until all of the conditions are met. Capitalized Film Costs ---------------------- Costs of making motion picture films that are produced for sale to third parties are stated at the lower of cost, less accumulated amortization, or fair value. In accordance with SOP 00-2, we expense film costs based on the ratio of the current period gross revenues to estimated total gross revenues from all sources on an individual production basis. As of January 31, 2006, the film costs of $139,481 which we have recorded on our balance sheet were incurred in connection with the production of seven films that are in development and pre-production. We will commence the amortization of these capitalized film costs upon the distribution of their respective DVDs. Once revenues from a film commence, the decision as to what portion of the costs to amortize in a given period is dependent on the estimate of total gross revenues from that film. A lower estimate will result in faster amortization, while a higher estimate may result in a disproportionate amortization in later periods if actual revenues are lower than initial estimates. Artist Compensation Costs ------------------------- The amount of royalties earned by artists, as adjusted for anticipated returns, is charged to expense in the period in which the sale of the record takes place. Advance royalty paid to an artist is reported as an asset only if the past performance and current popularity of the artist to whom the advance is made provide a sound basis for estimating that the amount of the advance will be recoverable from future royalties earned by the artist. Capitalized advances are charged to expense as subsequent royalties are earned by the artist. Any portion of capitalized advances that appear not to be fully recoverable from future royalties to be earned from the artist are charged to expense during the period in which the loss becomes evident. 11 RESULTS OF OPERATIONS - --------------------- Three Months Ended January 31, 2006 (Fiscal 2006-First Quarter) vs. Three Months Ended January 31, 2005 (Fiscal 2005-First Quarter)
- ------------------------------- ---------------------------- ---------------------------- ---------------------------- Fiscal 2006 - First Quarter Fiscal 2005 - First Quarter $ Change - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Net Loss 758,557 2,674,750 (1,916,193) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Net Loss from Operations 739,314 2,677,598 (1,938,284) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Net Revenue 39,944 2,262 37,682 - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Direct Costs 110,982 114,668 (3,686) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Operating Expenses 668,276 2,565,192 (1,896,916) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Other Income (Expense) (19,243) 2,848 (22,091) - ------------------------------- ---------------------------- ---------------------------- ----------------------------
The $1,938,284 decrease in Net Loss From Operations was primarily due to the decrease in fees related to financing activities, a decrease in operating expenses related to the European office and operations and an increase in Net Revenue. The $37,682 increase in Net Revenues primarily resulted from the fact that Net Revenue was realized from the distribution of the TrainRide DVD in Fiscal 2006-First Quarter and there was no new DVD release during Fiscal 2005-First Quarter. The $3,686 decrease in Direct Cost was a result of our efforts to contain Direct Costs and the recoupment of expenses by our joint venture partner relating to the release of the TrainRide DVD. Direct Costs are costs directly related to the production of film or music projects that we develop or the costs directly related to the retention of new artists and include such items as production fees and costs, artist costs and expenses, engineering services, equipment rentals, studio supplies and support services. The $1,896,916 decrease in Operating Expenses was primarily due to a decrease of approximately $1,500,000 in fees related to financing activities, a decrease of approximately $90,000 in operating expenses related to the European office resulting from its closure in June 2005, a decrease of approximately $55,000 in professional and consulting fees, an approximate $60,000 decrease in travel expenses and an approximate $60,000 decrease in office expense offset by an increase of approximately $107,000 in interest expense an increase of approximately $19,000 in rent and utilities expenses related to the Philadelphia office lease that commenced in January 2005. Operating Expenses are generally the costs of operating our business and include salaries, advertising, professional and consulting fees, rent and utilities, and travel. OFF-BALANCE SHEET ARRANGEMENTS There were no off-balance sheet arrangements during the three months ended January 31, 2006 that have, or are reasonably likely to have, a current or future affect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests. 12 CHANGES IN FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------- ---------------------------- ---------------------------- ---------------------------- Fiscal 2006 - First Quarter Fiscal 2005 - First Quarter $ Change ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Cash Flow from Operating $(475,368) $(2,989,118) $2,513,750 Activities - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Cash Flow from Investing $(1,800) $5,301 $(7,101) Activities - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Cash Flow from Financing $475,000 $3,144,562 $(2,669,562) Activities - ------------------------------- ---------------------------- ---------------------------- ----------------------------
Net cash used in operating activities in Fiscal 2006 - First Quarter was due primarily to our Net Loss, principally offset by non-cash charges for depreciation and amortization of $44,425, a foreign currency exchange loss of $19,370, a decrease in prepaid expenses of $115,581 and an increase in accounts payable and accrued expenses of $124,492 offset by a decrease in advances from distributors of $30,925. Net cash used in investing activities in Fiscal 2006-First Quarter represented repayment of $1,800 of monies previously advanced to us by our principal stockholder. Net cash provided by financing activities in Fiscal 2006-First Quarter was due to $475,000 advanced to us through term loans. This amount is significantly less than Fiscal 2005-First Quarter as we did not have any borrowings on long term debt or proceeds from the sale of common stock in Fiscal 2006-First Quarter. At January 31, 2006, we had approximately $32,500 in cash. At March 14, 2006, we had approximately $35,300 in cash. We do not believe that the amount of cash that we had on hand at March 14, 2006 is sufficient to fund our operations through March 31, 2007. We have principally relied on equity financing and loans from our principal stockholder, distributions from Charles Street, our co-venture with Sony BMG, and third party lenders to fund our operations. During Fiscal 2006, we anticipate continuing to pursue all possible funding scenarios that will finance our business operations. We intend to obtain financing to fund our operations for the next twelve months and will consider sales of our securities and/or a combination of alternative financing structures including, but not limited to, joint or co-ventures, licensing of projects, production subsidies, debt financing, tax structured financing, a merger with or acquisition of a foreign listed entity and partnerships for individual or multiple projects. However, we are not certain that these financing transactions will close or whether we will be able to obtain additional financing. We believe that it will be necessary for us to raise at least $10,000,000 in order to meet our anticipated cash requirements through March 31, 2007. There can be no assurances that we will be successful in our efforts to raise this amount of additional financing. In the event that we are unable to raise these funds, we will then be required to delay our plans to grow our business and we will rely on our net revenues to fund our operations. We derived a significant portion of our net revenues in Fiscal 2003 and Fiscal 2004 from our Charles Street joint venture related to the sale of the feature film Snipes, which was released on DVD/Home Video by Sony BMG on February 25, 2003. In Fiscal 2004, there was a significant decrease in net revenues due to the decline in revenues from Snipes and our failure to release any new movies or entertainment content. Under the terms of the co-venture agreement with Sony BMG, as amended on October 2, 2003, Ruffnation Films will fund the creation, production and marketing of ten films for Charles Street. Snipes was the first film we produced under the agreement. Sony BMG will advance funds for manufacturing, marketing, promotion, production, distribution and other related expenses for film and music projects. These funds are considered a loan to Charles Street and are recoverable by Sony BMG from the sales of products released by Charles Street. Sony BMG has the right to accept or reject any film in its discretion. Substantially all of the $1,149,584 in Net Revenues which we generated in Fiscal 2003 and the $239,070 of Net Revenues which we generated in Fiscal 2004 represented revenues primarily from sales to rental outlets and limited retail sales of the feature film Snipes. 13 Through December 31, 2005, the last quarter for which a report has been received, Sony BMG has reported gross billings for Charles Street related to the release of the Snipes DVD/Home Video of $2,302,083 and net profits of $1,042,341, of which our portion is $857,516. We did not receive any payments from Sony BMG related to Snipes in Fiscal 2005 or Fiscal 2006-First Quarter. In November 2004, Snipes was re-released as a combination DVD-CD package in the US, UK and various European territories. Although we may receive additional payments from Charles Street in Fiscal 2006 related to sales of Snipes, there can be no assurance of the amount or timing of such payments. Additionally, through December 31, 2005, the last quarter for which a report has been received, Sony BMG has reported gross billings for Charles Street related to the release of the TrainRide DVD/Home Video of $210,789 and net profits of $74,606 of which our portion is $69,104. Although we may receive payments from Charles Street in Fiscal 2006 related to sales of TrainRide, there can be no assurance of the amount or timing of such payments. As of the date of this report, we have not received additional financial information from Sony BMG relating to amounts due to Charles Street for Snipes or TrainRide. We have entered into negotiations of agreements with licensors and distributors of our film and music products both domestically and internationally. Pursuant to industry standards, the terms and conditions of these agreements provide for advances against sales of the respective film or music product that is licensed or distributed. We use the advances for operating capital needs. However in most cases these advances are recoverable from future sales of our products. There is no assurance that the advances that we receive will be recoverable from the sale of respective music or film products licensed or distributed domestically or internationally. In addition, there is no assurance that we will receive sufficient advances to adequately fund our operations. We advance funds to artists and, in some cases, to independent producers pursuant to their respective contracts for acquisition, composition, marketing, production, development or other related costs. In most cases, these expenses are recoverable from the artist or independent producer upon the sale of such party's music or film product. However, there can be no assurance that the advances or expenses will be recoverable from the artist or producer of a film or music project. We do not presently have any existing obligations to advance funds to any artists or independent producers and our ability to do so in the future is highly dependent on our ability to raise additional financing. As we presently do not generate sufficient cash flow from our operations to fund our working capital needs, we have been raising the funds we need to operate our business through the offer and sale of our securities. On December 27, 2004, TM Film Distribution, Inc., our wholly-owned subsidiary, entered into a Loan Agreement with Fairbairn Private Bank Limited (the "Loan Agreement"). The Loan Agreement established a loan facility in the maximum aggregate principal amount of 1,628,055 pounds sterling (the "Facility") that TM Film Distribution may draw down from time to time. To date, TM Film Distribution has drawn down 1,625,000 pounds sterling of this Facility. Interest accrues for each advance under the Facility at the rate of LIBOR on the date of the advance plus 0.375%. Pursuant to the Loan Agreement, the lender determines LIBOR in its sole discretion by reference to either (i) the relevant Reuters page at or about 11:00 a.m. (London time) on the date an advance is drawn or (ii) if no such rate can be ascertained at the relevant time, the rate offered to lender by any leading bank in the London inter-bank market at or about 11:00 a.m. (London time) on the date an advance is drawn. Amounts drawn under the Facility are due for repayment on that date which is 24 months after the date on which the final draw down of the Facility is made. Interest is payable quarterly during the term that each advance is outstanding. TM Film Distribution's obligation to repay all loan amounts under the Facility is secured by a Deed of Charge Over Cash and a Deed of Charge Over Deposit each created in favor of the lender and covering funds held on deposit by TM Film Distribution with the lender. These funds are part of the Printing and Advertising fund established by KMM on behalf of TM Film Distribution, as more fully described in Business of the Company - Film Division - Keydata Media & Marketing 1 LLP Distribution Arrangement. On December 27, 2004, we received a payment of $1,468,035 from TM Film Distribution as payment of costs and expenses in connection with its formation and its activities in connection with the structuring of transactions with KeyData Media & Marketing 1, LLP. In August 2004, we engaged Brockington Securities, Inc. as our financial advisor and investment banker pursuant to which we issued them 250,000 shares of our common stock. In January 2005, they assisted us in the completion of a private placement offering pursuant to which we raised gross proceeds of $300,000 and paid Brockington a commission of $30,000. 14 On August 24, 2004, we entered into an agreement with Gerry Anderson Productions PLC ("GAP") pursuant to which we will represent GAP as its agent in the development and multimedia exploitation of GAP's New Captain Scarlet Series properties in the United States, Canada and such other territories as are mutually agreed upon. In connection with this agreement, we have introduced GAP to Sony Wonder, a group of Sony, and they have negotiated a term sheet agreement regarding the broadcast and master licensing of the New Captain Scarlet Series pursuant to which GAP will provide Sony Wonder with at least 13 episodes of the series for the purpose of securing a broadcast arrangement with a major television network and/or cable television network. In addition, Charles Street, our co-venture with Sony, will negotiate with artists, develop and produce a soundtrack CD/DVD for the New Captain Scarlet Series. As consideration for services provided under this agreement, we will receive a fee equal to five percent of the gross cash receipts realized by GAP from Sony's exploitation of the New Captain Scarlet Series (excluding revenues generated by sub-agents or distributors appointed by Sony, if any). In addition, GAP is obligated to purchase an aggregate of 1,538,462 shares of our common stock in a private placement offering at an aggregate purchase price of $1,000,000. During the period from September 2004 through January 2005, GAP purchased 1,505,539 of these shares and remains obligated to purchase 32,923 shares of our common stock. Pursuant to the agreement, we also have a five-year option to purchase up to $1,000,000 of GAP's capital stock at a 15% discount to the value of the shares on the date that the option is exercised. On May 5, 2005, we entered into a Securities Purchase Agreement with IL Resources, LLC ("IL Resources") pursuant to which we issued to IL Resources a Secured Convertible Note in the aggregate principal amount of $1,590,000 and a warrant to purchase 2,000,000 shares of our common stock. This Note accrues interest at the rate of 12 percent per annum and has a maturity date of May 30, 2006. During Fiscal 2006-First Quarter, this Note was amended to provide for additional advances and we received an additional $392,500 loan on the same terms and conditions. This Note is convertible into a total of 3,965,000 shares of our common stock at a conversion price of $0.50, subject to certain adjustments. On or about May 6, 2005, eight of our creditors agreed to exchange an aggregate of $3,268,162 in indebtedness owed to them for shares of our common stock at a price of $1.00 per share, for a total of 3,268,162 shares. In addition to the financing that we need to implement our business plan, we are in default on a loan in the original principal amount of $162,000 that Metropolitan, our subsidiary, received from a bank. The current principal balance of the loan at March 15, 2006 was approximately $126,708. The original maturity date of the loan was August 2006. The loan is payable in monthly installments of $1,965, including accrued interest at a rate of 8% per annum, with a lump sum payment due at maturity of $99,858. The loan is collateralized by all assets of Metropolitan and a personal guarantee by Christopher Schwartz. The loan agreement includes a provision that states that any change of ownership of 25% or more of the common stock of Metropolitan without the prior written consent of the bank is an event of default. The share exchange transaction that occurred in October 2002 resulted in a change in ownership of all of the issued and outstanding common stock of Metropolitan. Upon default, the bank, at its option, may increase the interest rate four basis points, demand payment in full of the outstanding principal balance of the loan plus all accrued interest thereon, and may hold Metropolitan liable for all collection costs that it incurs. On May 10, 2004, the bank demanded payment in full of the outstanding principal balance of the loan plus all accrued interest on the loan in the approximate amount of $14,500 for the aggregate amount of approximately $147,100 by August 17, 2004. As we presently do not have sufficient cash on hand to repay this loan, we may be faced with the bank's election to sell a sufficient amount of the assets of Metropolitan to raise the funds necessary to repay this loan. Any such action would have a material adverse effect on our operations. The total outstanding amount of this note is reflected as a current liability in our January 31, 2006 Consolidated Balance Sheet. In addition, we have accounts payable and accrued expenses in the aggregate amount of approximately $1,347,589 that are presently past due. We also have other obligations that mature or may mature in the next twelve months. 15 On April 11, 2003, Snipes cancelled a $400,000 promissory note, a $25,000 promissory note and $10,000 promissory note and issued an amended promissory note in the principal amount of $435,000 to third party lenders. The amended promissory note accrued interest at the rate of 35% per annum and was due to mature on October 31, 2003. However, on October 30, 2003 the promissory note was amended to extend the maturity date from October 31, 2003 until April 30, 2004. On June 2, 2004, the promissory note was further amended to extend the maturity date from April 30, 2004 until September 30, 2004. As of June 2, 2004, the outstanding principal and accrued interest on the promissory note was $654,906. For the period from June 2, 2004 until September 30, 2004, the interest rate on the promissory note was reduced from 35% to 20% and accrued on the balance of $654,906. In June 2004, we received short-term loans in the aggregate amount of $90,000 from a third party lender. These obligations were documented by promissory notes that accrued interest at the rate of 10% per annum. These promissory notes were scheduled to mature on July 1, 2005. On May 1, 2005, an outstanding balance of $1,041,524 related to these and other third party loans was repaid by the issuance of a promissory note in the amount of $510,000 and conversion of the remaining $531,524 into shares of our common stock at a conversion price of $1.00 per share. This promissory note accrues interest at the rate of 20 percent per annum and is scheduled to mature on May 9, 2006. As described above, repayment of loans in the aggregate principal amount of $1,982,500 from IL Resources is due on May 30, 2006. In addition, TM Film Distribution, Inc.'s loan facility from Fairbairn Private Bank matures in January 2007. We have received loans in the aggregate principal amount of $1,100,000 from Christopher Schwartz, our Chairman, Chief Executive Officer and principal stockholder. These obligations are documented by a demand note payable which accrues interest at the rate of 7% per annum. In addition, in Fiscal 2005, Mr. Schwartz, extended short-term loans in an aggregate principal amount of $171,682 to us and our operating subsidiaries. We have repaid $253,837 of the principal amount of these loans. Accordingly, approximately $7,350,000 from the net proceeds of any additional financing will be used to satisfy our existing loans and obligations that have matured or will mature in the next twelve months. The nature of our business is such that significant cash outlays are required to produce and acquire films, television programs, music soundtracks and albums. However, net revenues from these projects are earned over an extended period of time after their completion or acquisition. Accordingly, we will require a significant amount of cash to fund our present operations and to continue to grow our business. As our operations grow, our financing requirements are expected to grow proportionately and we project the continued use of cash in operating activities for the foreseeable future. Therefore we are dependent on continued access to external sources of financing. Our current financing strategy is to sell our equity securities to raise a substantial amount of our working capital. We also plan to leverage investment in film and music productions through operating credit facilities, co-ventures and single-purpose production financing. We plan to obtain financing commitments, including, in some cases, foreign distribution commitments to cover, on average, at least 50% of the budgeted third-party costs of a project before commencing production. We plan to outsource required services and functions whenever possible. We plan to use independent contractors and producers, consultants and professionals to provide those services necessary to operate the corporate and business operations in an effort to avoid build up of overhead infrastructures, to maintain a flexible organization and financial structure for productions and ventures and to be responsive to business opportunities worldwide. Accordingly, once we raise at least $10,000,000 in additional financing, we believe that the net proceeds from that financing together with cash flow from operations, including our share of future film production under the Charles Street co-venture with Sony, will be available to meet known operational cash requirements. In addition, we believe that our improved liquidity position will enable us to qualify for new lines of credit on an as-needed basis. These matters raise substantial doubt about our ability to continue as a going concern. We will need to raise significant additional funding in order to satisfy our existing obligations and to fully implement our business plan. There can be no assurances that such funding will be available on terms acceptable to us or at all. If we are unable to generate sufficient funds, particularly at least $10,000,000, then we may be forced to cease or substantially curtail operations. We do not pay and do not intend to pay dividends on our common stock. We believe it to be in the best interest of our stockholders to invest all available cash in the expansion of our business. Accordingly, our stockholders may only receive income from the appreciation in our stock price, if any. 16 ITEM 3. CONTROLS AND PROCEDURES - ------ EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES ------------------------------------------------ As of January 31, 2006, we carried out an evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) under the supervision and with the participation of our management, including Christopher Schwartz, our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, Mr. Schwartz concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------ We know of no pending legal proceedings to which we or any of our subsidiaries are a party which are material or potentially material, either individually or in the aggregate. We are from time to time, during the normal course of our business operations, subject to various litigation claims and legal disputes. We do not believe that the ultimate disposition of any of these matters will have a material adverse effect on our consolidated financial position, results of operations or liquidity. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - ------ On December 20, 2005, we entered into a consulting agreement with Walt Beach pursuant to which we issued him 1,500,000 shares of our common stock pursuant to Section 4(2) of the Securities Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ------ We are presently in technical default on a loan in the principal amount of $162,000 which Metropolitan, our subsidiary, received from a bank. The loan has a maturity date of August 2006. The loan is payable in monthly installments of $1,965, including accrued interest at a rate of 8% per annum, with a lump sum payment due at maturity of $99,858. The loan is collateralized by all assets of Metropolitan and a personal guarantee by Christopher Schwartz. The loan agreement includes a provision that states that any change of ownership of 25% or more of the common stock of Metropolitan is an event of default. The share exchange transaction resulted in a change in ownership of all of the issued and outstanding common stock of Metropolitan. Accordingly, Metropolitan is in technical default of this loan agreement. Upon default, the bank, at its option, may increase the interest rate four basis points, demand payment in full of the outstanding principal balance of the loan plus all accrued interest thereon, and may hold Metropolitan liable for all collection costs that it incurs. Although the bank has not notified us that it intends to exercise any of these options, there is no assurance that it will not elect to do so at any point in the future. As of March 15, 2006, the total outstanding balance of this loan was $126,708. As we presently do not have sufficient cash on hand to repay this loan, if the bank elects to demand repayment, then we may be faced with the bank's election to sell a sufficient amount of the assets of Metropolitan to raise the funds necessary to repay this loan. Any such action would have a material adverse effect on our operations. Since Metropolitan did not receive a waiver from the bank, the total outstanding amount of this note is reflected as a current liability in our January 31, 2006 Consolidated Balance Sheet. 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------ 2.1 Share Exchange Agreement and Plan of Reorganization dated as of October 2, 2002 by and among US Patriot, Inc. and Christopher Schwartz (incorporated by reference to Exhibit 1.1 of Current Report on Form 8-K filed on October 18, 2002). 2.2 Agreement and Plan of Merger between US Patriot, Inc. and TriMedia Entertainment Group, Inc. (incorporated by reference to Exhibit 3.4 of Current Report on Form 8-K filed on December 2, 2002). 2.3 Articles of Merger as filed in the State of South Carolina (incorporated by reference to Exhibit 2.1 of Current Report on Form 8-K filed on December 2, 2002). 2.4 Certificate of Merger as filed in the State of Delaware (incorporated by reference to Exhibit 3.5 of Current Report on Form 8-K filed on December 2, 2002). 3.1 Certificate of Incorporation of TriMedia Entertainment Group, Inc. (incorporated by reference to Exhibit 3.1 of Current Report on Form 8-K filed on December 2, 2002). 3.2 Certificate of Amendment of Certificate of Incorporation Before Payment of Capital of TriMedia Entertainment Group, Inc. (incorporated by reference to Exhibit 3.2 of Current Report on Form 8-K filed on December 2, 2002). 3.3 By-laws of TriMedia Entertainment Group, Inc. (incorporated by reference to Exhibit 3.3 of Current Report on Form 8-K filed on December 2, 2002). 4.1 Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 4.2 Certificate of Designations of Series A Convertible Preferred Stock of US Patriot, Inc. (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.1 Employment Agreement dated as of October 9, 2002 by and between US Patriot, Inc. and Christopher Schwartz (incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.2 Co-Venture Agreement between Sony Music, a Group of Sony Music Entertainment, Inc., Ruffnation Films, LLC and Christopher Schwartz dated as of September 20, 2002 (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.3 Stock Purchase Warrant to purchase 33,400 shares of common stock issued to Frank Eiffe dated November 14, 2002 (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.4 Stock Purchase Warrant to purchase 66,600 shares of common stock issued to Dr. Wolfgang Moelzer dated November 14, 2002 (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.5 Stock Purchase Warrant to purchase 50,000 shares of common stock issued to BKB Boston K Borg Management GmbH dated December 12, 2002 (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.6 7% Demand Promissory Note in the principal amount of $1,100,000 by Ruffnation Films LLC issued to Christopher Schwartz dated May 1, 2002 (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.7 Security Agreement issued by Ruffnation Films LLC, Snipes Productions LLC and Metropolitan Recording Inc. to Christopher Schwartz dated May 1, 2002 (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.8 8% Promissory Note in the principal amount of $162,000 by Metropolitan Recording Inc. issued to Founders Bank dated August 21, 2001 (incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 18 10.9 Security Agreement issued by Metropolitan Recording Inc. to Founders Bank dated August 21, 2001 (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.10 Loan Agreement between Metropolitan Recording, Inc. and Founders Bank dated August 21, 2001 (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2002 filed on March 17, 2003). 10.11 Warrants to purchase 10,000 shares of common stock issued to Trident Growth Fund, L.P. dated March 27, 2003 (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-QSB filed on June 18, 2003). 10.12 Warrants to purchase 100,000 shares of common stock issued to Trident Growth Fund, L.P. dated June 13, 2003 (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-QSB filed on September 17, 2003). 10.13 12% Demand Promissory Note in the principal amount of $67,102 issued to 1025 Investments, Inc. dated June 19, 2003 (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-QSB filed on September 17, 2003). 10.14 Warrants to purchase 50,000 shares of common stock issued to Aaron Lehmann dated June 20, 2003 (incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-QSB filed on September 17, 2003). 10.15 Warrants to purchase 100,000 shares of common stock issued to Founders Equity Securities, Inc. dated June 20, 2003 (incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-QSB filed on September 17, 2003). 10.16 Warrants to purchase 25,000 shares of common stock issued to Daryl Strickling dated July 2, 2003 (incorporated by reference to Exhibit 10.5 of the Quarterly Report on Form 10-QSB filed on September 17, 2003). 10.17 12% Demand Promissory Note in the principal amount of $17,000 issued to 1025 Investments, Inc. dated July 25, 2003 (incorporated by reference to Exhibit 10.6 of the Quarterly Report on Form 10-QSB filed on September 17, 2003). 10.18 Distribution Agreement between New Line Television, Inc. and Ruffnation Films LLC dated November 26, 2002 (incorporated by reference to Exhibit 10.7 of the Quarterly Report on Form 10-QSB filed on September 17, 2003). 10.19 Amendment to Co-Venture Agreement between Sony Music, a Group of Sony Music Entertainment, Inc., Ruffnation Films, LLC and Christopher Schwartz dated as of October 2, 2003 (incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2003 filed on February 13, 2004). 10.20 35% Secured Promissory Note in the principal amount of $435,000 issued by Snipes Productions, LLC to SPH Investments, Inc., Capital Growth Trust, HMA Investment Profit Sharing Plan and Continental Southern Resources, Inc. dated June 27, 2002 as amended through April 11, 2003 and October 30, 2003 (incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2003 filed on February 13, 2004). 10.21 Warrants to purchase 10,000 shares of common stock issued to Trident Growth Fund, L.P. dated September 11, 2003 (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2003 filed on February 13, 2004). 10.22 Stock Purchase Warrant to purchase 2,500 shares of common stock issued to Middle Fork Investments Ltd. dated April 5, 2004 (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-QSB filed on June 15, 2004). 10.23 Stock Purchase Warrant to purchase 121,875 shares of common stock issued to Middle Fork Investments Ltd. dated April 5, 2004 (incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-QSB filed on June 15, 2004). 10.24 Agreement dated as of August 12, 2004 by and between Gerry Anderson Productions PLC and TriMedia Entertainment Group, Inc. (incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K filed on September 10, 2004). 19 10.25 Stock Purchase Warrant to purchase 50,000 shares of common stock issued to Larry Feinstein dated June 1, 2004 (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-QSB filed on September 14, 2004). 10.26 10% Demand Promissory Note in the principal amount of $50,000 issued to 1025 Investments, Inc. dated June 1, 2004 (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-QSB filed on September 14, 2004). 10.27 10% Demand Promissory Note in the principal amount of $40,000 issued to 1025 Investments, Inc. dated June 14, 2004 (incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-QSB filed on September 14, 2004). 10.28 Stock Purchase Warrant to purchase 62,500 shares of common stock issued to K. David Stevenson dated June 25, 2004 (incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-QSB filed on September 14, 2004). 10.29 10% Demand Promissory Note in the principal amount of $50,000 issued to K. David Stevenson dated June 25, 2004 (incorporated by reference to Exhibit 10.5 of the Quarterly Report on Form 10-QSB filed on September 14, 2004). 10.30 Stock Purchase Warrant to purchase 62,500 shares of common stock issued to K. David Stevenson dated August 13, 2004 (incorporated by reference to Exhibit 10.6 of the Quarterly Report on Form 10-QSB filed on September 14, 2004). 10.31 10% Demand Promissory Note in the principal amount of $50,000 issued to K. David Stevenson dated August 13, 2004 (incorporated by reference to Exhibit 10.7 of the Quarterly Report on Form 10-QSB filed on September 14, 2004). 10.32 Loan Agreement Between Fairbairn Private Bank Limited and TM Film Distribution, Inc. (incorporated by reference to Exhibit 10.1 of Current Report on Form 8-K filed on January 5, 2005). 10.33 Lease Agreement by and between Delpar L.P. and TriMedia Entertainment Group, Inc. (incorporated by reference to Exhibit 10.36 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2004 filed on January 31, 2005). 10.34 Sale and Purchase Agreement between TriMedia Film Group, Inc. and Keydata Media and Marketing I, LLP dated as of October 2004 (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2004 filed on January 31, 2005). 10.35 Distribution Agreement between Keydata Media and Marketing I, LLP and TM Film Distribution, Inc. dated as of October 2004 (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-KSB for the fiscal year ended October 31, 2004 filed on January 31, 2005). 10.36 Secured Convertible Term Note dated May 5, 2005 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on June 8, 2005). 10.37 Securities Purchase Agreement dated May 5, 2005 by and between TriMedia Entertainment Group, Inc. and IL Resources, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 8, 2005). 10.38 Securities Pledge Agreement dated May 5, 2005 by and between TriMedia Entertainment Group, Inc. and IL Resources, LLC (incorporated by reference to Exhibit 10.3 to the Current Report on From 8-K filed on June 8, 2005). 10.39 Security Agreement dated May 5, 2005 by and between TriMedia Entertainment Group, Inc. and IL Resources, LLC (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on June 8, 2005). 10.40 Subsidiary Guaranty dated May 5, 2005 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on June 8, 2005). 10.41 Consulting Agreement dated December 20, 2005 by and between TriMedia Entertainment Group, Inc. and Walt Beach (incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-KSB filed on March 1, 2006). 31.1 Certification dated March 17, 2006 pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Christopher Schwartz, Chief Executive Officer and Chief Financial Officer. 20 32.1 Certification dated March 17, 2006 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by Christopher Schwartz, Chief Executive Officer and Chief Financial Officer. (b) On December 22, 2005, we filed a Current Report on Form 8-K announcing the resignation of Joseph Safina as a member of our board of directors. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRIMEDIA ENTERTAINMENT GROUP, INC. Date: March 17, 2006 /s/ Christopher Schwartz --------------------------------- Christopher Schwartz Chief Executive Officer and Chief Financial Officer (principal financial officer and principal accounting officer) EX-31 2 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 ------------ Certification of Principal Executive Officer required by SEC Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)) I, Christopher Schwartz, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of TriMedia Entertainment Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. March 17, 2006 By: /s/ Christopher Schwartz --------------------------- Christopher Schwartz Chief Executive Officer and Chief Financial Officer EX-32 3 ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-QSB for the period ending January 31, 2006 as filed with the Securities and Exchange Commission by TriMedia Entertainment Group, Inc. (the "Company") on the date hereof (the "Report"), Christopher Schwartz, Chief Executive Officer and Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. March 17, 2006 /s/ Christopher Schwartz --------------------------------------------------- Christopher Schwartz Chief Executive Officer and Chief Financial Officer This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----