California
|
20-4118216
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
5820 Oberlin Drive, Ste 203, San Diego, California
|
92121
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s telephone number, including area code
|
(858) 450-2900
|
Securities to be registered under Section 12(b) of the Act:
|
|
Title of each class
to be so registered
|
Name of each exchange on which
each class is to be registered
|
None
|
n/a
|
Securities to be registered pursuant to Section 12(g) of the Act:
|
Common stock, no par value
|
(Title of class)
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
x
|
ITEM 1.
|
BUSINESS.
|
1
|
ITEM 1A.
|
RISK FACTORS.
|
9
|
ITEM 2.
|
FINANCIAL INFORMATION.
|
9
|
ITEM 3.
|
PROPERTIES.
|
20
|
ITEM 4.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
|
20
|
ITEM 5.
|
DIRECTORS AND EXECUTIVE OFFICERS.
|
22
|
ITEM 6.
|
EXECUTIVE COMPENSATION.
|
24
|
ITEM 7.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
|
27
|
ITEM 8.
|
LEGAL PROCEEDINGS.
|
28
|
ITEM 9.
|
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
|
29
|
ITEM 10.
|
RECENT SALES OF UNREGISTERED SECURITIES.
|
30
|
ITEM 11.
|
DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.
|
32
|
ITEM 12.
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
|
33
|
ITEM 13.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
33
|
ITEM 14.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|
33
|
ITEM 15.
|
FINANCIAL STATEMENTS AND EXHIBITS.
|
33
|
Years Ended December 31,
|
||||||||
2010
|
2009
|
|||||||
Total Revenue
|
$ | 3,972,663 | $ | 3,303,038 | ||||
Net Loss
|
$ | (692,883 | ) | $ | (1,850,891 | ) | ||
Total Assets
|
$ | 2,299,748 | $ | 2,374,133 | ||||
Total Liabilities
|
$ | 3,590,964 | $ | 3,286,123 | ||||
Accumulated Deficit
|
$ | (6,768,156 | ) | $ | (6,075,273 | ) | ||
Three Months Ended March 31,
|
||||||||
2011 | 2010 | |||||||
Total Revenue
|
$ | 1,307,177 | $ | 975,598 | ||||
Net Loss
|
$ | (172,806 | ) | $ | (316,252 | ) | ||
Total Assets
|
$ | 2,000,740 | $ | 2,299,748 | ||||
Total Liabilities
|
$ | 3,231,745 | $ | 3,590,964 | ||||
Accumulated Deficit
|
$ | (6,940,962 | ) | $ | (6,768,156 | ) |
2010
|
2009
|
|||||||
Revenues
|
$
|
3,972,663
|
$
|
3,303,038
|
||||
Costs and Expenses
|
(4,012,788
|
)
|
(4,318,076
|
)
|
||||
Depreciation and Amortization
|
(694,698
|
)
|
(659,302
|
)
|
||||
Loss from Operations
|
(734,823
|
)
|
(1,674,340
|
)
|
||||
Other Income
|
46,060
|
20,914
|
||||||
Interest Expense
|
(70,406
|
)
|
(205,302
|
)
|
||||
Gain on Settlement of Debt
|
66,286
|
2,809
|
||||||
Gain/Loss on Disposition of Assets
|
-
|
5,028
|
||||||
Total Other Income
|
41,940
|
(176,551
|
)
|
|||||
Net Loss
|
$
|
(692,883
|
)
|
$
|
(1,850,891
|
)
|
||
Net Loss per common share
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
||
Weighted average shares outstanding
|
54,757,285
|
54,351,487
|
2010
|
2009
|
|||||||
Direct PEC Product Sales
|
$
|
1,661,809
|
$
|
2,435,116
|
||||
Licensed and Distributed Products
|
1,278,385
|
158,754
|
||||||
Licensing & Royalties
|
1,032,469
|
709,168
|
||||||
Total Revenue
|
$
|
3,972,663
|
$
|
3,303,038
|
2010
|
2009
|
|||||||
General and Administrative
|
$
|
1,397,191
|
$
|
2,256,918
|
||||
Marketing and Sales
|
678,188
|
597,837
|
||||||
Product Development
|
7,796
|
46,531
|
||||||
Total Selling, General, and Administrative
|
$
|
2,083,175
|
$
|
2,901,286
|
Three Months Ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Revenues
|
$ | 1,307,177 | $ | 975,598 | ||||
Costs and expenses
|
(1,404,008 | ) | (1,121,389 | ) | ||||
Depreciation and Amortization
|
(54,829 | ) | (169,400 | ) | ||||
Loss from Operations
|
(151,660 | ) | (315,191 | ) | ||||
Other Income
|
10,416 | 10,199 | ||||||
Interest Expense
|
(35,006 | ) | (11,260 | ) | ||||
Total Other Income
|
(24,590 | ) | (1,061 | ) | ||||
Net Loss
|
(176,250 | ) | (316,252 | ) | ||||
Net Loss attributable to Noncontrolling Interest
|
3,444 | - | ||||||
Net Loss attributable to Pacific Entertainment Corporation
|
$ | (172,806 | ) | $ | (316,252 | ) | ||
Net Loss per common share
|
$ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted average shares outstanding
|
55,116,515 | 54,595,407 |
Three Months Ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Direct PEC Product Sales
|
$ | 643,809 | $ | 373,458 | ||||
Licensed and Distrbuted Products
|
249,483 | 370,300 | ||||||
Licensing & Royalties
|
413,885 | 231,840 | ||||||
Total Revenue
|
$ | 1,307,177 | $ | 975,598 |
Three Months Ended March 31,
|
||||||||
2011
|
2010
|
|||||||
General and Administrative
|
$ | 480,284 | $ | 422,336 | ||||
Marketing and Sales
|
364,552 | 228,683 | ||||||
Product Development
|
5,263 | - | ||||||
Total Selling, General, and Administrative
|
$ | 850,099 | $ | 651,019 |
Twelve
Months
|
Twelve
Months
|
|||||||||||
Ending
|
Ending
|
|||||||||||
12/31/2010
|
12/31/2009
|
Change
|
||||||||||
Cash provided/(used) by operations
|
$
|
151,965
|
$
|
199,586
|
$
|
(47,621
|
)
|
|||||
Cash provided/(used) in investing activities
|
$
|
(261,636
|
)
|
$
|
(187,876
|
)
|
$
|
(73,760
|
)
|
|||
Cash provided/(used) in financing activities
|
$
|
69,686
|
$
|
(311,569
|
)
|
$
|
381,255
|
|||||
Increase/(decrease) in cash and cash equivalents
|
$
|
(39,985
|
)
|
$
|
(299,859
|
)
|
$
|
259,874
|
|
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
|
Three Months Ended March 31,
|
||||||||||||
2011
|
2010
|
Change
|
||||||||||
Cash provided (used) by operations
|
$ | (18,712 | ) | $ | (118,453 | ) | $ | 99,741 | ||||
Cash provided (used) in investing activities
|
(64,717 | ) | (36,831 | ) | (27,886 | ) | ||||||
Cash provided (used) in financing activities
|
145,000 | - | 145,000 | |||||||||
Increase (decrease) in cash and cash equivalents
|
$ | 61,571 | $ | (155,284 | ) | $ | 216,855 |
Title of Class
|
Name and Address of Beneficial Owner
|
Amount and Nature of Beneficial Ownership
|
Percent of Class(1)
|
|||
No par value common stock
|
Klaus Moeller
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
4,147,225 shares
|
11%
|
|||
No par value common stock
|
Michael Gene Meader and Suzanne Donayan Meader Trustees The Meader Family Trust dated June 27, 2002
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
4,391,133 shares
|
11%
|
|||
No par value common stock
|
Michael Gene Meader and Suzanne Donayan Meader Trustees of Ani Meader Trust dated July 25, 2006
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
1,500,000 shares
|
3%
|
|||
No par value common stock
|
Michael Gene Meader and Suzanne Donayan Meader Trustees of Mark Meader Trust dated July 25, 2006
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
1,500,000 shares
|
3%
|
|||
No par value common stock
|
Michael Gene Meader and Suzanne Donayan Meader Trustees of Anthony Meader Trust dated July 25, 2006
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
1,500,000 shares
|
3%
|
|||
No par value common stock
|
Larry Balaban and Sara Balaban Trustees of Balaban Family Trust dated December 13, 2005
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
7,801,134 shares
|
17%
|
|||
No par value common stock
|
Larry Balaban and Sara Balaban Trustees of Balaban Children’s Trust dated October 15, 2006
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
1,000,000 shares
|
2%
|
|||
No par value common stock
|
Howard Balaban
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
8,674,883 shares
|
18%
|
|||
No par value common stock
|
James Sommers
7095 Hollywood Blvd #833
Los Angeles, CA 90028
|
2,633,333 shares
|
5%
|
|||
No par value common stock
|
Jeanene Morgan
5820 Oberlin Dr., Suite 203
San Diego, CA 92121
|
8,740 shares
|
<1%
|
|||
No par value common stock
|
All officers and directors as a group
|
30,523,115 shares(1)
|
63%
|
(1)
|
Where persons listed on this table have the right to obtain additional shares of our common stock through the exercise of outstanding options or warrants or the conversion of convertible securities within 60 days from June 13, 2011, these additional shares are deemed to be beneficially owned for the purpose of computing the amount and percentage of common stock owned by such persons. As indicated in Section 6. Executive Compensation, the Company granted each of Messrs. Moeller, Howard Balaban, Larry Balaban and Michael G. Meader an option to purchase up to 2,000,000 shares of the Company’s common stock on January 20, 2009, the total shares of which were vested on December 31, 2009. On April 26, 2011, the Company signed new employment agreements which granted each of Messrs. Moeller, Meader, Howard Balaban, and Larry Balaban an additional option to purchase up to 1,000,000 shares of the Company’s common stock, 250,000 fully vested as of April 1, 2011, with the remaining option vesting as of April 1, 2012, 2013, and 2014 in the amount of 250,000 shares each year. The Company granted James Sommers an option to purchase up to 250,000 shares on June 21, 2010, which were fully vested as of that date. The Company granted Jeanene Morgan an option to purchase up to 50,000 shares on December 31, 2009, which were fully vested as of that date. The Company granted Jeanene Morgan an option to purchase up to 450,000 shares on December 31, 2010, 150,000 were fully vested as of that date, with the remaining options vesting as of December 31, 2011, 2012, and 2013 in the amount of 100,000 shares each year. As a result, the percentage ownership interest of each such officer referenced in the table includes the 2,700,000 shares which could be purchased within 60 days of June 13, 2011. In addition, shares held by such officers as guardian for or in as trustees of trusts established for minor children are included in the table and are reflected in the aggregate number and percentage ownership for all officers and directors as a group. Each of Messrs. Moeller, Meader, Larry Balaban and Howard Balaban has the right of first refusal for shares owned by Tia Moeller (1,000,000 shares) and Shelly Moeller (3,140,000 shares). These shares were not included in the beneficial ownership calculation of the respective officers’ percentages. Percentages are based on total outstanding shares on June 13, 2011 of 60,448,815.
|
Name
|
Age
|
Position
|
|||
Klaus Moeller
5820 Oberlin Drive, Suite 203
San Diego, California 92121
|
50
|
Chief Executive Officer and Chairman of the Board/Director
|
|||
Michael G. Meader
5820 Oberlin Drive, Suite 203
San Diego, California 92121
|
45
|
President and Director
|
|||
Larry Balaban
5820 Oberlin Drive, Suite 203
San Diego, California 92121
|
47
|
Chief Creative Officer and Director
|
|||
Howard Balaban
5820 Oberlin Drive, Suite 203
San Diego, California 92121
|
50
|
Executive Vice President of New Business Development and Director
|
|||
Jeanene Morgan
5820 Oberlin Dr. Ste 203
San Diego, CA 92121
|
54
|
Chief Financial Officer
|
|||
Saul Hyatt
5820 Oberlin Drive, Suite 203
San Diego, California 92121
|
48
|
Director*
|
Salary Compensation Table
|
||||||||||||||||||||
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Option Awards
($)
|
All Other Compensation ($)
|
Total ($)
|
||||||||||||||
Klaus Moeller,
|
2009
|
142,500
|
(2)
|
—
|
324,359
|
(5)
|
11,400
|
(1)
|
478,259
|
|||||||||||
Chief Executive Officer
|
2010
|
68,600
|
(3)
|
—
|
—
|
11,400
|
(1)
|
80,000
|
||||||||||||
Michael G. Meader,
|
2009
|
142,500
|
(2)
|
—
|
324,359
|
(5)
|
11,400
|
(1)
|
478,259
|
|||||||||||
President
|
2010
|
68,600
|
(3)
|
—
|
—
|
11,400
|
(1)
|
80,000
|
||||||||||||
Larry Balaban,
|
2009
|
142,500
|
(2)
|
—
|
324,359
|
(5)
|
11,400
|
(1)
|
478,259
|
|||||||||||
Chief Creative Officer and Secretary
|
2010
|
68,600
|
(3)
|
—
|
—
|
11,400
|
(1)
|
80,000
|
||||||||||||
Howard Balaban,
|
2009
|
142,500
|
(2)
|
—
|
324,359
|
(5)
|
11,400
|
(1)
|
478,259
|
|||||||||||
EVP of Business Development
|
2010
|
68,600
|
(3)
|
—
|
—
|
11,400
|
(1)
|
80,000
|
||||||||||||
Jeanene Morgan,
|
2010
|
5,000
|
(4)
|
—
|
22,500
|
(6)
|
125,000
|
(4)
|
152,500
|
|||||||||||
Chief Financial Officer
|
||||||||||||||||||||
(1)
|
Represents car allowances paid to each officer out of a total authorized car allowance of $11,400 for each officer for the period ended December 31, 2009 and 2010.
|
|||||||||||||||||||
(2)
|
Authorized salaries for each officer for the fiscal year ended December 31, 2009 were $195,000, of which $97,500 was accrued and remains unpaid as to each officer. On April 1, 2009, each of the four officers agreed to a salary reduction to $125,000, resulting in a prorated total salary calculation of $142,500 for the year. As of September 30, 2010, this balance was converted to subordinated, long term debt.
|
|||||||||||||||||||
(3)
|
Authorized salaries for each officer for the fiscal year ended December 31, 2010 were $210,000. On April 1, 2009, each of the four officers agreed to a salary reduction to $125,000. On February 11, 2011 each of the four officers agreed to a retroactive salary reduction for 2010 to $80,000 inclusive of the car allowance, of which $19,200 remains unpaid. As of September 30, 2010, this balance was converted to subordinated, long term debt.
|
|||||||||||||||||||
(4)
|
Authorized salary for Ms. Morgan for the fiscal year ended December 31, 2010 was $130,000. Ms. Morgan began employment on December 26, 2010. Prior to her employment she acted as a consultant for the company to advise on accounting and financial procedures and reporting.
|
|||||||||||||||||||
(5)
|
Options were granted pursuant to previous employment agreements, which provided for the grant of stock options to the respective officer to purchase up to 2,000,000 shares of common stock and vesting as to 500,000 shares on the date of the agreement, 750,000 shares on the first anniversary date and 750,000 shares on the second anniversary date. Each option is currently fully vested and exercisable as to all 2,000,000 shares and will expire on January 20, 2014. Each option was granted at an exercise price equal to 110% of fair market value (five-day average trading price) on the date of grant. The Board granted the options after having adopted the Company’s 2008 Stock Option Plan on December 15, 2008 and following shareholder approval of the plan on December 29, 2008. The vesting schedule of the options was accordingly adjusted to account for the late grant date, so that each option was vested as to 1,250,000 shares on the date of grant and vested as to the remainder on December 31, 2009. Each option was fully expensed as to 1,250,000 in 2008. This figure represents the amount expensed in 2009. The aggregate fair value of the options on the date of grant was computed in accordance with FASB ASC Topic 718 (see Note 9 to the financial statements for the fiscal years ended December 31, 2010 and December 31, 2009).
|
|||||||||||||||||||
(6)
|
During 2009, while acting as a consultant, options to purchase up to 50,000 shares were issued and vested as of December 31, 2009 with an expiration date of December 14, 2014. As part of the offer of employment, Ms. Morgan was granted options to purchase up to 450,000 shares on December 31, 2010, with 150,000 vesting on issuance and 100,000 vesting per annum on December 31, 2011, 2012, and 2013. The option was granted at an exercise price equal to 100% of the fair market value (five-day average trading price) of our common stock on the grant date. This option is currently vested and exercisable as to 150,000 shares and will expire on December 31, 2014. The aggregate fair value of the option on the date of grant was computed in accordance with FASB ASC Topic 718 (see Note 9 to the financial statements for the fiscal years ended December 31, 2010 and December 31, 2009).
|
Name
|
Option awards
|
Stock awards
|
||||||||||||||||
Number of securities underlying unexercised options
(#) exercisable
|
Number of securities
underlying
unexercised
options
(#) unexercisable
|
Equity
incentive
plan awards: Number of
securities
underlying
unexercised
unearned
options
(#)
|
Option
exercise price
($)
|
Option expiration date
|
Number of shares or units of stock that have not vested
(#)
|
Market value of shares of units of stock that have not vested
($)
|
Equity
incentive
plan awards: Number of
unearned
shares, units or other rights that have not vested
(#)
|
Equity
incentive
plan awards: Market or payout value of
unearned
shares, units or other rights that have not vested
($)
|
||||||||||
Klaus Moeller
|
2,000,000
|
0
|
0
|
$0.44
|
01/20/2014
|
0
|
0
|
0
|
0
|
|||||||||
Michael Meader
|
2,000,000
|
0
|
0
|
$0.44
|
01/20/2014
|
0
|
0
|
0
|
0
|
|||||||||
Larry Balaban
|
2,000,000
|
0
|
0
|
$0.44
|
01/20/2014
|
0
|
0
|
0
|
0
|
|||||||||
Howard Balaban
|
2,000,000
|
0
|
0
|
$0.44
|
01/20/2014
|
0
|
0
|
0
|
0
|
|||||||||
Jeanene Morgan
|
50,000
|
0
|
0
|
$0.55
|
12/31/2014
|
0
|
0
|
0
|
0
|
|||||||||
150,000(1)
0
0
0
|
0
0
0
0
|
0
100,000(1)
100,000(1)
100,000(1)
|
$0.336
$0.336
$.0336
$0.336
|
12/31/2015
12/31/2016
12/31/2017
12/31/2018
|
0
0
0
0
|
0
0
0
0
|
0
0
0
0
|
0
0
0
0
|
(1)
|
Options were granted as part of offer of employment. Options to purchase up to 450,000 shares of common stock were granted on December 31, 2010, with 150,000 vesting on issuance and 100,000 vesting per annum on December 31, 2011, 2012, and 2013.
|
Quarter Ending
|
Quarter High
|
Quarter Low
|
||
09/30/2009
|
$0.80
|
$0.35
|
||
12/31/2009
|
$0.90
|
$0.25
|
||
03/31/2010
|
$0.50
|
$0.45
|
||
06/30/2010
|
$0.50
|
$0.40
|
||
09/30/2010
|
$0.50
|
$0.25
|
||
12/31/2010
|
$0.35
|
$0.28
|
||
03/31/2011
|
$0.35
|
$0.25
|
||
06/30/2011
|
$0.40
|
$0.15
|
(a)
|
(b)
|
(c)
|
|||||
Plan category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
Weighted-average exercise price of outstanding options, warrants and rights
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
||||
Equity compensation plans approved by shareholders(1)
|
8,970,000
|
$0.44
|
7,005,000
|
||||
Equity compensation plans not approved by shareholders
|
0
|
$0.00
|
0
|
||||
Total
|
8,970,000
|
$0.44
|
7,005,000
|
(1)
|
On April 4, 2011, the majority shareholders of the Company adopted an amendment to the Company’s 2008 Stock Option Plan to increase the number of shares of common stock issuable under the plan from 11,000,000 to 16,000,000. Taking into account the amendment as well as options granted since December 31, 2010, the total number of securities to be issued as set forth in column (a) would be 13,955,000 and the number of shares remaining for issuance under the plan would be 2,005,000 as of June 13, 2011. The weighted-average exercise price of outstanding options granted under the plan would remain the same.
|
Date: July 26 , 2011
|
PACIFIC ENTERTAINMENT CORPORATION
|
||
By:
|
/s/ Klaus Moeller, Chief Executive Officer
|
||
Klaus Moeller, Chief Executive Officer
|
Exhibit No.
|
Description
|
|
3.1+
|
Articles of Incorporation
|
|
3.2+
|
Bylaws
|
|
4.1+
|
Form of Stock Certificate
|
|
4.2+
|
2008 Stock Option Plan
|
|
4.3+
|
First Amendment to 2008 Stock Option Plan
|
|
4.4+
|
Second Amendment to 2008 Stock Option Plan
|
|
4.5+
|
Form of Stock Option Grant Notice
|
|
4.6+
|
Form of Warrant
|
|
10.1+
|
Employment Agreement of Klaus Moeller
|
|
10.2+
|
Employment Agreement of Michael G. Meader
|
|
10.3+
|
Employment Agreement of Larry Balaban
|
|
10.4+
|
Employment Agreement of Howard Balaban
|
|
10.5+
|
Amended and Restated Subordinated Promissory Note to Klaus Moeller
|
|
10.6+
|
Amended and Restated Subordinated Promissory Note to Michael G. Meader
|
|
10.7+
|
Amended and Restated Subordinated Promissory Note to Larry Balaban
|
|
10.8+
|
Amended and Restated Subordinated Promissory Note to Howard Balaban
|
|
10.9+
|
Promissory Note to Klaus Moeller
|
|
10.10+
|
Promissory Note to Michael G. Meader
|
|
10.11+
|
Promissory Note to Larry Balaban
|
|
10.12+
|
Promissory Note to Howard Balaban
|
|
10.13**
|
Merchandise License Agreement with Jakks Pacific*
|
|
10.14+
|
Joint Venture Agreement between Pacific Entertainment Corporation and Dr. Shulamit Ritblatt dated September 20, 2011
|
|
10.15+
|
Operating Agreement of Circle of Education, LLC
|
|
10.16+
|
Promissory Note to Isabel Moeller dated September 30, 2010
|
|
10.17+
|
Agreement to Convert Debt Into Equity between Pacific Entertainment Corporation and Isabel Moeller dated April 1, 2011
|
|
10.18**
|
Distribution Agreement between Pacific Entertainment Corporation and Global Access Entertainment, Inc. dated November 17, 2009*
|
|
21
|
List of Subsidiaries
|
*
|
Confidential treatment has been requested with respect to certain portions of this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, and 17 CFR 200.83. Omitted portions have been filed separately with the Securities and Exchange Commission.
|
**
|
Filed herewith.
|
+
|
Incorporated by reference from Registration Statement on Form 10 filed with the Securities & Exchange Commission on May 4, 2011.
|
Page No.
|
|
Audited Financial Statements for the Twelve-month Period Ended December 31, 2010
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
FINANCIAL STATEMENTS
|
|
Balance Sheets
|
F-3
|
Statements of Operations
|
F-4
|
Statements of Stockholders’ Equity (Deficit)
|
F-5
|
Statements of Cash Flows
|
F-6
|
Notes to Financial Statements
|
F-7
|
Unaudited Consolidated Financial Statements for the Three-month Period Ended March 31, 2011
|
|
FINANCIAL STATEMENTS
|
|
Balance Sheets
|
F-24
|
Statements of Operations
|
F-25
|
Statements of Stockholders’ Equity (Deficit)
|
F-26
|
Statements of Cash Flows
|
F-27
|
Notes to Financial Statements
|
F-28
|
ASSETS
|
2010
|
2009
|
||||||
Current Assets:
|
||||||||
Cash
|
$
|
207,880
|
$
|
247,865
|
||||
Accounts Receivable, net
|
1,077,685
|
804,406
|
||||||
Inventory
|
247,505
|
157,498
|
||||||
Prepaid and Other Assets
|
55,376
|
45,000
|
||||||
Total Current Assets
|
1,588,446
|
1,254,769
|
||||||
Property and Equipment, net
|
35,168
|
31,932
|
||||||
Capitalized Product Development in Process
|
75,515
|
44,724
|
||||||
Intangible Assets, net
|
547,611
|
1,042,708
|
||||||
Long Term Investment – Circle of Education, LLC
|
53,008
|
-
|
||||||
Total Assets
|
$
|
2,299,748
|
$
|
2,374,133
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
Current Liabilities:
|
||||||||
Accounts Payable
|
$
|
948,428
|
$
|
680,787
|
||||
Accrued Expenses
|
221,739
|
232,099
|
||||||
Accrued Salaries and Wages
|
62,551
|
1,602,820
|
||||||
Accrued Interest - Debentures
|
19,049
|
18,052
|
||||||
Notes Payable – Related Parties
|
-
|
752,365
|
||||||
Total Current Liabilities
|
1,251,767
|
3,286,123
|
||||||
Long Term Liabilities:
|
||||||||
Notes Payable and Accrued Interest – Related Parties
|
2,339,197
|
-
|
||||||
Total Liabilities
|
3,590,964
|
3,286,123
|
||||||
Stockholders’ Equity (Deficit):
|
||||||||
Common Stock, no par value, 100,000,000 shares authorized; 55,116,515 and 54,595,407 shares issued and outstanding, respectively
|
3,390,875
|
3,194,828
|
||||||
Additional Paid in Capital
|
2,086,065
|
1,968,455
|
||||||
Accumulated Deficit
|
(6,768,156
|
)
|
(6,075,273
|
)
|
||||
Total Stockholders’ Equity (Deficit)
|
(1,291,216
|
)
|
(911,990
|
)
|
||||
Total Liabilities & Stockholders’ Equity (Deficit)
|
$
|
2,299,748
|
$
|
2,374,133
|
Revenues:
|
2010
|
2009
|
||||||
Product Sales
|
$
|
2,940,194
|
$
|
2,593,870
|
||||
Licensing & Royalties
|
1,032,469
|
709,168
|
||||||
Total Revenues
|
3,972,663
|
3,303,038
|
||||||
Cost of Sales
|
1,929,613
|
1,416,790
|
||||||
Gross Profit
|
2,043,050
|
1,886,248
|
||||||
Operating Expenses:
|
||||||||
Product Development
|
7,796
|
46,531
|
||||||
Professional Services
|
312,818
|
396,013
|
||||||
Rent Expense
|
146,979
|
130,299
|
||||||
Marketing & Sales
|
678,188
|
597,837
|
||||||
Depreciation & Amortization
|
694,698
|
659,302
|
||||||
Salaries and Related Expenses
|
613,787
|
1,062,996
|
||||||
Stock Compensation Expense
|
117,610
|
518,534
|
||||||
General & Administrative
|
205,997
|
149,076
|
||||||
Total Operating Expenses
|
2,777,873
|
3,560,588
|
||||||
Loss from Operations
|
(734,823
|
)
|
(1,674,340
|
)
|
||||
Other Income (Expense):
|
||||||||
Other Income
|
46,060
|
20,914
|
||||||
Interest Expense
|
(2,349
|
)
|
(143,781
|
)
|
||||
Interest Expense – Related Parties
|
(68,057
|
)
|
(61,521
|
)
|
||||
Gain on Settlement of Debt
|
66,286
|
2,809
|
||||||
Gain/(Loss) on Disposition of Intangible Assets
|
-
|
5,028
|
||||||
Net Other Income (Expense)
|
41,940
|
(176,551
|
)
|
|||||
Loss before Income Taxes
|
(692,883
|
)
|
(1,850,891
|
)
|
||||
Income Tax
|
-
|
-
|
||||||
Net Loss
|
$
|
(692,883
|
)
|
$
|
(1,850,891
|
)
|
||
Net Loss per common share
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
||
Weighted average shares outstanding
|
54,757,285
|
54,351,487
|
Common Stock
|
Additional Paid in
|
Accumulated
|
||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
Balance, December 31, 2008
|
53,932,500
|
$
|
2,945,234
|
$
|
619,681
|
$
|
(4,224,382
|
)
|
$
|
(659,467
|
)
|
|||||||||
Common Stock Issued for Cash
|
250,000
|
100,000
|
-
|
-
|
100,000
|
|||||||||||||||
Common Stock Issued for Interest
|
347,907
|
139,163
|
-
|
-
|
139,163
|
|||||||||||||||
Stock Offering Costs
|
-
|
(15,569
|
)
|
-
|
-
|
(15,569
|
)
|
|||||||||||||
Common Stock Issued for Services
|
65,000
|
26,000
|
-
|
-
|
26,000
|
|||||||||||||||
Stock Compensation Expense
|
-
|
-
|
518,534
|
-
|
518,534
|
|||||||||||||||
Stock Options Granted for Accrued Stock Compensation
|
-
|
-
|
810,898
|
-
|
810,898
|
|||||||||||||||
Imputed Interest on Related Party
|
||||||||||||||||||||
Notes Payable
|
-
|
-
|
19,342
|
-
|
19,342
|
|||||||||||||||
Net Loss
|
-
|
-
|
-
|
(1,850,891
|
)
|
(1,850,891
|
)
|
|||||||||||||
Balance, December 31, 2009
|
54,595,407
|
3,194,828
|
1, 968,455
|
(6,075,273
|
)
|
(911,990
|
)
|
|||||||||||||
Common Stock Issued for Cash
|
471,108
|
188,443
|
-
|
-
|
188,443
|
|||||||||||||||
Stock Offering Costs
|
-
|
(17,396
|
)
|
-
|
-
|
(17,396
|
)
|
|||||||||||||
Common Stock Issued for Services
|
50,000
|
25,000
|
-
|
-
|
25,000
|
|||||||||||||||
Stock Compensation Expense
|
-
|
-
|
117,610
|
-
|
117,610
|
|||||||||||||||
Net Loss
|
-
|
-
|
-
|
(692,883
|
)
|
(692,883
|
)
|
|||||||||||||
Balance, December 31, 2010
|
55,116,515
|
$
|
3,390,875
|
$
|
2,086,065
|
$
|
(6,768,156
|
)
|
$
|
(1,291,216
|
)
|
Cash Flows from Operating Activities:
|
2010
|
2009
|
||||||
Net Loss
|
$
|
(692,883
|
)
|
$
|
(1,850,891
|
)
|
||
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
Depreciation Expense
|
19,650
|
12,550
|
||||||
Amortization Expense
|
675,048
|
646,752
|
||||||
Gain/Loss on Disposal of Intangible Assets
|
-
|
(5,028
|
)
|
|||||
Issuance of Common Stock for Interest
|
-
|
139,163
|
||||||
Issuance of Common Stock for Services
|
-
|
26,000
|
||||||
Capital Contribution Related Party Interest
|
-
|
19,342
|
||||||
Gain on Settlement of Debt
|
(66,286
|
)
|
(2,809
|
)
|
||||
Stock Compensation Expense
|
117,610
|
518,534
|
||||||
Decrease (increase) in operating assets
|
||||||||
Accounts Receivable
|
(273,279
|
)
|
(209,338
|
)
|
||||
Inventory
|
(90,007
|
)
|
153,507
|
|||||
Prepaid Expenses & Other Assets
|
(10,376
|
)
|
(13,060
|
)
|
||||
Other Receivable
|
-
|
14,862
|
||||||
Increase (decrease) in operating liabilities
|
||||||||
Accounts Payable
|
333,927
|
109,064
|
||||||
Accrued Salaries
|
79,867
|
384,439
|
||||||
Stock Compensation Expense
|
-
|
-
|
||||||
Accrued Interest
|
997
|
2,500
|
||||||
Accrued Interest – Related Party
|
68,057
|
42,180
|
||||||
Other Accrued Expenses
|
(10,360
|
)
|
211,819
|
|||||
Net cash provided by operating activities
|
151,965
|
199,586
|
||||||
Cash Flows from Investing Activities:
|
||||||||
Investment in Product Masters
|
(185,742
|
)
|
(166,227
|
)
|
||||
Investment in Circle of Education
|
(53,008
|
)
|
-
|
|||||
Purchase of Fixed Assets
|
(22,886
|
)
|
(21,649
|
)
|
||||
Net cash (used) by investing activities
|
(261,636
|
)
|
(187,876
|
)
|
||||
Cash Flows from Financing Activities:
|
||||||||
Sale of Common Stock
|
188,443
|
100,000
|
||||||
Common Stock Offering Cost
|
(17,396
|
)
|
(15,569
|
)
|
||||
Proceeds from Related Party Debt
|
-
|
4,000
|
||||||
Payments on Related Party Debt
|
(101,361
|
)
|
(400,000
|
)
|
||||
Net cash provided/(used) by financing activities
|
69,686
|
(311,569
|
)
|
|||||
Net decrease in cash
|
(39,985
|
)
|
(299,859
|
)
|
||||
Cash at Beginning of Year
|
247,865
|
547,724
|
||||||
Cash at End of Year
|
$
|
207,880
|
$
|
247,865
|
||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid for interest
|
$
|
2,349
|
$
|
2,118
|
||||
Cash paid for income taxes
|
$
|
-
|
$
|
-
|
||||
Schedule of non-cash financing and investing activities:
|
||||||||
Stock Issued for Intangible Assets
|
$
|
25,000
|
$
|
-
|
||||
Accrued Salaries and wages converted to Long Term Notes Payable
|
$
|
1,620,137
|
$
|
-
|
||||
Accrued Interest rolled into Notes
|
$
|
-
|
$
|
113,865
|
||||
Accrued Stock Compensation reclassified to Additional Paid in Capital
|
$
|
-
|
$
|
810,898
|
||||
Accounts Payable traded for Fixed Assets
|
$
|
-
|
$
|
16,885
|
● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; | |
● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | |
● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
2010
|
2009
|
|||||||
Furniture and Equipment
|
$
|
76,986
|
$
|
54,099
|
||||
Less Accumulated Depreciation
|
(41,818
|
)
|
(22,167
|
)
|
||||
Net Fixed Assets
|
$
|
35,168
|
$
|
31,932
|
2010
|
2009
|
|||||||
Trademarks
|
$
|
129,831
|
$
|
129,831
|
||||
Product Masters
|
3,202,712
|
3,122,779
|
||||||
Other Intangible Assets
|
223,282
|
123,264
|
||||||
Less Accumulated Amortization
|
(3,008,214
|
)
|
(2,333,166
|
)
|
||||
Net Intangible Assets
|
$
|
547,611
|
$
|
1 ,042,708
|
2010
|
2009
|
|||||||
Allowance for Sales Returns
|
$
|
76,000
|
$
|
76,000
|
||||
Common Marketing Fund
|
-
|
51,530
|
||||||
Commission on Royalties
|
71,485
|
83,492
|
||||||
Royalties Payable
|
44,940
|
10,715
|
||||||
Other Accrued Expenses
|
29,314
|
10,362
|
||||||
Total Accrued Expenses
|
$
|
221,739
|
$
|
232,099
|
2010
|
2009
|
|||||||
Related Party Note Payable to PEC
|
$
|
360,840
|
$
|
360,840
|
||||
Accrued Interest on Related Party Note
|
22,142
|
-
|
||||||
Officer Loans to PEC
|
311,987
|
391,525
|
||||||
Subordinated Officer Loans to PEC
|
1,620,137
|
-
|
||||||
Accrued Interest on Subordinated Loans
|
24,090
|
-
|
||||||
Total Notes Payable and Accrued Interest
|
2,339,197
|
752,365
|
||||||
Less: Current Portion
|
-
|
752,365
|
||||||
Long Term Portion
|
$
|
2,339,197
|
$
|
-
|
2010
|
2009
|
|||||||
Deferred tax assets:
|
||||||||
NOL Carryover
|
$
|
1,137,838
|
$
|
1,043,162
|
||||
Accrued Expenses
|
120,842
|
95,652
|
||||||
Accrued Compensation
|
631,853
|
601,901
|
||||||
Depreciation
|
65,610
|
68,342
|
||||||
Charitable Contributions
|
2,406
|
2,016
|
||||||
Valuation allowance
|
(1,958,549
|
)
|
(1,811,073
|
)
|
||||
Net deferred tax asset
|
$
|
-
|
$
|
-
|
2010
|
2009
|
|||||||
Book Loss
|
$
|
(270,225
|
)
|
$
|
(721,847
|
)
|
||
Charitable
|
390
|
-
|
||||||
Depreciation
|
(2,731
|
)
|
(1,828
|
)
|
||||
Accrued Expenses
|
-
|
(19,110
|
)
|
|||||
Meals & Entertainment
|
2,449
|
3,595
|
||||||
Accrued Compensation
|
28,989
|
152,404
|
||||||
Gain/Loss
|
-
|
998
|
||||||
Stock for Service
|
55,618
|
212,369
|
||||||
Interest
|
-
|
7,543
|
||||||
Related Party Interest
|
26,153
|
10,385
|
||||||
Valuation Allowance
|
159,357
|
355,491
|
||||||
$
|
-
|
$
|
-
|
2011
|
||||
Minimum Rentals
|
$
|
34,532
|
||
Less: Sublease Rentals
|
(24,338
|
)
|
||
Total
|
$
|
10,194
|
Risk-free interest rate
|
1.48%
|
Expected life in years
|
5
|
Dividend yield
|
0
|
Expected volatility
|
48.43%
|
Risk-free interest rate
|
1.48%
|
Expected life in years
|
5
|
Dividend yield
|
0
|
Expected volatility
|
58.56%
|
Risk-free interest rate
|
1.21% – 2.01%
|
Expected life in years
|
3-5
|
Dividend yield
|
0
|
Expected volatility
|
68.54% - 80.23%
|
Weighted
|
Weighted
|
|||||||||||||||||||
Options Outstanding
|
Average
|
Average
|
||||||||||||||||||
Number
|
Exercise
|
Remaining
|
Aggregate
|
Exercise
|
||||||||||||||||
of
|
Price
|
Contractual
|
Intrinsic
|
Price
|
||||||||||||||||
Shares
|
per Share
|
Life
|
Value
|
per Share
|
||||||||||||||||
Balance at December 31, 2008
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Options Granted
|
8,130,000
|
$
|
0.44-0.55
|
5.00 years
|
-
|
$
|
0.44
|
|||||||||||||
Options Exercised
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Options Expired
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Balance at December 31, 2009
|
8,130,000
|
$
|
0.44-0.55
|
4.07 years
|
-
|
$
|
0.44
|
|||||||||||||
Options Granted
|
840,000
|
$
|
0.34-0.50
|
4.97 years
|
-
|
$
|
0.39
|
|||||||||||||
Options Exercised
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Options Expired
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Balance at December 31, 2010
|
8,970,000
|
$
|
0.34-0.55
|
3.25 years
|
-
|
$
|
0.44
|
|||||||||||||
Exercisable December 31, 2010
|
8,670,000
|
$
|
0.34-0.55
|
3.12 years
|
-
|
$
|
0.44
|
Number of Warrants
|
Exercise Price per Share
|
Weighted Average Exercise Price per Share
|
||||||||||
Balance at December 31, 2009
|
-
|
-
|
-
|
|||||||||
Warrants Granted
|
471,108
|
$
|
0.40
|
$
|
0.40
|
|||||||
Warrants Exercised
|
-
|
-
|
-
|
|||||||||
Warrants Expired
|
-
|
-
|
-
|
|||||||||
Balance at December 31, 2010
|
471,108
|
$
|
0.40
|
$
|
0.40
|
|||||||
Exercisable December 31, 2010
|
471,108
|
$
|
0.40
|
$
|
0.40
|
Number of Warrants Outstanding at December 31, 2010
|
Number of Warrants Exercisable at December 31, 2010
|
Expiration Date
|
Exercise Price
|
||||
471,108
|
471,108
|
2013
|
$
|
0.40
|
2011
|
500,000
|
|||
2012
|
660,000
|
|||
Total
|
$
|
1,160,000
|
Consolidated Balance Sheets
|
March 31, 2011
|
December 31, 2010
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash
|
$ | 269,451 | $ | 207,880 | ||||
Accounts Receivable, net
|
694,241 | 1,077,685 | ||||||
Inventory
|
224,774 | 247,505 | ||||||
Prepaid and Other Assets
|
91,085 | 55,376 | ||||||
Total Current Assets
|
1,279,551 | 1,588,446 | ||||||
Property and Equipment, net
|
36,175 | 35,168 | ||||||
Capitalized Product Development
|
187,242 | 128,523 | ||||||
Intangible Assets, net
|
497,772 | 547,611 | ||||||
Total Assets
|
$ | 2,000,740 | $ | 2,299,748 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
Current Liabilities:
|
||||||||
Accounts Payable
|
$ | 543,737 | $ | 948,428 | ||||
Accrued Expenses
|
192,315 | 221,739 | ||||||
Accrued Salaries and Wages
|
183,586 | 62,551 | ||||||
Accrued Interest - Debentures
|
19,049 | 19,049 | ||||||
Total Current Liabilities
|
938,687 | 1,251,767 | ||||||
Long Term Liabilities:
|
||||||||
Notes Payable – Related Parties and Accrued Interest
|
2,293,058 | 2,339,197 | ||||||
Total Liabilities
|
3,231,745 | 3,590,964 | ||||||
Stockholders’ Equity (Deficit)
|
||||||||
Common Stock, no par value, 100,000,000 shares authorized; 55,148,815 and 55,116,515 shares issued and outstanding, respectively
|
3,400,565 | 3,390,875 | ||||||
Common Stock Subscription Payable
|
225,000 | - | ||||||
Additional Paid in Capital
|
2,087,836 | 2,086,065 | ||||||
Accumulated Deficit
|
(6,940,962 | ) | (6,768,156 | ) | ||||
Total Pacific Entertainment Corporation Stockholders’ Equity (Deficit)
|
(1,227,561 | ) | (1,291,216 | ) | ||||
Noncontrolling Interest
|
(3,444 | ) | - | |||||
Total Stockholders’ Equity (Deficit)
|
(1,231,005 | ) | (1,291,216 | ) | ||||
Total Liabilities & Stockholders’ Equity (Deficit)
|
$ | 2,000,740 | $ | 2,299,748 |
Consolidated Statements of Operations (unaudited)
|
Three Months Ending March 31,
|
||||||||
2011
|
2010
|
|||||||
Revenues:
|
||||||||
Product Sales
|
$ | 893,292 | $ | 743,758 | ||||
Licensing & Royalties
|
413,885 | 231,840 | ||||||
Total Revenues
|
1,307,177 | 975,598 | ||||||
Cost of Sales (Excluding Depreciation)
|
553,908 | 470,370 | ||||||
Gross Profit
|
753,269 | 505,228 | ||||||
Operating Expenses:
|
||||||||
Product Development
|
5,263 | - | ||||||
Professional Services
|
66,860 | 99,665 | ||||||
Rent Expense
|
32,321 | 36,590 | ||||||
Marketing & Sales
|
364,552 | 228,683 | ||||||
Depreciation & Amortization
|
54,829 | 169,400 | ||||||
Salaries and Related Expenses
|
306,289 | 240,037 | ||||||
Stock Compensation Expense
|
1,771 | 3,834 | ||||||
Other General & Administrative
|
73,044 | 42,210 | ||||||
Total Operating Expenses
|
904,929 | 820,419 | ||||||
Loss from Operations
|
(151,660 | ) | (315,191 | ) | ||||
Other Income (Expense):
|
||||||||
Other Income
|
10,416 | 10,199 | ||||||
Interest Expense
|
(1,145 | ) | - | |||||
Interest Expense – Related Parties
|
(33,861 | ) | (11,260 | ) | ||||
Net Other Income (Expense)
|
(24,590 | ) | (1,061 | ) | ||||
Loss before Income Tax Expense and Noncontrolling Interest
|
(176,250 | ) | (316,252 | ) | ||||
Income Tax Expense
|
- | - | ||||||
Net Loss
|
(176,250 | ) | (316,252 | ) | ||||
Net Loss attributable to Noncontrolling Interest
|
3,444 | - | ||||||
Net Loss attributable to Pacific Entertainment Corporation
|
$ | (172,806 | ) | $ | (316,252 | ) | ||
Net Loss per common share
|
$ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted average shares outstanding
|
55,116,515 | 54,595,407 |
Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited)
|
Common Stock
|
Common Stock Subscription | Additional Paid in | Noncontrolling | Accumulated | ||||||||||||||||||||||||
Shares
|
Amount
|
Payable | Capital | Interest | Deficit | Total | ||||||||||||||||||||||
Balance, December 31, 2010 (audited)
|
55,116,515 | $ | 3,390,875 | $ | - | $ | 2,086,065 | $ | - | $ | (6,768,156 | ) | $ | (1,291,216 | ) | |||||||||||||
Common Stock Issued for Services
|
32,300 | 9,690 | - | - | - | - | 9,690 | |||||||||||||||||||||
Common Stock Subscription Payable
|
- | - | 225,000 | - | - | - | 225,000 | |||||||||||||||||||||
Stock Compensation Expense
|
- | - | - | 1,771 | - | - | 1,771 | |||||||||||||||||||||
Noncontrolling Interest
|
- | - | - | - | (3,444 | ) | - | (3,444 | ) | |||||||||||||||||||
Net Loss
|
- | - | - | - | - | (172,806 | ) | (172,806 | ) | |||||||||||||||||||
Balance, March 31, 2011
|
55,148,815 | $ | 3,400,565 | $ | 225,000 | $ | 2,087,836 | $ | (3,444 | ) | $ | (6,940,962 | ) | $ | (1,231,005 | ) |
Consolidated Statements of Cash Flows (unaudited)
|
Three Months Ending March 31,
|
||||||||
2011
|
2010
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net Loss
|
$ | (176,250 | ) | $ | (316,252 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation Expense
|
3,668 | 4,367 | ||||||
Amortization Expense
|
51,162 | 165,033 | ||||||
Issuance of Common Stock for Services
|
9,690 | - | ||||||
Stock Compensation Expense
|
1,771 | 3,834 | ||||||
Decrease (increase) in operating assets
|
||||||||
Accounts Receivable
|
383,444 | 153,013 | ||||||
Inventory
|
22,731 | 31,066 | ||||||
Prepaid Expenses & Other Assets
|
(35,708 | ) | (23,020 | ) | ||||
Increase (decrease) in operating liabilities
|
||||||||
Accounts Payable
|
(404,691 | ) | (287,251 | ) | ||||
Accrued Salaries
|
121,034 | 131,913 | ||||||
Accrued Interest – Related Party
|
33,861 | 11,260 | ||||||
Other Accrued Expenses
|
(29,424 | ) | 7,584 | |||||
Net cash provided (used) in operating activities
|
(18,712 | ) | (118,453 | ) | ||||
Cash Flows from Investing Activities:
|
||||||||
Investment in Intangible Assets
|
(60,042 | ) | (27,093 | ) | ||||
Purchase of Fixed Assets
|
(4,675 | ) | (9,738 | ) | ||||
Net cash provided (used) by investing activities
|
(64,717 | ) | (36,831 | ) | ||||
Cash Flows from Financing Activities:
|
||||||||
Common Stock Subscription Payable
|
225,000 | - | ||||||
Payments on Related Party Debt
|
(80,000 | ) | - | |||||
Net cash provided (used) by financing activities
|
145,000 | - | ||||||
Net increase (decrease) in cash
|
61,571 | (155,284 | ) | |||||
Beginning Cash Balance
|
207,880 | 247,865 | ||||||
Ending Cash Balance
|
$ | 269,451 | $ | 92,581 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid for income taxes
|
$ | - | $ | - | ||||
Cash paid interest
|
$ | - | $ | - |
Notes to Consolidated Financial Statements
March 31, 2011 (unaudited)
|
March 31,
2011
|
December 31, 2010
|
|||||||
Furniture and Equipment
|
$ | 81,660 | $ | 76,986 | ||||
Less Accumulated Depreciation
|
(45,485 | ) | (41,818 | ) | ||||
Net Fixed Assets
|
$ | 36,175 | $ | 35,168 | ||||
Trademarks
|
$ | 129,831 | $ | 129,831 | ||||
Product Masters
|
3,202,712 | 3,202,712 | ||||||
Other Intangible Assets
|
224,605 | 223,282 | ||||||
Less Accumulated Amortization
|
(3,059,376 | ) | (3,008,214 | ) | ||||
Net Intangible Assets
|
$ | 497,772 | $ | 547,611 |
March 31, 2011
|
December 31, 2010
|
|||||||
Related Party Note Payable to PEC
|
$ | 346,840 | $ | 360,840 | ||||
Accrued Interest on Related Party Note
|
27,436 | 22,142 | ||||||
Officer Loans to PEC
|
249,995 | 311,988 | ||||||
Subordinated Officer Loans to PEC
|
1,620,137 | 1,620,137 | ||||||
Accrued Interest on Subordinated Loans
|
48,650 | 24,090 | ||||||
Total Notes Payable and Accrued Interest
|
2,293,058 | 2,339,197 | ||||||
Less: Current Portion
|
- | - | ||||||
Long Term Portion
|
$ | 2,293,058 | $ | 2,339,197 |
Risk-free interest rate | 1.21% – 2.01% |
Expected life in years | 3-5 |
Dividend yield | 0 |
Expected volatility | 68.54% - 80.23% |
Weighted
|
Weighted
|
|||||||||||||||||||
Options Outstanding
|
Average
|
Average
|
||||||||||||||||||
Number
|
Exercise
|
Remaining
|
Aggregate
|
Exercise
|
||||||||||||||||
of
|
Price
|
Contractual
|
Intrinsic
|
Price
|
||||||||||||||||
Shares
|
per Share
|
Life
|
Value
|
per Share
|
||||||||||||||||
Balance at December 31, 2010
|
8,970,000 | $ | 0.34-0.55 |
3.25 years
|
- | $ | 0.44 | |||||||||||||
Options Granted
|
25,000 | $ | 0.34 |
5.00 years
|
- | $ | 0.00 | |||||||||||||
Options Exercised
|
- | - | - | - | - | |||||||||||||||
Options Expired
|
- | - | - | - | - | |||||||||||||||
Balance at March 31, 2011
|
8,995,000 | $ | 0.34-0.55 |
3.01 years
|
- | $ | 0.44 | |||||||||||||
Exercisable March 31, 2011
|
8,695,000 | $ | 0.34-0.55 |
3.01 years
|
- | $ | 0.44 |
Number
|
Exercise
|
Weighted Average
|
||||||||||
of
|
Price
|
Exercise Price
|
||||||||||
Warrants
|
per Share
|
per Share
|
||||||||||
Exercisable December 31, 2010
|
471,108 | $ | 0.40 | $ | 0.40 | |||||||
Warrants Granted
|
- | - | - | |||||||||
Warrants Exercised
|
- | - | - | |||||||||
Warrants Expired
|
- | - | - | |||||||||
Balance at March 31, 2011
|
471,108 | $ | 0.40 | $ | 0.40 | |||||||
Exercisable March 31, 2011
|
471,108 | $ | 0.40 | $ | 0.40 |
Number of Warrants Outstanding at March 31, 2011
|
Number of Warrants Exercisable at March 31, 2011
|
Expiration Date
|
Exercise Price
|
||||
471,108
|
471,108
|
2013
|
$
|
0.40
|
2011
|
626,152 | |||
2012
|
780,000 | |||
2013
|
900,000 | |||
2014
|
945,000 | |||
2015
|
992,250 | |||
Total
|
$ | 4,243,402 |
JAKKS PACIFIC, INC.
|
PACIFIC ENTERTAINMENT CORPORATION
|
||||
(“Licensee”)
|
(“Licensor”)
|
||||
By:
|
/s/ Michael Dwyer
|
By:
|
/s/ Klaus Moeller
|
||
[Name]
|
Michael Dwyer
|
[Name]
|
Klaus Moeller
|
||
[Title]
|
SVP, Legal
|
[Title]
|
CEO
|
Baby Genius®
|
a)
|
The term “Property” means the Baby Genius trademark, and all common law and registered trademarks, copyrights, trade dress, names, symbols, likenesses, depictions, characters, logos, images, designs, titles, music compilations, character voices, artwork and/or other creative elements, for, used in connection with, including, derived or adapted from, Baby Genius®, now existing, and any and all future versions developed by Licensor or its affiliates during the Term for the Baby Genius brand. The definition of Property may be amended, from time to time, by written agreement between Licensee and Licensor.
|
b)
|
Without limiting the foregoing, the Property includes, without limitation, the items set forth below. Notwithstanding any provision in this Agreement to the contrary, with respect to copyrights marked with an asterick below, the Property does not include (i) any image, photograph, video footage or pictures of animals or plant life located upon the premises of the San Diego Zoo or the San Diego Wild Animal Park or (ii) any logos, trademarks (including but not limited to “San Diego Zoo,” “San Diego Zoo’s Wild Animal Park,” “Wild Beasts,” and “Zoological Society of San Diego”), service marks, insignia, designs, names or other symbols owned by the Zoological Society of San Diego.
|
Category 1.
|
Learning and developmental toys made of plastic, wood, or fabric; with and without electronic sound, and/or voice, and/or movement and or DVD or CD samplers
|
|
Category 2. | Basic non-feature plush toys |
Category 3.
|
Feature plush toys with electronic sound and/or voice and/or movement and/or CD or DVD samplers.
|
|
Category 4.
|
Musical instruments and musical toys with electronic sound and/or voice and/or movement and/or CD or DVD samplers
|
Category 5.
|
Board Games
|
|
Category 6. | Puzzles |
Category 7.
|
Electronic learning aids
|
|
Category 8.
|
Amusement plush toys
|
Due Dates:
Due upon signing this Agreement
Due on or before [***]
Due on or before [***]
Due on or before [***]
Due on or before [***]
Due on or before [***]
|
Amounts:
US$[***]
US$[***]
US$[***]
US$[***]
US$[***]
US$[***]
|
Remarks:
Advance
Guarantee
Guarantee
Guarantee
Guarantee
Guarantee
|
$[***]
$[***]
$[***]
$[***]
$[***]
|
January 1, 2011 – December 31, 2012
January 1, 2013 – December 31, 2013
January 1, 2014 – December 31, 2014
January 1, 2015 – December 31, 2015
January 1, 2016 – December 31, 2016
|
$[***]
$[***]
$[***]
$[***]
$[***]
|
January 1, 2011 – December 31, 2012
January 1, 2013 – December 31, 2013
January 1, 2014 – December 31, 2014
January 1, 2015 – December 31, 2015
January 1, 2016 – December 31, 2016
|
$[***]
$[***]
$[***]
$[***]
$[***]
|
January 1, 2011 – December 31, 2012
January 1, 2013 – December 31, 2013
January 1, 2014 – December 31, 2014
January 1, 2015 – December 31, 2015
January 1, 2016 – December 31, 2016
|
LICENSOR:
|
PACIFIC ENTERTAINMENT
|
||
LICENSEE:
|
JAKKS PACIFIC, INC.
|
||
PROPERTY:
|
BABY GENIUS
|
||
UNDERLYING LICENSE AGREEMENT (“Agreement”) DATE:
|
January 1, 2011
|
||
EXPIRATION DATE FOR THE UNDERLYING LICENSE AGREEMENT
(unless sooner terminated or extended):
|
December 31, 2016
|
||
LICENSED ARTICLES:
|
|||
NAME AND ADDRESS OF MANUFACTURER:
|
|||
LICENSED TERRITORY:
|
DATED:_______________________
|
BY:______________________________________
|
|
Manufacturer
|
1.
|
Grant of Rights. Licensor hereby grants exclusively to PEC, throughout the Territory and during the Term, the Rights Granted in all languages in and to all of Licensor’s existing audio and video products including those listed on attached Schedule A and all future audio and video programming produced by or acquired by Licensor, (collectively, the “Videos”) including all elements and versions of all of the foregoing.
|
2.
|
Additional Materials. Licensor will provide to PEC all such additional materials, fully cleared and authorized by Licensor for PEC’s unrestricted use and exploitation hereunder, as PEC may require for the preparation, distribution and exploitation of each Video hereunder, including without limitation all supplemental footage and materials related thereto that are owned or controlled by, and/or available to, Licensor. Each Video will be deemed to include any and all such materials provided by Licensor to PEC and any and all materials created or obtained by PEC for purposes of exploiting any or all of the Rights Granted.
|
3.
|
Territory. “Territory” means (a) with respect to all of the Rights Granted other than Digital: (i) the United States and Canada and their territories, possessions and commonwealths and (b) with respect to Digital rights, the entire world.
|
4.
|
License Term; Term. The “License Term” of this Agreement will commence on the date of this Agreement and will have an initial term of three (3) year, and thereafter shall continue until terminated by either party upon ninety (90) days written notice to the other party. There will be a one (1) year sell-off period (“Sell-Off Period”) following the expiration of the License Term during which PEC will have the right to continue to market, distribute and account for all previously manufactured Videograms remaining in inventory. The License Term and Sell-Off Period are collectively referred to herein as the “Term.”
|
5.
|
Rights Granted. The “Rights Granted” shall mean the following, under copyright and otherwise:
|
(a)
|
"Videogram Rights": the exclusive right to design, manufacture, produce, distribute, lease, rent, exhibit, promote, market, advertise, publicize and in all manner and form exploit each Video and all elements thereof, and to authorize others to do all of the foregoing, by means of and in connection with “Videograms,” which for purposes hereof includes without limitation videocassettes, videodiscs, videotapes, DVDs, High-Definition DVDs ("HD-DVD"), Blu-ray discs (“BD”), Universal Media Disc ("UMD"), DVD-ROM and all other hard carrier devices now known or hereafter devised and designed to be used in conjunction with a personal reproduction, player or viewing apparatus which causes a visual image (whether or not synchronized with sound) to be seen on a screen, display or device, e.g., a television receiver, computer display, hand-held device or any other screen, display or device now known or hereafter devised, which Videograms also include menus, other navigational designs and elements and such other materials (e.g., "bonus" materials) as PEC determines in its sole discretion. Videogram rights shall include the right to distribute Videograms through Internet-based retailers (e.g., Amazon.com and Walmart.com), and to perform and exhibit (via downloading or streaming) short clips of the Videograms for purposes of marketing and selling hard-carrier devices.
|
(b)
|
"Digital Rights": the exclusive right to distribute, lease, rent, exhibit, promote, market, advertise, publicize and/or otherwise exploit each Video and/or any elements thereof, and to authorize others to do all of the foregoing, by and in connection with any and all means of dissemination to members of the public via the internet, "World Wide Web" or any other form of digital, wireless and/or electronic transmission now known or hereafter devised, including without limitation streaming, downloadable and/or other non-tangible delivery to fixed and mobile platforms including without limitation personal and other computers, cell phones, personal and other communication devices, personal and other digital devices, personal and other music, video and/or other audiovisual recorders and/or players, and/or via "podcast" and/or via all other personal, digital, mobile and other devices, platforms and services whether now known or hereafter devised.
|
(d)
|
“Incidental Rights”: the usual and customary incidental rights in connection with each Video.
|
6.
|
Gross Sales; Net Sales. With respect to each Video, “Gross Sales” means the total number of Videos actually sold by PEC in a calendar quarter during the Term resulting from the exploitation of the Rights Granted hereunder for which PEC has collected payment; and “Net Sales” means Gross Sales less all of the following: (a) a reserve for returns in an amount (“Return Reserve”) equal to twenty percent (20%) of Gross Sales that will constitute returns for such Video, provided that each addition to the Return Reserve will be liquidated within nine (9) months of its establishment and such liquidated Return Reserves in excess of actual returns will be added back to Net Sales; and (b) Actual returns in excess of the Return Reserve.
|
7.
|
Payment to Licensor. Within thirty (30) days after the end of a calendar quarter, PEC shall render or cause to be rendered to Licensor quarterly accounting statements as provided for in Paragraph 15 and shall pay Licensor, after PEC has fully recouped all insurance expenses, an amount equal to [***] multiplied by the Net Sales for that calendar quarter. By way of example, if during the first quarter of 2010 (January 1 – March 31, 2010), PEC’s Net Sales is 100,000 units then no later than May 31, 2010 PEC shall pay Licensor [***] (subject to adjustment upwards or downwards depending on the Actual Returns and downwards for insurance expenses). PEC makes no representation or warranty that any Videos will generate any Gross Sales or Net Sales.
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8.
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Left Intentionally Blank.
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9.
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Delivery; Other Licensor Obligations.
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(a)
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With respect to each Video, “Delivery” means complete delivery and acceptance, in PEC’s sole discretion, of all of the delivery materials (“Delivery Materials”) set forth in Schedule B attached hereto and incorporated herein. Licensor shall make complete Delivery of the Delivery Materials to PEC or such other place as PEC designates, at Licensor’s sole cost and expense, no later than five (5) months prior to PEC’s anticipated initial release date (“Release Date”) of such Video in the Territory in any medium provided under this Agreement (“Delivery Date”). Acceptance by PEC of less than all of the Delivery Materials shall not be construed as a waiver by PEC of any or all of Licensor’s obligations to deliver any Delivery Materials hereunder. Time is of the essence of this Agreement with respect to Licensor’s Delivery on or before each respective Delivery Date.
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(b)
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Licensor will be solely responsible for all third party clearances, all residual costs and all royalties payable to third parties, including all music clearance costs, guild and union residuals and other payments, and all third party profit participations and other contingent compensation associated with each Video.
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(c)
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Licensor will inform PEC in writing, no later than the Delivery Date of any Video, of any restrictions on the use of any of the Delivery Materials for such Video, including without limitation clips and footage for use in PEC’s advertising and marketing campaign and the use of the names, likenesses and biographies of all persons appearing in and/or connected with such Video.
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10.
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Licensor Approval. Licensor will provide finished artwork. Licensee will have the right to edit or change artwork per Licensor’s approval of any and all changes. Licensor will have approval, which shall not be unreasonably withheld, over any packaging for the Video and related artwork prior to any distribution, sale or publication thereof by PEC hereunder. Any packaging and/or related artwork submitted to Licensor by PEC and not approved or disapproved within five (5) days after receipt by Licensor shall be deemed approved.
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11.
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Promotional Units. Licensor shall be entitled to purchase from PEC Videograms of the Videos at a price equal to PEC’s wholesale price in aggregate quantities not to exceed two hundred-fifty (250) Videogram units per year of the Term unless larger quantities are approved in writing by PEC, to be used only for internal sales and promotions by Licensor approved in writing by PEC.
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12.
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Exclusivity. Licensor represents and warrants that it is has not prior to the date hereof licensed, nor authorized any other party to sell, license or exploit, any of the Rights Granted, nor will it do or authorize same in the Territory during the Term.
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13.
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Credits. PEC will use the credit block provided by Licensor on the prints, posters, packaging box and advertising materials for each Video. PEC will not alter the copyright notice on a Video, provided that PEC may add its and/or its affiliates’, licensees’ and/or sublicensees’ logos, copyright notice for package design and distribution notice on prints, Videograms, packaging and advertising materials for each Video. PEC will notify its licensees of the aforementioned credit provisions. No casual or inadvertent failure to accord credits as set forth hereunder will be deemed a breach of this Agreement by PEC. Upon PEC’s receipt of written notice from Licensor specifying a breach of the foregoing credit provisions, PEC will use its best efforts to cure such breach on any materials manufactured or prepared after receipt of such notice; but PEC will not be required to replace any existing inventory of Videograms or other materials.
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14.
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Insurance. Left Intentionally Blank.
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15.
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Accounting Statements; Payments; Finality. With respect to each Video:
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(a)
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During the License Term and the Sell-Off period, PEC will render or cause to be rendered to Licensor quarterly accounting statements (each such quarter, an “Accounting Period” and each such statement, an “Accounting Statement”) within thirty (30) days after the last day of the applicable Accounting Period with each Accounting Statement providing a detailed statement of all orders listing the number of units sold and payments received regarding Videos covered by this Agreement; provided, however, that no Accounting Statement need be rendered for any Accounting Period in which no Gross Sales are made, and no check for payment need be issued for any Accounting Period in which monies due to Licensor equal less than One Hundred Dollars ($100). Monies payable to Licensor hereunder with respect to each Accounting Period will be paid within thirty (30) days after the rendering of the Accounting Statement with respect to such accounting period.
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(b)
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Licensor will be deemed to have consented to all Accounting Statements rendered by PEC or its assignees, licensees or successors, and all Accounting Statements will be binding upon Licensor and will be deemed an account stated and not subject to any objection by Licensor for any reason, unless specific written objection to such Accounting Statement is received by PEC within one (1) year from the date such Accounting Statement was rendered or, if an audit is commenced prior thereto pursuant to subparagraph (d) below, within ninety (90) days after the completion of the applicable audit. In the event that Licensor makes a timely written objection to an Accounting Statement, Licensor will have one (1) year from the date of such written objection to bring suit; thereafter, Licensor will be deemed to have finally and conclusively waived such objection.
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(c)
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If PEC makes any overpayment to Licensor for any reason, or if Licensor is indebted to PEC for any reason, Licensor shall pay PEC such overpayment or indebtedness on written demand, or at PEC’s election, PEC may deduct and retain for its own account an amount equal to any such overpayment or indebtedness from any sums that may become due or payable by PEC to Licensor or for the account of Licensor.
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(d)
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During the License Term, PEC will email Licensor copies of all purchase orders PEC submits to replicators for the replication of the Videos.
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16.
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Distribution and Exploitation. PEC will have the right, as it may determine in its sole discretion, (i) to determine the suggested retail price of Videogram units of each Video, (ii) to determine the parties, consideration and all other terms and conditions of any agreement entered into by PEC for the exploitation of the Rights Granted; (iii) to settle any claim with respect to any such agreement or the Rights Granted; and (iv) to distribute free or promotional Videograms and to erase or destroy Videogram.
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17.
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Representations and Warranties. Licensor hereby represents and warrants that: (i) Licensor is a corporation organized and existing under the laws of the state of Florida, with its principal place of business in the state of Florida; (ii) Licensor has the full right, power, and authority to enter into and perform this Agreement and to grant exclusively to PEC hereunder all of the Rights Granted, and that Licensor will solely control throughout the Territory during the Term all of the Rights Granted in and to each Video and all elements thereof, including without limitation all performance, distribution, exhibition, advertising and all other rights therein; (iii) No claim has been made that Licensor does not or may not have any of the Rights Granted, and there is not now valid or outstanding, and Licensor will not hereafter grant, any right in connection with any Video which is or would be adverse to, or inconsistent with, or impair, the Rights Granted; no portion of any Video has been taken from any other work and there has been no claim that any Video violates, conflicts with, or infringes upon, and no Video violates, conflicts with or infringes upon, any rights whatsoever including without limitation any copyright, common law or statutory right anywhere in the world; any right of publication, performance, or any other right in any work; nor does any Video constitute or contain any libel, slander, invasion of privacy or defamation of any person, or entity; neither any Video nor any elements thereof are the subject of any third party claim; and each Video and all elements thereof and all Delivery Materials will be fully cleared by Licensor for all distribution and uses set forth herein, and no payments will be required to be made by PEC to any third party in connection with the exploitation of the Video hereunder (or, if any such payments are required, Licensor will be solely responsible therefor and indemnify and hold harmless PEC in connection therewith); and (iv) The main and end titles, credit block and all publicity, promotion, advertising and packaging information and materials with respect to each Video will (a) contain all necessary and proper credits for the actors, directors, writers and all other persons appearing in or connected with the production of each Video who are entitled to receive such credit, and (b) fully comply with all applicable contractual, guild, union and statutory requirements and agreements.
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18.
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Indemnities. Licensor will defend, indemnify and hold harmless PEC, any parent, affiliate, distributor, customers, licensee or assignee of PEC, and its and their respective owners, shareholders, members, managers, officers, directors, employees and agents from and against all third-party claims, losses, liabilities, actions, judgments, costs and expenses of any kind (including without limitation outside attorneys' fees and costs) (collectively, “Claims”) arising out of or in connection with (a) any exploitation of the Rights Granted or any other rights hereunder, (b) the contents of any Video, (c) any other material of any kind supplied by Licensor hereunder, (d) any illegal act committed by Licensor in connection with any Video, or (e) any breach by Licensor of any representation, warranty or agreement set forth in this Agreement. In addition, if requested by PEC, Licensor shall provide indemnification letters to customers of PEC, in form and substance satisfactory to PEC and covering Claims arising out of or in connection with (a) any exploitation of the Rights Granted or any other rights hereunder, (b) the contents of any Video, (c) any other material of any kind supplied by Licensor hereunder, (d) any illegal act committed by Licensor in connection with any Video, or (e) any breach by Licensor of any representation, warranty or agreement set forth in this Agreement. PEC will defend, indemnify and hold harmless Licensor, any parent, affiliate, distributor, licensee or assignee of Licensor, and its and their respective owners, shareholders, members, managers, officers, directors, employees and agents from and against all Claims, arising out of or in connection with (x) any illegal act committed by PEC in connection with any Video, or (y) any breach by PEC of any representation, warranty or agreement set forth in this Agreement.
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19.
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Remedies; Cure Period. In the event of any breach of this Agreement by PEC, Licensor’s sole remedy will be an action for money damages at law. Licensor expressly waives any and all equitable rights Licensor may have hereunder and in no event will Licensor have any right to enjoin, rescind, or otherwise interfere with the distribution, advertising, marketing, publicity and/or any other exploitation by PEC of any Videos or any of the Rights Granted hereunder. Licensor expressly waives any right to terminate the Rights Granted hereunder. No failure by either party to fulfill any of its obligations hereunder will constitute a breach of this Agreement by such party unless and until the non-breaching party has provided the breaching party with written notice specifying such failure(s) and the breaching party has failed to cure such breach within thirty (30) days after receipt of such notice; provided, however, that the foregoing cure period will not apply (and there will be no cure period with respect to) Licensor's Delivery obligations.
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20.
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Intellectual Property. The parties acknowledge and agree that in connection with all of the Videos, (i) the Rights Granted hereunder are fundamentally in the nature of "intellectual property" as defined in the Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor statute (the "Bankruptcy Code"); and (ii) that PEC 's continued enjoyment of all of the Rights Granted is of the essence of this Agreement and fundamental to the rights granted hereunder; and therefore all of the Rights Granted shall be deemed intellectual property subject to PEC’ election under Section 365(n)(1)(B) of the Bankruptcy Code. The parties further agree that upon any election by PEC pursuant to Section 365(n)(1)(B) of the Bankruptcy Code, PEC shall be entitled, on its own or through employees, contractors, agents or otherwise, to upgrade, modify and develop derivative works based upon the Rights Granted.
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21.
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Dispute Resolution. All disputes arising under this Agreement that cannot be resolved informally will be submitted for binding arbitration before a single arbitrator (who shall have experience in the entertainment industry) in San Diego, California pursuant to the rules of the Judicial Arbitration and Mediation Service (JAMS.) The fees of the arbitrator shall be split between both Parties equally. The prevailing Party shall be entitled to recover reasonable attorneys’ fees and costs. Judgment on the award rendered by the arbitrator may be entered in any court in San Diego County, California and the parties agree to submit to the jurisdiction of such courts for the purposes of such enforcement action. The Parties agree that this Paragraph shall survive the termination of this Agreement. The award of the arbitrator will be final and binding and may be entered for judgment in any court of competent jurisdiction in San Diego County. Any dispute or portion thereof, or any claim for a particular form of relief (not otherwise precluded by any other provision of this Agreement) that may not be arbitrated pursuant to applicable state or federal law may be heard only in a court of competent jurisdiction in San Diego County. The parties shall each bear their own respective costs and attorney’s fees.
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22.
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Notices. All notices, accountings, payments and any other document that either of the parties is required or may desire to serve upon the other party ("Notices") must be in writing and shall be deemed to have been duly given or made: (a) if sent by personal delivery, on the day it is delivered; (b) if sent by registered or certified mail, postage prepaid and return receipt requested, on the fifth day after depositing in the mail; (c) if sent by a nationally-recognized overnight or express courier, all postage and other charges prepaid, on the next business day after it is sent; or (d) if sent by facsimile or email, when received, but in any event not later than the next business day immediately after the date of transmission, provided however that, unless receipt of a facsimile or email notice is acknowledged in writing by the recipient, notice sent by facsimile or email shall require a follow-up notice by personal delivery, registered or certified mail or overnight courier within twenty-four (24) hours after the facsimile or email transmission. Notices to PEC will be sent to PEC at 5820 Oberlin Drive, Suite 203, San Diego, CA 92121, Attention: Mike Meader; and Notices to Licensor will be sent to Licensor's address set forth on the first page of this Agreement; or to such other address that one party may hereafter designate in writing to the other.
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23.
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Assignment. This Agreement will be binding upon and will inure to the benefit of the parties and their respective successors and permitted assigns. Licensor may not assign this Agreement or any of its rights or obligations hereunder, any such assignment shall be null and void.
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24.
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Confidentiality. Licensor and PEC each acknowledges that the terms and conditions of this Agreement and all information and data provided by each party to the other pursuant to this Agreement (collectively, “Confidential Information”) are confidential. Each of Licensor and PEC agrees that it will not use Confidential Information for any purpose other than in connection with the performance of its obligations or the exercise of its rights under this Agreement, or disclose Confidential Information to any person other than its officers, employees, agents, representatives, attorneys, accountants, financiers, banks, distributors, wholesalers, retailers, exhibitors, licensees and permitted assignees on a need-to-know basis only, or unless required by law, subpoena or court order to disclose same. Neither party will issue any press release or public announcement which mentions the actual terms of this Agreement or the Videos without the prior written approval of the other party; provided however that either party may make public statements without the other party’s consent regarding the fact that it has a business relationship with the other party and that PEC distributes Licensor’s Videos.
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25.
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Entire Agreement. This Agreement is the complete and final agreement between the parties with respect to the subject matter hereof. This Agreement does not evidence or constitute a partnership, joint venture, partnership/agent or other fiduciary relationship between them. This Agreement will be construed in all respects in accordance with the laws of the State of California applicable to agreements entered into and to be wholly performed therein. This Agreement may not be changed or modified, or any covenant or provision hereof waived, except by an agreement in writing. Paragraph headings are used in this Agreement for convenience only, and will not be used to interpret or construe the provisions of this Agreement. No delay in enforcing any right under this Agreement will constitute a waiver of such right.
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By:
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/s/ Mike Rubin
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Its:
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President
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By:
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/s/ Michael Meader
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Its:
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President
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A.
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Credit Block (i.e. complete and accurate written statement of all screen and advertising credit obligations and any and all likeness restrictions, together with a layout of the proposed advertising credits and photostatic copies of excerpts from all agreements defining and describing both the form and nature of the required credits (including any tie-in obligations) and any restrictions as to the use of name and likeness.
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B.
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Copyright notice in the form to be included on all advertising and packaging of the Video.
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C.
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At PEC's request, copies of any other agreements entered into in connection with the Video.
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D.
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Replication DLT’s of quality acceptable to PEC, but in no event less than industry standard quality.
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E.
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Free access to foreign language masters, if and when created.
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F.
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Press kit information, if any
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G.
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All key art and title treatments used in all previously existing marketing materials for the Videos, to be delivered on CD. ( i.e. Art work elements )
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H.
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All logos for all production, financing, or other entities contractually entitled to receive a logo credit in connection with the Video.
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I.
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All other available advertising and marketing materials including one-sheets, sell sheets and advertising art elements.
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