December
29, 2010
Justin
Dobbie, Special Counsel
United
States Securities & Exchange Commission
100 F.
Street, NE
Washington,
D.C. 20549
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Re:
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Platinum
Studios, Inc.
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Amendment
No. 2 to
Registration
Statement on Form S-1
Filed
on October 19, 2010
File
No. 333-168125
Form
10-K
Filed
March 31, 2010
File
No. 333-145871
Dear Mr.
Dobbie:
We are in receipt of your letters,
dated November 3, 2010 and December 16, 2010, respectively, which contain the
Commission’s comments with regard to the above-referenced filings. Please
accept this letter as the Company’s response to those letters.
Amended Form S-1 filed
October 19, 2010
General
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1.
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Please
be advised that your outstanding comments concerning the Form 10-K. must
be resolved prior to the effectiveness of the Form S-1 registration
statement.
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2.
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We
note your response to our prior comment three. Please file the June 4,
2010 investment agreement and update your Exhibit Index
accordingly.
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RESPONSE:
The reference to a June 4, 2010 Investment Agreement was an error which has been
correct in the amended filing. The agreements in question were filed as
exhibit to the Company’s Form 8-K on June 11, 2010.
Our Business, page
20
Library of Characters, page
21
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3.
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We
note that you have removed Awesome Comics from the library table on page
21. Please tell us why you have included a discussion of the 404 Awesome
Comics characters in the accompanying
discussion.
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RESPONSE:
Awesome Comics 404 characters were inadvertently removed from the table and will
be put back in amended filing.
Plan of Distribution. page
48
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4.
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We
note your response to our prior comment 11. Please include the date for
the market price shown in the first
paragraph.
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RESPONSE:
The date for the market price will be provided in the amended filing as
requested.
Management’s Discussion and
Analysis of Financial Condition and Results of Operations. page
29
Liquidity and Capital
Resources (Unaudited), page 37
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5.
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We
note your response to our prior comment 13. Please revise the discussion
of your plan to turn your financial situation around to discuss in
quantitative terms. Additionally please identify and discuss each material
obligation.
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RESPONSE:
The Company has included the following information in the amended
filing:
“The Company has reduced its
overhead by moving to smaller office space and by negotiating settlements on
various office equipment leases that were in default. The Company’s
current cash requirements are generally related to overhead and development
costs of approximately $250,000 per month. The company has been able to
leverage its success in achieving licensing revenues on one of its properties
associated with a major studio release for summer of 2011, by exploiting its
retained rights. The Company generated $100,000 during the third quarter
2010 in new licensing revenues on the property, but there is no assurance the
Company will be able to continue to achieve new licensing revenues. The
Company plans to utilize approximately $1.8M of a projected $5M potential
offering, although there is no assurance the offering will be completed or the
S-1 filing declared effective.
The
Company has a material obligation is in the form of secured notes payable to
Scott Rosenberg, Chairman and CEO of the Company. The notes are secured by
all of the assets of the company. The notes total $3,750,000 with interest
at 8%. The Company anticipates that it will be able to extend its secured
debt until such time as it has the resources to repay the debt, although there
is no assurance that Scott Rosenberg will continue to extend the debt and to
defer interest payments when necessary, due to operating cash flow
shortages.
The
Company also has a material obligation in the form of a secured note payable to
Standard Charted Bank in the amount of $11,250,481 as of September 30,
2010. The note is secured by the sales agency and distribution agreements
in connection with the Company’s film production of “Dead of Night.” The Company
anticipates the loan will be repaid with the licensing fees generated by the
release of the film, but there is no assurance sufficient fees will be generated
to pay off the loan in full.
Form 10-K filed March 31,
2010
Description of Business,
page 4
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6.
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In
regards to the $150,038,000 valuation of your library of material, which
valuation appears to be through the first quarter of 2008, please revise
to include a comparative update to the fiscal year ended December 31,
2009. In addition, include the consent of Sanli, Pastore & Hill. In
the alternative, remove the
disclosure.
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RESPONSE:
The disclosure regarding the valuation for Sanli, Pastore & Hill has been
removed from the amended filing.
Management's discussion and
Analysis, page 30
Net Revenue, page
30
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7.
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Throughout
your discussion, please provide more analysis of the disclosure provided.
For example, you state that the decrease in net revenue was due to a
decrease in rights and option fees for filmed entertainment, a decrease in
merchandising licensing revenue, a decrease in comic book publishing
revenue, and a decrease in miscellaneous revenues, but you do not provide
my analysis as to why these factors decreased. Please revise
accordingly.
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RESPONSE:
The Company has included the following information in the amended
filing:
“Net
revenue for the year ended December 31, 2009 was $292,940 compared to $822,488
for the year ended December 31, 2008. Currently the Company derives most
of its revenue from options to purchase rights, the purchase of rights to
properties and first look deals. This type of revenue can vary significantly
between quarters and years. In previous years, the Company also derived
revenues from comic book publishing. The decrease in revenues 2008 to 2009
of approximately $530,000 was related to a decrease in rights and option fees
for filmed entertainment of $120,000 as the Company recognized revenue from two
customers on three properties in the amount of approximately $80,000 for the
year ended December 31, 2009 as compared to revenue from one customer on one
project in the amount of $200,000 for the year ended December 31, 2008, a
decrease in merchandising licensing revenues of $276,000 as the Company
recognized revenues of approximately $118,000 in European licensing deals on one
property for the year ended December 31, 2009 as compared to revenues of
$250,000 in licensing from one customer on one property and approximately
$90,000 in European licensing deals on one property and approximately $54,000 in
other licensing deals for the year ended December 31, 2008, a decrease in comic
book publishing revenues of $85,000 as the Company phased out its comic book
publishing during 2008 and a decrease in miscellaneous revenues of
$49,000.”
Expenses, page
30
Gain on settlement of debt,
page 31
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8.
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Please
describe in greater detail how you determined the gain of $453,451 that
you state was due to the final debt payment to the former Wowio
partners.
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RESPONSE:
The Company has included the
following information in the amended filing:
“The
Company recorded a gain on settlement of debt of $453,451 for the twelve months
ended December 31, 2009. This net gain was primarily due to the final
payment to the Wowio former partners through the issuance of common stock,
partially offset by losses incurred in the settlement of accounts payable and
notes payable through the issuance of common stock. This transaction was
paid in stock which had a fair value less than the acquisition payable
remaining, generating the gain.”
Liquidity and Capital
Resources, page 31
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9.
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Please
enhance your operating cash flow disclosure by providing a discussion and
analysis of the material factors that impact the comparability of
operating cash flows between comparative periods in terms of cash.
Net loss is on an accrual basis rather than on a cash basis and therefore
does not provide a sufficient basis for an investor to analyze the factors
that causes increase or decreases in operating cash flow. Refer to Section
IV.B.1 of "Interpretation: Commission Guidance Regarding Management's
Discussion and Analysis of Financial Condition and Results of Operations"
available on our website at http://www.sec.gov/rules/interp/33-8350.htm
for guidance.
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RESPONSE:
The Company has included the
following information in the amended filing:
“Net
cash used in operations during the twelve months ended December 31, 2009
decreased $1,210,134 to $971,048 as compared to $2,181,182 for the twelve months
ended December 31, 2008. The decrease on cash used in operations for the
twelve months ended December 31, 2010 as compared to the twelve months ended
December 31, 2008 was primarily due an increase in amortization of debt discount
of $920,819, an increase in loss on valuation of derivative liability of
$267,000, an increase in deferred revenue of $934,870, a decrease in equity
instruments issued for services of $4,218,245, a decrease in impairment expense
of $2,641,524, an increase in prepaid expenses of $369,191 and a decrease in net
loss of $7,859,661.”
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10.
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Please
provide a discussion of how long you can satisfy your cash requirements,
given your current amount of working capital. As part of your discussion,
include any contingencies such as raising insufficient hinds from
financing.
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RESPONSE:
The Company has included the
following information in the amended filing:
“The
Company plans to reduce its overhead by moving to smaller office space and
negotiating settlements on various office equipment leases. The Company will
also continue to reduce its workforce and make greater use of temporary staff
and independent contractors. The Company’s current cash requirements are
generally related to overhead and development costs of approximately $250,000
per month. The company plans to leverage its success in achieving
licensing revenues on one of its properties associated with a major studio
release for summer of 2011, by exploiting its retained rights. There is no
assurance the Company will be able to continue to achieve new licensing revenues
on this property. The Company plans to utilize approximately $1.8M of a
projected $5M potential offering, although there is no assurance the offering
will be completed or the S-1 filing declared effective. The Company also
anticipates that it will be able to extend its secured debt until such time as
it has the resources to repay the debt, although there is no assurance the
secured lender, Scott Rosenberg, the Company’s CEO and Chairman, will continue
to extend the debt and to defer interest payments when necessary due to current
cash flows.”
Quantitative and Qualitative
Disclosure about Market Risk, page 32
Market Risks, page
37
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11.
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Please
discuss in greater detail your British and Australian operations that are
references in the first paragraph under the caption Market
Risks.
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RESPONSE:
The Company has removed discussion of British and Australian markets as this
information was inadvertently included in the previous filing.
Critical Accounting Policies
and Estimates, page 33
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12.
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Your
disclosures here do not provide investors with any of the actual material
assumptions and judgments you made in arriving at significant estimates
included in your financial statements, nor do they provide investors with
the ability to understand how differing assumptions and judgments would
impact your estimates. For example, with regard to your intangible assets,
it appears the significant judgment and uncertainty is the recoverability
of the intangible assets and the accuracy of the estimated undiscounted
future cash flows. However, your disclosure does not address how you made
such judgment or the key assumptions involved. Please revise your critical
accounting policies to disclose the actual assumptions and judgments, how
those assumptions and judgments have in the past or may in !he future
change, and what effects any of those changes may have on your financial
statements. In addition, as critical accounting estimates and assumptions
are based on matters that are highly uncertain please also analyze their
specific sensitivity to change with qualitative and quantitative
information, as reasonably available. Disclosure in this part of your
filing should not simply repeat policy disclosure contained in the notes
to your financial statements. Refer to
FR-72.
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RESPONSE:
The Company has included the
following information in the amended filing. (Please also note that the Company
has changed the line item on the balance sheet from “Film Development Costs” to
“Investment in Films”; Please also see the Company’s responses to comment
numbers 19 and 20, below):
“Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles. Critical
accounting policies and estimates are those that may be material due to the
levels of subjectivity and judgment necessary to account for highly uncertain
matters of the susceptibility of such matters to change, and that may have an
impact on financial condition or operating performance. For example,
accounting for our investment in films requires us to estimate future revenue
and expense amounts which, due to the inherent uncertainties involved in making
such estimates, are likely to differ to some extent from actual results. For a
summary of all of our accounting policies, including the accounting policies
discussed below, see Note 3 to our consolidated financial
statements.
CHARACTER
DEVELOPMENT COSTS. Character development costs consist primarily of costs to
acquire properties from the creator, development of the property using internal
or independent writers and artists, and the registration of a property for a
trademark or copyright. These costs are capitalized in the year incurred
if the Company has executed a contract or is negotiating a revenue generating
opportunity for the property. If the property derives a revenue stream
that is estimable, the capitalized costs associated with the property are
expensed as revenue is recognized. If the Company determines there is no
determinable market for a property, it is deemed impaired and is written
off.
INVESTMENT
IN FILMS. Investment in films includes the unamortized costs of one film for
which principle photography has been completed and is currently in
post-production. The capitalized costs include all direct production and
financing costs, capitalized interest and production overhead. The costs
of the film productions are amortized using the individual-film-forecast-method,
whereby the costs are amortized and participations and residual costs are
accrued in proportion that current year’s revenues bears to managements’
estimate of ultimate revenue at the beginning of the current year expected to be
recognized from exploitation, exhibition or sale of the film. Ultimate
revenue includes estimates over a period not to exceed ten years following the
date of initial release.
Investment
in films is stated at the lower of amortized cost or estimated fair value.
The valuation of the film development costs are reviewed by management, when an
event or change in circumstances indicates the fair value of the film is less
than the unamortized cost. The fair value of the film is determined using
managements’ future revenue and cost estimates in an undiscounted cash flow
approach. Additional amortization is recorded in an amount by which
unamortized costs exceed the estimated fair value of the film. Estimates
of future revenue involve measurement uncertainty and it is therefore possible
that reductions in the carry costs of film development costs may be required as
a consequence of changes in managements’ future revenue
estimates.
Management’s
current assessment of the fair value of its production, “Dead of Night” includes
analysis of foreign territories sold, deposits received against foreign
territory sales, estimated value of the unsold foreign territories and the
guarantee by Omnilab Pty, Ltd of a domestic release of the film. Any
change in these assessments could result in the write down of the investment in
films.
INCOME
TAXES. Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Because of our historical operating losses, we have
provided a full valuation allowance against our net deferred tax assets. When we
have a history of profitable operations sufficient to demonstrate that it is
more likely than not that our deferred tax assets will be realized, the
valuation allowance will be reversed. However, this assessment of our planned
use of our deferred tax assets is an estimate which could change in the future
depending upon the generation of taxable income in amounts sufficient to realize
our deferred tax assets.
WARRANT
DERIVATIVE LIABILITY. Platinum Studios entered into a Credit Agreement on May 6,
2009, with Scott Rosenberg in connection with the issuance of two secured
promissory notes and an unsecured promissory note. Two warrants were issued to
Scott Rosenberg in connection with the issuance of various promissory notes as
of May 6, 2009 and June 3, 2009.
A
description of the Warrants is as follows:
1)
The May 6, 2009 warrant entitles the holder to purchase up to 25,000,000 shares
of the Company’s common stock at a price of $0.048 per share. The May 6, 2009
warrant is exercisable up until May 6, 2019. The May 6, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
2)
The June 3, 2009 warrant entitles the holder to purchase up to 14,062,500 shares
of the Company’s common stock at a price of $0.038 per share. The June 3, 2009
warrant is exercisable up until June 3, 2019. The June 3, 2009 warrant shall
expire and no longer be exercisable upon a change in control. The exercise price
and the number of shares underlying the warrant is subject to anti-dilution
adjustments from time to time if the Company issues common stock at below the
exercise price at that time for the warrants.
In
determining the fair market value of the Warrants, we used the binomial model
with the following significant assumptions: exercise price $0.038 –
$0.048, trading prices $0.01 - $0.08, expected volatility 124.4%, expected life
of 60 months, dividend yield of 0.00% and a risk free rate of 3.59%. The
derivative liability is re-valued at each reporting date with changes in value
being recognized as part of current earnings. This revaluation for the three and
nine months ended September 30, 2010 resulted in a gain of $525,000 and a loss
of $245,000, respectively. Any change in the significant assumptions could
result in a different valuation that could affect the Company’s results of
operations.”
Notes to Consolidated
Financial Statements, page 60
Note 1: Description of
Business. page 60
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13.
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We
note your disclosure that you purchased Long Distance Films, Inc. to
facilitate the financing and production of the film currently titled "Dead
of Night". Please describe for us in greater detail the film financing
arrangement, including the name of the entity that provided production
funding and the amount of the debt included in your financial
statements.
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RESPONSE:
The Company has included the
following information in the amended filing:
“On
December 10, 2008, the Company purchased Long Distance Films, Inc. to facilitate
the financing and production of the film currently titled “Dead of Night”. The
Company’s license to the underlying rights of the “Dead of Nights” characters
was due to expire unless principle photography commenced on a feature film by a
date certain. The Company had previously licensed these rights to Long
Distance Films, Inc. The Company then purchased Long Distance Films, Inc.,
with its production subsidiary, Dead of Night Productions, LLC in order to
expedite and finalize the financing of the film with Standard Chartered Bank and
Omnilab Pty, Ltd., holding debt of $11,250,481 and $485,000, respectively, as of
September 30, 2010. Long Distance Films, Inc.’s only assets are
investments in its subsidiaries related to the film production of “Dead of
Night” and has no liabilities or equity other than 100 shares of common stock
wholly owned by Platinum Studios, Inc. Long Distance Films, Inc was
created for the sole purpose of producing “Dead of Night.” At the time of
the acquisition, Long Distance Films, Inc. had no assets or liabilities and no
consideration was paid by the Company for the acquisition and no value was
assigned to the transaction, which would be eliminated on
consolidation.”
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14.
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In
addition, please tell us how you valued the 100 shares of Long Distance
Films, Inc. common stock that you purchased and describe in greater detail
the transaction and accounting treatment
thereof.
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RESPONSE:
Please see the Company’s response to Comment number 13.
Note 3: Summary of
Significant Accounting Policies, page 60
Revenue Recognition, page
60
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15.
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Please
revise to provide your revenue recognition policy for all of your revenue
streams. It appears that you should provide a revenue recognition policy
for print publishing, digital publishing, merchandise/ licensing, and
filmed entertainment.
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RESPONSE:
For 2009, the company’s revenues were 60% related to licensing/merchandising
revenues as currently described in footnote 3. The remaining 40% was
advertising revenues generated from the company’s websites.
The
Company has included the following information in the amended
filing:
“The
Company also derives advertising revenues from its websites through contracts
with several companies specializing in website advertising. The revenues
are generated by click thrus on banner ads. The revenue is recognized upon
receipt of funds from the advertising companies.”
Net Income/Loss per Share,
page 64
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16.
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Please
provide all of the disclosure required by ASC
260-10-50-1.
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RESPONSE: The Company has included the
following information in the amended filing:
“Basic
income per share is computed by dividing net income (loss) available to common
stockholders by the weighted average number of shares of common stock
outstanding during the periods, excluding shares subject to repurchase or
forfeiture. For the years ended December 31, 2009 and 2008, the numerator, or
net loss, was $(3,384,822) and $(11,244,483), respectively. The
denominator, or weighted average number of shares, was 266,455,863 and
226,541,917, respectively. Diluted income per share increases the shares
outstanding for the assumption of the vesting of restricted stock and the
exercise of dilutive stock options and warrants, using the treasure stock
method, unless the effect is anti-dilutive. Since the Company incurred net
losses for the years ended December 31, 2010 and 2009, any increase in the
denominator would be anti-dilutive and therefore, the denominator is the same
for basic and diluted weighted average shares.”
Note 8: Commitments and
Contingencies, page 71
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17.
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Reference
is made to risk factors on page 20. We note that you have unpaid tax
liabilities of approximately $300,000 and that you have not filed tax
returns for 2006, 2007, 2008. As this circumstance appears material to
your financial statements, please provide disclosure here of these matter
including the potential impact to your financial statements and
liquidity.
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RESPONSE: The Company has included the
following information to Footnote 8 – Commitments and Contingencies in the
amended filing:
“As
of December 31, 2009, the Company’s liabilities include a payable to the
Internal Revenue Service in the amount of $279,324 associated with payroll tax
liabilities for the second, third and fourth quarters of 2008, along with
associated penalties and interest for late payment. The Company has
entered into an installment agreement with the Internal Revenue Service in the
amount of $1,000 per month. The Company has been making monthly payments
of $10,000 towards this balance in order to reduce the liability sooner and
reduce the amount of penalties and interest accruing.”
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18.
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In
addition, disclose the amount of legal reserves that you have recorded for
each of the matters disclosed for all periods
presented.
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RESPONSE:
The Company has included the
following information (which updates the section in question) in the amended
filing:
“Transcontinental Printing v.
Platinum. On or about July 2, 2009, Transcontinental Printing, a New York
corporation, filed suit against the Company in Superior Court, County of Los
Angeles (Case No. SC103801) alleging that the Company failed to pay for certain
goods and services provided by Transcontinental in the total amount of $106,593.
The Company settled the suit agreeing to pay $92,000 plus interest at 10% per
annum with a payment schedule of $2,000 per month for five months and then
increasing to $10,000 per month until paid in full. The company has made all
scheduled payments to date. As of September 30, 2010, the accounts payable of
the Company included a balance of $64,945 for this settlement.
Harrison Kordestani v. Platinum.
Harrison Kordestani was a principal of Arclight Films, with whom the
Company had entered into a film slate agreement. One of the properties that had
been subject to the slate agreement was “Dead of Night.” Arclight fired Mr.
Kordestani and subsequently released Dead of Night from the slate agreement. In
late January 2009, Mr. Krodestani had an attorney contact the Company as well as
its new partners who were on the verge of closing the financing for the “Dead of
Night.” Mr. Kordestani, through his counsel, claimed he was entitled to
reimbursement for certain monies invested in the film while it had been subject
to the Arclight slate agreement. Mr. Krodestani’s claim was wholly without merit
and an attempt to force an unwarranted settlement because he knew we were about
to close a deal. We responded immediately through outside counsel and asserted
that he was engaging in extortion and the company would pursue him vigorously if
he continued to try and interfere with our deal. The company has not heard
anything further from Mr. Kordestani but will vigorously defend any suit that
Mr. Kordestani attempts to bring. The Company has not reserved any payable for
this proceeding.
TBF Financial Inc. v.
Platinum. On or about August 20, 2009, TB Financial, Inc. filed suit
against the Company in the Superior Court of California, County of Los Angeles
(Case No. BC420336) alleging that the Company breached a written lease agreement
for computer equipment and seeking damages of $42,307 plus interest at a rate of
ten percent (10%) per annum from July 7, 2008. On November 19, 2009, TB
Financial filed a Request for Default against the Company; however, the Company
turned the matter over to Company counsel to oppose any requests for default. On
February 24, 2010, a default judgment was entered against the Company in the
amount of $51,506 and the Company received a request for Writ of Execution on
March 1, 2010. On May 19, 2010, the Company settled with TBF Financial for
$30,000 with three payments of $1,000 due on May 19, 2010 and June and July 15,
2010 with a final payment of $27,000 on July 31, 2010. In July, 2010, the
Company made the final payment of $27,000 on the settlement.
Rustemagic v. Rosenberg &
Platinum Studios. On or about June 30, 2009, Ervin Rustemagic filed suit
against the Company and its President, Scott Rosenberg, in the California
Superior Court for the County of Los Angeles (Case No. BC416936) alleging that
the Company (and Mr. Rosenberg) breached an agreement with Mr. Rustemagic
thereby causing damages totaling $125,000. According to the Complaint, Mr.
Rustemagic was to receive 50% of producer fees paid in connection with the
exploitation of certain comics-based properties. Rustemagic claims that he
became entitled to such fees and was never paid. The Company and Rosenberg deny
that Rustemagic is entitled to the gross total amount of money he is seeking.
The matter has now been removed to arbitration. The Company has not reserved any
payable for this proceeding.
Douglass Emmet v. Platinum Studios
On August 20, 2009, Douglas Emmet 1995, LLC filed an Unlawful Detainer
action against the Company with regard to the office space currently occupied by
the Company. The suit was filed in the California Superior Court, County of Los
Angeles, (Case No. SC104504) and alleged that the Company had failed to make
certain lease payments to the Plaintiff and was, therefore, in default of its
lease obligations. The Plaintiff prevailed on its claims at trial and,
subsequently, on October 14, 2009 entered into a Forbearance Agreement with the
Company pursuant to which Douglas Emmet agreed to forebear on moving forward
with eviction until December 31, 2009, if the Company agreed to pay to Douglas
Emmet 50% of three month’s rent, in advance, for the months of October, November
and December 2009. As of January 1, 2010, the Company was required to pay to
Douglas Emmet the sum of $466,752 to become current under the existing lease or
face immediate eviction and judgment for that amount. Prior to January 1, 2010,
Douglas Emmet agreed to a month-to-month situation where Platinum pays 50% of
its rent at the beginning of the month and the landlord holds back on eviction
and enforcement of judgment while they evaluated whether they will consider
negotiating a new lease with the Company that would potentially demise some of
the Company’s current officer space back to the landlord as well as potentially
forgive some of the past due rent. As of June 30, 2010, the Company has
abandoned the leasehold and moved to new offices. The accounts payable of the
Company include a balance to Douglas Emmett that is sufficient to cover the
liability, in managements’ assessment.
With
exception to the litigation disclosed above, we are not currently a party to,
nor is any of our property currently the subject of, any additional pending
legal proceeding that will have a material adverse effect on our business, nor
are any of our directors, officers or affiliates involved in any proceedings
adverse to our business or which have a material interest adverse to our
business.”
Note 14: Film development
Costs, page 78
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19.
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Provide
all of the disclosures required by ASC 926-20-50-1 to
50-4.
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RESPONSE:
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1.
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Film
Development Costs – Proposed change of the line item on the Balance Sheet
from “Film Development Costs” to “Investment in Films” to properly reflect
what is being reported. The costs are related to a film in
production and not costs related to films in development. The
Company, thru its foreign sales agent, has pre-sold distribution rights in
certain foreign territories with minimum guarantees of close to
$6,000,000. Combined with a loan guarantee from Ominlab Pty, Ltd
against the domestic distribution proceeds in the amount of $4,850,000 and
estimated values of minimum guarantees on unsold foreign territories from
our sales agent, the Company feels the value of the underlying capitalized
production costs is fair. Also, in regards to the estimate of amortization
for 2010, this was based on the information available as of the filing
date of the 10K in March of 2010 when the Company anticipated a domestic
release of the film during the fall of 2010. As the Company and its
agents continue to work on obtaining a domestic distribution deal, the
amortization estimate dates in current 10Q filings has been adjusted to
2011.
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|
2.
|
Revisions
to Footnote 14:
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Investment
in Films
Investment
in films includes the unamortized costs of one film for which principle
photography has been completed and is currently in post-production.. The
capitalized costs include all direct production and financing costs, capitalized
interest and production overhead. The costs of the film productions are
amortized using the individual-film-forecast-method, whereby the costs are
amortized and participations and residual costs are accrued in proportion that
current year’s revenues bears to managements’ estimate of ultimate revenue at
the beginning of the current year expected to be recognized from exploitation,
exhibition or sale of the film. Ultimate revenue includes estimates over a
period not to exceed ten years following the date of initial
release.
Film
development costs are stated at the lower of amortized cost or estimated fair
value. The valuation of the film development costs are reviewed, when an
event or change in circumstances indicates the fair value of the film is less
than the unamortized cost. The fair value of the film is determined using
managements’ future revenue and cost estimates in an undiscounted cash flow
approach. Additional amortization is recorded in an amount by which
unamortized costs exceed the estimated fair value of the film. Estimates
of future revenue involve measurement uncertainty and it is therefore possible
that reductions in the carry costs of film development costs may be required as
a consequence of changes in managements’ future revenue estimates.
As
of December 31, 2009, all of the film development costs are related to the “Dead
of Night” production. Based on management’s assessment of ultimate revenue
and anticipated release date of the film, $9,380,257 of total film development
of $11,492,135 will be amortized during 2010.
|
20.
|
Considering
your history of operating losses and negative cash flows from operations,
please provide to us your analysis of the fair value of the programming
underlining the capitalized film development cost. For guidance, refer to
ASC: 926-20-40.
|
RESPONSE:
Please see the Company’s
response to Comment number 19, above.
Sincerely,
DIETERICH
& MAZAREI
/s/
Christopher H. Dieterich
Christopher
H. Dieterich
Counsel
to Platinum Studios, Inc.