TriMedia Entertainment Group, Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
{X} QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended January 31, 2008
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- --------------------
Commission File No. 000-49865
TriMedia Entertainment Group, Inc.
(Name of Small Business Issuer)
Delaware 14-1854107
- ----------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
115 East 57th Street, 11th Floor
New York, NY 10022
- -------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Tel 917.546.6640
----------------
(Registrant's Telephone Number, including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filings requirements for the past 90 days.
YES {X} NO { }
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES { } NO {X}
There were 94,710,012 issued and outstanding shares of the registrant's common
stock, par value $.0001 per share, at March 14, 2008.
- --------------------------------------------------------------------------------
TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
January 31, 2008
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of January 31, 2008 and
October 31, 2007 1
Consolidated Statements of Operations for the three month periods
ended January 31, 2008 and January 31, 2007 2
Consolidated Statements of Cash Flows for the three month periods
ended January 31, 2008 and January 31, 2008 3
Notes to the Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operations 11
Item 3a. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 6. Exhibits 15
SIGNATURES
TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2008 AND OCTOBER 31, 2007
January 31, October 31,
2008 2007
------------ ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 87,930 $ 233
Other current assets - discontinued operations -- 22,087
------------ ------------
TOTAL ASSETS $ 87,930 $ 22,320
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Term loans $ -- $ 3,740,888
Convertible notes payable, net of discount 150,500 --
Accounts payable and accrued expenses 954,891 1,614,757
Taxes payable -- 16,000
Due to stockholder -- 147,119
Other current liabilities of discontinued operations -- 2,800,819
------------ ------------
TOTAL LIABILITIES 1,105,391 8,319,583
------------ ------------
STOCKHOLDERS' DEFICIT
Preferred stock, $0.0001 par value; 20,000,000 shares authorized;
10,000 and -0- shares issued and outstanding in 2008 and 2007 10 --
Common stock, $0.0001 par value; 100,000,000 shares
authorized; 93,710,012 and 47,710,012 shares issued
and outstanding in 2008 and 2007 9,370 4,769
Additional paid-in capital 14,610,328 13,285,312
Accumulated deficit (15,637,169) (21,587,344)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (1,017,461) (8,297,263)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 87,930 $ 22,320
============ ============
See accompanying notes to consolidated financial statements.\
-1-
TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2008 AND 2007
(UNAUDITED)
2008 2007
------------ ------------
NET REVENUE $ -- $ --
DIRECT COSTS -- --
------------ ------------
GROSS PROFIT (LOSS) -- --
OPERATING EXPENSES 99,773 395,108
------------ ------------
LOSS FROM OPERATIONS (99,773) (395,108)
------------ ------------
OTHER INCOME (EXPENSE)
Other income 5,000 4,150
Impairment loss (641,800) --
------------ ------------
(636,800) 4,150
------------ ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (736,573) (390,958)
NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS -- 3,040,753
------------ ------------
NET INCOME (LOSS) $ (736,573) $ 2,649,795
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 86,043,345 47,710,012
============ ============
PER SHARE BASIS:
Basic and diluted
Continuing operations $ (0.01) $ --
Discontinued operations -- 0.06
------------ ------------
INCOME (LOSS) PER SHARE $ (0.01) $ 0.06
============ ============
See accompanying notes to consolidated financial statements.\
-2-
TRIMEDIA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2008 AND 2007
(UNAUDITED)
2008 2007
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (736,573) $ 2,649,795
Adjustment to reconcile net income (loss) to net cash
used in operating activities
Impairment loss 641,800 --
Depreciation in discontinued operations -- 1,185
Accretion of interest on notes payable 4,500 --
(Increase) decrease in assets
Increase (decrease) in liabilities
Accounts payable and accrued expenses (6,030) 296,607
Deferred revenue -- 67,720
Taxes payable (16,000) --
Decrease in assets and liabilities relating
to discontinued operations -- (3,145,821)
----------- -----------
Net cash used in operating activities (112,303) (130,514)
CASH FLOWS FROM INVESTING ACTIVITIES
Due to (from) stockholder -- 66,110
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on convertible term loans 200,000 62,150
----------- -----------
NET INCREASE (DECREASE) IN CASH 87,697 (2,254)
CASH - BEGINNING OF PERIOD 233 3,586
----------- -----------
CASH - END OF PERIOD $ 87,930 $ 1,332
=========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest - continued operations $ -- $ --
=========== ===========
Interest - discontinued operations $ -- $ 18,574
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON CASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of warrants for deferred financing fee $ 54,000 $ --
=========== ===========
Issuance of preferred stock for acquisition $ 641,800 $ --
=========== ===========
Issuance of common stock for settlement of debt $ 460,000 $ --
=========== ===========
Transfer investment for settlement of debt $ 250,000 $ --
=========== ===========
Spin-off of subsidiaries:
Accumulated deficit $ 6,686,748 $ --
Additional paid-in capital (76,173) --
----------- -----------
$ 6,610,575 $ --
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
TRIMEDIA ENTERTAINMENT GROUP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2008
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared by Trimedia Entertainment Group, Inc. ("Trimedia") and Subsidiary
(collectively, "the Company"). These statements include all adjustments
(consisting only of normal recurring adjustments) which management believes
necessary for a fair presentation of the statements and have been prepared on a
consistent basis using the accounting policies described in the Summary of
Accounting Policies included in the Annual Report on Form 10-KSB for the fiscal
year ended October 31, 2007 which the Company filed with the Securities and
Exchange Commission on February 13, 2008 (the "Annual Report"). Certain
financial information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the accompanying disclosures are
adequate to make the information presented not misleading. The Notes to
Financial Statements included in the Annual Report should be read in conjunction
with the accompanying interim financial statements. The interim operating
results for the three months ended January 31, 2008 may not necessarily be
indicative of the operating results expected for the full year.
MERGER AND REORGANIZATION
On October 1, 2007, Trimedia entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among the Company, TriMedia Acquisition Corp., a
wholly owned subsidiary of the Company ("Merger Subsidiary") and VGB Media, Inc.
("VGB"). On that date the Company also entered into a Restructuring Agreement,
by and among the Company, 1025 Investments, Inc., IL Resources, Inc.,
Christopher Schwartz, SPH Investments; Capital Growth Investments and Rufftown
Entertainment, Inc. ("Newco") (the "Restructuring Agreement"). The other parties
to this Agreement include our former chief executive officer and other of our
affiliates.
As of November 16, 2007, all the transactions under the Merger Agreement closed
(the "Closing"). As provided for in the Merger Agreement, the merger ("Merger")
of Merger Subsidiary into VGB with VGB as the surviving corporation has been
completed. In connection with the Merger, the shareholder of VGB received 10,000
shares of the Company's newly authorized Series A Convertible Preferred Stock
("Preferred Shares"), valued at $641,800 (Note 6). Each share is convertible
into 6,418 shares of the Company's Common Stock or a total of 64,180,000 shares
of the Company's Common Stock. This represents 40% of the Company's shares on
the Closing on a fully diluted basis as defined in the Merger Agreement
(assuming conversion of the Preferred Shares on such date). The Preferred Shares
will have voting rights equivalent to the Common Stock into which these shares
are convertible. VGB is a newly formed company with substantially no assets or
liabilities. It has entered into a distribution agreement and intends to engage
in the production, distribution and marketing of entertainment related content
after the Merger.
As a further condition of the Closing, the Company completed a restructuring
pursuant to the terms of the Restructuring Agreement. As a result: (i) certain
creditors of the Company converted a portion of their indebtedness ($460,000)
into 46,000,000 shares of Common Stock of the Company; (ii) all the assets of
the Company, including ownership of all our operating subsidiaries, were
contributed to a newly formed Delaware corporation, Newco, in which (A) the
Company has a 19% economic interest owned through a class of non-voting common
stock with an option to acquire additional interests and (B) the aforesaid
creditors (I) initially have an 81% economic interest and the full voting
interest represented by a class of voting common stock and (II) a $4,800,000
liquidation preference represented by a newly designated series of preferred
stock of Newco and (iii) significantly mostly all liabilities of Parent prior to
the closing date or arising from the continuing business were assumed by Newco.
In addition, the Company transferred its 10% interest in Battle Rap, LLC as
settlement of $250,000 of debt. The Company's investment in Battle Rap, LLC was
written off in prior years.
-4-
TRIMEDIA ENTERTAINMENT GROUP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2008
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS (Continued)
The settlement of the debt aggregating $792,584 with creditors were deemed to be
related parties and in essence a capital transaction and credited to APIC.
Aside from our interest in Newco, after the Merger and closing of the
restructuring our business will consist of the entertainment related business
VGB intends to conduct. It has entered into one distribution agreement.
The following amounts related to the transfer of net assets of our operating
subsidiaries under the Restructuring Agreement have been segregated from
continuing operations and included in discontinued operations in the
consolidated statement of operations:
Three Months
Ended
January 31, 2007
-----------------
Net revenue $ 135,569
Direct costs 97,687
-----------
Gross profit 37,882
Operating expenses 105,374
-----------
Loss from operations (67,492)
-----------
Other income (expense)
Other income 1,265
Foreign currency exchange (79,794)
Forgiveness of indebtedness 3,186,774
-----------
3,108,245
-----------
Net income from discontinued operations $ 3,040,753
===========
The following assets and liabilities have been segregated and included in assets
of discontinued operations and liabilities of discontinued operations, as
appropriate, in the consolidated balance sheet as of October 31, 2007 and relate
to our operating subsidiaries:
October 31, 2007
-------------------
Current assets $ 10,942
Property, plant and equipment less
accumulated depreciation 11,145
------------
Assets of discontinued operations $ 22,087
============
Current liabilities $ 1,700,819
Loan payable - stockholder 1,100,000
------------
Liabilities of discontinued operations $ 2,800,819
============
-5-
TRIMEDIA ENTERTAINMENT GROUP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2008
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS (Continued)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Trimedia and its
wholly-owned subsidiary. All material inter-company transactions have been
eliminated in consolidation.
EARNINGS (LOSS) PER SHARE
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
128, EARNINGS PER SHARE, resulting in the presentation of basic and diluted
earnings (loss) per share. For the three months ended January 31, 2008 and 2007,
the basic and diluted earnings (loss) per share are the same, since the exercise
price exceeded the market price and the assumed conversion of stock options and
warrants would be antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
FIN 48 prescribes detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in an
enterprise's financial statements in accordance with SFAS No. 109, ACCOUNTING
FOR INCOME TAXES ("SFAS No. 109"). Tax positions must meet a
more-likely-than-not recognition threshold at the effective date to be
recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 has
been adopted by the Company as of November 1, 2007, and the provisions of FIN 48
will be applied to all tax positions under SFAS No. 109 after initial adoption.
The cumulative effect of applying the provisions of this interpretation will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year. The adoption of FIN 48 did not require an adjustment to the
Company's consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS ("SFAS
No. 157"). SFAS No. 157 establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The changes to current
practice resulting from the application of SFAS No. 157 relate to the definition
of fair value, the methods used to measure fair value and the expanded
disclosures about fair value measurement. SFAS No. 157 will be effective for
fiscal years after November 15, 2007 and interim periods within those fiscal
years. The Company does not believe that the adoption of the provisions of SFAS
No. 157 will materially impact its financial statements or footnote disclosures.
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES ("SFAS No. 159"). SFAS No. 159
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS No. 159 also establishes presentation
and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and will become effective for the
Company beginning with the first quarter of 2008. The Company is currently
evaluating the impact of SFAS No.159 on its consolidated financial statements
and footnote disclosures.
-6-
TRIMEDIA ENTERTAINMENT GROUP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2008
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS (Continued)
On December 4, 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 160, NONCONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS (SFAS No.
160). SFAS No. 160 requires all entities to report noncontrolling (minority)
interests in subsidiaries as equity in the consolidated financial statements.
The statement establishes a single method of accounting for changes in a
parent's ownership interest in a subsidiary that do not result in
deconsolidation and expands disclosures in the consolidated financial
statements. SFAS No. 160 is effective for fiscal years beginning after December
15, 2008 and interim periods within those fiscal years. The Company has not yet
determined the impact of the adoption of SFAS No. 160 on its financial
statements and footnote disclosures.
On December 4, 2007, the FASB issued SFAS No.141R, BUSINESS COMBINATIONS (SFAS
No. 141R). SFAS No. 141R requires the acquiring entity in a business combination
to recognize all the assets acquired and liabilities assumed, establishes the
acquisition date fair value as the measurement objective for all assets acquired
and liabilities assumed, and requires the acquirer to expand disclosures about
the nature and financial effect of the business combination. SFAS No. 141R is
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company has not yet determined the impact of the adoption
of SFAS No. 141R on its financial statements and footnote disclosures.
NOTE 2 - MANAGEMENT PLANS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
Since its inception, the Company has incurred significant losses and, as of
January 31, 2008 had accumulated losses of $15,637,169. For the three months
ended January 31, 2008, the Company's net loss was $736,573 which included
$641,800 representing good will impairment in connection with the Company's
recent merger. In addition, the Company had negative working capital of
$1,017,461, at January 31, 2008. The Company, after the merger and
restructuring, raised $200,000 in a convertible note offering (and recently
received a subscription of an additional $100,000 investment). As a result of
the restructuring:
o The Company is not engaged in any business activity other than
exploring new businesses and is incurring minimal overhead;
o While legally obligated for payment of most of its payables, under the
terms of the Restructuring Agreement a third party is obligated to the
Company for payment of these obligations and, therefore, the Company
does not anticipate having to fund these obligations.
While the Company will incur further operating losses and experience negative
cash flow in the near future, the Company believes it has sufficient cash, with
the expected payment of the additional $100,000 subscription to conduct limited
operations until at least November 30, 2008. In addition, if the notes are not
converted or extended by November 30, 2008, the Company will need in excess of
$300,000 of funds for the repayment of the Notes.
-7-
TRIMEDIA ENTERTAINMENT GROUP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2008
(UNAUDITED)
NOTE 2 - MANAGEMENT PLANS (Continued)
Ultimately the Company's ability to achieve profitability and positive cash flow
depends on the Company's ability to generate sufficient revenues from a business
it may enter into. While the Company is exploring several possibilities any
business will require a additional capital. There can be no assurances that the
Company will be able to enter a business to generate sufficient revenues or
raise additional capital to achieve and sustain profitability and positive cash
flow in the future. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
The Company has no firm commitments for funding its operations, although it
intends to increase its efforts to sell its convertible note. The Company may
raise additional capital from the sale of its equity securities. However, there
can be no assurances that the Company will be successful in raising sufficient
capital to have a material positive effect of the Company's operations and cash
flow.
There can be no assurance that such funding will be generated or available on
terms acceptable to the Company, or at all, or that the commercial exploitation
of the Company's products will be economically profitable for the Company. These
uncertainties raise substantial doubt about the ability of the Company to
continue as a going concern.
NOTE 3 - CONVERTIBLE NOTES PAYABLE
During the period ended January 31, 2008, the Company issued two convertible
notes of $100,000 each with interest at 8% per annum payable at maturity. The
above notes mature on November 30, 2008. The warrants were valued at $54,000
using the Black-Scholes option pricing model and reduced the convertible notes
as a discount on note and classified the warrants as equity in accordance with
EITF 00-19. The convertible notes are being accreted to their maturity value
using the interest method. The conversion feature was deemed to have no
intrinsic value. Included with each convertible note was a warrant to purchase 5
million shares of the Company's common stock at the exercise price of $.01, due
to expire in five years. The warrants vested immediately.
NOTE 4 - INCOME TAXES
There is no deferred income tax benefit for the losses for the three months
ended January 31, 2008 and 2007 since management has determined that the
realization of the net deferred tax asset is not assured and has created a
valuation allowance for the entire amount of such benefits. There is no current
income tax for the three months ended January 31, 2008 and 2007 due to
unutilized net operating loss carryforwards.
At October 31, 2007, the Company had net operating loss carryforward for federal
and state income tax purposes of approximately $19,588,000 (the "NOL
carryforwards"), which were available to offset future taxable income, if any,
through 2027. However, due to a substantial change in ownership in current and
prior years, the use of any NOL carryforward may be limited. Based upon the
limited operating history of the Company and losses incurred to date, management
has fully reserved the deferred tax asset.
-8-
TRIMEDIA ENTERTAINMENT GROUP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2008
(UNAUDITED)
NOTE 5 - STOCK BASED COMPENSATION
In December 2004, the FASB issued SFAS 123 (revised 2004), SHARE-BASED PAYMENT
("SFAS 123(R)"). SFAS 123(R) supersedes Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and amends SFAS No.
95, STATEMENT OF CASH FLOWS. Generally, the approach in SFAS 123(R) is similar
to the approach described in SFAS 123. However, SFAS 123(R) requires share-based
payments to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values at the date of
grant. Pro forma disclosure is no longer an alternative.
On November 1, 2006, the Company adopted SFAS 123(R) using the modified
prospective method as permitted under SFAS 123(R). Under this transition method,
compensation cost recognized in the first quarter of 2007 includes compensation
cost for all share-based payments granted prior to but not yet vested as of
October 31, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123. In accordance with the modified prospective
method of adoption, the Company's results of operations and financial position
for prior periods have not been restated. There was no unrecognized compensation
cost as of October 31, 2006.
The Company uses the Black-Scholes option pricing model to calculate the
grant-date fair value of an award.
There were no stock options granted during the three months ended January 31,
2008 and 2007.
A summary of options is as follows:
Shares Option Price Per Weighted Average
Outstanding Share Expense Exercise Price
------------- ---------------- ----------------
Options outstanding,
October 31, 2007
and January 31, 2008 8,036,707 $0.01 to $1.50 $0.62
============ ================ ================
The options that are exercisable at January 31, 2008 are summarized as follows:
Weighted
Average Number of Options
Remaining Currently Weighted Average
Option Price Contractual Life Exercisable Exercise Price
------------ ---------------- ----------- --------------
$0.01 to $1.50 7.21 years 8,036,707 $0.62
-9-
TRIMEDIA ENTERTAINMENT GROUP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2008
(UNAUDITED)
NOTE 5 - STOCK BASED COMPENSATION (Continued)
A summary of the warrants issued by the Company is as follows:
Number of Option Price Per Weighted Average
Shares Share Range Exercise Price
------ ----------- --------------
Warrants outstanding at
October 31, 2007 4,941,667 $0.45 to $1.06 $0.61
Warrants granted 10,000,000 $0.01 0.01
Warrants expired (666,667) $1.25 (0.06)
Warrants outstanding at
January 31, 2008 14,275,000 $0.01 to $1.06 $0.16
Warrants that are exercisable at January 31, 2008 are summarized as follows:
Weighted
Average Number of Warrants
Remaining Currently Weighted Average
Warrant Price Contractual Life Exercisable Exercise Price
------------- ---------------- ----------- --------------
$0.01 to $1.50 4.09 years 14,275,000 $0.16
Note 6 - IMPAIRMENT LOSS
During the three months ended January 31, 2008, the Company recorded an
impairment loss of $641,800 on its investment in VGB.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this report. This discussion
and analysis contains forward-looking statements that involve risks,
uncertainties, and assumptions. The actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including but not limited to the risks discussed in this report.
OVERVIEW
Through the end of fiscal 2007 we were a multimedia entertainment company that
has film and music operations. As of October 2007 and during most all of fiscal
2007 we did not have sufficient cash to implement our business plan. For the
year ended October 31, 2007 the Company's net income was $1,907,933 (primarily
due forgiveness of debt). In addition, the Company had negative working capital
of $7,208,408 at October 31, 2007 and experienced negative cash flow from
operations of $ 315,370 and $1,981,277 for the years ended October 31, 2007 and
2006. The Company had total liabilities of approximately $8,300,000 of which the
outstanding debt was in the aggregate principal amount of approximately
$5,400,000 as of October 31, 2007. Accordingly, the Company had only minimal
operations in fiscal 2007 and would have required a significant amount of cash
to fund its then operations and to continue its business.
On November 16, 2007 the Company pursuant to an Agreement and Plan of Merger
(the " Merger Agreement") by and among the Company, TriMedia Acquisition Corp.,
a wholly owned subsidiary of the Company ("Merger Subsidiary") and VGB Media,
Inc. ("VGB") completed the merger of VGB with Merger Subsidiary. On that date
the Company also completed a restructuring pursuant to a Restructuring
Agreement, by and among the Company, certain creditors and its chief executive.
As a result of these transactions (i) certain creditors of the Company converted
a portion of their indebtedness into 46,000,000 shares of Common Stock of the
Company; (ii) all the assets of Company, including ownership of all our
operating subsidiaries, were contributed to a newly formed Delaware corporation
("Newco") in which the Company will have an economic interest and (iii)
significantly all liabilities of the Company prior to the closing date or
arising from the continuing business were assumed by Newco.
As a result of that transaction substantially all liabilities were satisfied or
assumed and we will not have to fund the operations of the prior business. For
accounting purposes the prior has been treated as a discontinued business.
New Management desires to pursue various aspects of the entertainment business
and is considering several avenues. At the present time we have no operations.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the related notes thereto included in this
Form 10-QSB.
CRITICAL ACCOUNTING POLICIES
In presenting our financial statements in conformity with accounting principles
generally accepted in the United States, we are required to make estimates and
assumptions that affect the amounts reported therein. Several of the estimates
and assumptions we are required to make relate to matters that are inherently
uncertain as they pertain to future events. However, events that are outside of
our control cannot be predicted and, as such, they cannot be contemplated in
evaluating such estimates and assumptions. If there is a significant unfavorable
change to current conditions, it will likely result in a material adverse impact
to our consolidated results of operations, financial position and in liquidity.
We believe that the estimates and assumptions we used when preparing our
financial statements were the most appropriate at that time. Presented below are
those accounting policies that we believe require subjective and complex
judgments that could potentially affect reported results.
-11-
The discussion in the following two sections were appliciable to our
discontinued business and may not be relevant on a going forward basis.
REVENUE RECOGNITION
We recognize revenue from the sale or licensing of films and nonrefundable
minimum guarantees from customers upon meeting all recognition requirements of
Statement of Position ("SOP") 00-2, "Accounting by Producers or Distributors of
Films". According to SOP 00-2, an entity should recognize revenue from a sale or
licensing arrangement of a film when all of the following conditions are met:
o persuasive evidence of a sale or licensing arrangement with a customer
exists;
o the film is complete and, in accordance with the terms of the
arrangement, has been delivered or is available for immediate and
unconditional delivery;
o the license period of the arrangement has begun and the customer can
begin its exploitation, exhibition, or sale;
o the arrangement fee is fixed or determinable; and
o collection of the arrangement fee is reasonably assured.
If we do not meet any one of the preceding conditions, then we will defer
recognizing revenue until all of the conditions are met.
CAPITALIZED FILM COSTS
Costs of making motion picture films that are produced for sale to third parties
are stated at the lower of cost, less accumulated amortization, or fair value.
In accordance with SOP 00-2, we expense film costs based on the ratio of the
current period gross revenues to estimated total gross revenues from all sources
on an individual production basis. This ratio requires the use of estimates
based on management's knowledge and experience. Due to the uncertainty of future
estimated revenues from films in production, we normally write off film costs as
they occur.
ARTIST COMPENSATION COSTS
The amount of royalties earned by artists, as adjusted for anticipated returns,
is charged to expense in the period in which the sale of the record takes place.
Advance royalty paid to an artist is reported as an asset only if the past
performance and current popularity of the artist to whom the advance is made
provide a sound basis for estimating that the amount of the advance will be
recoverable from future royalties earned by the artist. Capitalized advances are
charged to expense as subsequent royalties are earned by the artist. Any portion
of capitalized advances that appear not to be fully recoverable from future
royalties to be earned from the artist are charged to expense during the period
in which the loss becomes evident.
RESULTS OF OPERATIONS
COMPARISON OF QUARTER ENDED JANUARY 31, 2008 (FIRST QUARTER 2008) TO QUARTER
ENDED JANUARY 31, 2007 (FIRST QUARTER 2007)
First Quarter First Quarter Change %
2008 2007
--------------------------------------------------
Net Revenues -0- -0- -0- -0-
Direct Costs -0- -0- -0- -0-
Operating Expenses 99,773 395,108 (295,335) (74.7)
Other Income (Expense) (636,800) 4,150 640,950 (154.4)
Net Income (Loss) From (736,573) (345,615) (88.4)
ContinuedOperations (390,958)
Net Income (Loss) From 3,040,753
Discontinued Operations -0- 3,040,753 (100.0)
Net Income (Loss) (736,573) 2,649,795 (3,386,368) (127.8)
-12-
The Company had no net revenue or direct costs for First Quarter 2008 as
the Company had completed it restructuring and discontinued its prior business.
New management was exploring possible business directions and had not commenced
additional operations. Because any net revenue or direct costs occurring in
First Quarter 2007 related to our discontinued business it is reflected in
calculating our Net Income (Loss) From Discontinued Operations for such period.
The $295,335 decrease in Operating Expenses was primarily due to a decrease in
activity of the Company immediately after the restructuring. Operating Expenses
are generally the costs of operating our business and include salaries,
advertising, professional and consulting fees, rent and utilities, travel and
costs related to financing activities.
The $636, 800 increase in Other Expense in First Quarter 2008 due to an
impairment expense of $ 641,800 . This expense arose in connection with the
acquisition of VGB. The Company valued the consideration of the shares issued
for the acquisition at $641,800 the aggregate market value of the Company's
common stock at the time. Because the value of the VGB stock was negligible at
the time of the acquisition, the Company considered the entire resulting
goodwill without value and wrote this amount off immediately as an impairment.
Because it is reflected in Net Income From Discontinued Operations for First
Quarter 2007, Other Income for such period does not include forgiveness of
indebtedness income of $3,186,774 due to repayment of a line of credit at
maturity with collateral of a third party held on deposit by our lender, offset
by a foreign currency exchange loss of $79,794.
Our Net Loss was $736,573 during First Quarter 2008 compared to Net Income
of $2,649,795 during the First Quarter 2007. This was because we had Net Income
From Discontinued Operations of $3,040,753 in such period primarily resulting
from forgiveness of debt discussed above.
CHANGES IN FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
First Quarter First Quarter Change Percentage
2008 2007
-------------------------------------------------
Cash Flows From Operating
Activities (112,303) (130,514) 18,211 (13.9)
Cash Flows From Investing
Activities -0- 66,110 (66,110) (100.0)
Cash Flows From Financing
Activities 200,000 62,150 137,850 221.2
The use of cash from operations in First Quarter 2008 was due primarily to our
Net Loss of,$ 736,573 principally offset by non-cash charges for Impairment of
approximately $641,800 and other cash items resulting in the expenditure of
$17,530 in operations. .
In First Quarter 2008, no cash was derived or expended as result of investing
activities. In First Quarter 2008, $ 200,000 cash provided by financing
activities represented monies derived from our
convertible note warrant private offering.
As a result of the foregoing the Company used $112,303 of cash and had $87,930
remaining as of January 31, 2008.As of March 12,2008 we had approximately
$29,200 in cash before the expected receipt of $100,000 for the additional
subscription referred to in the following paragraph.
Since its inception, the Company has incurred significant losses and, as of
January 31, 2008 had accumulated losses of $15,637,169..For the three months
ended January 31, 2008, the Company's net loss was $736,573 which included
$641,800 representing good will impairment in connection with the Company's
recent merger. In addition, the Company had negative working capital of
$1,017,461, at January 31, 2008. The Company, after the merger and
restructuring, raised $200,000 in a convertible note offering (and subsequent to
January 31, 2008 has recently obtained a subscription for an additional $100,000
from its convertible note and warrant offering). As a result of the
restructuring:
o The Company is not engaged in any business activity other than
exploring new businesses and is incurring minimal overhead;
o While legally obligated for payment of most of its payables, under the
terms of the Restructuring Agreement a third party is obligated to the
Company for payment of these obligations and the Company does not
anticipate these obligations will result in cash outlays.
-13-
While the Company will incur further operating losses and experience negative
cash flow in the near future, the Company believe it has sufficient cash to
conduct limited operations until at least November 30,2008. If addition, if the
Notes are not converted or extended by November 30, 2008 the Company will need
in excess of $300,000 of funds for the repayment of the Notes.
New Management desires to pursue various aspects of the entertainment business
and is considering several avenues. At the present time we have no operations.
No matter what business we pursue we shall need additional capital, the amount
of which will depend upon on our business operations. In the event that we are
unable to raise these funds, we will then be required to delay our plans to
implement any new business.
The nature of our business is such that significant cash outlays are required to
produce and acquire entertainment content including films, television programs,
music soundtracks and albums. However, net revenues from these projects are
earned over an extended period of time after their completion or acquisition.
Accordingly, we will require a significant amount of cash to fund our present
operations and to continue to grow our business. Any business entered into will
require financing s for the foreseeable future. Therefore we will be dependent
on continued access to external sources of financing. Our current financing
strategy is to sell our securities to raise a substantial amount of our working
capital.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements during the three months ended
January 31, 2008 that have or are reasonably likely to have, a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to our interests.
ITEM 3A(T). CONTROLS AND PROCEDURES
As of January 31, 2008 we carried out an evaluation of the effectiveness of
the design and operation of our "disclosure controls and procedures" (as defined
in the Exchange Act Rules 13a-15(e) and 15d-15(e)) under the supervision and
with the participation of our management, including Jason Meyers our Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, Mr.
Meyers concluded that our disclosure controls and procedures are effective.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act are recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management to allow timely decisions regarding
required disclosure.
-14-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
New management has been advised that a default judgement has been taken against
it for L111,001_ in a United Kingdom action. The Company is considering several
steps including negotiation and pursuing claims under the restructuring
Agreement. At this time it has not determined what course of action it will
take.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three months ended January 31, 2008 we sold two units of our
securities in a private placement. Each unit consisted of $100,000 note and
warrants to purchase 5,000,000 of our shares at an exercise price of one cent
($.01), The notes are convertible at any time prior to payment. The conversion
price is one cent ($.01). The securities were issued pursuant to Section 4(2) of
the Securities Act of 1933 and are exempt from the registration requirements
under that act.
ITEM 6. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------------------------------------------------------
10.49 8 % Convertible Note Due November 30, 2008
10.50 Warrant to purchase shares of common stock expiring November 30, 2012
31.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
- --------------------------------------------------------------------------------
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIMEDIA ENTERTAINMENT GROUP, INC.
Date: March 17, 2008 /s/ Jason Meyers
-----------------
Jason Meyers
Chief Executive Officer and Chief Financial Officer
(principal financial officer and principal
accounting officer)
-16-