As filed with the Commission on June 19, 2003 File No. 333-_______
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMP PRODUCTIONS, LTD.
(Name of small business issuer in its charter)
Nevada 7812 98-0400189
(State of (Primary Standard Industrial (I.R.S. Employer
Jurisdiction) Classification Code Number) Identification No.)
2708-939 Homer Street
Vancouver, BC V6B 2W6
604-688-1075
(Address and telephone number of principal executive offices)
Thomas E. Mills
2708-939 Homer Street
Vancouver, BC V6B 2W6
604-688-1075
(Name, address and telephone number of agent for service)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
==============================================================================================
Title of Each Class of Securities Proposed Maximum Aggregate Amount of
to be Registered Offering Price (1) Registration Fee
common stock, $0.0001 par $175,000 $14.16
value per share
Total $14.16
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act and based upon
1,750,000 shares of common stock to be sold in this offering.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
PROSPECTUS Subject to Completion
June 5, 2003
AMP Productions, Ltd.
Common Stock
This prospectus relates to the sale of up to 1,750,000 shares of common
stock that may be sold by us at $0.10 per share. The common stock will be sold
through our officers or directors to investors outside the United States. There
is no minimum number of shares to be sold in order for us to accept funds. No
escrow account will be used. No assurance can be given as to the number of
shares that we will sell or that we will be able to sell any shares.
This is our initial public offering. No public market currently exists for
our shares although we intend to apply for quotation on the Over-the-Counter
Bulletin Board in the future. The offering price for our common stock was
arbitrarily determined and may not reflect the market price of our shares after
the offering.
The shares will be offered and sold by our officers and directors who will
not receive any commission. In the future, we may engage broker/dealers who are
members of the National Association of Securities Dealers to assist in our sales
of common stock and who will be paid a commission on such sales. We currently
have no agreements, arrangements or understandings with any broker/dealers to
sell our shares. In the event we engage a broker/dealer to assist in our sales,
we will amend our registration statement, of which this prospectus is a part of,
to reflect this arrangement.
This offering will expire 90 days from the effective date and may be
extended for an additional 90 days to a date not to exceed December 31, 2003
(Expiration Date). We may terminate this offering prior to the Expiration Date.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. SEE "RISK
FACTORS," PAGE 6. THE COMMON STOCK OFFERED HEREIN SHOULD NOT BE PURCHASED BY ANY
INVESTOR WHO CANNOT AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
These securities have not been approved by the Securities and Exchange
Commission nor any state securities agency nor has the Commission or any agency
passed upon the accuracy or adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Price to Public Underwriting Proceeds to the
Discounts and Company (1)
Commissions
Per Share.................. $0.10 $0 $0.10
Maximum 1,750,000
shares..................... $175,000 $0 $175,000
(1) Proceeds to AMP Productions, Ltd. are shown before deducting offering
expenses payable by us estimated at $20,000, including legal and accounting
fees and printing costs.
The date of this Prospectus is June 5, 2003.
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY............................................................3
FORWARD-LOOKING STATEMENTS....................................................5
RISK FACTORS..................................................................6
USE OF PROCEEDS..............................................................13
DETERMINATION OF OFFERING PRICE..............................................14
DILUTION.....................................................................14
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....................16
DESCRIPTION OF BUSINESS......................................................18
DESCRIPTION OF PROPERTY......................................................31
LEGAL PROCEEDINGS............................................................32
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.................33
EXECUTIVE COMPENSATION.......................................................33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............33
PLAN OF DISTRIBUTION.........................................................34
DESCRIPTION OF THE SECURITIES................................................34
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES.........................................................35
LEGAL MATTERS................................................................35
EXPERTS......................................................................35
AVAILABLE INFORMATION........................................................35
FINANCIAL STATEMENTS........................................................F-1
Dealer Prospectus Delivery Obligation
Until ___________, 2003, 90 days after the date of this prospectus, all dealers
that buy, sell or trade in our securities, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as an
underwriter with respect to its unsold allotment or subscription.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information and consolidated financial statements, including the notes
thereto, appearing elsewhere in this prospectus. Each prospective investor is
urged to read this prospectus in its entirety and particularly the information
set forth in "RISK FACTORS" on page 6.
AMP Productions, Ltd.
We were incorporated on February 27, 2003, under the laws of the State of
Nevada. We are a development stage enterprise with our principal office located
at 2708-939 Homer Street, Vancouver, British Columbia, Canada, V6B 2W6, (604)
688-1075.
We are an independent motion picture studio in the business of developing,
producing, marketing, and distributing low-budget feature-length films to movie
theaters and ancillary markets. Since inception, our focus has been on
developing our business plan, and acquiring options on literary works and
screenplays that can be produced into commercially salable feature-length motion
pictures at a cost not to exceed $10 million.
In the next two years, we plan to acquire rights to two dozen screenplays
that we can produce into feature films, and to produce and/or co-produce at
least one feature film. To date, we have secured options to produce two
screenplays as feature length motion pictures. We continue to review other
potential film projects. On successful completion of this offering we intend to
begin pre-production of one of our motion pictures, with principal photography
commencing in the spring of 2004.
We will derive income through the distribution of our films. We plan to
release our films in the United States through existing distribution companies,
primarily independent distributors. We will retain the right for ourselves to
market the films on a territory-by-territory basis throughout the rest of the
world and to market television and other uses separately.
We believe that our location in Vancouver, British Columbia, will afford us
economic advantages over similar United States based filmed entertainment
studios. Due to the favorable exchange rate and the financial initiatives
available from government sources, we believe that we can produce high quality
films more cost effectively than would be possible in the United States.
Vancouver is also the nearest Canadian film center to Hollywood.
The demand for motion pictures remains strong. The motion picture industry
has experienced steady growth since its inception. Most recently, with the
advent of network, broadcasting television alliances, cable television and home
video, the market has expanded faster than at any other time. Movies are being
bought for pay-television cable networks as well as for the traditional outlets
of theaters and network television. With the expansion of audience markets, and
an increase in demand for motion pictures, independent producers like our
company, have successfully filled niche markets and targeted specific audiences.
We are dependent upon the raising of capital through placement of our
securities. There can be no assurance that we will be successful in raising the
capital we require through the sale of our securities. If we are unsuccessful in
raising capital with this offering, we may have insufficient funds to continue
our operations.
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The Offering
Securities Offered: Up to 1,750,000 shares of common
stock, par value $0.0001
Offering price: $0.10 per share
Offering period: The shares are being offered for a
period of 90 days, unless we extend
the offer, in our sole discretion,
for an additional 90 days to a date
not later than December 31, 2003
Net proceeds to us: Approximately $155,000, after
expenses of approximately $20,000
assuming sale of 1,750,000 shares
Use of proceeds: We will use the proceeds to pay for
offering expenses, debt repayment,
the acquisition of motion picture
rights, motion picture development,
motion picture pre-production,
equipment, marketing expenses and
working capital.
Number of shares outstanding 8,000,000
before the offering:
Maximum Number of shares outstanding 9,750,000 assuming sale of all
after the offering: 1,750,000 shares being offered.
Summary of Selected Financial Data
We are a development stage company. From the date of our inception on
February 27, 2003, to March 31, 2003, we have not generated any revenue or
earnings from operations. As of March 31, 2003, our financial data is as
follows:
As at or for the period ended
March 31, 2003 (inception to
March 31, 2003)
Operations Data
Revenue $0
Net Loss: $13,216
Balance Sheet Data
Total Assets: $5,785
Total Liabilities: $18,201
Shareholder Equity: $(12,416)
Negative Net Tangible Book Value: $(12,416)
Negative Net Tangible Book Value Per Share: $(0.002)
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FORWARD-LOOKING STATEMENTS
INFORMATION IN THIS PROSPECTUS CONTAINS "FORWARD LOOKING STATEMENTS" WHICH CAN
BE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS SUCH AS "BELIEVES",
"ESTIMATES", "COULD", "POSSIBLY", "PROBABLY", "ANTICIPATES", "ESTIMATES",
"PROJECTS", "EXPECTS", "MAY", "WILL", OR "SHOULD" OR OTHER VARIATIONS OR SIMILAR
WORDS. NO ASSURANCES CAN BE GIVEN THAT THE FUTURE RESULTS ANTICIPATED BY THE
FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED. THE FOLLOWING MATTERS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO THOSE
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE FUTURE RESULTS ANTICIPATED BY
THOSE FORWARD-LOOKING STATEMENTS. AMONG THE KEY FACTORS THAT HAVE A DIRECT
BEARING ON OUR RESULTS OF OPERATIONS ARE THE EFFECTS OF VARIOUS GOVERNMENTAL
REGULATIONS, THE FLUCTUATION OF OUR DIRECT COSTS AND THE COSTS AND EFFECTIVENESS
OF OUR OPERATING STRATEGY. OTHER FACTORS COULD ALSO CAUSE ACTUAL RESULTS TO VARY
MATERIALLY FROM THE FUTURE RESULTS ANTICIPATED BY THOSE FORWARD-LOOKING
STATEMENTS.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE BUYING OUR COMMON
STOCK IN THIS OFFERING. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND
ADVERSELY AFFECTED, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU
COULD LOSE ALL OR PART OF YOUR INVESTMENT.
WE ARE A DEVELOPMENT STAGE COMPANY WITH LOSSES SINCE OUR FORMATION AND EXPECT TO
INCUR NET LOSSES FOR THE FORESEEABLE FUTURE. WE HAVE NO OPERATING HISTORY UPON
WHICH AN EVALUATION OF OUR PROSPECTS CAN BE MADE. FOR THAT REASON, IT WOULD BE
DIFFICULT FOR A POTENTIAL INVESTOR TO JUDGE OUR PROSPECTS FOR SUCCESS.
We are a newly organized development stage corporation and have a no
operating history from which to evaluate our business and prospects. We have had
no revenue. We had a minimal loss from February 27, 2003 (inception) to March
31, 2003. We had negative net worth of $12,416 and our working capital was
$2,392 as of March 31, 2003. There can be no assurance that our future proposed
operations will be implemented successfully or that we will ever have profits.
If we are unable to sustain our operations, you may lose your entire investment.
We face all the risks inherent in a new business, including the expenses,
difficulties, complications and delays frequently encountered in connection with
the formation and commencement of operations, including operational difficulties
and capital requirements and management's potential underestimation of initial
and ongoing costs. In evaluating our business and prospects, these difficulties
should be considered.
IN THEIR NOTES TO OUR FINANCIAL STATEMENTS, OUR AUDITORS HAVE EXPRESSED
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE OPERATIONS AS A "GOING CONCERN".
YOU MAY LOSE ALL OF YOUR INVESTMENT IF WE ARE UNABLE TO CONTINUE OPERATIONS.
Since inception, the Company has suffered recurring losses and net cash
outflows from operations. The Company expects to continue to incur substantial
losses to complete the development of its business. Since its inception, we have
funded operations through common stock issuances and related party loans in
order to meet our strategic objectives. We have not established any other source
of equity or debt financing. There can be no assurance that we will be able to
obtain sufficient funds to continue the development of and, if successful, to
commence the sale of our products and services under development. As a result of
the foregoing, our auditors have expressed substantial doubt about our ability
to continue as a going concern. If we cannot continue as a going concern, then
you may lose all of your investment.
EVEN IF ALL OF THE SHARES ARE SOLD IN THIS OFFERING, WE WILL NEED ADDITIONAL
FUNDS TO COMPLETE A MOTION PICTURE; IF WE FAIL TO OBTAIN ADDITIONAL FUNDS, OUR
PLAN OF OPERATIONS MAY HAVE TO BE CHANGED OR YOU MAY LOSE YOUR ENTIRE
INVESTMENT.
Motion picture production requires significant capital. In addition to the
proceeds from this offering, we will also require certain deferrals of
production costs and/or additional outside financing to produce a motion
picture. Such financing could take the form of co-production or joint venture
arrangements or limited liability companies or partnerships in which we act as
managing member or general partner, additional sales of our securities or an
operating line of credit. Regardless of the amount of money we raise in this
offering, additional financing will be needed to complete a motion picture. No
assurance can be given that financing will be available to us, at all, or on
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favorable terms. Unless such additional financing is available to us, our
production activities may be materially adversely affected and you may lose your
entire investment. We believe the proceeds from this offering will satisfy our
capital requirements for the next 12 months. Then we will have to arrange for
additional financing.
Our capital requirements depend on a number of factors, including the
initial acceptance of our motion pictures by distributors and the public, and
the costs to advertise. The timing and amount of such capital requirements
cannot be accurately predicted. If our capital requirements vary materially from
those currently planned, we may require additional financing sooner than
anticipated. We have no financing commitments.
YOU MAY SUFFER SUBSTANTIAL CONSEQUENCES SUCH AS DILUTION OR A LOSS OF SENIORITY
IN PREFERENCES AND PRIVILEGES AS A RESULT OF A SUBSEQUENT FINANCING.
If we need to raise additional capital to implement or continue operations,
we would likely have to issue additional equity or convertible debt securities.
This will further dilute the percentage ownership of your investment in this
offering. Furthermore, any new securities could have rights, preferences, and
privileges senior to those of our common stock.
THERE IS NO MINIMUM AMOUNT OF FUNDS WHICH MUST BE RAISED IN ORDER FOR US TO HAVE
ACCESS TO OFFERING PROCEEDS; WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN
IF WE SELL AN INSIGNIFICANT NUMBER OF SHARES IN THIS OFFERING, WHICH COULD
HINDER OUR ABILITY TO GENERATE REVENUE AND YOU COULD LOSE ALL YOUR INVESTMENT.
We are a development stage company. We depend on the proceeds of this
offering in order to develop and expand our business because our revenue is
insufficient to do so. If we do not raise sufficient funds in this offering to
develop and expand our business, we may conduct additional public or private
offerings of our stock or make other funding arrangements such as loans or enter
into strategic partnerships. We have not identified any specific alternative
sources of funding other than this offering. We will have immediate access to
funds raised in this offering. There is no guarantee that we will be able to
sell all, or any, of the offered shares. If we sell only an insignificant number
of the offered shares, we may not be able to develop or expand our business
which will harm our ability to earn revenue. Specifically, we may not realize
sufficient proceeds from this offering to repay our debt, to develop or
preproduce a motion picture, to pay planned marketing expenses and working
capital. Our inability to raise sufficient funds in this offering may
significantly hinder our ability to conduct operations and generate revenue. If
we are able to sell only an insignificant number of shares in this offering, you
may lose your entire cash investment because we will not return investors' funds
even if we do not raise enough to fully implement our business plan. Therefore,
you should not invest in our business unless you are in a position to lose your
entire investment.
OUR COMMON STOCK IS NOT LISTED OR QUOTED AT THE PRESENT TIME AND AN ACTIVE
TRADING MARKET MIGHT NOT DEVELOP.
Our common stock is not listed or quoted at the present time and an active
trading market might not develop. We do not meet the minimal standards for
listing on the Nasdaq National Market or SmallCap Market exchanges. We will
therefore seek to have our common stock quoted on the OTC Bulletin Board,
commonly known as the OTCBB. However, inclusion on the OTCBB, if granted, does
not guarantee that an active and liquid trading market will develop.
OTCBB stocks are equity securities that are not traded on Nasdaq or listed
on an organized exchange and are instead quoted through a separate quotation
7
system. As a consequence, market data such as quotes, volume and market size may
not be as up-to-date as it is for securities listed on the Nasdaq National
Market or SmallCap Market exchanges.
If you attempt to trade shares of our common stock, you may find that these
shares have limited liquidity, meaning that your order may be only partially
executed or may not be executed at all. This will depend on the number of shares
you wish to trade and the number of market makers available. In addition,
because of the large spreads typical between an OTCBB market maker's bid and ask
prices for a particular security, you may experience significant losses if you
need to sell your shares immediately after this offering. If the bid price for
our common stock is much lower than the ask price, you will not be able to sell
your shares at a profit unless the market value of the stock rises
substantially.
In 2003, the NASD plans to launch a new market, the Bulletin Board
Exchange, also known as the BBX. This market will eventually take the place of
the OTCBB, which will be phased out. The BBX will have minimal qualitative
listing criteria for issuers relating to public float and number of stockholders
as well as certain minimal corporate governance requirements. Although these
guidelines have not yet been adopted and are still subject to approval by the
Securities and Exchange Commission, or SEC, proposed guidelines have been
released. Based on these proposed guidelines, we anticipate that we will be able
to satisfy the listing standards for the BBX and therefore will continue to have
our stock price quoted once the OTCBB is eliminated. However, our failure to
obtain or maintain a listing on the BBX following the elimination of the OTCBB
would result in our common stock being traded on an OTC electronic quotation
system known as the Pink Sheets Electronic Quotation System. That system is
substantially similar in its workings to the OTCBB.
THE LIMITED MARKET FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE, THEREFORE
YOU MAY HAVE DIFFICULTY SELLING OUR COMMON STOCK.
The market for our common stock, if any, will be limited and we cannot
assure you that a larger market will ever be developed or maintained. Currently,
our common stock is not listed or quoted upon on any established trading system.
Most of our common stock will be held by a small number of investors that will
further reduce the liquidity of our common stock. Further, the offering price of
our common stock was determined by us, and was based upon the amount of capital
needed to enter into the pre-production phase for one of our projects, without
considering assets, earnings, book value, net worth or other economic or
recognized criteria or future value of our common stock. Market fluctuations and
volatility, as well as general economic, market and political conditions, could
reduce our market price. As a result, this may make it difficult or impossible
for you to sell our common stock or for you to sell our common stock for more
than the offering price even if our operating results are positive.
TRADING IN OUR COMMON STOCK MAY BE RESTRICTED BY THE SECURITIES AND EXCHANGE
COMMISSION'S PENNY STOCK REGULATIONS, WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO
BUY AND SELL OUR COMMON STOCK.
Depending upon a variety of factors that are outside of our control, if our
common stock is able to trade on the OTCBB it may fall within the definition of
a "penny stock" as set forth in Rule 3a51-1(a) under the Securities Exchange Act
of 1934, as amended, commonly referred to as the 1934 Act. Under this act, our
stock would be considered a penny stock unless it meets at least one of the
following criteria:
- the highest bid displayed for our stock on the OTCBB is $5 or
more, and at least two market makers are currently displaying bid
and ask quotations for our stock at specified prices;
- we have net tangible assets of at least $5 million or, if we have
been in existence for more than three years, $2 million; or
8
- our average revenues during the previous three years are at least
$6 million.
If our common stock becomes a penny stock, this rule would impose an
extensive series of disclosure obligations and sales practice requirements on
the broker-dealers such as making a special suitability determination of a
purchaser and receive the purchaser's written agreement of the transaction prior
to the sale. Consequently, if our common stock falls under the definition of a
penny stock at any time, these rules would restrict the ability of
broker-dealers to find buyers, which would restrict your ability to sell shares
in the secondary market.
SINCE OUR BOARD OF DIRECTORS, AT ITS DISCRETION, MAY BORROW FUNDS WITHOUT
STOCKHOLDER APPROVAL, THE VALUE OF OUR SHARES MAY DECLINE.
Our board of directors has the right, in its sole discretion, to borrow
funds on our behalf. Our board of directors does not require stockholder
approval prior to borrowing. Our assets may be used as collateral for
borrowings. If we have difficulty repaying these borrowings out of our working
capital, we may be forced to liquidate assets at an inappropriate time or
default. In the event of a default, our lender may dispose of collateral to the
detriment of our business and the value of our shares may decline and the equity
of our stockholders may be reduced or eliminated.
WE FACE INTENSE COMPETITION; YOU MAY LOSE ALL OF YOUR INVESTMENT IF WE ARE
UNABLE TO SUCCESSFULLY COMPETE.
Competition in the motion picture industry is intense. We will be competing
with other film producers for scripts, actors, directors as well as audiences.
We will face competition from other varieties of public entertainment.
Our competitors and we are constantly seeking rights to exceptional
literary properties and the services of the best creative personnel. Virtually
all of our competitors are larger than we are, have been in business longer than
we have, and have more resources at their disposal. Some of the well-known
studios we compete with are News Corporation's Twentieth Century Fox, Time
Warner's Warner Bros. (including Turner, New Line Cinema and Castle Rock
Entertainment), Viacom's Paramount, Seagram's Universal, Sony Corp.'s Sony
Pictures (including Columbia and TriStar), Walt Disney Company's Buena Vista,
Touchstone and Miramax and Metro-Goldwyn-Mayer (including MGM Pictures, UA
Pictures, Orion and Goldwyn). We also compete with innumerable smaller
production and distribution companies. The motion picture industry is dominated
by the major studios, which are typically large diversified corporations that
have strong relationships with creative talent, exhibitors and others involved
in the entertainment industry and have global film production and distribution
capabilities.
The entertainment industry is currently evolving into an industry in which
certain multinational multimedia firms, because of their control over key film,
magazine, and television content, as well as key network and cable outlets, will
be able to dominate the entertainment industries. These organizations have
numerous competitive advantages, such as the ability to acquire financing for
their projects and to make favorable arrangements for the distribution of
completed films.
Because we are an independent film production company, we most likely will
not have the backing of a major studio for production and distribution support;
and consequently, we may not be able to complete a motion picture, and if we do,
we may not be able to make arrangements for exhibition in theaters. Our success
in theaters may determine our success in other media markets.
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OUR FILM MAY NOT BE COMMERCIALLY SUCCESSFUL.
Producing the feature length films will involve substantial risks, because
it requires that we spend significant funds based entirely on our preliminary
evaluation of the screenplay's commercial potential as a film. It is impossible
to predict the success of any film before the production starts. The ability of
a motion picture to generate revenues will depend upon a variety of
unpredictable factors, including:
- public taste, which is always subject to change;
- the quantity and popularity of other films and leisure activities
available to the public at the time of our release;
- the competition for exhibition at movie theatres, through video
retailers, on cable television and through other forms of
distribution; and
- the fact that not all films are distributed in all media.
For any of these reasons, the films that we produce may be commercially
unsuccessful and our business may suffer.
WE MAY BE UNABLE TO FIND SUFFICIENT DISTRIBUTION FOR OUR FILMS.
Because we lack the resources to distribute our films ourselves, we plan to
enter into distribution agreements with established distribution companies. As a
result, we may be unable to secure distribution agreements or revenue guarantees
before funds are spent on production. In addition, if we are unable to obtain
theatrical distribution on acceptable terms, we may evaluate other alternatives
such as retaining a distributor as an independent contractor or bypassing
theatrical distribution altogether. If we retain a distributor as an independent
contractor we may need to seek additional financing to cover this cost. If we
bypass theatrical distribution and attempt to release our films directly to pay
cable or home video, we will probably not generate enough revenues to become
profitable. If we are unable to obtain adequate distribution, we may not have
the ability to generate revenues.
WE ARE DEPENDENT ON KEY PERSONNEL; IF WE LOSE THE SERVICES OF KEY PERSONNEL, IT
MAY SUBSTANTIALLY HARM OUR ABILITY TO OPERATE AND EARN REVENUE.
Our success is highly dependent upon the continued services of key members
of our management, including our president, treasurer and director, Thomas E.
Mills and our vice president and director, Fidel Thomas. Virtually all decisions
concerning the conduct of our business, including the properties and rights to
be acquired by the Company and the arrangements to be made for such
distribution, are made by or controlled by Messrs. Mills and Thomas. The loss of
either Thomas E. Mills or Fidel Thomas could have a material adverse effect on
our Company. We have not entered into any agreement with Messrs. Mills and
Thomas that would prevent them from leaving us, nor have we obtained any key man
life insurance. If we lose either of their services, we may not be able to hire
and retain other officers with comparable experience or contacts. As a result,
the loss of either Mr. Mills' or Mr. Thomas' services could substantially harm
our ability to operate and earn revenue.
We currently have no employees. We rely heavily upon our officers to meet
our needs. Mr. Mills, our president and treasurer, and Mr. Thomas, our vice
president and secretary, maintain outside employment, which limits the time they
may devote to our matters. We expect that Mr. Mills and Mr. Thomas will each
devote 30 hours per week towards our business.
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AS OUR OFFICERS AND DIRECTORS DO NOT DEVOTE THEIR FULL BUSINESS TIME TO OUR
BUSINESS, WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN AND OUR BUSINESS MAY
FAIL.
The persons serving as our officers and directors have existing
responsibilities and may have additional responsibilities to provide management
and services to other entities. Specifically, Thomas E. Mills, our president,
treasurer and one of our directors is the chief executive officer, president and
a director of Scarab Systems, Inc., a Colorado company having its shares quoted
on the OTCBB under the trading symbol of IRVV. Fidel Thomas is the president and
a director of Inner Visions Entertainment Ltd., a privately held British
Columbia corporation. Each anticipates that he will devote significantly more
hours if we begin generating significant revenue. We cannot guaranty that any of
our officers or directors will be able to devote sufficient amounts of their
business time to enable us to implement our business plan. If any or all of our
officers or directors do not devote a sufficient amount of their business time
to the management of our business, then our business may fail.
LABOR FACTORS IN THE ENTERTAINMENT INDUSTRY MAY SUBSTANTIALLY HARM OUR ABILITY
TO OPERATE AND EARN REVENUE.
We are aware that the cost of producing and distributing filmed
entertainment has increased substantially in recent years. This is due, among
other things, to the increasing demands of creative talent as well as
industry-wide collective bargaining agreements. Many of the script writers,
performers, directors and technical personnel in the entertainment industry who
will be involved in our productions are members are guilds or unions that
bargain collectively on an industry-wide basis. We have found that actions by
these guilds or unions can result in increased costs of production and can
occasionally disrupt production operations. If we are unable to operate or
produce a motion picture, it may substantially harm our ability to earn revenue.
SUBSEQUENT TO COMPLETION OF THIS OFFERING, CONTROL OF THE COMPANY WILL REMAIN
WITH OUR OFFICERS AND DIRECTORS.
If we sell all 1,750,000 shares of common stock in this offering, our
officers and directors will own at least 8,000,000 shares and will control us.
Following completion of this offering, our officers and directors will be able
to elect all of our directors and inhibit your ability to cause a change in the
course of our operations. Further, our officers and directors may effect a major
transaction such as a merger without further shareholder approval. Our articles
of incorporation do not provide for cumulative voting.
OUR OFFICERS AND DIRECTORS ARE NOT LOCATED IN THE UNITED STATES. IF INVESTORS
WISH TO EFFECT LEGAL SERVICE AGAINST OUR OFFICERS OR DIRECTORS, THEY WILL HAVE
DIFFICULTY DOING SO.
Although we are incorporated in the State of Nevada and maintain a
registered office in Las Vegas, Nevada, our officers and directors are residents
of Canada. It may be difficult for a resident of a country other than Canada to
serve Messrs. Mills and Thomas with legal process or other documentation.
WE MAY NOT BE PROFITABLE BECAUSE IT IS DIFFICULT TO PROTECT INTELLECTUAL
PROPERTY.
We plan to copyright all of our film properties and projects. However,
there is no practical protection from the films being copied by others without
payment to our company, especially overseas.
11
THERE ARE ADDITIONAL RISKS IN FOREIGN BUSINESS.
To the extent that we engage in foreign distribution of our films, we will
be subject to all of the additional risks of doing business abroad including,
but not limited to, government censorship, currency fluctuations, exchange
controls, greater risk of "piracy" copying, and licensing or qualification fees.
12
USE OF PROCEEDS
Certain of our officers and directors will be offering the common stock.
There is no assurance that we will raise any proceeds, or if any proceeds are
raised, that it will be sufficient enough to implement our business plan. The
following table sets forth management's current estimate of the allocation of
net proceeds anticipated to be received from this offering if all or part of
this offering is sold. Actual expenditures may vary from these estimates.
Pending such uses, we will invest the net proceeds in investment-grade,
short-term, interest bearing securities.
100% 75% 50% 25%
Offering Sold Offering Sold Offering Sold Offering Sold
------------- ------------- ------------- -------------
Gross Proceeds $175,000 $131,250 $87,500 $43,750
Less offering Expenses $20,000 $20,000 $20,000 $20,000
Net Proceeds $155,000 $111,250 $67,500 $23,750
Use of Proceeds
Debt Repayment $10,000 $10,000 $10,000 $10,000
Acquisition of Motion $35,000 $35,000 $15,000 $5,000
Picture Rights
Motion Picture Development $35,000 $35,000 $15,000 $5,000
Motion Picture $40,000 $0 $0 $0
Pre-production
Equipment $5,000 $5,000 $5,000 $0
Marketing Expenses $10,000 $6,250 $2,500 $0
Working Capital $20,000 $20,000 $20,000 $6,750
Total Use of Proceeds $155,000 $111,250 $67,500 $23,750
The foregoing represents our present intentions based upon our present
plans and business conditions. The occurrence of unforeseen events or changed
business conditions, however, could result in the application of the proceeds of
this offering in a manner other than as described in this prospectus.
If any of these factors change, we may find it necessary or advisable to
reallocate some of the proceeds within the above-described categories. Debt
repayment refers to repayment of a promissory note issued to 396147 B.C. Ltd. on
March 3, 2003. Under the terms of the Note, which is unsecured, we promised to
repay 396147 B.C. Ltd. the sum of $10,000 on March 3, 2005, with interest
13
accruing at an annual interest rate of five percent. Proceeds of the loan from
396147 B.C. Ltd. were used to pay for legal fees, accounting fees, and
miscellaneous expenses.
Equipment includes computers, telecommunications and furniture. Working
capital includes leased premises, office expenses and supplies, and other
general expenses. In the event that we do not raise sufficient capital to pay
for the offering expenses, we plan to seek loans from our current shareholders.
DETERMINATION OF OFFERING PRICE
As no underwriter has been retained to offer our common stock, the offering
price of our common stock was not determined by negotiation with an underwriter
as is customary in underwritten public offerings. Rather, we determined the
offering price based on the amount of capital needed to enter into the
pre-production phase of one of our projects, without considering our assets,
earnings, book value, net worth or other economic or recognized criteria or
future value of our common stock.
DILUTION
At March 31, 2003, we had a negative book value of $(12,416) or $(0.002)
per share. Negative book value per share is determined by dividing our total
shareholders' deficit at March 31, 2003, by the number of shares of common stock
outstanding. Without taking into account any changes in negative book value
after March 31, 2003, other than to give effect to the sale of the 1,750,000
shares of common stock offered hereby, and after deducting estimated offering
expenses, the pro forma book value at March 31, 2003, would have been
approximately $142,584 or $0.015 per share. This amount represents an immediate
dilution to new investors of $0.085 per share. The following table illustrates
this dilution per share:
Assumed public offering price per share.................................... $0.10
Negative Book value per share at March 31, 2003......................... $(0.002)
Increase per share attributable to new investors........................ 0.017
-----
Book value per share after offering......................................... 0.015
-----
Book value dilution per share to new investors.............................. $0.085
======
Assuming the sale of 75%, 50% and 25% of the Offering, the pro forma book
value at March 31, 2003, would have been approximately $98,834 or $0.011 per
share, $55,084 or $0.006 per share, and $11,334 or $0.001 per share,
representing a book value dilution per share to new investors of $0.089, $0.094
and $0.099 per share respectively.
The following table sets forth, as of March 31, 2003, the number and
percentage of shares of common stock held by the existing shareholders and by
the investors purchasing shares of common stock in this offering assuming
1,750,000 shares of common stock are sold:
Shares Purchased
Number Percent
--------------- ---------------
Existing shareholders................................ 8,000,000 82.05
New investors........................................ 1,750,000 17.95
--------- -----
Total........................................... 9,750,000 100.00%
========= ======
14
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At present, our common stock is not traded publicly. After the close of the
offering, we intend to apply to the OTC Bulletin Board to seek quotation of our
common stock. There is no assurance that a trading market will develop, or, if
developed, that it will be sustained. Consequently, a purchaser of our common
stock may find it difficult to resell the securities offered herein should the
purchaser desire to do so when eligible for public resale. Furthermore, the
shares are not marginable and it is not likely that a lending institution would
accept our common stock as collateral for a loan.
Pursuant to this registration statement, we propose to publicly offer up to
a total of 1,750,000 shares of common stock on a best efforts, no minimum basis.
To date, we have no outstanding options, warrants convertible securities. We
have no agreements to register shares of common stock held by existing security
holders for resale. Prior to this offering, we have two shareholders that own in
the aggregate of 8,000,000 shares of restricted common stock.
Our transfer agent and registrar is Pacific Stock Transfer Company located
at 5844 South Pecos Road, Suite D, Las Vegas, Nevada, 89120, telephone (702)
361-3033.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
We began operations on February 27, 2003. From inception to March 31, 2003,
we had no revenue and incurred expenses of $13,216 primarily related to startup
expenses and $5,000 for the acquisition cost of options from Mr. Thomas for the
screenplays "Code Blue" and "Pelicula".
As of March 31, 2003, we had a negative working capital of $12,416. Except
for the options to the two screenplays, we have no assets as of March 31, 2003.
We are considered to be a development stage company, and are dependent upon the
raising of capital through placement of our securities. There can be no
assurance that we will be successful in raising the capital we require through
the sale of our securities.
We presently do not have enough cash to satisfy any future cash
requirements. We will need a minimum of $100,000 from this offering to satisfy
our cash requirements for the next 12 months. With this capital, we intend to
acquire screenplay properties for several motion pictures and to enter into the
pre-production phase for one of our screenplays. If we only raise a nominal
amount, for example, $17,500 or 10% of the offering, we will use all proceeds
for working capital, and it will be necessary for us to seek additional
financing. If we are unsuccessful in doing so, we may have to cease operations
based on our current business plan.
We will not be able to produce a feature film, on our own, with the
proceeds of this offering, regardless of the amount raised in this offering,
without additional outside financing. We will request that providers of goods
and services accept deferred payment arrangements. We will apply for funding
through the Canadian and British Columbia governments, and for production
services tax credits. We also may assign a portion of our film rights to a joint
venture or a co-producer. In addition, we will consider the formation of a
limited liability company or partnership for which we will act as managing
member or general partner and privately offer membership or partnership
interests. We will attempt to obtain favorable pre-release sales or
pre-licensing commitments from independent U.S. distributors, foreign
distributors, cable networks, and video distributors. Although we have had some
preliminary discussions, we do not have any present plans, proposals,
arrangements or understandings with any parties that will provide additional
financing. If we are unable to receive the additional funds, we will probably be
forced to discontinue operations.
Since our incorporation, we have primarily completed the development stage
of two motion pictures, "Code Blue" and "Pelicula." In the next twelve months,
in addition to completing this offering, we plan to complete the pre-production
phase of one of these movies, including the hiring of a casting director to
submit the screenplay to appropriate actors as recommended by their agents or as
deemed appropriate by us; obtaining commitments of internationally recognizable
actors; developing relationships with foreign sales companies to pre-sell film
distribution rights; and finalizing shooting location arrangements. If we begin
pre-production of one of our developed motion pictures, "Code Blue" or
"Pelicula," the choice of one over the other will be dependent upon various
factors including the cost and availability of actors and locations. Upon
securing commitments from key talent or an independent producer with respect to
one of our motion picture projects, we plan to secure additional funds for its
production.
We expect to make nominal purchases of equipment, including computers,
telecommunications equipment and furniture. We do not expect to hire any
employees in the next 12 months, as we will utilize independent contractors,
consultants, and other non-employee creative personnel to assist in
pre-production of our motion pictures.
16
We depend upon capital to be derived from this offering. There can be no
assurance that we will be successful in raising the capital we require. We
believe that if we raise a minimum of $100,000 from this offering we will be
able to complete pre-production of a motion picture and pursue opportunities to
secure financing to complete the motion picture.
We also plan to enter into co-productions with experienced and qualified
production companies in order to become a consistent supplier of multiple
products to distributors in the world markets. In connection with
co-productions, we do not want to relinquish control of the project, so we
intend to provide up to 50% of the funds required by the production. We may
obtain our share from others such as from borrowings or by offering
participation in other films. With dependable and consistent delivery of product
to these markets, we believe that distribution arrangements can be structured
which will be equivalent to the arrangements made by major studios.
No assurance can be given that our feature films, if produced, will be
distributed and, if distributed, will return our initial investment or make a
profit. To achieve the goal of producing profitable feature films, we plan to be
extremely selective in our choice of literary properties and exercise a high
degree of control over the cost of production. Although we plan to produce films
that will generate substantial box office receipts, we will produce our films in
a fiscally conservative manner. We believe that it is possible for a feature
film to return the initial investment and show a profit based on an average box
office run, with residuals from the sale of ancillary rights adding to cash flow
in future years. By keeping strict control of our costs, we will strive for
consistent and profitable returns on our investment.
17
DESCRIPTION OF BUSINESS
OVERVIEW
We are a development stage, independent motion picture studio that plans to
develop, produce, market, and distribute low-budget feature-length films to
movie theaters and ancillary markets.
OUR COMPANY
We were incorporated under the laws of the State of Nevada on February 27,
2003, and maintain our head office and operations in Vancouver, British
Columbia.
Shortly after our incorporation, we acquired options from Mr. Fidel Thomas
to exploit two screenplays titled "Code Blue" and "Pelicula." After we acquired
the options from Mr. Thomas, he became our company's vice president, secretary
and a director. He also owns 25 percent of our outstanding common stock. We
intend to produce motion pictures based on one or both of these screenplays.
Since inception, our activities have consisted primarily of developing our
business plan, and negotiating to secure options on literary works and
screenplays that can be produced into commercially salable feature-length motion
pictures at a cost not to exceed $10 million. We continue to review potential
film projects. We have not, however, acquired any options or entered into any
agreements regarding any projects other than "Code Blue" and "Pelicula." We have
no future financial commitments to acquire any other film rights.
We are presently using office space provided at no charge by our president,
Thomas E. Mills. When we have sufficient capital we intend to lease
approximately 500 to 1,000 square feet of office space in downtown Vancouver to
use as the corporate head office.
We currently have no employees. Our officers will assume employee status
upon implementation of this plan. We may utilize independent contractors and
consultants from time to time to assist in developing, producing and promoting
our motion pictures. Independent contractors are generally paid on a commission,
hourly or job-related basis, depending on the services being performed.
THE MOTION PICTURE INDUSTRY
General
The motion picture industry has experienced steady growth since the first
silent movie. In its most recent release, issued in 2003, for the year 2002, the
Motion Picture Association of America or MPAA, which only issues U.S.
statistics, reported that box office receipts in the United States grew over 95%
since 1992's $4.87 billion to $9.52 billion in 2002. This represents an increase
of over 13% from $8.41 billion in 2001. The number of admissions to movie
theaters in the United States was approximately 1.64 billion in 2002, up
approximately 40% from 1.73 billion in 1992 and 10% from 1.49 billion in 2001.
The motion picture industry in the United States has changed substantially
over the last 30 years and continues to evolve rapidly. With the advent of
network, broadcasting television alliances, cable television and home video, the
market has expanded faster than at any other time. Movies are being bought for
pay-television cable networks as well as for the traditional outlets of theaters
and network television. With the expansion of audience markets, distribution is
no longer limited to the major distributors and the broadest possible audience
appeal. With this media expansion, less general, more specific audiences can be
18
sought and profitably exploited such as for science fiction or horror films or
films geared to children or to women.
Historically, the major studios financed, produced and distributed the vast
majority of American-made motion pictures. Today, much of the financing and
distribution of significant motion pictures remains in the control of the major
studios. But as many of the major Hollywood film production companies have
become part of large conglomerate business operations, or diversified their
operations, they have adopted a policy of producing only a relatively small
number of films each year. As demand for filmed entertainment has increased,
many smaller, independent film production companies have been successfully
established to fill the excess demand for product.
Our business will involve the actual development and production of motion
pictures. The procedures and practices described in the following generalized
discussion relating to the motion picture industry are intended only to provide
a background against which the business of our company may be evaluated. There
can be no assurance that the procedures and practices described in the following
generalized discussion will apply in any particular instance to our business.
Production of Motion Pictures
During the film making process, which takes approximately 12 to 24 months
from the start of the development phase to theatrical release, a film progresses
through several phases. The four stages of motion picture production are
development, pre-production, principal photography and post-production. After
the movie producer completes that process, the film is distributed and marketed.
The following is a brief summary of each stage of production:
Development and Pre-production
In the development stage of a motion picture project, literary material for
the project is acquired, either through an option to acquire such rights, or by
engaging the writer to create original literary material. If the literary
material is not in script form, a writer must be engaged to create a script. The
script must be sufficiently detailed to provide the production company and
others participating in the financing of a motion picture with enough
information to estimate the cost of producing the motion picture. Only a small
percentage of projects in development will become completed motion pictures.
During the pre-production stage, the production company hires creative personnel
including the principal cast members. It also uses this time to establish
shooting locations and schedules. The production company also prepares the
budget and secures the necessary financing. Pre-production activities are
usually more expensive than the development process. In cases involving unique
or desired talent, commitments must be made to keep performers available for the
picture.
Principal Photography and Post-production
The process of principal photography is the actual filming of a motion
picture. During principal photography, almost all of the film footage is shot,
although additional scenes may be added during post-production. This part of the
making of a movie together with creating special effects is the most costly
stage of producing a motion picture. Principal photography generally takes from
eight to twelve weeks to complete. Bad weather at locations, the illness of a
cast or crew member, disputes with local authorities or labor unions, a
director's or producer's decision to shoot scenes for artistic reasons, and
other, often unpredictable, events can seriously delay the scheduled completion
of principal photography and substantially increase its costs. If a motion
picture reaches the principal photography stage, it usually will be completed.
Following principal photography is the post-production stage. During
post-production, the motion picture film is edited to its final form. Music is
added, as is dialogue and special effects. Music and film action are
synchronized during this stage as the film is brought to its completed form. The
19
picture negative is then readied for the production of release prints. While the
post-production stage may extend for any period, depending upon editing
difficulties or the addition of new material, on the average, post-production
may take from approximately 2 to 4 months. Most motion pictures that reach the
post-production stage are eventually completed and distributed.
Distribution of Motion Pictures
One of the most important aspects of the motion picture industry is
distribution. Once a film is produced, it must be distributed. Distribution
consists of selling domestic and international licenses that entitle a third
party to exploit a motion picture and its underlying intellectual property in
various markets and media.
Whether a major studio or an independent production company produces a
motion picture, arrangements with various distributors must be developed. The
only distinction between the distribution of major studio films and independent
productions is that studios have close and long-standing distribution
arrangements with various distributors in numerous distribution channels,
whereas independent production companies must develop distribution arrangements
on a film-by-film basis.
Generally, the local distributor will acquire distribution rights for a
motion picture in one or more distribution channels from an independent
producer. The local distributor will agree to advance the producer a
non-refundable minimum guarantee. The local distributor will then generally
receive a distribution fee of between 20% and 35% of receipts, while the
producer will receive a portion of gross receipts in excess of the distribution
fees, distribution expenses and moneys retained by exhibitors. The local
distributor and theatrical exhibitor generally will enter into an arrangement
providing for the exhibitor's payment to the distributor of a percentage
(generally 40% to 50%) of the box-office receipts for the exhibition period,
depending upon the success of the motion picture.
Most of the revenue produced by a film is usually generated during the
first five years after the film's initial domestic theatrical release. Movies
that are commercially successful may continue to generate revenue beyond five
years from the re-licensing of distribution rights in certain media, including
television and home video, and from the licensing of distribution rights with
respect to new media and technologies. The timing of revenue received from the
various sources varies from film to film. The markets for film product have been
undergoing rapid changes due to technical and other innovations. As a
consequence, the sources of revenue available have been changing rapidly and the
relative importance of the various markets as well as the timing of such revenue
have also changed and can be expected to continue to change.
Although there are no definitive statistics to determine the number of
productions that are initiated with the intention of theatrical distribution,
according to the Internet Movie Database, an Amazon.com company maintaining a
catalog of over 250,000 films made since the beginning of the motion picture
industry, over 5,000 movies were completed in the year ending December 31, 2002.
Of those films, according to the MPAA, only 467 were released in theaters. Of
those released in theaters, 281 films were not distributed by the major studios
(Walt Disney Company, Sony Pictures Entertainment, Inc., Metro-Goldwyn-Mayer
Inc., Paramount Pictures Corporation, Twentieth Century Fox Film Corp.,
Universal Studios, Inc., Warner Bros.) and their affiliates. Furthermore, of
those 281 films, only a small number remained in theaters a period of time
comparable to that of the major studio releases.
The following is a brief summary of each of the sources of revenue from
motion pictures and the distinct distribution process associated with each. We
expect our movies to generate revenue from all of these sources.
20
Theatrical Distribution
The distributor and theatrical exhibitor generally enter into license
agreements providing for the payment by the exhibitor to the distributor of a
percentage of box office receipts after deducting the exhibitor's overhead or a
flat amount. The percentage generally ranges from 35-60% and may change for each
week the film plays in a specific theater, depending on the motion picture's
success at the box office. The balance, known as the gross film rental, is
remitted to the distributor. The distributor then retains a distribution fee
from the gross film rental and recovers the costs of distributing the film,
consisting primarily of advertising, marketing, and production cost, and the
cost of manufacturing release prints. The balance, if any, after recouping any
advance or minimum guarantee previously paid is then paid to the producer based
on a predetermined split between the producer and distributor.
Theatrical Distribution-United States
Recently, United States theatrical exhibition has generated a declining
percentage of the total income earned by most pictures largely because of the
increasing importance of cable and pay television, home video and other
ancillary markets. Nevertheless, the total revenue generated in the United
States theatrical market are still increasing and are still likely to account
for a large percentage of revenue for a particular film. In addition,
performance in the United States theatrical market generally has a profound
effect on the value of the picture in other media and other markets. For a
picture's initial theatrical release, the United States theater exhibitor will
usually pay to a distributor a percentage of the box office receipts that is
negotiated based upon the expected appeal of the motion picture. The percentage
of box office receipts remitted to the distributor is known as film rentals and
customarily diminishes during the course of the picture's theatrical run.
Typically, the distributor's share of total box office receipts over the entire
initial theatrical release period will average between 35 to 60 percent; the
exhibitor will retain the remaining 40 to 65 percent. The exhibitor will also
retain all receipts from the sale of food and drinks at the theater.
Occasionally, an exhibitor will pay to the distributor a flat fee or percentage
of the box office receipts against a guaranteed amount.
Theatrical Distribution-Foreign
While the value of the foreign theater market varies due to currency
exchange rate fluctuations and the political conditions in the world or specific
territories, it continues to provide a significant source of revenue for
theatrical distribution. Because this market is comprised of a multiplicity of
countries and, in some cases, requires the making of foreign language versions,
the distribution pattern stretches over a longer period of time than does the
United States theatrical market. Major studios usually distribute motion
pictures in foreign countries through local entities. Distribution fees to these
firms usually vary between 35 and 40 percent depending upon the territory or
financial arrangements. These local entities generally will be either wholly
owned by the distributor, a joint venture between the distributor and another
motion picture company, or an independent agent or sub-distributor. These local
entities may also distribute motion pictures of other producers, including some
major studios. Film rental agreements with foreign exhibitors take a number of
different forms, but typically provide for payment to a distributor for a fixed
percentage of box office receipts or a flat amount. Risks associated with
foreign distribution include fluctuations in currency values and government
restrictions or quotas on the percentage of receipts that may be paid to the
distributor, the remittance of funds to the United States and the importance of
motion pictures to a foreign country.
Home Video
A motion picture typically becomes available for videocassette and digital
videodisk or DVD distribution within four to six months after its initial
domestic theatrical release. Home video distribution consists of the promotion
21
and sale of videocassettes and DVD to local, regional and national video
retailers who rent or sell cassettes and disks to consumers primarily for home
viewing. Most films are sold at a wholesale price to video rental stores, which
rent the cassettes and DVD to consumers. Owners of films generally do not share
in rental income. Following the initial marketing period, selected films are
re-marketed at a wholesale price for sale in cassette or DVD form to consumers.
These "sell-through" arrangements are used most often with films that will
appeal to a broad marketplace or to children. Some films are initially offered
at a price designed for sell-through rather than rental when it is believed that
the ownership demand by consumers will result in a sufficient level of sales to
justify the reduced margin on each cassette or DVD sold.
The home video market in the Unites States and abroad has experienced
substantial growth in the past several years and film industry analysts predict
a period of continued growth. There are indications, however, that accessing
movies "on demand" on a pay-per-view basis may be a viable alternative to video
rental as new technology is developed in the future. This development may impact
video rentals but would likely be offset by comparable increases in pay-per-view
usage and profit margins due to lower distribution costs and lower prices for
viewers plus the convenience of faster selection and at-home selection.
Certain foreign territories in particular have seen increased utilization
of home video units due to the relative lack of diversified television
programming. Sales of videocassettes have increased in such markets in recent
years. Although growth in this area may slow because of an increase in
television programming in such foreign territories, receipts from home video in
these markets can be expected to continue to be significant. Home video
arrangements in international territories are similar to those in domestic
territories except that the wholesale prices may differ.
Television
Television rights are generally licensed first to pay-per-view for an
exhibition period within six to nine months following initial U.S. theatrical
release. Within twelve to fifteen months after the initial domestic release, the
rights are then licensed to pay television, then in certain cases to free
television for an exhibition period, and then to pay television again. These
films are then syndicated to either independent stations or basic cable outlets.
Cable and Pay Television
Pay television rights include rights granted the cable, direct broadcast
satellite, pay-per-view and other services paid for by subscribers. Pay
television companies have entered into output contracts with one or more major
motion picture production companies on an exclusive or non-exclusive basis to
insure themselves a continuous supply of motion picture programming. Some pay
television services have required exclusivity as a precondition for such
contracts. Pay-per-view television allows subscribers to pay for individual
programs, including recently released movies, on a per use basis. Pay television
allows cable television subscribers to view such channels as HBO, Showtime, The
Movie Channel, Lifetime, and A&E, which are offered by their cable system
operators for a monthly subscription fee. Since groups of motion pictures are
typically packaged and licensed for exhibition on television over a period of
time, revenue from these television licensing "packages" may be received over a
period that extends beyond five years from the initial domestic theatrical
release of a particular film. Motion pictures are also packaged and licensed for
television broadcast in international markets.
The pay television market is characterized by a large number of sellers and
few buyers. However, the number of motion pictures utilized by these buyers is
extremely large and a great majority of motion pictures that receive theatrical
exhibition in the United States are shown on pay television.
22
Network Television
In the United States, broadcast network rights are granted to ABC, CBS,
Fox, NBC or other entities formed to distribute programming to a large group of
stations. The commercial television networks in the United States license motion
pictures for a limited number of exhibitions during a period that usually
commences two to three years after a motion picture's initial theatrical
release. During recent years, only a small percentage of motion pictures have
been licensed to network television, and the fees paid for such motion pictures
have declined. This decline is generally attributed to the growth of the pay
television and home video markets, and the ability of commercial television
networks to produce or acquire made-for-television motion pictures at a lower
cost than license fees previously paid for theatrical motion pictures.
Television Syndication
Distributors also license the right to broadcast a motion picture on local,
commercial television stations in the United States, usually for a period
commencing five years after initial theatrical release of the motion picture,
but earlier if the producer has not entered into a commercial television network
license. This activity, known as syndication, has become an important source of
revenue as the number of, and competition for programming among, local
television stations has increased.
Foreign Television Syndication
Motion pictures are now being licensed in the foreign television market in
a manner similar to that in the United States. The number of foreign television
stations as well as the modes of transmission has been expanding rapidly, and
the value of such markets has been likewise increasing and should continue to
increase.
Producers may license motion pictures to foreign television stations during
the same period they license such motion pictures to television in the Unites
States. Governmental restrictions and the timing of the initial foreign
theatrical release of the motion pictures in a particular country may delay the
exhibition of a motion picture in that country.
International Markets Growth and Tastes
Motion picture distributors and producers derive revenue from international
markets in the same media as domestic markets. The growth of foreign revenue has
been dramatic, and now accounts for more than half of the total revenue of many
films. The increase in revenue is currently being driven primarily from the
growth of television abroad. The increase in foreign television viewers and
foreign revenue is likely to continue. Although the increased level of foreign
viewers affects the revenue of most films, the effect is not uniform. Action
films and films with major stars benefit most from foreign revenue as compared
to films with uniquely American themes with unknown actors.
Non-Theatrical and Other Rights
Films may be licensed for use by airlines, schools, public libraries,
community groups, the military, correctional facilities, cruise ships and
others. In addition, rights may be licensed to merchandisers for the manufacture
of products related to a film, such as video games, toys, posters, apparel and
other merchandise. Rights may also be licensed for sequels to a film, for
television programming based on a film or for related book publications.
23
Independent Film Production and Distribution
The film production process, including development, pre-production, and
production, for independent production companies not backed by major studios,
such as ours, and the major studios is essentially the same. However,
independent producers typically create motion pictures at substantially lower
average production costs than major studios. According to MPAA, major studios
typically release films with direct production costs ranging from $25 million to
in excess of $100 million, and from 1990 to 2000, the major studios' average
production costs, including overhead and capitalized interest, commonly referred
to as "negative cost," have increased from $26.8 million to $54.8 million.
According to industry studies by Paul Kagan Associates, the trend on the part of
major studios toward wider-release blockbusters over the past ten years has led
to a decline in profitability, while the efficiency, which is measured by Paul
Kagan Associates as the ratio of a film's estimated revenue against negative and
releasing costs, and quality of smaller production films have been on the rise.
Generally, independent production companies do not have access to the
extensive capital required to make big budget motion pictures, such as the
"blockbuster" product produced by the major studios. They also do not have the
capital necessary to maintain the substantial overhead that is typical of such
studios' operations. Independent producers target their product at specialized
markets and usually produce motion pictures with budgets of less than $25
million. Generally, independent producers do not maintain significant
infrastructure. They instead hire only creative and other production personnel
and retain the other elements required for development, pre- production,
principal photography and post-production activities on a project-by-project
basis. Also, independent production companies typically finance their production
activities from bank loans, pre-sales, equity offerings, co-productions and
joint ventures rather than out of operating cash flow. They generally complete
financing of an independent motion picture prior to commencement of principal
photography to minimize risk of loss.
CANADA'S ROLE IN THE MOTION PICTURE INDUSTRY
Canada
Over the past several years, the Canadian film industry has grown and
matured, and at present, it represents approximately a CDN$3 billion annual
business. At the same time as the Canadian domestic industry has matured, Canada
has become a leading location for internationally originated productions. Over
the past few years, U.S. studios, television networks and cable services have
increasingly produced in Canada, attracted by the low Canadian dollar,
first-class Canadian casts, crews, locations and facilities and government
support for the industry. U.S. companies with a strong presence in Canada
include major U.S. studios, such as Paramount, The Walt Disney Company,
Universal Pictures and Columbia Tri-Star; U.S. networks, such as ABC, NBC, CBS,
Fox and PAXTV; cable services, such as Showtime, TNT, Disney Channel and HBO;
and film companies, such as The Hearst Corporation and Saban Entertainment, Inc.
European and Asian film companies have also found Canada to be an
attractive location and have often been able to access Canada's numerous
international film and television co-production treaties. Of Canada's ten
provinces and three territories, the provinces of British Columbia, Ontario and
Quebec are most actively involved in the television and motion picture
production industries, and many other provinces are actively soliciting this
business.
The Province of British Columbia
The Province of British Columbia is the third largest film production
center in North America - behind Los Angeles and New York. According to British
Columbia Film Commission, more than 200 productions were filmed in British
Columbia in 2001, 40 of them being feature films having an aggregate production
24
budget of more than CDN$500 million. British Columbia has more than 70
post-production facilities, 50 shooting stages and two water tank facilities.
Lions Gate Studios and Vancouver Film Studios are two of the largest film and
television studio facilities in Canada. The Bridge Studios, located in Burnaby,
has one of the largest special effects stages in North America.
Some of the major motion pictures filmed in British Columbia in recent
years include: Along Came A Spider, Antitrust, Ecks vs. Sever, Dreamcatcher, Get
Carter, Insomnia, I Spy, Legends of the Fall, Mission to Mars, The Pledge,
Reindeer Games, Romeo Must Die, Rumble in the Bronx, Saving Silverman, The Sweet
Hereafter, 13th Warrior, 3000 Miles to Graceland, and X-Men 2.
Government Financing Initiatives
Canadian Government Financial Support
The Canadian Film Development Corporation, also known as Telefilm Canada,
provides financial assistance in the form of equity investments, interest free
and low interest loans, development and interim financing. Canadian film and
television productions that have significant Canadian creative, artistic and
technical content and that meet certain published criteria qualify for financial
assistance. Telefilm Canada's provincial counterparts in Quebec, Ontario,
Manitoba, Saskatchewan, British Columbia, New Brunswick and Nova Scotia also
provide financial support to qualifying Canadian content productions. In 1996,
the Canadian federal government established the Canada Television and Cable
Production Fund (now operating as the CTF), a government-cable industry
partnership that combined the former Cable Production Fund, Telefilm Canada's
Canadian Broadcast Program Development Fund and a CDN$100 million contribution
from the Department of Canadian Heritage to form an approximately CDN$200
million per year television funding initiative.
British Columbia Government Financial Support
The Province of British Columbia provides two financing initiatives for the
development and production of motion pictures through British Columbia Film. The
first initiative, the Development Fund provides development funding to feature
films, dramatic or animated television projects or documentaries that have
secured recent development commitments from a broadcaster or distributor. A
non-recoupable advance, matching a percentage of the broadcast or distribution
commitment, to a maximum of CDN$30,000 for each project is available. The second
financing initiative, the Feature Film Production Fund, provides up to
CDN$250,000 for the production of each selected fictional, animated or
documentary feature-length film projects.
Tax Credits.
The Canadian federal government provides a refundable tax credit for
eligible Canadian-content film or video productions produced by qualified
corporations having a permanent establishment in Canada. The Canadian federal
tax credit is for a maximum amount of 25% of eligible production costs. In
addition to the federal Canadian-content tax credits, most provinces provide
additional tax credit programs, ranging from 9.6% to 22.5%. In British Columbia,
the tax credit is 20% to 35.5%, depending on location and training provided.
The Canadian federal government "production services" tax credit for
eligible film and television productions produced in Canada, but which do not
otherwise qualify as Canadian content is equal to 16% of qualifying Canadian
labor expenditures. Assuming that Canadian labor expenditures generally
represent approximately 50% of the total production budget, the Canadian federal
production services tax credit will net applicants approximately 8% of total
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production costs. Most provincial governments have also introduced refundable
production services tax credit programs at a rate ranging from 5.5% to 17.5% of
eligible production costs. In British Columbia, the tax credit is 11% to 17%
depending on location.
Co-Production Treaties.
Canada is a party to film and/or television co-production treaties with
over 50 countries, which enables co-productions to qualify as local content and
thus be eligible for government assistance and financing in more than one
country, which reduces the cost of production. The most active relationship has
traditionally been with France, but recently the United Kingdom has become a
close second in volume of production.
OUR BUSINESS
We are committed to the development and production of commercially salable
feature-length motion pictures that can be produced for up to $10 million, but
which have enduring value in all media. We anticipate not only acquiring rights
and producing motion pictures but also capitalizing on other marketing
opportunities associated with these properties. We intend to exploit all
available rights in each film, including the publishing and promotion of music,
the incorporation of original songs on the sound track for subsequent use in
promotion, sound track albums and story-telling records and the licensing of
merchandising rights.
We do not have sufficient capital to independently finance our own
productions. Accordingly, most of our financial resources will be devoted to
financing development activities, which include the acquisition of screenplays,
and underlying literary works (such as books and plays). The ability to create
or identify and develop commercially viable properties that can be produced by
our company will be important for the success of our company. In that regard, we
believe that a key element to our success will be the reputations of Messrs.
Mills and Thomas in the Vancouver film community and their access to and
relationships with creative talent including actors, writers and directors.
We plan to employ a flexible strategy in developing and producing our
motion picture and film properties. We will use our own capital and financial
resources to develop a project to the point where it is ready to go into
production. We will assemble a "package" consisting of the underlying literary
property, a script that is ready for production, and key talent, including a
director and principal cast.
We believe that we should be able to secure key talent based on the
attractiveness of the script but we may also offer, as an added incentive,
grants of our stock or options to acquire our stock. We will then secure the
financing to produce the movie and make it available for distribution. The
financing may come from, for example, the Canadian and British Columbia
governments, financial institutions, lenders with profit participation, advances
from distribution companies, accredited investors or a combination of sources.
The benefit of developing a project to this advanced stage is that we will
have maximum leverage in negotiating production and financing arrangements.
Nevertheless, there may be situations when we may benefit from financial
assistance at an earlier stage. These occasions may be necessary as a result of
lengthy development of a script, the desirability of commissioning a script by a
highly paid writer, the acquisition of an expensive underlying work, or a
significant financial commitment to a director or star.
It is common for motion picture producers to grant contractual rights to
actors, directors, screenwriters, and other creative and financial contributors
to share in revenue or net profits from the motion picture. Except for the most
sought-after talent, these third-party participators are generally payable after
all distribution fees, marketing expenses, direct production costs and financing
costs are recouped in full. We plan to be flexible in compensating talent. We
are not averse to entering into profit sharing arrangements. We will also
26
consider the use of our securities to reward the actors and other participants
in a successful motion picture.
Motion picture revenue is derived from the worldwide licensing of a motion
picture to several distinct markets, each having its own distribution network
and potential for profit. The selection of the distributor for each of our
feature films will depend upon a number of factors. Our most basic criterion is
whether the distributor has the ability to secure bookings for the exhibition of
the film on satisfactory terms. We will consider whether, when and in what
amount the distributor will make advances to us. We will also consider the
amount and manner of computing distribution fees and the extent to which the
distributor will guarantee certain print, advertising and promotional
expenditures. We will not attempt to obtain financing for the production of a
particular film unless we believe that adequate distribution arrangements for
the film can be made.
In the next two years, our objective is to acquire rights to two dozen
screenplays that we can produce into feature films, and to produce and/or
co-produce at least two profitable feature films. To date, we have secured
options to produce two motion pictures based on the screenplays titled "Code
Blue" and "Pelicula". We continue to review potential film projects. We have
not, however, acquired any options or entered into any agreements regarding any
other projects.
Upon successful completion of this offering, we will begin pre-production
of one of our two developed motion pictures, "Code Blue" or "Pelicula." We
expect that our first film will be "Code Blue." We have not yet decided as to
which film will be our second. In the next six to eight months, we expect to
begin pre-production of "Code Blue", and commence principal photography in the
spring of 2004. No assurance can be given, however, that we will obtain the
necessary funds to produce any motion pictures.
Feature Film Production
Feature film production does not require the ownership of expensive
equipment. All the necessary equipment needed to engage in every aspect of the
film production process can be rented or borrowed for the period in which it is
needed. This is standard operating procedure for all production companies within
the industry and we plan to follow this procedure in our productions. Such
rentals and temporary equipment are accounted for in the budget of each film in
what are called the "below the line" costs that are directly charged to the
production or the cost of "manufacturing" the film. We plan to rent whatever
equipment is needed for the shortest period of time and to coordinate its use to
avoid idle time.
Essential to our success will be the production of high quality films with
budgets up to $10 million that have the potential to be profitable. We will not
engage in the production of X-rated material. We plan to make motion pictures
that appeal to the tastes of the vast majority of the movie-going public. Our
films will be cast into a wide range of genres. All movies that may be produced
will be suitable for domestic and international theatrical exhibition, pay
cable, network and syndicated television, as well as all other ancillary
markets.
The low budgets, within which we intend to operate, will serve the dual
purpose of being low enough to limit our downside exposure and high enough to
pay for a feature film with accomplished actors or directors that appeal to the
major markets. The market pull of the talent to be used must justify their fees
by helping to attract advances. Our budgets must remain small enough so that a
large percentage of our capital is not put at risk. We intend to produce
projects with built-in break-even levels that can be reached with ancillary and
foreign distribution revenue. If the movie crosses-over into a wide national
distribution release, we can potentially generate a large profit because our
share is not limited as with ancillary and foreign revenue.
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In order to produce quality motion pictures for relatively modest budgets,
we will seek to avoid the high operating expenses that are typical of major U.S.
studio productions. We do not plan on having high overhead caused by large
staffs, interest charges, substantial fixed assets, and the investment in a
large number of projects never produced. Central to our plan for reducing costs
will be the production of our motion pictures in Vancouver, British Columbia,
Canada. Vancouver provides an ample talent base, a wide range of auxiliary
services such as post production facilities, sound stages and animation studios,
and an extremely diverse selection of filming locations. This, in conjunction
with an extremely favorable exchange rate and competitive wage rates, will
enable us to produce motion pictures for far lower production costs than a
similar quality production in the United States. Additionally, we believe that
by maintaining a smaller, more flexible staff with fewer established
organizational restrictions we can further reduce costs through better time
management than is possible in a major studio production.
Primary responsibility for the overall planning, financing and production
of each motion picture will rest with our officers. For each motion picture we
will employ an independent film director who will be responsible for, or
involved with, many of the creative elements, such as direction, photography,
and editing. All decisions will be subject to budgetary restrictions and our
business control, although we will permit an independent director to retain
reasonable artistic control of the project, consistent with its completion
within strict budget guidelines and the commercial requirements of the picture.
Financing Strategy
We will not be able to produce a feature film on our own with the proceeds
of this offering without additional outside financing and the deferral of
certain production costs. Wherever possible we will attempt to make arrangements
with providers of goods and services to defer payment until a later stage in the
production and financing cycle. Once a film package has been assembled, there
are various methods to obtain the funds needed to complete the production of a
movie. Examples of financing alternatives include the assignment of our rights
in a film to a joint venture or a co-producer. Also, we may form a limited
liability company or partnership where we will be the managing member or the
general partner. In addition we may obtain favorable pre-release sales or
pre-licensing commitments from various end-users such as independent domestic
distributors, foreign distributors, cable networks, and video distributors.
These various techniques, which are commonly used in the industry, can be
combined to finance a project without a major studio financial commitment.
By virtue of our location in British Columbia, Canada, we may be able to
obtain financial support from Telefilm Canada and British Columbia Film. By
operating in British Columbia and maintaining a permanent establishment in
Vancouver, we expect to be able to borrow against tax credits obtained through
Canadian federal and provincial production services tax credits. These tax
credits will enable to us to recover 27% to 33% of eligible labor costs, or
approximately 13.5% to 16.5% of our total production budget. Canadian banks
commonly allow producers to borrow against such tax credits in producing motion
pictures. Our location in Canada may also allow us to access foreign government
financing through international co-productions with treaty countries.
We may use any one or a combination of these or other techniques to finance
our films. We anticipate that any financing method will permit us to maintain
control over the production. There can be no assurance that we will be able to
successfully arrange for such additional financing and to the extent we are
unsuccessful, our production activities may be adversely affected.
As part of our financing strategy, we may use some of the proceeds of this
offering that is allocated to movie production to be used as an advance payment
to secure the services of a star actor. This will assure the actor's services
and will assist us in obtaining financing to produce the movie.
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Distribution Arrangements
Effective distribution is critical to the economic success of a feature
film, particularly when made by an independent production company. We have not
as yet negotiated agreements for the distribution of our films.
We intend to release our films in the United States through existing
distribution companies, primarily independent distributors. We will retain the
right for ourselves to market the films on a territory-by-territory basis
throughout the rest of the world and to market television and other uses
separately. In many instances, depending upon the nature of distribution terms
available, it may be advantageous or necessary for us to license all, or
substantially all, distribution rights through one major distributor.
It is not possible to predict, with certainty, the nature of the
distribution arrangements, if any, which we may secure for our motion pictures.
Competition
The motion picture industry is intensely competitive. Competition comes
from companies within the same business and companies in other entertainment
media that create alternative forms of leisure entertainment. We will be
competing with the major film studios that dominate the motion picture industry.
Some of these firms we compete with include: News Corporation's Twentieth
Century Fox; AOL Time Warner's Warner Bros. including Turner, New Line Cinema
and Castle Rock Entertainment; Viacom's Paramount Pictures; Vivendi Universal's
Universal Studios; Sony Corp.'s Sony Pictures including Columbia and TriStar;
Walt Disney Company's Buena Vista, Touchstone and Miramax and
Metro-Goldwyn-Mayer including MGM Pictures, UA Pictures, Orion and Goldwyn. We
will also compete with numerous independent motion picture production companies,
television networks, and pay television systems, for the acquisition of literary
properties, the services of performing artists, directors, producers, and other
creative and technical personnel, and production financing. Nearly all of the
firms we will compete with are organizations of substantially larger size and
capacity, with far greater financial and personnel resources and longer
operating histories, and may be better able to acquire properties, personnel and
financing, and enter into more favorable distribution agreements. In addition,
our films compete for audience acceptance with motion pictures produced and
distributed by other companies. Our success is dependent on public taste, which
is both unpredictable and susceptible to rapid change.
In order to be competitive, we intend to create independent motion pictures
of aesthetic and narrative quality comparable to the major film studios that
appeal to a wide range of public taste both in the United States and abroad. By
producing our films in Canada we believe that we will be able to significantly
reduce production costs, and thereby offer our films to distributors at
extremely competitive pricing. We plan to be very selective when choosing
literary properties to develop. We plan to produce our motion pictures
efficiently, by employing talented and established professionals with experience
in the industry. Also, we plan on exploiting all methods of distribution
available to motion pictures.
Intellectual Property Rights
Rights to motion pictures are granted legal protection under the copyright
laws of the United States and most foreign countries, including Canada. These
laws provide substantial civil and criminal penalties for unauthorized
duplication and exhibition of motion pictures. Motion pictures, musical works,
sound recordings, artwork, and still photography are separately subject to
copyright under most copyright laws. We plan to take appropriate and reasonable
measures to secure, protect, and maintain copyright protection for all of our
pictures under the laws of the applicable jurisdictions. Motion picture piracy
is an industry-wide problem. Our industry trade association provides a piracy
hotline and investigates all piracy reports. The results of such investigations
29
may warrant legal action, by the owner of the rights, and, depending on the
scope of the piracy, investigation by the Federal Bureau of Investigation and/or
the Royal Canadian Mounted Police with the possibility of criminal prosecution.
Under the copyright laws of Canada and the United States, copyright in a
motion picture is automatically secured when the work is created and "fixed" in
a copy. We intend to register our films for copyright with both the Canadian
Copyright Office and the United States Copyright Office. Both offices will
register claims to copyright and issue certificates of registration but neither
will "grant" or "issue" copyrights. Only the expression (camera work, dialogue,
sounds, etc.) fixed in a motion picture can be protected under copyright.
Copyright in both Canada and the United States does not cover the idea or
concept behind the work or any characters portrayed in the work. Registration
with the appropriate office establishes a public record of the copyright claim.
To register a motion picture with the Canadian Copyright Office or the
United States Copyright Office, a signed application; a complete copy of the
motion picture being registered; a written description of the contents of the
motion picture; and a filing fee must be sent to each respective office. A
copyright registration is effective on the date the office receives all the
required elements in acceptable form.
Ordinarily, a number of individuals contribute authorship to a motion
picture, including the writer, director, producer, camera operator, editor, and
others. Under the laws of both Canada and the United States, these individuals
are not always considered the "authors," however, because a motion picture is
frequently a "work made for hire." In the case of a work made for hire, the
employer, not the individuals who actually created the work, is considered the
author for copyright purposes. We intend all of our films to be works made for
hire in which we will be the authors and thereby own the copyright to our films.
Canada's copyright law is distinguished from that of the United States by
recognizing the moral rights of authors. Moral rights refer to the rights of
authors to have their names associated with their work, and the right to not
have their work distorted, mutilated or otherwise modified, or used in
association with a product, service, cause or institution in a way that is
prejudicial to their honour or reputation. Moral rights cannot be sold or
transferred, but they can be waived. We intend that all individuals who
contribute to the creation of any of our motion pictures will be required to
waive any such moral rights that they may have in the motion picture.
For copyright purposes, publication of a motion picture takes place when
one or more copies are distributed to the public by sale, rental, lease or
lending, or when an offering is made to distribute copies to a group of persons
(wholesalers, retailers, broadcasters, motion picture distributors, and the
like) for purposes of further distribution or public performance. A work that is
created (fixed in tangible form for the first time) on or after January 1, 1978,
is automatically protected from the moment of its creation and is ordinarily
given a term enduring for the author's life plus an additional 70 years after
the author's death. For works made for hire, the duration of copyright will be
95 years from publication or 120 years from creation, whichever is shorter.
Although we plan to copyright all of our film properties and projects,
there is no practical protection from films being copied by others without
payment to our company, especially overseas. We may lose an indeterminate amount
of revenue as a result of motion picture piracy. Being a small company, with
limited resources, it will be difficult, if not impossible, to pursue our
various remedies.
Motion picture piracy is an international as well as a domestic problem. It
is extensive in many parts of the world. In addition to the Motion Picture
Association of America, the Motion Picture Export Association, the American Film
Marketing Association, and the American Film Export Association monitor the
progress and efforts made by various countries to limit or prevent piracy. In
30
the past, these various trade associations have enacted voluntary embargoes of
motion picture exports to certain countries in order to pressure the governments
of those countries to become more aggressive in preventing motion picture
piracy. The United States government has publicly considered trade sanctions
against specific countries that do not prevent copyright infringement of
American motion pictures. There can be no assurance that voluntary industry
embargoes or United States government trade sanctions will be enacted. If
enacted, such actions may impact the revenue that we realize from the
international exploitation of our motion pictures. If not enacted or if other
measures are not taken, the motion picture industry, including us, may lose an
indeterminate amount of revenue as a result of motion picture piracy.
Censorship
An industry trade association, the Motion Picture Association of America,
assigns ratings for age group suitability for domestic theatrical distribution
of motion pictures under the auspices of its Code and Rating Administration. The
film distributor generally submits its film to the Code and Rating
Administration for a rating. We plan to follow the practice of submitting our
pictures for ratings.
Television networks and stations in the United States as well as some
foreign governments may impose additional restrictions on the content of a
motion picture that may wholly or partially restrict exhibition on television or
in a particular territory.
We will not engage in the production of X-rated material. We plan to make
motion pictures that appeal to the tastes of the vast majority of the
movie-going public. We plan to produce our motion pictures so there will be no
material restrictions on exhibition in any major market or media. This policy
may require production of "cover" shots or different photography and recording
of certain scenes for insertion in versions of a motion picture exhibited on
television or theatrically in certain territories.
There can be no assurance that current and future restrictions on the
content of our films may not limit or affect our ability to exhibit our pictures
in certain territories and media.
Theatrical distribution of motion pictures, in a number of states and
certain jurisdictions, is subject to provisions of trade practice laws passed in
those jurisdictions. These laws generally seek to eliminate the practice known
as "blind bidding" and prohibit the licensing of films unless theater owners are
invited to attend screenings of the film first. In certain instances, these laws
also prohibit payment of advances and guarantees to film distributors by
exhibitors.
Labor Laws
We will use non-unionized talent whenever possible to reduce our costs of
production. Notwithstanding, many individuals associated with our productions,
including actors, writers and directors, will be members of guilds or unions,
which bargain collectively with producers on an industry-wide basis from time to
time. Our operations will be dependent upon our compliance with the provisions
of collective bargaining agreements governing relationships with these guilds
and unions. Strikes or other work stoppages by members of these unions could
delay or disrupt our activities. The extent to which the existence of collective
bargaining agreements may affect us in the future is not currently determinable.
DESCRIPTION OF PROPERTY
We are presently using office space provided at no charge by our president,
Thomas E. Mills. We will need to lease approximately 500-1,000 square feet of
office space at another location to use as the corporate head office before we
are able to implement our business plan.
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LEGAL PROCEEDINGS
To the best of the knowledge of our management, neither AMP Productions,
Ltd., nor any of its officers or directors is a party to any material legal
proceeding or litigation and such persons know of no material legal proceeding
or contemplated or threatened litigation. There are no judgments against AMP
Productions, Ltd. or its officers or directors. None of the our officers or
directors have been convicted of a felony or misdemeanor relating to securities
or performance in corporate office.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following sets forth our directors, executive officers, promoters and
control persons, their ages, and all offices and positions held. Directors are
elected for a period of one year and thereafter serve until their successor is
duly elected by the shareholders. Officers and other employees serve at the will
of the Board of Directors.
Term Period Served as
Name Position Age Director/Officer
---- -------- --- ----------------
Thomas E. Mills President, Treasurer, 35 03/03/03 to present
Director
Fidel Thomas Vice President, Secretary, 40 03/03/03 to present
Director
Thomas E. Mills serves as our president and treasurer. Mr. Mills is a
lawyer, practicing in British Columbia, Canada, who has a wide range of
experience in the fields of entertainment law, securities, commercial
transactions and e-commerce. After being called to the Bar of British Columbia
in 1997, Mr. Mills began practicing as an associate with Danks & Company, a law
firm with a practice limited to the entertainment industry. His experience while
with Danks & Company was primarily in the areas of film finance and intellectual
property. In 1998, Mr. Mills moved to the law firm of McRae, Holmes & King to
practice in the area of commercial litigation, as an associate. Mr. Mills left
McRae, Holmes & King in 2000, to take a position as in-house counsel for
Healthnet International, Inc., a Colorado corporation with a head office in
Vancouver, British Columbia having its shares quoted on the NASD OTC:BB (trading
symbol HLNT). Healthnet was in the business of providing turn-key e-commerce
solutions primarily to the health and nutraceutical industry. While working for
Healthnet, Mr. Mills was responsible for commercial agreements, corporate
governance, and compliance with securities regulations. In 2001, Mr. Mills took
the position of president of Scarab Systems, Inc., a privately held Nevada
corporation in the business of providing electronic payment solutions to the
e-commerce sector. In July 2002, Scarab Systems, Inc. was acquired by iRV, Inc.,
a Colorado corporation having its shares quoted on the NASD OTC:BB (trading
symbol: IRVV), in a reverse takeover. Under the terms of the acquisition, Mr.
Mills became and remains president and chief executive officer of iRV, Inc. On
March 24, 2003, iRV, Inc. changed its name to Scarab Systems, Inc. Mr. Mills
presently devotes 10 hours a week to Scarab System, Inc. Mr. Mills received his
Bachelor of Laws degree from the University of British Columbia in 1996, and
holds a Bachelor of Arts degree obtained from the University of Waterloo,
Waterloo, Ontario in 1992.
Fidel Thomas serves as our vice president and secretary. Mr. Thomas has
been involved in the film business for more than twelve years. His career
started in the United Kingdom with an independent film company, Time and Vision.
There he served as head of development and was involved in all areas of the
creative process in independent film production. In 1994, Mr. Thomas was offered
a position at Johnson Family Films, where he took on a producers role. In 1996,
32
he was an integral part of the critically acclaimed feature "The Mexican Stand
Off," which was sold to six territories in Europe. In 1998 Mr. Thomas and
associates formed Inner Vision Images Motion Picture Corp. in Vancouver and
became part of British Columbia's growing indigenous film industry. Mr. Thomas
has also been an active member of the Vancouver International Film Festival
since 1998, and contributes his time to their trade forum as a consultant to new
filmmakers. Mr. Thomas obtained a degree in sociology at the University of East
London, U.K., a degree in fine art at Kingsway University Central London, and a
diploma in media practice/advanced screen writing at the Birkbeck College for
extramural studies U.K.
EXECUTIVE COMPENSATION
To date we have no employees other than our officers. Neither our officers
nor directors have been paid any compensation. We have no employment agreements
with any of our officers. We do not contemplate entering into any employment
agreements until such time as we receive revenue.
There are no other stock option plans, retirement, pension, or profit
sharing plans for the benefit of our officers and directors other than as
described herein. We do not have any long-term incentive plans that provide
compensation intended to serve as incentive for performance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have issued common stock to the following officers, directors, promoters
and beneficial owners of more than 5% of our outstanding securities.
Position with
Name Company Shares Consideration Date
---- ------- ------ ------------- ----
Thomas E. Mills President, Treasurer 6,000,000 $600 March 23, 2003
Fidel Thomas Vice President, 2,000,000 $200 March 26, 2003
Secretary
In March 2003, we acquired options from Mr. Thomas, our vice president,
secretary and director, to two screenplays titled "Code Blue" and "Pelicula" for
$2,500 each. The options grant us the right, for a period of one year, to
acquire all right, title and interest to the two screenplays for $10,000 and
$20,000 respectively, plus contingent payments based on certain milestones.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 31, 2003, the following table sets forth information known by
our management regarding beneficial ownership of our common stock at the date of
this prospectus by: each person known by us to own, directly or beneficially,
more than 5 percent of our common stock; each of our executive officers and
directors; and, all of our officers and directors as a group.
Except as otherwise indicated, our management believes that the beneficial
owners of the common stock listed below, based on information furnished by the
owners, own the shares directly and have sole investment and voting power over
the shares.
33
Name Number of Shares Percent
---- ---------------- -------
Thomas E. Mills 6,000,000 75%
Fidel Thomas 2,000,000 25%
Directors and officers as a group 8,000,000 100%
(two persons)
The address for all officers and directors is 2708-939 Homer Street,
Vancouver, British Columbia, Canada, V6B 2W6.
Messrs. Mills and Thomas are promoters of the company.
PLAN OF DISTRIBUTION
Currently, we plan to sell our common stock through Fidel Thomas, who is
our Secretary. We plan to sell our shares of common stock outside the United
States to residents of Canada and Europe. Mr. Thomas will not receive any
commission from the sale of any common stock. Mr. Thomas will not register as a
broker/dealer under Section 15 of the Securities Exchange Act of 1934 (the
"Exchange Act") in reliance upon Rule 3a4-1. Rule 3a4-1 sets forth those
conditions under which a person associated with an issuer may participate in the
offering of the issuer's securities and not be deemed to be a broker-dealer.
These conditions are as follows:
1. The person is not subject to a statutory disqualification, as that term is
defined in Section 3(a)(39) of the Exchange Act, at the time of his
participation;
2. The person is not compensated in connection with his participation by the
payment of commissions or other remuneration based either directly or
indirectly on transactions in securities;
3. The person is not, at the time of their participation, an associated person
of a broker-dealer; and
4. The person meets the conditions of paragraph (a)(4)(ii) of Rule 3a4-1 of
the Exchange Act in that she (a) primarily performs, or is intended to
primarily perform at the end of the offering, substantial duties for or on
behalf of the Issuer otherwise than in connection with transactions in
securities; and (b) is not a broker-dealer, or an associated person of a
broker-dealer, within the preceding twelve (12) months; and (c) does not
participate in selling and offering of securities for any Issuer more than
once every twelve (12) months other than in reliance on paragraphs
(a)(4)(i) or (a) (4) (iii) of the Exchange Act.
Mr. Thomas is not subject to disqualification, is not being compensated,
and is not associated with a broker-dealer. Mr. Thomas is and will continue to
be one of our officers and directors at the end of the offering and, during the
last twelve months, he has not been and is not currently a broker-dealer nor
associated with a broker-dealer. Mr. Thomas has not, during the last twelve
months, and will not, during the next twelve months, offer or sell securities
for another corporation other than in reliance on paragraphs (a)(4)(i) or (a)
(4) (iii) of the Exchange Act.
It is anticipated that we will be conducting our offering of common stock
to residents of Canada and Europe.
34
DESCRIPTION OF THE SECURITIES
We are currently authorized to issue 100,000,000 shares of $0.0001 par
value common stock. All shares when issued, will be fully paid and
non-assessable. All shares are equal to each other with respect to liquidation
and dividend rights. Holders of voting shares are entitled to one vote for each
share that they own at any shareholders' meeting. Holders of our shares of
common stock do not have cumulative voting rights.
Holders of shares of common stock are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally available. Upon
liquidation, holders of shares of common stock are entitled to participate
pro-rata in a distribution of assets available for such distribution to
shareholders. There are no conversion, preemptive or other subscription rights
or privileges with respect to any shares.
Our Articles of Incorporation do not provide for the issuance of any other
securities.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Article Twelfth of our Articles of Incorporation provides, among other
things, that no director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer; provided, however, that the foregoing provision shall
not eliminate or limit the liability of a director or officer (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (ii) the payment of dividends in violation of Section 78.300 of the
Nevada Revised Statutes.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that any claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
LEGAL MATTERS
The validity of the shares of common stock offered by us will be passed
upon by the law firm of Bartel Eng & Schroder, Sacramento, California.
EXPERTS
Our balance sheet as of March 31, 2003, and the related statements of
operations and deficit accumulated during the development stage, cash flows and
stockholders' equity for the period February 27, 2002 (date of inception) to
35
March 31, 2003, have been included herein in reliance on the report of Moore
Stephens Ellis Foster Ltd., Chartered Accountants, given on the authority of
that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2, together with all
amendments and exhibits, with the Securities and Exchange Commission. This
prospectus, which forms a part of that registration statement, does not contain
all information included in the registration statement. Certain information is
omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any of our contracts or
other documents, the references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contracts or documents. You may review a copy of the registration
statement at the Securities and Exchange Commission's public reference room, and
at Securities and Exchange Commission's regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, 13th Floor, New York, New York 10048. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our filings and the registration statement can
also be reviewed by accessing the Securities and Exchange Commission's website
at http://www.sec.gov.
36
MOORE STEPHENS ELLIS FOSTER LTD.
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 734-1112 Facsimile: (604) 714-5916
E-Mail: generaldelivery@ellisfoster.com
Website: www.ellisfoster.com
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
AMP PRODUCTIONS, LTD.
(A development stage company)
We have audited the balance sheet of AMP Productions, Ltd. ("the Company") (A
development stage company) as at March 31, 2003, the related statements of
stockholders' deficiency, operations and cash flows from February 27, 2003
(inception) to March 31, 2003. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at March 31, 2003 and the
results of its operations and cash flows for the period from February 27, 2003
(inception) to March 31, 2003 in conformity with generally accepted accounting
principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD."
April 10, 2003 Chartered Accountants
F-1
AMP PRODUCTIONS, LTD.
(A development stage company)
Balance Sheet
March 31, 2003
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------------------
2003
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 5,785
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 5,785
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities
Current
Accounts payable and accrued liabilities $ 3,177
Promissory note and accrued interest 10,024
- --------------------------------------------------------------------------------------------------------------------------
13,201
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' Deficiency
Share capital
Authorized:
100,000,000 common shares with a par value of $0.0001 per share
Issued and outstanding: 8,000,000 common shares 800
- --------------------------------------------------------------------------------------------------------------------------
(Deficit) accumulated during the development stage (8,216)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity deficiency (7,416)
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
Total liabilities and stockholders' deficiency $ 5,785
==========================================================================================================================
The accompanying notes are an integral part of these financial statements.
F-2
AMP PRODUCTIONS, LTD.
(A development stage company)
Statement of Stockholders' Deficiency
For the period from February 27, 2003 (inception) to March 31, 2003
(Expressed in U.S. Dollars)
- -------------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
Common stock during Total
----------------------------- development stockholders'
Shares Amount stage deficiency
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for cash
March 3, 2003, $0.0001 per share 8,000,000 $ 800 $ - $ 800
Comprehensive income (loss)
Loss for the period - - (8,216) (8,216)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2003 8,000,000 $ 800 $ (8,216) $ (7,416)
===============================================================================================================================
The accompanying notes are an integral part of these financial statements.
F-3
AMP PRODUCTIONS, LTD.
(A development stage company)
Statement of Operations
(Expressed in U.S. Dollars)
- -----------------------------------------------------------------------------------------------------------------------
February 27
2003 (inception)
to
March 31
2003
- -----------------------------------------------------------------------------------------------------------------------
General and administrative expenses
Accounting $ 1,650
Consulting 5,427
Interest 24
Legal 957
Office 158
- -----------------------------------------------------------------------------------------------------------------------
8,216
- -----------------------------------------------------------------------------------------------------------------------
Loss for the period $ 8,216
=======================================================================================================================
Loss per share
- basic and diluted $ 0.00
=======================================================================================================================
Weighted average number of
common shares outstanding
- basic and diluted 8,000,000
=======================================================================================================================
The accompanying notes are an integral part of these financial statements.
F-4
AMP PRODUCTIONS, LTD.
(A development stage company)
Statement of Cash Flows
(Expressed in U.S. Dollars)
- -------------------------------------------------------------------------------------------------------------------------
February 27
2003 (inception)
to
March 31
2003
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) operating activities
Loss for the period $ (8,216)
Changes in assets and liabilities:
- increase in accounts payable and accrued liabilities 3,177
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
(5,039)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Promissory note 10,024
Proceeds from issuance of common stock 800
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
10,824
- -------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 5,785
Cash and cash equivalents, beginning of period -
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 5,785
=========================================================================================================================
The accompanying notes are an integral part of these financial statements.
F-5
AMP PRODUCTIONS, LTD.
(A development stage company)
Notes to Financial Statements
March 31, 2003
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
1. Incorporation and Continuance of Operations
The Company was formed on February 27, 2003 under the laws of the State of
Nevada. The Company has not commenced planned principal operations,
producing filmed entertainment. The company is considered a development
stage company as defined in SFAS No. 7. The Company has an office in
Vancouver, Canada.
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has incurred
operating losses and requires additional funds to maintain its operations.
Management's plans in this regard are to raise equity financing as
required.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments that might result from this uncertainty.
The Company has not generated any operating revenues to date.
2. Significant Accounting Policies
(a) Cash and Cash Equivalents
Cash equivalents comprise certain highly liquid instruments with a
maturity of three months or less when purchased.
(b) Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates and assumptions.
(c) Advertising Expenses
The Company expenses advertising costs as incurred. There was no
advertising expenses incurred by the Company for the period ended
March 31, 2003.
(d) Loss Per Share
Loss per share is computed using the weighted average number of shares
outstanding during the period. The Company has adopted SFAS No. 128,
"Earnings Per Share". Diluted loss per share is equivalent to basic
loss per share.
F-6
AMP PRODUCTIONS, LTD.
(A development stage company)
Notes to Financial Statements
March 31, 2003
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
(e) Concentration of Credit Risk
The Company places its cash and cash equivalents with high credit
quality financial institutions. As of March 31, 2003, the Company had
no balance in a bank beyond insured limits.
(f) Foreign Currency Transactions
The Company is located and operating outside of the United States of
America. It maintains its accounting records in U.S. Dollars, as
follows:
At the transaction date, each asset, liability, revenue and expense is
translated into U.S. dollars by the use of the exchange rate in effect
at that date. At the period end, monetary assets and liabilities are
remeasured by using the exchange rate in effect at that date. The
resulting foreign exchange gains and losses are included in
operations.
(g) Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These financial instruments
include cash and cash equivalents, accounts payable and accrued
liabilities and promissory note and accrued interest. Fair values were
assumed to approximate carrying values for these financial
instruments, except where noted, since they are short term in nature
and their carrying amounts approximate fair values or they are
receivable or payable on demand. Management is of the opinion that the
Company is not exposed to significant interest or credit risks arising
from these financial instruments. The Company is operating outside the
United States of America and has significant exposure to foreign
currency risk due to the fluctuation of currency in which the Company
operates and U.S. dollar.
(h) Income Taxes
The Company has adopted Statement of Financial Accounting Standards
No. 109 (SFAS 109), Accounting for Income Taxes, which requires the
Company to recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns using the
liability method. Under this method, deferred tax liabilities and
assets are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse.
F-7
AMP PRODUCTIONS, LTD.
(A development stage company)
Notes to Financial Statements
March 31, 2003
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
2. Significant Accounting Policies (continued)
(i) Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for
Stock-based Compensation. SFAS 123 encourages, but does not require,
companies to adopt a fair value based method for determining expense
related to stock-based compensation. The Company accounts for
stock-based compensation issued to employees and directors using the
intrinsic value method as prescribed under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations.
The Company did not grant any stock options during the period.
(j) Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No.
130 (SFAS 130), Reporting Comprehensive Income, which establishes
standards for reporting and display of comprehensive income, its
components and accumulated balances. The Company is disclosing this
information on its Statement of Stockholders' Equity (Deficiency).
Comprehensive income comprises equity except those resulting from
investments by owners and distributions to owners. The Company has no
elements of "other comprehensive income" for the period ended March
31, 2003.
(k) New Accounting Pronouncements
In April 2003, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standard No. 149 (SFAS 149),
Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This Statement amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, Accounting
for Derivative Instruments and hedging Activities. This Statement is
effective for contracts entered into or modified after June 30, 2003.
We do not expect the implementation of SFAS No. 49 to have a material
impact on our consolidated financial statements.
3. Promissory Note and Accrued Interest, due February 25, 2005
---------------------------------------------------------------------------
Principal, unsecured and bearing interest at 3% $ 10,000
per annum Accrued interest 24
---------------------------------------------------------------------------
$ 10,024
===========================================================================
F-8
AMP PRODUCTIONS, LTD.
(A development stage company)
Notes to Financial Statements
March 31, 2003
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
4. Income Taxes
As at March 31, 2003, the Company has estimated net operating losses
carryforward for tax purposes of $13,000. This amount may be applied
against future federal taxable income. The Company evaluates its valuation
allowance requirements on an annual basis based on projected future
operations. When circumstances change and this causes a change in
management's judgement about the realizability of deferred tax assets, the
impact of the change on the valuation allowance is generally reflected in
current income.
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
---------------------------------------------------------------------------
Tax loss carry forwards $ 4,550
Valuation allowance (4,550)
---------------------------------------------------------------------------
$ -
===========================================================================
5. Related Party Transactions and Commitments
On March 2, 2003, the Company entered into two purchase agreements with a
director of the Company to acquire two literary materials. Pursuant to the
agreements, the Company is granted an option, for a period of one year, to
acquire all right, title and interest for above two literary materials. The
consideration for the option of acquisition is $2,500 for each of the
literary material. As at March 31,2003, this amount remained unpaid.
The considerations for the two literary materials are $10,000 and $20,000
respectively plus contingent compensation, which is payable to the vendor
based on certain milestone reached, if any, by the company.
F-9
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The statutes, charter provisions, bylaws, contracts or other arrangements
under which controlling persons, directors or officers of the registrant are
insured or indemnified in any manner against any liability which they may incur
in such capacity are as follows:
(a) Section 78.751 of the Nevada Business Corporation Act provides that
each corporation shall have the following powers:
1. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of no lo contendere or its equivalent, does not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction, determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2, or in defense of any claim, issue
or matter therein, he must be indemnified by the corporation against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a court or
advanced pursuant to subsection 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances. The
determination must be made:
II-1
(a) By the stockholders; (b) By the board of directors by majority vote of
a quorum consisting of directors who were not parties to the act, suit or
proceeding; (c) If a majority vote of a quorum consisting of directors who were
not parties to the act, suit or proceeding so orders, by independent legal
counsel, in a written opinion; or (d) If a quorum consisting of directors who
were not parties to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
5. The certificate or articles of incorporation, the bylaws or an agreement made
by the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered by a
court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the certificate
or articles of incorporation or any bylaw, agreement, vote of stockholders of
disinterested directors or otherwise, for either an action in his official
capacity or an action in his official capacity or an action in another capacity
while holding his office, except that indemnification, unless ordered by a court
pursuant to subsection 2 or for the advancement of expenses made pursuant to
subsection 5, may not be made to or on behalf of any director or officer if a
final adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
7. The registrant's Articles of Incorporation limit liability of its Officers
and Directors to the full extent permitted by the Nevada Business Corporation
Act.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated costs and expenses we will pay
in connection with the offering described in this registration statement:
Amount (1)
-----------
SEC Registration fee $ 15.00
Blue Sky fees and expenses $ 2,500.00
Printing and shipping expenses $ 1,000.00
Accounting fees and expenses $ 3,000.00
Legal fees $ 10,000.00
Transfer and Miscellaneous expenses $ 3,485.00
-----------
Total (1) $ 20,000.00
(1) All expenses, except SEC registration fees, are estimated.
II-2
Item 26. Recent Sales of Unregistered Securities.
On March 23, 2003, 6,000,000 restricted common shares were issued to our
president, treasurer and director, Thomas E. Mills, in exchange for a cash
payment on behalf of the Company of $600. The shares were issued without
registration under the Securities Act of 1933 in reliance on an exemption from
registration provided by Section 4(2) of the Securities Act. No general
solicitation was made in connection with the offer or sale of these securities.
On March 26, 2003, 2,000,000 restricted common shares were issued to our
vice president, secretary and Director, Fidel Thomas, in exchange for a cash
payment on behalf of the Company of $200. The shares were issued without
registration under the Securities Act of 1933 in reliance on an exemption from
registration provided by Section 4(2) of the Securities Act. No general
solicitation was made in connection with the offer or sale of these securities.
Item 27. Exhibits
Exhibit No. Document
3.1 Articles of Incorporation
3.2 Bylaws
5.1 Legal opinion
10.1 Promissory Note
10.2 Option to Purchase Agreement "Pelicula"
10.3 Option to Purchase Agreement "Code Blue"
23.1 Consent of Accountant
23.2 Consent of Counsel (contained in Exhibit 5.1)
99.1 Specimen Subscription Agreement
Item 28. Undertakings.
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred to that section.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Articles of Incorporation or provisions of the Nevada
Business Corporations Act, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question, whether
or not such indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake to:
(1) File, during any period in which we offer or sell securities, a
post-effective amendment to this registration statement to:
II-3
(a) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(b) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(c) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act treat each post-effective
amendment as a new registration statement of the securities offered and the
offering of the securities at that time to be the initial bona fide offering.
(3) File a post effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 Registration Statement and authorized
this registration to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, Province of British Columbia, Canada, on
June 5, 2003.
AMP PRODUCTIONS, LTD.
/s/Thomas E. Mills
---------------------------
By: Thomas E. Mills
President and Treasurer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the capacities
and on the dates stated:
/s/Thomas E. Mills
Date: June 5, 2003 ---------------------------------
By: Thomas E. Mills
President and Treasurer, Director
(Principal Executive, Financial
and Accounting Officer)
/s/Fidel Thomas
Date: June 5, 2003 ---------------------------------
By: Fidel Thomas, Vice President,
Secretary, Director