SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2004
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
From the transition period from ____________ to ___________.
Commission File Number 0-22236
SKREEM ENTERTAINMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 33-0565710
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11637 Orpington Street, Orlando, Florida 32817
(Address of principal executive offices)
(407) 207-0400
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days:
Yes |X| No |_|
Class Shares Outstanding Date
Common, $.001 par value 23,107,856 January 31, 2005
SKREEM ENTERTAINMENT CORPORATION
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet - December 31, 2004 (unaudited)............. 3
Consolidated Condensed Statements of Operations (unaudited) - For the nine and
three months ended December 31, 2004 and 2003 and for the period from
inception (August 19, 1999) to December 31, 2004................................. 4
Consolidated Condensed Statements of changes in Shareholders' Deficit (unaudited)
- For the period from inception (August 19, 1999) to December 31, 2004........... 6
Consolidated Condensed Statements of Cash Flows (unaudited) - For the nine
months ended December 31, 2004 and 2003 and for the period from inception
(August 19, 1999) to December 31, 2004........................................... 7
Notes to Consolidated Condensed Financial Statements (unaudited)................. 8-11
Item 2. Management's Discussion and Analysis or Plan of
Operation................................................................................. 12-13
Item 3. Controls and Procedures........................................................... 14
PART II - OTHER INFORMATION........................................................................ 14
Item 1. Legal Proceedings................................................................. 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....................... 14
Item 3. Defaults Upon Senior Securities................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders............................... 14
Item 5. Other Information................................................................. 14
Item 6. Exhibits.......................................................................... 15
SIGNATURES......................................................................................... 16
2
Skreem Entertainment Corporation
(A Development Stage Company)
Consolidated Condensed Balance Sheet
December 31, 2004
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 24,962
--------
Total Current Assets 24,962
Property and Equipment, net 9,001
Deposits 19,921
--------
Total Assets $ 53,884
========
LIABILITIES AND SHAREHOLDERS ' DEFICIT
Current Liabilities
Accounts payable and accrued liabilities 165,623
Deferred revenue 31,094
Accrued interest payable - shareholder and affiliates 57,477
Notes payable - shareholder 459,000
Notes payable - affiliates 535,593
Notes payable - others 261,887
---------
Total Current Liabilities 1,510,674
Shareholders' Deficit
Prefer red stock, par value $0.001, 1,000,000
shares authorized, no shares issued and outstanding -
Common stock, par value $0.001, 50,000,000
shares authorized, 23,107,856 shares
issued and outstanding 23,108
Additional Paid In Capital 1,860,824
Deficit accumulated in the development stage (3,340,722)
-----------
Total Shareholders' Deficit (1,456,790)
-----------
Total Liabilities and Deficit $ 53,884
===========
The accompanying notes are an integral part of
these condensed financial statements.
3
Skreem Entertainment Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Operations
For Nine Months Ended December 31, 2004 and 2003
And Period from August 19, 1999 (Inception) to December 31, 2004
(Unaudited)
9 Months Ended 9 Months Ended Inception to
December 31, 2004 December 31, 2003 December 31, 2004
------------------ ------------------ ------------------
Revenues $ 13,961 $ 176 $ 16,886
Expenses
Operating expenses 942,706 439,275 2,042,635
General and administrative 169,220 55,012 427,182
Salaries and benefits 54,811 64,000 477,520
Impairment of loan receivable - - 130,000
---------- -------- ---------
Total expense 1,166,737 558,287 3,077,337
---------- -------- ---------
Loss from Operations (1,152,776) (558,111) (3,060,451)
Other Income / (Expenses)
Interest expense (51,282) (48,383) (280,271)
--------- -------- ---------
Net Loss $(1,204,058) $(606,494) $(3,340,722)
========== ========== ==========
Weighted Average Shares
Outstanding 25,371,995 13,654,545 (1)
========== ==========
Loss Per Share - basic and diluted $ (0.05) $ (0.04)
========== ==========
(1) Weighted average shares outstanding for nine months ended December 31, 2003
reflects equivalent shares issued for reverse merger transaction and is for
comparative purposes only.
The accompanying notes are an integral part of these
condensed financial statements.
4
Skreem Entertainment Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Operations
For Three Months Ended December 31, 2004 and 2003
(Unaudited)
3 Months Ended 3 Months Ended
December 31, 2004 December 31, 2003
-------------------- --------------------
Revenues $ 13,961 $ -
Expenses
Operating expenses 348,217 135,492
General and administrative 35,996 32,891
Salaries and benefits 18,075 20,203
-------- ---------
Total expense 402,288 188,586
-------- ---------
Loss from Operations (388,327) (188,586)
Other Income / (Expenses)
Interest expense (24,342) (5,413)
-------- ---------
Net Loss $(412,669) $(193,999)
======== =========
Weighted Average Shares
Outstanding 23,298,232 22,000,000 (1)
========== ==========
Loss Per Share - basic and diluted $ (0.02) $ (0.01)
========== ==========
(1) Weighted average shares outstanding for three months ended December 31,
2003 reflects equivalent shares issued for reverse merger transaction and
is for comparative purposes only.
The accompanying notes are an integral part of
these condensed financial statements.
5
SKREEM ENTERTAINMENT CORPORATION
(A Development Stage Company)
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FROM AUGUST 19, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 2004
Paid
Common Stock In Retained
Shares Amount Capital Deficit Total
------- -------- --------- --------- -------
Balance at inception, August 19, 1999 - $ - $ - - $ -
Issuance of common stock 20,000 20 - - 20
Net Loss - - - (84,021) (84,021)
--------- ---------- ------- --------- ---------
Balance at December 31, 1999 20,000 20 - (84,021) (84,001)
Net loss - - - (230,879) (230,879)
--------- ---------- ------- --------- ---------
Balance at December 31, 2000 20,000 20 - (314,900) (314,880)
Net loss - - - (494,816) (494,816)
--------- ---------- ------- --------- ---------
Balance at December 31, 2001 20,000 20 - (809,716) (809,696)
Net loss - - - (384,590) (384,590)
--------- ---------- ------- --------- ---------
Balance at December 31, 2002 20,000 20 - (1,194,306) (1,194,286)
Reclassification of debt to equity 43,000 43 1,581,941 - 1,581,984
Net loss - - - (736,364) (736,364)
--------- ---------- ------- --------- ---------
Balance at December 31, 2003 63,000 63 1,581,941 (1,930,670) (348,666)
Effect of issuance of common stock
and recapitilization in reverse
acquisition transaction 25,943,925 25,944 (25,944) - -
Net loss - - - (205,994) (205,994)
--------- --------- -------- --------- ---------
Balance at March 31, 2004 26,006,925 26,007 1,555,997 (2,136,664) (554,660)
Proceeds from issuance of
common stock 603,856 604 301,324 - 301,928
Cancellation of shares (3,502,925) (3,503) 3,503 - -
Net loss - - - (1,204,058) (1,204,058)
--------- --------- --------- --------- ---------
Balance at December 31, 2004 23,107,856 $ 23,108 $ 1,860,824 $ (3,340,722) $(1,456,790)
========= ========= ========= ========= =========
The accompanying notes are an integral part of these condensed
financial statements
6
Skreem Entertainment Corporation
(A Development Stage Company)
Consolidated Condensed Statements of Cash Flows
For Nine Months Ended December 31, 2004 and 2003
And Period from August 19, 1999 (Inception) to December 31, 2004
(Unaudited)
9 Months Ended 9 Months Ended Inception to
December 31, 2004 December 31, 2003 December 31, 2004
---------------- ---------------- -----------------
Cash Flows from Operating Activities
Net Loss $ (1,204,058) $ (606,494) $ (3,340,722)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation 9,334 4,665 41,749
Impairment of loan receivable - - 130,000
Accrued interest payable converted to equity - - 208,405
(Increase) Decrease in Operating assets and liabilities:
Prepaid expenses - (4,408) -
Deposits - (19,921) (19,921)
Accounts payable 122,482 11,306 165,624
Deferred revenue 31,094 - 31,094
Accrued interest payable 41,820 56,865 57,477
-------- -------- ---------
Total Adjustments 204,730 48,507 614,428
-------- -------- ---------
Net Cash Used in Operating Activities (999,328) (557,987) (2,726,294)
Cash Flows from Investing Activities
Payments for purchase of equipment (11,440) (1,347) (50,751)
Loan receivable - - (130,000)
-------- -------- ---------
Net Cash Used in Investing Activities (11,440) (1,347) (180,751)
Cash Flows from Financing Activities
Proceeds from issuance of stock 301,929 - 301,929
Proceeds from notes payable - other 265,000 - 265,000
Proceeds from notes payable - shareholder 459,000 - 459,000
Proceeds from notes payable - affiliates 75,000 572,000 2,024,191
Principal payments on notes payable to others (3,113) - (3,113)
Principal payments on notes payable to affiliates (65,000) - (115,000)
-------- -------- --------
Net Cash Provided by Financing Activities 1,032,816 572,000 2,932,007
Net increase in cash and cash equivalents 22,048 12,666 24,962
Cash and cash equivalents at beginning of period 2,914 1,936 -
-------- -------- ---------
Cash and cash equivalents at end of period $ 24,962 $ 14,602 $ 24,962
======== ======== =========
The accompanying notes are an integral part of these condensed financial
statements.
7
Skreem Entertainment Corporation
Notes to the Unaudited Consolidated Condensed Financial Statements
From August 19, 1999 (Date of Inception) to December 31, 2004
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of Skreem
Entertainment Corporation have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10QSB and Item 310(b) of
Regulation S-B. They do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation, have been included in the accompanying
unaudited consolidated financial statements.
Operating results for the periods presented are not necessarily indicative of
the results that may be expected for the full year.
These unaudited consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and footnotes, which are
included as part of consolidated financial statements as of March 31, 2004
included in the Company's Form 10KSB.
Note 2 - ACCOUNTING POLICY FOR REVENUE RECOGNITION
Revenue is recognized in accordance with Staff Accounting Bulletin No. 104 (SAB
104) when persuasive evidence of an arrangement exists, the price to the buyer
is fixed or determinable; delivery has occurred or services have been rendered
or the license period has begun; and collectibility is reasonably assured.
Revenue from the distribution of recordings under license and distribution
agreements is recognized as earned under the criteria established by Statement
of Financial Accounting Standard No 50. Revenue is generally recognized when the
Company receives an "accounting" of recordings sold with payment from the
licensee. In the event the Company has not received an "accounting" from the
licensee and if the Company has information related to the licensed use of
recordings that would result in the revenue being fixed and determinable, and
collection is reasonably assured, then revenue is recognized in the periods in
which the license revenue is earned. Minimum guarantees (advances) received from
licensees are recorded as deferred revenue and are amortized over the
performance period, which is generally the period covered by the agreement.
Note 3 - NOTES PAYABLE
Shareholder
On May 26, 2004 the Company borrowed $100,000 from Sugarcreek Capital, LLC. The
terms of the note call for repayment of $104,000 on or before July 30, 2004. As
security for the loan, Jeffrey D. Martin, a major stockholder, put up his 1/3
interest in Osceola Partners. On August 19, 2004 the note payable to Sugarcreek
Capital, LLC was transferred to Jeffrey D. Martin, a major stockholder, in
exchange for his 1/3 interest in Osceola Partners and is payable on demand.
Since May 24, 2004 Jeffrey D. Martin, a major stockholder has loaned the Company
$359,000. The notes are payable on demand and bear interest at the rate of 8%
per annum. Accrued interest at December 31, 2004 was $6,467. The dates and
amounts of these individual note agreements entered into during the nine months
ended December 31, 2004 are as follows:
Date of Note Amount
--------------- ----------
May 24, 2004 $75,000
July 2, 2004 30,000
July 14, 2004 20,000
August 26, 2004 5,000
October 6, 2004 50,000
October 26, 2004 10,000
November 4, 2004 80,000
November 11, 2004 20,000
November 22, 2004 15,000
December 3, 2004 10,000
December 9, 2004 20,000
December 13, 2004 20,000
December 16, 2004 _ 4,000
-------
Total $359,000
========
8
Affiliates
On November 18, 2004, the Company borrowed $25,000 (unsecured) from
Jeffrey Martin Real Estate Co. The note bears interest at the rate of
8% per annum. Jeffrey Martin Real Estate Co. is owned by Jeffrey D. Martin,
a major shareholder of the Company.
Since April 6, 2004, the Company has borrowed an additional $50,000 from Martin
Consultants, Inc. The notes bear interest at the rate of 8% per annum. The total
balance of the notes payable to Martin Consultants, Inc. was $471,000 at
December 31, 2004. Martin Consultants, Inc. is owned by Jeffrey D. Martin, a
major shareholder of the Company. The dates and amounts of these individual note
agreements entered into during the nine months ended December 31, 2004 are as
follows:
Date of Note Amount
-------------- -------
April 6, 2004 $10,000
April 12, 2004 10,000
July 23, 2004 20,000
July 30, 2004 10,000
-------
Total $50,000
=======
Others
On August 19, 2004 the Company borrowed $200,000 from Sugarcreek Capital, LLC.
The Note is payable on December 30, 2004 and bears interest at the rate of 8%
per annum. The note has been personally guaranteed by Jeffrey D. Martin, a major
shareholder of the Company. Accrued interest as of December 31, 2004 was $5,742.
On August 3, 2004 the Company borrowed $50,000 through a line of credit with an
individual. Interest on the line of credit varies monthly. The amount is payable
on demand and the interest rate was approximately 6.5% at December 31, 2004. The
line of credit has been personally guaranteed by Jeffrey D. Martin, a major
shareholder of the Company.
On October 4, 2004, the Company borrowed $15,000 from Market Management, Inc.
The note is unsecured, payable on demand, and bears interest at the rate of 6%
per annum.
Note 4 - GOING CONCERN
The accompanying financial statement has been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company sustained losses of $1,204,058, at
December 31, 2004. The Company had an accumulated deficit of $3,340,722 at
December 31, 2004. These factors raise substantial doubt about the ability of
the Company to continue as a going concern for a reasonable period of time. The
Company is highly dependent on its ability to continue to obtain investment
capital and loans from an affiliate and major shareholder in order to fund the
current and planned operating levels. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
continue receiving investment capital from an affiliate and obtaining loans to
complete promotion of the Company's artists, continue production of music and
achieve a level of success that will enable it to sustain its operations. No
assurance can be given that the Company will be successful in these efforts.
Note 5 - PRIVATE PLACEMENT MEMORANDUM
The Company has offered a Private Placement Memorandum ("PPM") which offers for
sale a maximum of 3,000,000 and a minimum of 1,000,000 shares of its common
stock, $.001 par value at $.50 per share ("the Offering"). The shares are
offered on a "best efforts" basis. The Offering will be made in reliance upon an
exemption from registration under the federal securities laws provided by
Regulation D as promulgated by the United States Securities and Exchange
Commission ("SEC"). The Offering will terminate upon the earlier of (i) the sale
of the 3,000,000 shares or (ii) May 31, 2004 unless extended by the Company for
one hundred and twenty days. The company did extend the offering for 120 days
and issued 603,856 shares with proceeds of $301,928. The Company amended the PPM
reducing the share minimum to 100,000 shares. The offering concluded after the
120 day extension.
9
Note 6 - DISTRIBUTION AND SERVICE AGREEMENT
During May 2004, the company entered into a 5.5 year Distribution and Service
Agreement with Cheyenne Records GmbH (Cheyenne). The agreement grants Cheyenne
certain exclusive rights to distribute and sell recordings in Germany,
Switzerland and Austria . Cheyenne shall receive a distribution and service fee
of 45% of all net receipts (gross receipts less Value Added Tax of approximately
16%). In addition, Cheyenne will perform certain services including booking
commercial concerts and concert tours, securing personal appearances of "3rd
Wish", securing advertising, endorsements and related activities of "3rd Wish",
and music publishing/subpublishing throughout the territory. In consideration
for these services except music publishing/subpublishing, Cheyenne shall receive
35% of all net receipts paid by third parties. The Company/Cheyenne shall split
music publishing revenues on a 75%/25% basis. Cheyenne reported that as of
December 31, 2004 approximately 207,000 copies of the "3rd Wish" recordings had
been shipped. As of December 31, 2004 and through the date of the 10QSB filing,
Cheyenne has not provided the Company with an accounting; therefore, no revenue
has been recognized in connection with the copies shipped.
Note 7 - LICENSE AGREEMENTS
On October 11, 2004, the Company entered into a fifteen year license with Three8
Music Limited (Three8). The license agreement grants Three8 all rights to the
single release by "3rd Wish" entitled "Obsession" in the United Kingdom and
Eire. The Company shall receive royalties of 19% calculated on 100% sales of
Three8's published dealer price less certain packaging deductions. In addition,
for any third party licensing or digital delivery, the Company shall receive 50%
of Three8's net royalty receipts received by Three8 in the United Kingdom. In
connection with the license agreement, the Company received an advance of
$15,000. The Company initially recorded the advance as deferred revenue and will
recognize the advance as revenue as the license fees are earned under the
agreement. At December 31, 2004, the Company recorded deferred revenue and
license fees of $167 and $14,833 respectively related to this agreement.
On November 12, 2004, the Company entered into a five year license agreement
with NRJ Music (NRJ). The license agreement grants NRJ the exclusive right to
the audio and/or audiovisual recordings of "3rd Wish" for the purpose of
reproducing them on all media in France, Dom Tom, Andorra, Monaco, and Belgium.
In consideration of the exclusive rights granted, NJR shall pay the Company a
royalty for sales (less returns) of 19-22% in France, Dom Tom, Andorra and
Monaco and 13-15% in Belgium. In addition the Company may earn additional
royalties related to phonograms, videograms, and other digital media as defined
in the agreement. In connection with the license agreement, the Company received
an advance of $16,822. The Company initially recorded the advance as deferred
revenue and will recognize the advance as revenue as the license fees are earned
under the agreement. At December 31, 2004, the Company recorded deferred revenue
and license fees of $561 and $16,261, respectively related to this agreement.
On November 26, 2004, the Company entered into a five year license agreement
with Shock Records Pty Ltd (Shock). The license agreement grants Shock the
exclusive right to the single release by "3rd Wish" entitled "Obsession" in
Australia and New Zealand. The Company shall receive royalties of 18-22% of the
net sales which excludes any sales tax and includes any discounts. Shock retains
the right to license the recording for third party, compilation and
synchronization use in the territory and the Company shall receive 50% of any
third party income. Shock retains exclusive right to copy, extract, digitally
encode, sell, distribute, and otherwise exploit the recording in digital format
via any interactive technology.
On December 14, 2004, the Company entered into a three year license agreement
with NMC Music Ltd. (NMC). The license agreement grants NMC exclusive rights to
the single release by "3rd Wish" entitled "obsession" in Israel. The Company
shall receive royalties of 18% calculated on 100% of net sales.
10
Note 8 - MUSIC VIDEO PRODUCTION AGREEMENTS
During May 2004, the Company entered into a Music Video Production agreement
with 1171 Production Group (Production Company). Production Company produced a
music video embodying the performance by "3rd Wish". In consideration for
services rendered by Production Company, the Company agreed to pay $100,000 upon
the terms and conditions set forth in the agreement. In connection with the
music video, the Company has agreed to pay $40,000 to a third party for the
performance of "Baby Bash" in the music video. As of December 31, 2004, all
contractual obligations have been completed and the Company recorded video
production expenses of $140,000 related to this agreement.
On September 14, 2004, the Company entered into a music video production
agreement with 1171 Production Group (Production Company). Production Company
produced a music video embodying the performance by "3rd Wish" of the musical
composition entitled "Nina". In consideration for services rendered by
Production Company the Company has agreed to pay $116,525 upon the terms and
Conditions set forth in the agreement. As of December 31, 2004, all contractual
obligations have been completed and the Company recorded video production
expenses of $116,525 related to this agreement.
Note 9 - CONTENT LICENSE AGREEMENT
On September 10, 2004, the Company entered into a Content License Agreement with
JAMBA!AG (JAMBA)for the distribution of mobile content including ring tones,
wallpaper, and logos through the JAMBA service and JAMBA Network. The Content
License Agreement is non-exclusive and covers the territories of Germany,
Switzerland, and Austria. The term of the agreement commences on the date of the
agreement and terminates upon a three month written notice by either party. In
consideration of the authorizations granted to JAMBA in the agreement, JAMBA wil
pay the Company a license fee from all paid and successfully completed downloads
of content by end users as set forth in the agreement, which shall be calculated
from the net revenue (revenue less value added tax). The Company has not
recorded any revenue related to this agreement during the nine months ended
December 31, 2004. In accordance with SAB 104, the Company will record revenue
related to the Content License Agreement when the license revenue is fixed or
determinable and collectibility is reasonably assured.
Note 10 - COMMON STOCK
On October 6, 2004, 3,502,925 shares of common stock were returned to the
treasury and cancelled.
Note 11 - MAJOR CUSTOMERS
During the three and nine months ended December 31, 2004 the Company had three
customers who individually accounted for over 10% of the Company's total
revenues as follows:
Customer A 50%
Customer B 30%
Customer C 15%
Note 12 - SUBSEQUENT EVENTS
On January 6, 2005, the Company entered into a Music Publishing Agreement, a
Personal Management Agreement and an Exclusive Artist Recording Agreement with
Patrick Williams, an artist also known as "PATMOE".
On January 17, 2005, the Company entered into a three year license agreement
with Megaliner Records (Megaliner). The license agreement grants Megaliner
exclusive rights to the single release by "3rd Wish" entitled "Obsession"
including all available remixes. The territories covered by the license
agreement with Megaliner includes Russia, Azerbaijan, Armenia, Georgia, Moldova,
Kazakstan, Krygystan, Tajikistan, Uzbekistan, Turkmenistan, Ukraine, Republic of
Belarus, Lithuania, Lativa and Estonia. The Company shall receive royalties of
20% of the published dealer price with no deductions allowed. In addition the
Company/Megaliner shall split any third party income and broadcasing income on a
60%/40% basis.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
From the time a record or CD is distributed, to the time the company collects
its share of the proceeds from sale, is approximately nine months. This delay
occurs because, although a record or CD is distributed, a number of records or
CDs are returned and a sale figure cannot be accurately booked as of the date of
distribution. Accordingly, the Company should see a significant increase in
revenues during the quarterly period ending on March 31, 2005 because from July
26, 2004 to November 1, 2004, the Company distributed approximately 207,000
records and CDs of "3rd Wish" recordings. Based on current pricing, the Company
should receive approximately $2.57 per record and/or CD.
The Company has entered into various license agreements which grant certain
exclusive rights to sell and distribute certain recordings by "3rd Wish". The
table below sets forth the parties and territories covered by these license
agreements:
Party(Licensee) Territories
Cheyenne Records Germany, Switzerland and Austria
Three 8 Music Limited UK, Eire
Shock Records Pty Ltd Australia, New Zealand
NRJ Music France, Andorra, Monaco, Belgium
Megaliner Records Russia, Azerbaijan, Armenia, Georgia, Moldova,
Kazakstan, Kyrgyzstan, Tajikistan, Uzbekistan,
Turkmenistan, Ukraine, Republic of Belarus,
Lithuania, Latvia, Estonia
NMC Music Ltd. Israel
Revenue is recognized in accordance with Staff Accounting Bulleting No. 104 (SAB
104) when persuasive evidence of an arrangement exists, the price to the buyer
is fixed or determinable; delivery had occurred or services have been rendered
or the license period has begun; and collectibility is reasonably assured.
Revenue from the distribution of recordings under license and distribution
agreements is recognized as earned under the criteria established by Statement
of Financial Accounting Standard No. 50. Revenue is generally recognized when
the Company receives an "accounting" of recordings sold with payment from the
licensee. In the event the Company has not received an "accounting" from the
licensee and if the Company has information related to the licensed use of
recordings that would result in the revenue being fixed and determinable, and
collection is reasonably assured, then revenue is recognized in the periods in
which the license revenue is earned. Minimum guarantees (advances) received from
licensees are recorded as deferred revenue and are amortized over the
performance period, which is generally the period covered by the agreement.
Three Month Period Ended December 31, 2004 and 2003
Revenues - The Company recorded revenue of $13,961 for the three months ended
December 31, 2004. The revenue for this period consists of $13,233 from live
performances and $728 from licensing. There was no revenue during the three
months ended December 31, 2003.
Operating expenses - Operating expenses for the three months ended December 31,
2004 were $348,217, an increase of $212,725 or 157% from the $135,492 for the
corresponding period of the prior year. This increase resulted from increased
production expenses related to the Video Shoot and Recordings of $42,313,
increased travel expenses and support for the artists in Germany of $27,359, an
increase in advertising expenses of $54,081, an increase in promotional expenses
of $78,449, and an increase in web related expenses of $10,523.
General and Administrative Expenses - General and administrative expenses
increased by $3,105 or 9.44% to $35,996 for the three months ended December 31,
2004 from $32,891 for the corresponding period of the prior year. This increase
is primarily attributable to an increase in legal and accounting fees of $1,410
and an increase in other general and administrative expenses of $5,138, which
was partially offset by a decrease in depreciation and amortization expense of
$3,443.
Salaries and Benefits - Salaries and benefits for the three months ended
December 31, 2004 were $18,075, a decrease of $2,128 or 10.53% from the $20,203
for the corresponding period of the prior year. This decrease is due to having
fewer employees during the three months ended December 31, 2004.
Interest Expense - Interest expense increased by $18,929 or 349.70% to $24,342
for the three months ended December 31, 2004 from $5,413 for the corresponding
period of the prior year. This increase is attributable to having additional
debt outstanding during the three months ended December 31, 2004.
12
For Nine Month Period Ended December 31, 2004 and 2003
Revenues - The Company had revenue in the amount of $13,961 for the nine months
ended December 31, 2004. The revenue for this period consists of $13,233 from
live performances and $728 from licensing. For the nine months ended December
31, 2003, the Company had revenues of $176.
Operating expenses - Operating expenses for the nine months ended December 31,
2004 were $942,706, an increase of $503,431 or 115% from the $439,275 for the
corresponding period of the prior year. This increase resulted from increased
production expenses related to the Video Shoot and Recordings of $277,709
increased travel expenses and support for the artists in Germany of $69,316, an
increase in advertising expenses of $116,751, an increase in promotional
expenses of $17,454, and an increase in web related expenses of $22,201.
General and Administrative Expenses - General and administrative expenses
increased by $114,208 or 207.61% to $169,220 for the nine months ended December
31, 2004 from $55,012 for the corresponding period of the prior year. This
increase is primarily attributable to an increase in legal and accounting fees
of $114,424, and an increase in other general and administrative expenses of
$1,309, which was partially offset by a decrease in depreciation and
amortization of $1,525.
Salaries and Benefits - Salaries and benefits for the nine months ended December
31, 2004 were $54,811, a decrease of $9,189 or 14.36% from the $64,000 for the
corresponding period of the prior year. This decrease is due to having fewer
employees during the nine months ended December 31, 2004.
Interest Expense - Interest expense increased by $2,899 or 5.99% to $51,282 for
the nine months ended December 31, 2004 from $48,383 for the corresponding
period of the prior year. This increase is attributable to having additional
debt outstanding for the nine months ended December 31, 2004.
Liquidity and Capital Resources
As of December 31, 2004, the Company had cash of $24,962 and a deficit in
working capital of $1,485,712. This compares with cash of $2,914 and a deficit
in working capital of $581,477 as of March 31, 2004.
Cash used in operations increased by $441,341 to $999,328 for the nine months
ended December 31, 2004 from $557,987 for the corresponding period of the prior
year. The increase is principally attributable to an increase in the net loss of
$597,564 which was partially offset by a net increase in the change in accounts
payable and deferred revenue of $111,176 and $31,094, respectively.
Cash used in investment activities for the nine months ended December 31, 2004
was $11,440 for the purchase of equipment. For the nine months ended December
31, 2003, the Company used $1,347 for the purchase of equipment.
Cash provided by financing activities for the nine months ended December 31,
2004 was $1,032,816, $301,929 from the sale of shares, and $799,000 from the
issuance of promissory notes. The Company used 65,000 to repay promissory notes
to affiliates and $3,113 to repay promissory notes to third parties. This
compares with $572,000 of cash being provided from financing activities during
the nine months ended December 31, 2003, all from issuance of promissory notes.
Historically, the Company has been funded by the sale of its shares and loans
from its Shareholders. However, the Company's continuation as a going concern is
dependent upon its ability to continue receiving investment capital and
obtaining loans to complete promotion of the Company's artists, continue
production of music and achieve a level of success that will enable it to
sustain its operations. No assurance can be given that the Company will be
successful in these efforts.
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ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures under the supervision of and with the participation of our Chief
Executive Officer ("CEO") and our Chief Financial Officer ("CFO"). Based on this
evaluation, our management, including our CFO and CEO, concluded that our
disclosure controls and procedures were effective, and that there have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the nine months ended December 31, 2004, the Company sold 603,856 shares
of its common stock for a net of $301,928. All of the proceeds have been used to
fund working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
14
ITEM 6. EXHIBITS
Number Description
------ -----------
10.1 Exclusive Artist Recording Agreement - Patrick Williams
10.2 Music Publishing Agreement - Patrick Williams
10.3 Personal Management Agreement - Patrick Williams
10.4 Personal Management Agreement - Alex Acosta
10.5 Personal Management Agreement - Justin Martin
10.6 Personal Management Agreement - Enrique Gonzalez
10.7 Music Publishing Agreement - Alex Acosta
10.8 Music Publishing Agreement - Justin Martin
10.9 Music Publishing Agreement - Enrique Gonzalez
10.10 Exclusive Artist Recording Agreement - Justin Martin
10.11 Exclusive Artist Recording Agreement - Enrique Gonzalez
10.12 Exclusive Artist Recording Agreement - Alex Acosta
10.13 Content License Agreement - Jamba!AG
10.14 License Agreement - NRJ Music
10.15 Personal Management Agreement - Patrick Williams
10.18*License Agreement - Cheyenne Records
10.19*License Agreement - NMC Music Ltd.
31.1**Certification of Chief Executive Officer of Skreem Entertainment
Corporation Required by Rule 13a-14(1) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2**Certification of Chief Financial Officer of Skreem Entertainment
Corporation Required by Rule 13a-14(1) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1**Certification of Chief Executive Officer of Skreem Entertainment
Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and Section 1350 Of 18 U.S.C. 63
32.2**Certification of Chief Financial Officer of Skreem Entertainment
Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and Section 1350 Of 18 U.S.C. 63
* Previously filed
** To be filed
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SKREEM ENTERTAINMENT CORPORATION
Date: March 22, 2005 By: /s/ Charles Camorata
----------------------------
Charles Camorata
Principal Executive Officer
Date: March 22, 2005 By: /s/ Karen Pollino
----------------------------
Karen Pollino
Chief Financial Officer
16