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| PDOS.OB > SEC Filings for PDOS.OB > Form 10-Q on 20-May-2009 | All Recent SEC Filings |
20-May-2009
Quarterly Report
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they:
·discuss our future expectations;
·contain projections of our future results of operations or of our financial condition; and ·state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."
GENERAL
We are a comics-based entertainment company. We own the rights to a library of over 5,600 of comic book characters, which we adapt and produce for film, television and all other media. Our library contains characters in a full range of genre and styles. With deals in place with film studios and media players, our management believes we are positioned to become a leader in the creation of new content across all media.
We are focused on adding titles and expanding our library with the primary goal of creating new franchise properties and characters. In addition to in-house development and further acquisitions, we are developing content with professionals outside the realm of comic books. We have teamed up with screenwriters, producers, directors, movie stars, and novelists to develop entertainment content and potential new franchise properties. We believe our core brand offers a broader range of storylines and genres than the traditional superhero-centric genre. Management believes this approach is maintained with Hollywood in mind, as the storylines offer the film industry fresh, high-concept brandable content as a complimentary alternative to traditional super hero storylines.
Over the next several years, we are working to become the leading independent comic book commercialization producer for the entertainment industry across all platforms including film, television, direct-to-home, publishing, and digital media, creating merchandising vehicles through all retail product lines. Our management believes this will allow us to maximize the potential and value of our owned content creator relationships and acquisitions, story development and character/franchise brand-building capabilities while keeping required capital investment relatively low.
Set forth below is a discussion of the financial condition and results of operations of Platinum Studios, Inc. (the "Company", "we", "us," and "our") for the three months ended March 31, 2009 and 2008. The following discussion should be read in conjunction with the information set forth in the consolidated financial statements and the related notes thereto appearing elsewhere in this report.
RESULTS OF CONSOLIDATED OPERATIONS - THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2008
NET REVENUE (UNAUDITED)
Net revenue for the three months ended March 31, 2009 was $71,186 compared to $179,382 for the three ended March 31, 2008. Currently the Company derives most of its revenue from options to purchase rights, the purchase of rights to properties and first look deals. This type of revenue can vary significantly between quarters and years. The revenues for the three months ended March 31, 2009 represented $37,425 in licensing revenue from one customer, $7,500 in option revenue from one customer and $24,571 in on-line advertising revenue compared to $100,000 in option fee revenue from one customer for the same three month period in 2008.
EXPENSES (UNAUDITED)
Cost of revenues
For the three months ended March 31, 2009 cost of revenues were $137,770 compared to $67,573 for the three ended March 31, 2008. The increase is primarily due to royalty fees accrued in the first quarter of 2009 for the production of the film "Dead of Night".
Operating expenses
Operating expenses decreased $526,968 or 49% for the three months ended March 31, 2009 to $555,660 as compared to $1,082,628 for the three months ended March 31, 2008. The decrease was primarily due to decreased payroll and contractor costs partially offset by additional overhead costs due to the addition of Wowio, LLC.
Research and development
Research and development costs decreased $174,631 or 82% for the three months ended March 31, 2009 to $37,922 as compared to $212,553 for the three months ended March 31, 2008. The decrease was necessary due to cash flow constraints.
Stock option expense for the three months ended March 31, 2009 was $100,947 compared to $3,376,692 for the same period in 2008. This expense was due to the granting of options as part of the employee incentive plan during the three months ended March 31, 2008. The majority of these options vested at the time of the grant, resulting in a significant non-cash expense for the first quarter of 2008. Expense for the three months ended March 31, 2009 represents additional vesting of options granted in 2008. No additional options were granted during the three months ended March 31, 2009.
Depreciation and amortization
For the three ended March 31, 2009 depreciation and amortization was $46,988 compared to $44,339 for the three months ended March 31, 2008.
Gain on settlement of debt
The company recorded a gain on settlement of debt of $512,610 for the three months ended March 31, 2009. This gain was primarily due to the final payment due Wowio former partners. This transaction was paid in stock.
As a result of the foregoing, the Company had a net loss of $379,438 for the three months ended March 31, 2009 compared to a net loss of $4,659,597 for the same period in 2008.
LIQUIDITY AND CAPITAL RESOURCES (UNAUDITED)
Net cash used in operations during the three months ended March 31, 2009 was $3,316,397, primarily due to the production of the film "Dead of Night".
Net cash used by investing activities was $4,918,156 for the three months ended March 31, 2009.
Net cash provided by financing activities was $8,200,366 for the three months ended March 31, 2009, primarily attributed to financing secured for the production of the film "Dead of Night".
At March 31, 2009 the Company had cash balances of $7,836 and restricted cash balances of $2,596,721. Restricted cash will be used in the production of the film "Dead of Night". The Company will issue additional equity and may consider debt financing to fund future growth opportunities and support operations. Although the Company believes its unique intellectual content offers the opportunity for significantly improved operating results in future quarters, no assurance can be given that the Company will operate on a profitable basis in 2009, or ever, as such performance is subject to numerous variables and uncertainties, many of which are out of the Company's control.
We conduct our operations in primary functional currencies: the United States dollar, the British pound and the Australian dollar. Historically, neither fluctuations in foreign exchange rates nor changes in foreign economic conditions have had a significant impact on our financial condition or results of operations. We currently do not hedge any of our foreign currency exposures and are therefore subject to the risk of exchange rate fluctuations. We invoice our international customers primarily in U.S. dollars, except in the United Kingdom and Australia, where we invoice our customers primarily in British pounds and Australian dollars, respectively. In the future we anticipate billing certain European customers in Euros, though we have not done so to date.
We are exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation and as our foreign currency consumer receipts are converted into U.S. dollars. Our exposure to foreign exchange rate fluctuations also arises from payables and receivables to and from our foreign subsidiaries, vendors and customers. Foreign exchange rate fluctuations did not have a material impact on our financial results in the three months ended March 31, 2008 or in the years ended December 31, 2007, 2006 and 2005.
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. We place our cash and cash equivalents with high credit quality institutions to limit credit exposure. We believe no significant concentration of credit risk exists with respect to these investments.
Concentrations of credit risk with respect to trade accounts receivable are limited due to the wide variety of customers who are dispersed across many geographic regions.
GOING CONCERN
The accompanying financial statements have 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 has incurred significant losses which have resulted in an accumulated deficit of $21,089,516 as of March 31, 2009. The Company plans to seek additional financing in order to execute its business plan, but there is no assurance the Company will be able to obtain such financing on terms favorable to the Company or at all. These items raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects related to recovery and classification of assets, or the amounts and classifications of liabilities that might result from the outcome of this uncertainty.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.
REVENUE RECOGNITION. Revenue from the licensing of characters and storylines ("the properties") owned by the Company are recognized in accordance with guidance provided in Securities and Exchange Commission Staff Accounting Bulletin No. 104 "Revenue Recognition" (an amendment of Staff Accounting Bulletin No. 101 "Revenue Recognition") ("SAB 104"). Under the SAB 104 guidelines, revenue is recognized when the earnings process is complete. This is considered to have occurred when persuasive evidence of an agreement between the customer and the Company exists, when the properties are made available to the licensee and the Company has satisfied its obligations under the agreement, when the fee is fixed or determinable and when collection is reasonably assured. The Company derives its licensing revenue primarily from options to purchase rights, the purchase of rights to properties and first look deals. For option agreements and first look deals that contain non-refundable payment obligations to us, we recognize such non-refundable payments as revenue at the inception of the agreement and receipt of payment, prior to the collection of any additional amounts due, provided all the criteria for revenue recognition under SAB 104 have been met. First look deals that have contingent components are deferred and recognized at the later of the expiration of the first look period or in accordance with the terms of the first look contract. For licenses requiring material continuing involvement or performance based obligations, by the Company, the revenue is recognized as and when such obligations are fulfilled. The Company records as deferred revenue any licensing fees collected in advance of obligations being fulfilled or if a licensee is not sufficiently creditworthy, the Company will record deferred revenue until payments are received. License agreements typically include reversion rights which allow the Company to repurchase property rights which have not been used by the studio (the buyer) in production within a specified period of time as defined in the purchase agreement. The cost to repurchase the rights is generally based on the costs incurred by the studio to further develop the characters and story lines.
CHARACTER DEVELOPMENT COSTS. Character development costs consist primarily of costs to acquire properties from the creator, development of the property using internal or independent writers and artists, and the registration of a property for a trademark or copyright. These costs are capitalized in the year incurred if the Company has executed a contract or is negotiating a revenue generating opportunity for the property. If the property derives a revenue stream that is estimable, the capitalized costs associated with the property are expensed as revenue is recognized. If the Company determines there is no determinable market for a property, it is deemed impaired and is written off.
On June 12, 2008, the Company received a valuation of its intellectual property which consists of a library of comic characters. The valuation provides that the fair market value of a 100% equity interest in the intellectual property held and controlled by the Company under a going-concern premise is $150,038,000. The valuation was conducted by Sanli Pastore & Hill, Inc. ("SP&H") at the request of the Company. In performing the valuation SP&H used the American Society of Appraisers definition of fair market value.
ADVERTISING COSTS. Advertising costs are expensed the later of when incurred or when the advertisement is first run. For the three months ended March 31, 2009 advertising expenses were $0. For the three ended March 31, 2008 advertising expenses were $42,189.
RESEARCH AND DEVELOPMENT. Research and development costs, primarily character development costs and design not associated with an identifiable revenue opportunity, are charged to operations as incurred. For the three months ended March 31, 2009 research and development expenses were $37,922. For the three and nine months ended March 31, 2008 research and development expenses were $212,553.
INCOME TAXES. From inception thru September 14, 2006 the Company operated as a limited liability company and elected to be taxed similar to a partnership. Accordingly, each member was responsible for reporting its respective share of the Company's net income or loss for Federal and California income tax purposes and the Company did not pay Federal income tax. From September 15, 2006 forward the Company has accounted for income taxes using the liability method, whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company was subject to an annual minimum tax of $800 and a fee based on gross receipts in California from inception through September 14, 2006.
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