Camelot 10QSB 03-31-2007
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x QUARTERLY
REPORT
UNDER SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended March 31, 2007
OR
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the
transition period from to
Commission
file number 000-30785
CAMELOT
ENTERTAINMENT GROUP, INC.
(Exact
name of registrant as specified in its charter)
Delaware
52-2195605
(State
or other jurisdiction of (I.R.S. Employer
incorporation
or organization) Identification No.)
2020
Main
Street #990
Irvine,
CA 92614
(Address
of principal executive offices (zip code))
(949)
777-1090
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last
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
o
As
of
March 31, 2007, the Registrant had outstanding 111,655,743 shares of Common
Stock, $0.001 par value.
CAMELOT
ENTERTAINMENT GROUP, INC.
INDEX
TO FORM 10-QSB
|
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
Item
1. Financial Statements (Unaudited)
|
4
|
|
|
Balance
Sheets as of March 31, 2007
|
4
|
|
|
Statements
of Operation for the three months ended March 31, 2007 and
2006
|
4
|
|
|
Statements
of Changes in Stockholders’ Equity (Deficit)for the three months ended
March 31, 2007
|
6
-
7
|
|
|
Statements
of Cash Flows for the three months ended, March 31, 2007 and
2006
|
8
|
|
|
Notes
to Financial Statements
|
9
-
11
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
12
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
18
|
|
|
Item
4. Controls and Procedures
|
18
|
|
|
PART
II. OTHER INFORMATION
|
19
|
|
|
Item
1. Legal Proceedings
|
|
|
|
Item
2. Changes in Securities and Use of Proceeds
|
|
|
|
Item
3. Defaults Upon Senior Securities
|
|
|
|
Item
4. Submissions of Matters to a Vote of Security Holders
|
|
|
|
Item
5. Other Information
|
|
|
|
Item
6. Exhibits and Reports on Form 8-K
|
|
|
|
Signatures:
|
20
|
|
|
THIS
REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND WITHIN THE MEANING
OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE
SUBJECT TO THE "SAFE HARBOR" CREATED BY THOSE SECTIONS. THESE FORWARD-LOOKING
STATEMENTS INCLUDE BUT ARE NOT LIMITED TO STATEMENTS CONCERNING OUR BUSINESS
OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY, REVENUES,
EXPENSES OR OTHER FINANCIAL ITEMS; AND STATEMENTS CONCERNING ASSUMPTIONS MADE
OR
EXCEPTIONS AS TO ANY FUTURE EVENTS, CONDITIONS, PERFORMANCE OR OTHER MATTERS
WHICH ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE FEDERAL
SECURITIES LAWS. ALL STATEMENTS, OTHER THAN HISTORICAL FINANCIAL INFORMATION,
MAY BE MARKET TO BE FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVES", "PLANS",
"ANTICIPATES", "EXPECTS", AND SIMILAR EXPRESSIONS HEREIN ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO
RISKS, UNCERTAINTIES, AND OTHER FACTORS, WHICH WOULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. FORWARD-LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "FACTORS THAT
MAY
AFFECT FUTURE RESULTS," AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED
IN
THE COMPANY'S OTHER SEC FILINGS.
PART
I. FINANCIAL INFORMATION
Item
1.
Financial Statements (Unaudited)
Camelot
Entertainment Group, Inc.
|
Balance
Sheets
Unaudited
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
Cash
|
|
$
|
819
|
|
$
|
435,533
|
|
Prepaid
Expenses
|
|
|
6,424
|
|
|
6,424
|
|
Total
Current Assets
|
|
|
7,243
|
|
|
441,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Financing Costs
|
|
|
68,974
|
|
|
74,744
|
|
Loan
Receivable
|
|
|
17,500
|
|
|
17,500
|
|
Scripts
Costs
|
|
|
79,700
|
|
|
75,800
|
|
Deposit
for potential business acquistion
|
|
|
50,000
|
|
|
10,000
|
|
Total
other assets
|
|
|
216,174
|
|
|
178,044
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
223,417
|
|
|
620,001
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY(DEFICT)
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
Payable and accured liabilities
|
|
$
|
299,844
|
|
$
|
140,625
|
|
Note
Payable - Scorpion Bay, LLC
|
|
|
250,000
|
|
|
250,000
|
|
Stockholder
advances
|
|
|
34,223
|
|
|
186,000
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
584,067
|
|
|
576,625
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities
|
|
|
|
|
|
|
|
Secured
Note Payable - NIR Fairhill, net of unamortized discount of
$564,169
|
|
|
35,831
|
|
|
1,521
|
|
Derivative
Liability - Compound
|
|
|
521,293
|
|
|
538,890
|
|
Derivative
Liability - Warrant
|
|
|
931,241
|
|
|
698,390
|
|
Total
Long Term Liabilities
|
|
|
1,488,365
|
|
|
1,238,801
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
2,072,432
|
|
|
1,815,426
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock; Par Value $.001 Per Share; Authorized 150,000,000
Shares;
144,655,743
Shares Issued and 111,655,743 Outstanding.
|
|
|
111,656
|
|
|
106,656
|
|
|
|
|
|
|
|
|
|
Class
A Convertible Preferred Stock; Par Value $.01 per share Authorized,
issued
and outstanding 5,100,000 shares
|
|
|
5,100
|
|
|
5,100
|
|
|
|
|
|
|
|
|
|
Class
B Convertible Preferred Stock; Par Value $.01 per share Authorized,
issued
and outstanding 5,100,000 shares
|
|
|
5,100
|
|
|
5,100
|
|
|
|
|
|
|
|
|
|
Subscription
Receivable
|
|
|
(758,072
|
)
|
|
(258,072
|
)
|
|
|
|
|
|
|
|
|
Capital
in Excess of Par Value
|
|
|
13,615,236
|
|
|
13,119,002
|
|
Deficit
Accumulated During the Development Stage
|
|
|
(14,828,035
|
)
|
|
(14,173,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
(1,849,015
|
)
|
|
(1,195,425
|
)
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
223,417
|
|
$
|
620,001
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integal part of theses financial
statements.
|
Camelot
Entertainment Group, Inc.
|
Statements
of Operations
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
Inception
on
|
|
|
|
|
|
|
|
|
|
|
April
21, 1999
|
|
|
|
For
the Quarter Ended,
|
|
through
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
$
|
-
|
|
$
|
58,568
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Costs
of services
|
|
|
|
|
|
|
|
|
95,700
|
|
Sales
and Marketing
|
|
|
|
|
|
|
|
|
53,959
|
|
Research
& Development
|
|
|
|
|
|
|
|
|
252,550
|
|
General
& Administrative
|
|
|
386,420
|
|
|
190,762
|
|
|
10,533,893
|
|
Impairment
of assets
|
|
|
|
|
|
|
|
|
2,402,338
|
|
Impairment
of investments in
|
|
|
|
|
|
|
|
|
|
|
other
companies
|
|
|
|
|
|
|
|
|
710,868
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Expenses
|
|
|
386,420
|
|
|
190,762
|
|
|
14,049,308
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
OPERATING LOSS
|
|
|
(386,420
|
)
|
|
(190,762
|
)
|
|
(13,990,740
|
) |
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
(53,150
|
)
|
|
-
|
|
|
(885,369
|
) |
Gain
(loss) on derivative liability
|
|
|
(215,254
|
)
|
|
-
|
|
|
(207,426
|
) |
Gain
on extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
255,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expenses)
|
|
|
(268,404
|
)
|
|
-
|
|
|
(837,295
|
) |
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(654,824
|
)
|
|
(90,762
|
)
|
$
|
(14,828,035
|
) |
|
|
|
|
|
|
|
|
|
|
|
BASIC
LOSS PER COMMON SHARE
|
|
|
(0.0060
|
)
|
|
(0.00
|
)
|
$
|
(0.29
|
) |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING
|
|
|
107,433,521
|
|
|
93,649,589
|
|
|
50,135,678
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
Camelot
Entertainment Group, Inc.
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
Preferred
Stock
|
|
Additional
|
|
|
During
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Development
|
|
|
Subscription
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Receivable
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
|
33,856,433
|
|
|
33,857
|
|
|
-
|
|
|
-
|
|
|
5,464,539
|
|
|
(6,059,442
|
)
|
|
-
|
|
|
(561,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
|
100,000
|
|
|
100
|
|
|
|
|
|
|
|
|
2,900
|
|
|
|
|
|
|
|
|
3,000
|
|
Shares
issued for financing
|
|
|
6,791,287
|
|
|
6,791
|
|
|
|
|
|
|
|
|
196,948
|
|
|
|
|
|
|
|
|
203,739
|
|
Subscriptions
receivable for financing agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116,069
|
)
|
|
(116,069
|
)
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131,681
|
)
|
|
|
|
|
(131,681
|
)
|
Balance
at March 31, 2004
|
|
|
40,747,720
|
|
$
|
40,748
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,664,387
|
|
|
(6,191,123.00
|
)
|
|
($116,069
|
)
|
$
|
(602,057
|
)
|
Share
issued for services
|
|
|
24,009,000
|
|
|
24,009
|
|
|
|
|
|
|
|
|
1,085,500
|
|
|
|
|
|
|
|
|
1,109,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
issued for financing
|
|
|
7,604,562
|
|
|
7,605
|
|
|
|
|
|
|
|
|
221,460
|
|
|
|
|
|
(316,003
|
)
|
|
(86,938
|
)
|
Advances
offset sub a/r
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,000
|
|
|
174,000
|
|
Shares
issued for debt
|
|
|
1,000,000
|
|
|
1,000
|
|
|
|
|
|
|
|
|
39,000
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for amt due
|
|
|
1,589,927
|
|
|
1,590
|
|
|
|
|
|
|
|
|
47,000
|
|
|
|
|
|
|
|
|
48,590
|
|
Value
of option exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351,000
|
|
|
|
|
|
|
|
|
351,000
|
|
Net
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,161,756
|
)
|
|
|
|
|
(1,161,756
|
)
|
Balance
as of December 31, 2004
|
|
|
74,951,209
|
|
|
74952
|
|
|
-
|
|
|
-
|
|
|
7408347
|
|
|
(7,324,719
|
)
|
|
(258,072
|
)
|
|
(99,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) 1st quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,096
|
)
|
|
|
|
|
(117,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2005
|
|
|
74,951,209
|
|
|
74,952
|
|
$
|
-
|
|
$
|
-
|
|
|
7,408,347
|
|
|
(7,441,815
|
)
|
|
(258,072
|
)
|
|
(216,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
4,000,000
|
|
|
4,000
|
|
|
|
|
|
|
|
|
216,000
|
|
|
|
|
|
|
|
|
220,000
|
|
consulting
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
2,276,033
|
|
|
2,276
|
|
|
|
|
|
|
|
|
187,568
|
|
|
|
|
|
|
|
|
189,844
|
|
officers
salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to
|
|
|
1,848,723
|
|
|
1,849
|
|
|
|
|
|
|
|
|
79,078
|
|
|
|
|
|
|
|
|
80,927
|
|
Eagle
for expenses paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(486,174
|
)
|
|
|
|
|
(486,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2005
|
|
|
83,075,965
|
|
|
83,076
|
|
|
-
|
|
|
-
|
|
|
7,890,993
|
|
|
(7,927,989
|
)
|
|
(258,072
|
)
|
|
(211,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(127,024
|
)
|
|
|
|
$
|
(127,024
|
)
|
Balance
at Sept 30, 2005
|
|
|
83,075,965
|
|
|
83,076
|
|
|
-
|
|
|
-
|
|
|
7,890,993
|
|
$
|
(8,055,013
|
)
|
|
($258,072
|
)
|
|
(339,015
|
)
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY - continued
Balance
at Sept 30, 2005
|
|
|
83,075,965
|
|
|
83,076
|
|
|
-
|
|
|
-
|
|
|
7,890,993
|
|
$
|
(8,055,013
|
)
|
|
($258,072
|
)
|
|
(339,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
233,547
|
|
|
233
|
|
|
|
|
|
|
|
|
9,767
|
|
|
|
|
|
|
|
|
10,000
|
|
consulting
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
3,538,263
|
|
|
3,538
|
|
|
|
|
|
|
|
|
171,462
|
|
|
|
|
|
|
|
|
175,000
|
|
officers
salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to
|
|
|
1,452,662
|
|
|
1,453
|
|
|
|
|
|
|
|
|
118,219
|
|
|
|
|
|
|
|
|
119,672
|
|
Eagle
for expenses paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to Eagle
|
|
|
1,762,271
|
|
|
1,762
|
|
|
|
|
|
|
|
|
120,991
|
|
|
|
|
|
|
|
|
122,753
|
|
20%
of shares issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
3,586,881
|
|
|
3,587
|
|
|
|
|
|
|
|
|
256,354
|
|
|
|
|
|
|
|
|
259,941
|
|
Shareholder
loans 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,769,845
|
)
|
|
|
|
$
|
(3,769,845
|
)
|
Class
A Preferred Stock issued
|
|
|
|
|
|
|
|
|
5,100,000
|
|
|
5,100
|
|
|
555,900
|
|
|
|
|
|
|
|
|
561,000
|
|
Class
B Preferred Stock issued
|
|
|
|
|
|
|
|
|
5,100,000
|
|
|
5,100
|
|
|
2,799,900
|
|
|
|
|
|
|
|
|
2,805,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at Dec 31, 2005
|
|
|
93,649,589
|
|
|
93,649
|
|
|
10,200,000
|
|
|
10,200
|
|
|
11,923,586
|
|
|
(11,824,860
|
)
|
|
(258,072
|
)
|
|
(55,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for
|
|
|
5,191,538
|
|
|
5,192
|
|
|
|
|
|
|
|
|
464,808
|
|
|
|
|
|
|
|
|
470,000
|
|
officers
salaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to Consultants
|
|
|
2,009,787
|
|
|
2,010
|
|
|
|
|
|
|
|
|
179,078
|
|
|
|
|
|
|
|
|
181,088
|
|
Shares
issued to Eagle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
expenses paid
|
|
|
1,201,329
|
|
|
1,201
|
|
|
|
|
|
|
|
|
113,120
|
|
|
|
|
|
|
|
|
114,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to Eagle
|
|
|
1,270,772
|
|
|
1,271
|
|
|
|
|
|
|
|
|
116,911
|
|
|
|
|
|
|
|
|
118,182
|
|
Shareholder
loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued to Eagle
|
|
|
1,832,728
|
|
|
1,833
|
|
|
|
|
|
|
|
|
168,611
|
|
|
|
|
|
|
|
|
170,444
|
|
per
agreement 20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,348,351
|
)
|
|
|
|
|
(2,348,351
|
)
|
Shares
issued to Scorpion Bay
|
|
|
1,500,000
|
|
|
1,500
|
|
|
|
|
|
|
|
|
133,650
|
|
|
|
|
|
|
|
|
135,150
|
|
Imputed
interest on shareholder loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,238
|
|
|
|
|
|
|
|
|
19,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at Dec 31, 2006
|
|
|
106,655,743
|
|
|
106,656
|
|
|
10,200,000
|
|
|
10,200
|
|
|
13,119,002
|
|
|
(14,173,211
|
)
|
|
(258,072
|
)
|
|
(1,195,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for advance on financing arrangement
|
|
|
5,000,000
|
|
|
5,000
|
|
|
|
|
|
|
|
|
495,000
|
|
|
|
|
|
(500,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed
interest on shareholder loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
1,234
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(654,824
|
)
|
|
|
|
|
(654,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007
|
|
|
111,655,743
|
|
|
111,656
|
|
|
10,200,000
|
|
|
10,200
|
|
|
13,615,236
|
|
|
(14,,828,035
|
)
|
|
(758,072
|
)
|
|
(1,849,015
|
)
|
The
accompanying notes are an integral part of these financial
statements.
Camelot
Entertainment Group, Inc.
|
Statement
of Cash Flows
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
Inception
on
|
|
|
|
|
|
|
|
|
|
|
April
21, 1999
|
|
|
|
For
the Quarter ended
|
|
through
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income for the period
|
|
$
|
(654,824
|
)
|
$
|
(190,762
|
)
|
$
|
(14,828,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net (loss) to cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred financing cost
|
|
|
5,770
|
|
|
-
|
|
|
6,026
|
|
Amortization
of discount associated with notes payable
|
|
|
34,310
|
|
|
-
|
|
|
35,831
|
|
Imputed
interest on shareholder loan
|
|
|
1,234
|
|
|
-
|
|
|
20,472
|
|
Loss
on derivative liability
|
|
|
232,851
|
|
|
-
|
|
|
899,612
|
|
Gain
on derivative liability
|
|
|
(17,597
|
)
|
|
-
|
|
|
(47,077
|
)
|
Common
stock issued for interest expense
|
|
|
-
|
|
|
-
|
|
|
135,150
|
|
Common
stock issued per dilution agreement
|
|
|
-
|
|
|
-
|
|
|
368,508
|
|
Value
of options expensed
|
|
|
-
|
|
|
-
|
|
|
351,000
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
(255,500
|
)
|
Depreciation
|
|
|
|
|
|
|
|
|
3,997
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
-
|
|
|
1,538,927
|
|
Common
Stock issued for services
|
|
|
-
|
|
|
-
|
|
|
2,533,935
|
|
Common
Stock issued for expense reimbursement
|
|
|
-
|
|
|
|
|
|
22,000
|
|
Common
Stock issued for technology
|
|
|
|
|
|
|
|
|
19,167
|
|
Impairment
of investments in other companies
|
|
|
-
|
|
|
|
|
|
710,868
|
|
Impairment
of assets
|
|
|
|
|
|
|
|
|
2,628,360
|
|
Prepaid
services expensed
|
|
|
-
|
|
|
1,200
|
|
|
530,000
|
|
Expenses
paid through notes payable proceeds
|
|
|
-
|
|
|
-
|
|
|
66,489
|
|
Loss
on disposal of property and equipment
|
|
|
|
|
|
|
|
|
5,854
|
|
Preferred
Stock issued to shareholder
|
|
|
-
|
|
|
-
|
|
|
3,366,000
|
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
(increase)
decrease in other current assets
|
|
|
-
|
|
|
-
|
|
|
(24,358
|
)
|
Increase
(decrease) in accounts payable & other a/p
|
|
|
159,219
|
|
|
98,832
|
|
|
506,985
|
|
Increase
(decrease) in due to officers
|
|
|
|
|
|
|
|
|
|
|
Net
Cash provided (used) by operating activities
|
|
$ |
(239,037
|
)
|
$ |
(90,730
|
)
|
$ |
(1,405,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
|
|
|
|
|
|
(6,689
|
)
|
Purchase
of assets-Script Costs/business deposits
|
|
|
(43,900
|
)
|
|
(5,000
|
)
|
|
(129,700
|
)
|
Cash
provided (used) from investing activities
|
|
$ |
(43,900
|
)
|
$ |
(5,000
|
)
|
$ |
(136,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
|
|
|
|
|
|
25,500
|
|
Borrowings
on related party debt
|
|
|
32,144
|
|
|
92,962
|
|
|
1,048,757
|
|
Payments
on related party debt
|
|
|
(183,921
|
)
|
|
-
|
|
|
(308,921
|
)
|
Borrowings
on debt
|
|
|
-
|
|
|
-
|
|
|
855,998
|
|
Deferred
financing cost
|
|
|
-
|
|
|
-
|
|
|
(75,000
|
)
|
Principal
payments on long term debt
|
|
|
-
|
|
|
-
|
|
|
(4,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided (used) in financing activities
|
|
$ |
(151,777
|
)
|
$ |
92,962
|
|
$ |
1,541,857
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash
|
|
$ |
(434,714
|
)
|
$ |
(2,768
|
)
|
$ |
(321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
$ |
435,533
|
|
$ |
3,023
|
|
$ |
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at the end of the period
|
|
$
|
819
|
|
$ |
255
|
|
$ |
819
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financial activities:
|
|
|
|
|
|
|
|
|
|
|
Creation
of debt discount
|
|
|
-
|
|
|
-
|
|
$
|
600,000
|
|
Stock
issued for related party debt
|
|
|
-
|
|
|
-
|
|
$
|
232,503
|
|
Stock
issued in advance of financing arrangement
|
|
$
|
500,000
|
|
|
-
|
|
$
|
500,000
|
|
The
accompanying notes are an integral part of these
financial statements.
CAMELOT
ENTERTAINMENT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED, MARCH 31,
2007
1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Organization:
Camelot
Entertainment Group, Inc, a Delaware Corporation, which develops, produces,
markets and distributes motion pictures, was originally incorporated with
the
intention of providing services and resources to entrepreneurs looking to
launch
novel products and ventures worldwide in exchange for an interest in the
startup
ventures. Camelot’s activities since inception have consisted of raising
capital, recruiting a management team and entering into ventures and alliances
with affiliates. The Company has substantially relied on issuing stock to
officers, directors, professional service providers and other parties in
exchange for services and technology. As of December 31, 2002 the Company
had
written-off all of its investments due to impairments in the carrying value
of
the assets.
Basis
of Presentation:
Management
has determined that the Company is considered to be a development stage
enterprise as defined in Statement of Financial Accounting Standards No. 7,
“Accounting and Reporting by Development Stage Enterprises.” Consequently,
Camelot has presented these financial statements in accordance with that
Statement, including losses incurred from April 21, 1999 (Inception) to March
31, 2007.
The
accompanying unaudited financial statements as of March 31, 2007 and for
the
three months ended March 31, 2007 and 2006, respectively, have been prepared
in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for audited
financial statements. In the opinion of Camelot’s management, the interim
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. The footnote disclosures related to the interim financial information
included herein are also unaudited. Such financial information should be
read in
conjunction with the consolidated financial statements and related notes
thereto
as of December 31, 2006 and for the year then ended included in Camelot’s annual
report on Form 10-KSB/A for the fiscal year ended December 31, 2006,
amended
as of May 11,2007.
Recently
Issued Accounting Standards
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments - An Amendment of FASB Statements No. 133 and 140.” SFAS
No. 155 simplifies the accounting for certain hybrid financial instruments,
eliminates the interim FASB guidance which provides that beneficial interests in
securitized financial assets are not subject to the provisions of SFAS No.
133,
“Accounting for Derivative Instruments and Hedging Activities,” and eliminates
the restriction on the passive derivative instruments that a qualifying
special-purpose entity may hold. Effective January 1, 2007, we adopted the
provisions of SFAS No. 155 prospectively for all financial instruments acquired
or issued on or after January 1, 2007. Adoption of this statement will not
have
a significant effect on our consolidated results of operations, financial
position or cash flows.
CAMELOT
ENTERTAINMENT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED, MARCH 31,
2007
2.
GOING CONCERN
The
accompanying financial statements have been prepared assuming that Camelot
will
continue as a going concern. Camelot has had minimal revenues, has experienced
an accumulated deficit of $14,828,035 and has a stockholders’ deficit. These
conditions, the loss of financial support from affiliates, and the failure
to
secure a successful source of additional financial resources raise substantial
doubt about the Company’s ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the classification of liabilities that may result from the outcome of this
uncertainty.
Management’s
plans with respect to the current situation consist of restructuring its
debt
and seeking additional financial resources from its existing investors or
others. However, instability in the stock price may make it difficult to
find
parties willing to accept restricted shares of common stock in exchange for
services required to execute its business plan. There is no assurance that
such
resources would be made available to Camelot, or that they would be on
financially viable terms
3.
COMMITMENTS AND CONTINGENCIES
During
the quarter ended March 31, 2007, the Camelot recorded $32,144 in advances
by an
affiliate on behalf of Camelot, compared to $92,962 for quarter ended March
31,
2006. The affiliate has not received any shares of common stock for repayment
of
expense advances on behalf of Camelot.
4.
NOTES
PAYABLE
On
December 27, 2006, Camelot issued a callable secured convertible note payable
for $600,000 to various holders. The note payable provided for annual interest
at 8%, was secured by all of the assets of the Company, and matured on April
27,
2009. The principle and accrued interest of the note is convertible into
Camelot’s common stock at a variable conversion price, which is 50% of the
average market price of the common stock of the lowest three trading days
prior
to the date of conversion. In addition, these notes have registration rights
agreements, which call for liquidated damages in the event an effective
registration statement is not filed within a timely basis. In addition, the
holders of these notes were issued 7-year warrants to purchase 10,582,609
common
shares at an exercise price of $0.15 per share.
Of
the
proceeds of $600,000 Camelot recognized $75,000 in deferred financing costs
related to cost of securing the debt. The deferred financing cost will be
amortized over the life of the notes payable. $5,770 and $256 of the deferred
financing cost was amortized as of March 31, 2007 and December 31, 2006,
respectively, and included in interest expense.
Camelot
evaluated the convertible notes and warrants under Statement of Financial
Accounting Standards No. 133, “Accounting for Derivative Instruments” and
Emerging Issues Task Force 00-19 and determined that the Convertible notes
contained compound embedded derivative liabilities. The warrants were also
determined to be liabilities under SFAS 133 and EITF 00-19. Camelot determined
that the compound embedded conversion features required bi furcating from the
note instrument and required an estimate of its fair market value. Camelot
hired
an independent valuation expert to determine the fair market value of both
the
compound embedded derivative and the warrants. The fair market value of the
compound embedded derivative was estimated using a lattice model incorporating
weighted average probability cash flow. The fair market value of the warrants
was estimated using Black Scholes with the major assumptions of (1) calculated
volatility of 150%; (2) expected term of 7 years; (3) risk free rate of 4.64%
and (4) expected dividends of zero.
CAMELOT
ENTERTAINMENT GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED, MARCH 31,
2007
4.
NOTES
PAYABLE - continued
At
March
31, 2007, Camelot estimated the fair value of the derivative liabilities
to be a
total of $1,452,534 resulting in a loss on derivative liability presented
in the
statement of operations of $215,254. In addition, Camelot amortized $34,310
of
the discount on the note payable and this amount is included in interest
expense.
In
November 2006, Camelot issued note payable to Scorpion Bay LLC for $250,000,
which matured on March 22, 2007. This note is in default and is recorded
at its
full face value at December 31, 2006. In connection with this note, Camelot
issued 1,500,000 of common stock with a market value of $135,150. As this
note has matured, this total amount was considered to be interest expense.
5. DUE
TO
OFFICERS
In
the
quarter ended March 31, 2007 Camelot had accrued $117.500 in compensation
to its
officers. Total due to officers as of March 31, 2007 was
$127,500.
6.
RELATED
PARTY
TRANSACTIONS
During
the quarters ended March 31, 2007 and 2006, Camelot entered into related party
transactions with Board members, officers and affiliated entities owned by
the
CEO of the Company. Camelot plans to issue shares of common stock for services
rendered, cash advances, and payment of expenses on Camelot’s behalf.
7.
COMMON STOCK
Camelot
issued 5,000,000 to Nucore Industries, Inc. on March 16, 2007, as a good
faith
non-refundable deposit for a potential financing to be funded by Nucore,
and it
has been presented as a subscription receivable at March 31, 2007.
As
a
result of our agreement with the affiliated company owned by the CEO of Camelot,
the affiliate receives 20% of the Company’s common stock on an
anti-dilutive basis in return for services and cash advances. The anti-dilutive
provisions are in force through March 28, 2008. In addition, the affiliate
has
the option to receive 2,000,000 cashless options to purchase common shares
at
$0.03 per share. For each one dollar ($1) increase in the price of the Company’s
stock, the affiliate shall be entitled to receive an additional two million
options throughout the term of the agreement between the affiliate and the
Company, which expires on March 28, 2008. In addition, the Company shall
have
the first right of refusal to purchase the options from the affiliate for
the
current market value once the affiliate notifies the Company that it intends
to
exercise the options. In the event the Company elects not to exercise this
first
right of refusal, and subject to applicable laws, the affiliate shall be
entitled to exercise the sale of shares or options immediately thereafter.
As of
March 31, 2007, the affiliate has not exercised its right to receive the
options
and therefore no options have been granted. The affiliate’s right to receive the
options and to exercise those options expires on March 28, 2008. No shares
were
issued during the quarter for this agreement.
8.
SUBSEQUENT EVENTS
On
April
30, 2007, Camelot increased the number of authorized shares from 150,000,000
to
300,000,000 shares of common stock and preferred shares from 15,000,000 to
30,000,000 shares.
On
May
11, 2007, Camelot filed a registration statement on Form
SB-2/A.
ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The
matters discussed in this report contain forward-looking statements within
the
meaning of Section 27A of the Securities Act of 1933, as amended, and within
the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which
are subject to the "safe harbor" created by those sections. These
forward-looking statements include but are not limited to statements concerning
our business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; and statements concerning
assumptions made or exceptions as to any future events, conditions, performance
or other matters which are "forward-looking statements" as that term is defined
under the Federal Securities Laws. All statements, other than historical
financial information, may be deemed to be forward-looking statements. The
words
"believes", "plans", "anticipates", "expects", and similar expressions herein
are intended to identify forward-looking statements. Forward-looking statements
are subject to risks, uncertainties, and other factors, which would cause actual
results to differ materially from those stated in such statements.
Forward-looking statements include, but are not limited to, those discussed
in
"Factors That May Affect Future Results," and elsewhere in this report, and
the
risks discussed in the Company's other SEC filings.
Critical
Accounting Estimates
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management
to
make certain 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. As such, in accordance with the use of
accounting principles generally accepted in the United States of America, our
actual realized results may differ from management’s initial estimates as
reported. A summary of our significant accounting policies is detailed in the
notes to the financial statements, which are an integral component of this
filing.
Management
evaluates the probability of the utilization of the deferred income tax asset
related to the net operating loss carry forwards. The Company has estimated
a
$2,450,000 deferred income tax asset related to net operating loss carry
forwards and other book/tax differences at March 31, 2007 to $5,510,000.
Management determined that because the Company has yet to generate taxable
income, and that the generation of taxable income in the short term is
uncertain, it was appropriate to provide a valuation allowance for the total
deferred income tax asset.
We
had
acquired certain technology and licenses. Prior to January 1, 2004, the Company
determined that the value of these acquired assets was impaired and has provided
an impairment allowance for the full purchase price of these assets. The
impairment amount charged to operations in prior years was
$3,113,206.
Critical
Accounting Policies
We
have
defined a critical accounting policy as one that is both important to the
portrayal of our financial condition and results of operations, and requires
the
management to make difficult, subjective or complex judgments. Estimates and
assumptions about future events and their effects cannot be perceived with
certainty. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments. These
estimates may change as new events occur, as more experience is acquired, as
additional information is obtained and as the Company's operating environment
changes.
We
have
identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations is discussed throughout
Management's Discussion and Analysis of Financial Condition and Results of
Operations, where such policies affect our reported and expected financial
results. In the ordinary course of business, we have made a number of estimates
and assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America. Actual
results could differ significantly from those estimates under different
assumptions and conditions. We believe that the following discussion addresses
our most critical accounting policies, which are those that are most important
to the portrayal of our financial condition and results of operations and
require our most difficult, subjective, and complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
continued
Accounting
for Motion Picture Costs
In
accordance with accounting principles generally accepted in the United States
and industry practice, we amortize the costs of production, including
capitalized interest and overhead, as well as participations and talent
residuals, for feature films using the individual-film-forecast method under
which such costs are amortized for each film in the ratio that revenue earned
in
the current period for such title bears to management’s estimate of the total
revenues to be realized from all media and markets for such title. All
exploitation costs, including advertising and marketing costs, are expensed
as
incurred. Theatrical print costs are amortized over the periods of theatrical
release of the respective territories.
Management
plans to regularly review, and revise when necessary, our total revenue
estimates on a title-by-title basis, which may result in a change in the rate
of
amortization and/or a write-down of the film asset to estimated fair value.
These revisions can result in significant quarter-to-quarter and year-to-year
fluctuations in film write-downs and amortization. A typical film recognizes
a
substantial portion of its ultimate revenues within the first two years of
release. By then, a film has been exploited in the domestic and international
theatrical markets and the domestic and international home video markets, as
well as the domestic and international pay television and pay-per-view markets.
A similar portion of the film’s capitalized costs should be expected to be
amortized accordingly, assuming the film or television program is profitable.
The
commercial potential of individual motion pictures varies dramatically, and
is
not directly correlated with production or acquisition costs. Therefore, it
is
difficult to predict or project a trend of our income or loss. However, the
likelihood that we would report losses, particularly in the year of a motion
picture’s release, is increased by the industry’s method of accounting, which
requires the immediate recognition of the entire loss (through increased
amortization) in instances where it is estimated the ultimate revenues of a
motion picture could not recover our capitalized costs. On the other hand,
the
profit of a profitable motion picture must be deferred and recognized over
the
entire revenue stream generated by that motion picture. This method of
accounting may also result in significant fluctuations in reported income or
loss, particularly on a quarterly basis, depending on our release schedule,
the
timing of advertising campaigns and the relative performance of individual
motion pictures.
Accounting
for Films
In
June
2000, the Accounting Standards Executive Committee of the American Institute
of
Certified Public Accountants issued Statement of Position 00-2 “Accounting by
Producers or Distributors of Films” (“SoP 00-2”). SoP 00-2 establishes new
accounting standards for producers or distributors of films, including changes
in revenue recognition, capitalization and amortization of costs of acquiring
films and accounting for exploitation costs, including advertising and marketing
expenses. We elected adoption of SoP 00-2 effective as of April 1, 2004.
The
principal changes as a result of applying SoP 00-2 are as follows:
Advertising
and marketing costs, which were previously capitalized to investment in films
on
the balance sheet and amortized using the individual film forecast method,
are
now expensed the first time the advertising takes place.
ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
continued
We
capitalize costs of production, including financing costs, to investment in
motion pictures. These costs are amortized to direct operating expenses in
accordance with SoP 00-2. These costs are stated at the lower of unamortized
motion picture costs or fair value (net present value). These costs for an
individual motion picture or television program are amortized in the proportion
that current period actual revenues bear to management’s estimates of the total
revenue expected to be received from such motion picture over a period not
to
exceed ten years from the date of delivery.
Management
plans to regularly review, and revise when necessary, its total revenue
estimates, which may result in a change in the rate of amortization and/or
write-down of all or a portion of the unamortized costs of the motion picture
to
its fair value. No assurance can be given that unfavorable changes to revenue
estimates will not occur, which may result in significant write-downs affecting
our results of operations and financial condition.
Capital
Structure
The
Company has adopted Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"), which requires
companies to disclose all relevant information regarding their capital
structure. The Company reached an agreement with Eagle Consulting Group, Inc.
on
March 28, 2003 to provide operational funding for the Company. In exchange
for
twenty percent (20%)of the Company’s outstanding common stock on an
anti-dilutive, continuing basis until the Company could secure additional
financing from another source, Eagle agreed to provide funding for the Company’s
annual audit, quarterly filings, accounts payable and other ongoing expenses
including office, phones, business development, legal and accounting fees.
Eagle
advances from January 1, 2007 to March 31 total $32,144. In accordance with
the
anti-dilutive provision, the amount of stock due Eagle is calculated on a
quarterly basis. This anti-dilution provision to the agreement could have a
material adverse effect on our shareholders as it might continue for a
substantial period of time and as a result the dilutive effect to the
shareholders cannot be fully determined until the funding from Eagle
ceases.
Going
Concern Uncertainties
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the
Company as a going concern. However, the Company has experienced recurring
operating losses and negative cash flows from operations.
The
Company's continued existence is dependent upon its ability to generate
operating revenues and/or obtain additional equity financing.
The
Company entered into an agreement with Eagle Consulting Group, Inc., a
Nevada
corporation ("Eagle"), to provide equity financing. Eagle has advanced
the
Company an amount of funds in the first quarter of 2007, and it appears
unlikely
that such funding should be enough to meet all of the Company's cash
requirements for the remaining quarters in 2007. However, the Company must
find
additional sources of financing in order to remain a going concern in the
future. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We
have incurred losses in each operating period since our inception on October
12,
1999. Operating losses may continue, which could adversely affect financial
results from operations and stockholder value, and there is a risk that
we may
never become profitable.
As
of March 31, 2007, we have an accumulated deficit of $14,828,035 all of
which
related to our previous activities as a business development organization,
Dstage.com, and none of which relate to our current activities as a motion
picture production, marketing and distribution entity. There can be no
assurance
that our management will be successful in managing the Company as a motion
picture production, distribution and marketing concern.
ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
continued
Derivative
Instruments
In
June
1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” as
amended by Statement of Financial Accounting Standards No. 137, “Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of Financial Accounting Standards Board No. 133,” and
by
Statement of Financial Accounting Standards No. 138, “Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an Amendment
of Financial Accounting Standards Board Statement No. 133,” which
is
effective for all quarters of fiscal years beginning after June 15, 2000.
This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. We adopted Statement of Financial
Accounting Standards No. 133 beginning January 1, 2004. The adoption of
Statement of Financial Accounting Standards No. 133 did materially impact
our
results of operations with our convertible notes payable entered into in
December 2006
Plan
of Operations
Overview
We
were
incorporated in Delaware on October 12, 1999. During May 2004 we changed our
name to Camelot Entertainment Group, Inc. and changed our business model from
pursuing a new approach to venture formation (the Dstage.com Model) to the
“Camelot Studio Model” (or “CSM”), which provides for the development,
production, marketing and distribution of motion pictures. The CSM attempts
to
combine the efficiencies realized by studios of the early 1900’s, with the
artistic focus and diversity of today’s independent productions. Using this
approach, we believe the risk-reward relationship facing the typical film
project can be dramatically shifted. For example, whereas a typical film pushes
artists and directors to rush development and production in hopes of conserving
cash, the CSM extends the pre-production cycle substantially to reduce costs
while simultaneously increasing quality. Similarly, whereas a low-budget picture
is severely limited by the types of postproduction technology used, due to
budget constraints, we intend to invest directly in top of the line technology,
spreading the costs over a targeted minimum of 12 original motion pictures
each
year. The goal of the CSM is to develop the ability to consistently produce
films with the look, feel and artistic content of multi-million dollar pictures,
for a fraction of the cost.
We
have
no history of operations as a film production and distribution company. Our
historical operations, as Dstage.com, Inc., consisted primarily of attempting
to
provide support, organization and restructuring services to other development
stage companies. We believe that due to the complete and drastic change in
our
business focus, period-to-period comparisons of our operating results are not
necessarily meaningful and should not be relied on as an indication of future
performance. However, it is still important that you review the audited
financial statements, the unaudited interim financial statements and the related
notes in addition to thoroughly reading our current plan of
operations.
Our
Financial Statements have been prepared on a going concern basis, which
contemplates the realization of assets and liabilities and commitments in the
normal course of business. In the near term, we expect operating costs to
continue to exceed funds generated from operations. As a result, we expect
to
continue to incur operating losses and we may not have sufficient funds to
grow
our business in the future. We can give no assurance that we will achieve
profitability or be capable of sustaining profitable operations. As a result,
operations in the near future are expected to continue to use working capital.
Our
current cash requirements are provided principally through our financing
agreement with Eagle Consulting Group, Inc. (“Eagle”). We entered into an
agreement with Eagle on March 28, 2003, to provide operational funding for
the
Company. In exchange for twenty percent (20%)of the Company’s outstanding common
stock on a non-dilutive, continuing basis until the Company can secure
additional financing from another source, Eagle has agreed to provide funding
for the Company’s annual audit, quarterly filings, accounts payable and other
ongoing expenses including office, phones, business development, legal and
accounting fees. For the first quarter of 2007, Eagle has advanced the Company
a
total, including interest, of $32,144, which with the financing received
in
December 2006, covered all of our operating expenses for
2007.
To
successfully grow the individual segments of our business, we must decrease
our
cash burn rate, improve our cash position and the revenue base of each segment,
and succeed in our ability to raise additional capital through a combination
of
primarily public or private equity offering or strategic alliances.
ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
continued
As
more
fully discussed below, we recently secured additional financing from 4 investors
for the purpose of funding our initial slate of pictures. It is our goal to
use
this funding to have between 10 and 12 motion pictures in various stages of
development or production within the next 12 months. In the event we are unable
to receive the entire funding, we may have to delay our slate until such time
as
the necessary funding is acquired.
Like
all
motion picture production companies, our revenues and results of operations
could be significantly dependent upon the timing of releases and the commercial
success of the motion pictures we distribute, none of which can be predicted
with certainty. Accordingly, our revenues and results of operations may
fluctuate significantly from period to period, and the results of any one period
may not be indicative of the results for any future periods. Similarly, the
efficiencies we aim to realize through our model may not materialize. Failure
of
the efficiencies to materialize, along with other risks germane to the picture
production, may cause us to produce fewer films than our plan calls for.
Recent
Financing
On
December 27, 2006, we entered into a Securities Purchase Agreement with AJW
Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and
New
Millennium Capital Partners II, LLC. Under the terms of the Securities Purchase
Agreement, the Investors purchased an aggregate of (i) $1,000,000 in Callable
Secured Convertible Notes (the “Notes”) and (ii) warrants to purchase 10,000,000
shares of our common stock (the “Warrants”).
Pursuant
to the Securities Purchase Agreement, the Investors will purchase the Notes
and
Warrants in two tranches as set forth below:
|
1.
|
At
closing on December 27, 2006 (“Closing”), the Investors purchased Notes
aggregating $600,000 and Warrants to purchase 10,000,000 shares of
CMEG
common stock;
|
|
2.
|
Upon
effectiveness of the Registration Statement, the Investors will purchase
Notes aggregating $400,000.
|
The
Notes
carry an interest rate of 8% per annum and a maturity date of December 27,
2009.
The notes are convertible into CMEG common shares at the applicable percentage
of the average of the lowest three (3) trading prices for CMEG shares of common
stock during the twenty (20) trading day period prior to conversion. The
“Applicable Percentage” means 50%; provided, however, that the Applicable
Percentage shall be increased to (i) 55% in the event that a Registration
Statement is filed within thirty (30) days of the closing.
At
our
option, we may prepay the Notes in the event that no event of default exists,
there are a sufficient number of shares available for conversion of the Notes
and the market price is at or below $.25 per share. In addition, in the event
that the average daily price of the common stock, as reported by the reporting
service, for each day of the month ending on any determination date is below
$.25, we may prepay a portion of the outstanding principal amount of the Notes
equal to 101% of the principal amount hereof divided by thirty-six (36) plus
one
month's interest. Exercise of this option will stay all conversions for the
following month. The full principal amount of the Notes is due upon default
under the terms of Notes. In addition, we have granted the Investors a security
interest in substantially all of our assets and intellectual property as well
as
registration rights.
RESULTS
OF OPERATIONS
General
Our
historical operations consisted primarily of attempting to provide support,
organization and restructuring services to other development stage companies.
Due to the complete and drastic change in our business focus, from seeking
to
aid development stage companies to our current focus of producing, distributing
and marketing original motion pictures, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and should
not be relied on as an indication of future performance. However, it is still
important that you read the discussion in connection with the audited financial
statements, the unaudited interim financial and the related notes included
elsewhere in this quarterly report.
ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
continued
QUARTER
ENDED MARCH 31, 2007, COMPARED TO QUARTER ENDED MARCH 31,
2006:
The
Company did not generate any revenue during the three months ended, March
31, 2007.
All
expenses incurred during the comparative periods were general and administrative
in nature.
The
Company has incurred $ 10,533,893 of general and administrative expenses
since
its inception. General and administrative expenses were $ 386,420 for
the three months ended March 31, 2007, respectively, compared to $190,762
for the three months ended March 31, 2006. Increase in expenses primarily
due to increase professional fees, rent, insurance and payroll
expenses.
The
general and general administrative expenses for the quarter were comprised
of
$127,500 of officers salaries and $175,622 of professional services and fees.
Other costs, $8,100 for marketing, seminars, telephone costs $2,912, rent
$22,418, payroll expenses $22,500, insurance costs $12,251 and $15,117 other
administrative costs These expenses were related to the pursuit of the Company’s
plan of operation to produce and distribute motion pictures.
Total
General and Administrative expenses of $386,420 are for the three months
ended March 31, 2006.
LIQUIDITY
AND CAPITAL RESOURCES
We
have
no history of operations as a film production and distribution company. We
believe that, due to the complete and drastic change in our business focus,
period-to-period comparisons of our operating results are not necessarily
meaningful and should not be relied on as an indication of future performance.
Our
current liquidity and capital resources are provided principally through our
financing agreement with Eagle Consulting Group, Inc. (“Eagle”). We entered into
an agreement with Eagle on March 28, 2003, to provide operational funding for
the Company. In exchange for twenty percent (20%)of the Company’s outstanding
common stock on a non-dilutive, continuing basis until the Company can secure
additional financing from another source, Eagle has agreed to provide funding
for the Company’s annual audit, quarterly filings, accounts payable and other
ongoing expenses including office, phones, business development, legal and
accounting fees. This quarter, Eagle has advanced the Company a total of
$32,144. The funding commitment from Eagle may not be able cover all of our
operating expenses for the remaining nine months of 2007.
Further,
we have prepared an SB-2 registration statement for the purpose of funding
our
initial slate of pictures. If the anticipated funding is successful, it is
our
goal to have between 10 and 12 motion pictures in various stages of development
or production within 12 months. In the event we are unable to complete the
funding, we could have to delay our slate until such time as the necessary
funding is acquired.
Like
all
motion picture production companies, our revenues and results of operations
could be significantly dependent upon the timing of releases and the commercial
success of the motion pictures we distribute, none of which can be predicted
with certainty. Accordingly, our revenues and results of operations may
fluctuate significantly from period to period, and the results of any one period
may not be indicative of the results for any future periods. Similarly, the
efficiencies we aim to realize through our model may not materialize. Failure
of
the efficiencies to materialize, along with other risks germane to the picture
production, may cause us to produce fewer films than our plan calls for.
ITEM
2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION -
continued
We
expect to have a need for Additional Financing
As
of
March 31, 2007, we had a working capital deficit of $576,824. Our history
of recurring losses from operations raises a substantial doubt about our ability
to continue as a going concern. There can be no assurance that we will have
adequate capital resources to fund planned operations or that any additional
funds will be available to us when needed, or if available, will be available
on
favorable terms or in amounts required by us. If we are unable to obtain
adequate capital resources to fund our motion picture operations, it may be
required to delay, scale back or eliminate some or all of our operations, which
may have a material adverse effect on our business, results of operations and
ability to operate as a going concern.
Our
business requires a substantial investment of capital. The production,
acquisition and distribution of motion pictures require a significant amount
of
capital. A significant amount of time may elapse between our expenditure of
funds and the receipt of commercial revenues from our motion pictures, if any.
This time lapse requires us to fund a significant portion of our capital
requirements from private parties, institutions, and other sources. Although
we
intend to reduce the risks of our production exposure through strict financial
guidelines and financial contributions from broadcasters, sub-distributors,
tax
shelters, government and industry programs and studios, we cannot assure you
that we will be able to implement successfully these arrangements or that we
will not be subject to substantial financial risks relating to the production,
acquisition, completion and release of future motion pictures. If we increase
our production slate or our production budgets, we may be required to increase
overhead, make larger up-front payments to talent and consequently bear greater
financial risks. Any of the foregoing could have a material adverse effect
on
our business, results of operations or financial condition.
ITEM
3. Quantitative and Qualitative Disclosures about Market Risk
FACTORS
THAT MAY AFFECT FUTURE RESULTS
We
have an Accumulated Deficit and we have no History of Operations as a Motion
Picture Company
We
have incurred losses in each operating period since our inception on October
12,
1999. Operating losses may continue, which could adversely affect financial
results from operations and stockholder value, and there is a risk that we
may
never become profitable.
ITEM
4. CONTROLS AND PROCEDURES
In
accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), as of the end of the period covered by this
Quarterly Report on Form 10-QSB, Camelot’s management evaluated, with the
participation of Camelot’s principal executive officer and principal financial
officer, the effectiveness of the design and operation of Camelot’s disclosure
controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under
the Exchange Act). Based on their evaluation of these disclosure controls
and
procedures, Camelot’s chief executive officer and Camelot’s chief financial
officer have concluded that the disclosure controls and procedures were not
effective as of the end of the period covered by this report.
While
conducting the review of the interim financial statements as of and for the
period ended March 31, 2007, our independent auditors found numerous adjustments
that indicated a material weakness in our controls over financial reporting.
It
is our plan with additional funding to devote more resources to this very
critical function.
There
has
been no change in Camelot’s internal control over financial reporting that
occurred during the quarter covered by this report that has materially affected,
or is reasonably likely to materially affect, Camelot’s internal control over
financial reporting.
It
should
be noted that any system of controls, however well designed and operated,
can
provide only reasonable, not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in
part
upon certain assumptions about the likelihood of future events. Because of
these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless how remote.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
2. CHANGE IN SECURITIES
On
March
16, 2007, 5,000,000 common shares were issued to Nucore Industries, Inc.
as a
deposit for a funding deal for Camelot Entertainment Group, Inc, and it has
been
presented as a subscription receivable at March 31, 2007. As of April 30,
2007,
funding has no been received by the company.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM
4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
NONE
ITEM
5. OTHER INFORMATION
Subsequent
event: On April 30, 2007, the board of directors approved the increasing the
number of authorized common and preferred shares of stock.
Authorized
common shares were increased from 150,000,000 to 300,000,000 shares and number
of authorized preferred shares were increased from 15,000,000 to 30,000,000.
ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K
a.
Exhibits
31.1
Certificate
of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
of
1934 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2
Certificate
of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
of
1934 as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b.
Reports on Form 8-K
NONE
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report on Form 10-QSB to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
|
|
CAMELOT
ENTERTAINMENT GROUP, INC. |
|
(Registrant) |
|
|
|
Date: May
15,
2007 |
By: |
/s/ ROBERT
P.
ATWELL |
|
Robert
P. Atwell |
|
Title:
Chief
Executive Officer |
|
|
|
|
|
|
Date: May
15,
2007 |
By: |
/s/ GEORGE
JACKSON |
|
George
Jackson |
|
Title:
Chief Financial Officer |