ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
Odyssey Pictures Corporation ("Odyssey" or the "Company"), formerly known as Communications and Entertainment Corp., was formed in December 1989 as a holding company. In September 1990, Double Helix Films, Inc. ("Double Helix"), a producer of low budget films, and Odyssey Entertainment Ltd. ("OEL"), an international film distribution company, were merged with wholly owned subsidiaries of the Company (the "Mergers"). In June 1991, the Company sold Double Helix and thereafter began to focus on the distribution of motion pictures in overseas markets as its primary business.
(b) Narrative Description Business
The distribution of films involves two principal activities - the acquisition of rights from the licensor or the seller, usually the producer or writer of the film, and the licensing of the distribution rights to subdistributors in their respective markets. In general, the rights obtained from the producer relate to all media, including theatrical distribution, video and all forms of television. In some cases, the licensing of rights to subdistributors may exclude certain territories and/or media. With respect to any particular film, the Company typically enters into exclusive distributorship arrangements, thereby precluding others from competing with the Company with respect to that film. Moreover, in certain circumstances, the Company may also provide a financing function for the production of a film, which a subdistributor would generally be unable to provide. See "Terms of Distribution Agreements."
Terms of Distribution Agreements.
A distributor such as the Company, which coordinates worldwide sales in all territories and media, generally handles foreign distribution. Overseas film sales companies rely on local subdistributors to physically deliver the motion picture and related marketing materials and to collect revenues from local exhibitors and other local distributors of the film. Typically, the territorial rights for a specific medium such as television exhibition are sold for a "cycle" of approximately seven years, after which the rights become available for additional cycles.
The film distribution business breaks down into two broad categories:
1. Sales Agency Representation. As a sales agent, the Company undertakes to represent and license a motion picture in all markets and media on a best-efforts basis, with no guarantees or advances, for a fee ranging from 15% to 25%, and typically for a term ranging from seven to fifteen years.
2. Distribution. As a distributor, the Company may provide the producer of the film a guarantee of a portion of the budget of the project. This guarantee may be in the form of a bank commitment to the producer, secured by license agreements with foreign licensees, which is used by the producer to finance the production. Typically, a distributor would receive a distribution fee ranging from 25% to 35% over a term ranging from 15 years to perpetuity. In addition, the distributor may negotiate, or otherwise acquire, a profit participation in the film project.
Once the rights to a picture are obtained (either as sales agent or distributor which may involve a minimum guarantee), the Company then seeks to license its rights to subdistributors in the territories for which it has acquired distribution rights. In general, the grant of rights to the subdistributors includes all media other than satellite, although satellite is included in some subdistributors' territories. The subdistributor in each territory generally pays for its distribution rights with a down payment at the time the contract is executed with the balance due upon delivery of the picture to the subdistributor. (Delivery occurs upon the Company's acceptance of the master negative and its obtaining access to certain items necessary for the distribution of the film). In some instances, the subdistributors' obligations for the payment due on delivery are secured by a letter of credit. In general, after financing (if any) is repaid, the Company applies the distribution receipts from its subdistributors in the following manner:
1) First to the payment of commissions due to the Company,
2) Then second to the recovery of certain distribution expenses,
3) Then to the reimbursement of the Company for its minimum guarantee or advance, if any,
4) Then finally to the producer. The Company and the producer according to the percentages negotiated in the agreement between the company and the producer, if any, share additional distribution receipts. Independent Film Production and Product Acquisition Film distribution companies such as the Company primarily represent independent producers of motion pictures (rather than motion picture studios) in all related markets and all media, including theatrical release, television and home video/DVD distribution, and cable or satellite-distributed media. Producers seek to be independent producers of motion pictures for a variety of reasons, including greater creative control of a project and potentially greater profit participation through the retention of the copyright or the ability to sell the film directly in particular markets. Often, young, new directors and producers have no choice but to independently produce their projects, and the motion picture industry has a long history of "breakthrough" films produced at a low cost by first-time producers and directors which subsequently achieve considerable revenues. The Company has generally obtained its product from among these independently produced films rather than from major motion picture studios, which typically have their own in-house distribution networks.
Nevertheless, from time to time, the Company has entered into "split rights", or shared, arrangements with studios to represent a film in certain markets. The Company's management seeks to identify attractive projects very early in their development, either through relationships with producers, directors and agents or other known suppliers of product, or through industry announcements of new productions. In addition, the Company attends independent festivals and film markets, such as the Sundance Film Festival, The New York Independent Film Festival and the Cannes Film Festival, in order to locate new product.
Business Strategy
The Company's strategy is to package, produce and distribute independent feature films and expand its growth and infrastructure through acquiring or partnering with other entities. The execution of the Company's strategy comes from operating the following activities within each service it provides which, in turn, will generate revenues from both fees and commissions.
1) Packaging - The process by which we undertake a particular film project in screenplay form and assembles cast, crew, financing, introduces banks and other institutions to the "package" (either for the company or for the producer) and may establish partnerships from contributing buyers in order to secure the distribution and market position for the film, if actually produced. For this activity, the company shall receive a percentage of the budget of the film and perhaps an equity interest as well.
2) Production - For film projects in script form that may be acquired exclusively for the company, a separate schedule is provided which will enable the packaging on an "in house" basis. That is, to hire all crewmembers, contract a director, and assemble all necessary elements for production and financing of the proposed project. The Company, in this case, is also able to partner with other production teams or distribution companies for added security and in reducing risk in order for the project to have market interest early on. The Company shall retain percentages of the budget as well as receive fees as a producer and shall also control a major portion of the equity resulting in an increased chance for higher revenue portions from sales in the world and US markets.
3) Distribution - The Company plans to acquire a certain number of films per year as well as assemble a distribution package for other films that are completed. This will generate commission revenues from sales and marketing income for which the Company can achieve its buyers' interest.
4) Strategic Partnerships - From time to time, the Company may be asked to engage in financing and/or distribution activities for companies that could fill the need for continued product. If conditions were of a financially secure nature, management would attempt to acquire or otherwise partner with these potential target companies in order to expand its base and diversity as a supplier.
Competition
The entertainment industry generally, and the film industry in particular, are highly competitive. The Company's competition includes the smaller independent producers as well as motion picture studios. Many of the Company's competitors have financial and other resources, which are significantly greater than those available to the Company. The Company faces competition in all aspects of the business and cannot give the assurance that it will be able to compete effectively. New markets require the Company to compete for licensees and sub-distributors (as further defined herein) of Filmed/Video content with other Internet-based Filmed/Video distributors through cassette tape and/or DVD.
Although our Joint Venture relationship assists us greatly in not seeking others and compete for relationships with manufacturers and developers of transmission services with playback and broadcast capabilities. The business of providing content over the Internet is experiencing rapid growth and is characterized by substantial technological changes, and there are new and varying established companies entering into the same fields. Many of these companies have financial, technological, promotional and other resources that are much greater than those available to us and could use or adapt their current technology, or could purchase technology, to provide a service directly competitive with the Company.
Operations
The Company's operations have been greatly reduced as a result of the restructuring of the Company by new management. The Company's principal office is located in Plano, Texas (see "Properties") and, as of June 30, 2007, the Company had two full-time employees, consisting of Mr. John Foster, the CEO and President of the Company, along with an administrative assistant in the Plano office.
ITEM 2.
ITEM 2. PROPERTIES
During the reported period, the Company conducted its operations out of leased premises at 16910 Dallas Parkway, Dallas, Texas, consisting of approximately 2,500 square feet. The premises were available to the Company through a sublease agreement with JL Media Services LLC, an affiliated party to Mr. Foster. Rent expense for each of the fiscal years through end of term at February 1, 2007, is as follows:
June 30, 2006
$41,220
June 30, 2007
$30,100
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Ian Jessel v. Odyssey Pictures Corp. A settlement of this breach of contract matter had been negotiated prior to November 2001 for payment of a sum certain over time. The Company failed to perform and a judgment of $369,160 was entered by stipulation on May 13, 2004.
Dennis Morgan v. Odyssey Pictures Corp. A settlement of this breach of contract matter had been negotiated prior to 2003 for payment of a sum certain over time. The Company failed to perform and a judgment of $229,875 was entered by stipulation on April 11, 2003.
The "Muller & Smith Case" A lawsuit was filed for indemnification and reimbursement of legal fees regarding the Pfannebecker Case. A judgment was entered against Odyssey in the amount of $360,000. Subsequently attorney’s fees of $85,000 were granted resulting in an aggregate of $445,000 plus accrued interest due. This matter has been settled subsequent to the reported period.
Lawsuit - Watson, Farley and Williams v. Odyssey Pictures Corp., Gold Leaf Pictures, Belgium, Johan Schotte, Chardonnay Enterprise Ltd, and A Hero From Zero N.V. Complaint filed April 30, 2001, New York Supreme Court, New York County, for balance owing of services rendered from the period beginning 1997 through to April of 2001. Odyssey has answered this complaint, although it was not notified until August 10, 2001 denying its position in the named defendants. Odyssey contends that it did, in fact, pay any and all outstanding related legal bills related to the Plaintiff’s corporate involvement. Odyssey had offered a settlement on behalf of the remaining defendants. No response has been made from the Plaintiff on this matter as of the close of business on June 30, 2007.
In August of 2003. the Company received notice of a federal tax lien being filed in the amount of $27,210 for non-payment of federal payroll tax deposits. The Company has filed an appeal to the lien and notice and is expected to fully pay any and all amounts owning as soon as funds become available.
On March 22, 2005 a judgment was entered against the Company in favor of Distinct Web Creations, Inc. and Denise K. Houston in the amount of $32,000 plus pre judgment interest in the amount of $6,291.50, plus attorneys fees in the Circuit Court in Volusia County, Florida. On April 25, 2006, a judgment was entered in favor of the Carlton Fields law firm in the amount of $21,848.12 in the Circuit Court in and for Hillsborough County, Florida for legal services in representing the Company in the Distinct Web Creations, Inc. matter.
On June 30, 2006 the Company entered into a settlement agreement with ThorFilms, LLC. as to claims of each whereby the Company agreed to make payment of $100,000 to ThorFilms, LLC prior to December 30, 2006. As of the date of this filing the Company has not made payment under this settlement agreement.
The Company is subject to other legal proceedings that arise in the ordinary course of its business and from prior management activities. Other than that as disclosed above, in the opinion of present management, the aggregate liability, if any, with respect to these other actions will not materially adversely affect our financial position, results of operations or cash flows.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The following table sets forth the range of high and low bid information for the Common Stock of the Company as reported by the National Quotation Bureau’s Pink Sheets on a quarterly basis for each of the two preceding fiscal years. The Company's shares have traded in the over-the-counter market on the OTC market. The Company's Common Stock trades under the symbol OPIX.
No dividends have been declared or paid with respect to the Common Stock. The bid quotations represent inter-dealer prices and do not include retail mark-ups, markdowns or commissions and may not necessarily represent actual transactions.
Common Stock
Fiscal 2007
High
Low
First Quarter
$.012
$.006
Second Quarter
.012
.007
Third Quarter
.025
.007
Fourth Quarter
.017
.008
Fiscal 2006
High
Low
First Quarter
$ .05
$ .011
Second Quarter
.045
.01
Third Quarter
.025
.012
Fourth Quarter
.019
.01
As of June 30, 2007, there were approximately 4,271 record holders of the Company's Common Stock.
ITEM 6.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this Form 10-KSB.
Overview
During all periods included in this Annual Report, the Company has not had significant operations. As of the date of this report, the Company’s ongoing operations have consisted of raising capital to pay legal fees to settle claims and of expenditures to maintain the Company in compliance with Securities and Exchange Commission regulations such as accounting and auditing and other expenditures related to financial disclosure obligations
Results of Operations for years ended June 30, 2006 and 2007
We had no revenues for the years ended June 30, 2007 or June 30, 2006. Revenues are derived from license renewals and residual payments received, the timing of which are typically paid at the discretion of the counter party and are outside the control of the Company.
Amortizable capitalized film inventory costs related to revenues on licensees and the receipt of payments on residuals have been fully amortized or impaired in prior periods. We expense all current costs as incurred.
Selling, general and administrative expenses increased to $409,200 for the year period ended June 30, 2007, from $288,500 in 2006. The increase of $120,700 was primarily composed of $48,000 in legal fees and $54,000 in accounting expenses offset by a reduction of $10,000 in rent expense. Settlement expenses increased to $71,600 for year ended June 30, 2007 from $0 for the prior year the result of current legal fees being expensed as incurred. Expenses for each year include $198,000 in accrued compensation payable under an employment agreement with Mr. Foster, our President.
Interest expense increased by $233,600 in 2007 to $487,500. The increase was as the result of the recognition of a discount arising from a beneficial conversion feature and related expense connected to the issuance of $220,000 of convertible debt and an additional discount arising from the bifurcation of the relative fair value of 2,000,000 warrants associated with the transaction. The discount was limited to $220,000, the proceeds of the note. We recognized the full discount as interest expense in the current period.
The valuation of derivatives at June 30, 2007 resulted in a $34,500 charge to earnings. This valuation may vary each reporting period as we adjust it to current fair value.
Loss per share was $0.01 in 2007. The weighted average shares increased by 6,635,616 in 2007 due to the weighted impact of the issuance of 14,000,000 shares to as partial conversion of the $220,000 convertible debt. We did not issue any shares in the comparative none month period of 2006.
As of June 30, 2007, the Company had no agreements with sub-distributors relating to distribution commitments or guarantees that had not been recognized in the statement of operations.
Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated material revenues and no revenues are anticipated. Accordingly, we must raise cash from sources other than operations.
Liquidity and Capital Resources
We did not generate any cash through our operating activities in 2007 or 2006. At June 30, 2007, the Company had no cash.
The Company continues to fund operation through trade payables, the issuance of stock and the proceeds of short term borrowings. In 2007 we issued promissory notes in exchange for $53,250 in cash. We benefited .from the payment of $134,000 in professional fees through a transaction that occurred directly between the outside parties which we recognized as an unsecured promissory note. We also issued 14,000,000 shares upon the conversion of $140,000 of debt. The debt originated by a transaction whereby the creditor purchased a judgment that had been entered against three guarantors of the Company on behalf of the Company.
Our access to capital resources is limited to obtaining small loans with short term maturities and to use the value of our common stock as currency to settle existing obligations in such situation where the stock is acceptable by the counter party.
Derivatives:
At June 30, 2007, the Company determined that approximately 2.6 million common shares committed and reserved for issuance under grants of options and warrants were in excess of authorized shares on a fully diluted basis thereby precluding equity treatment under FAS 333 and EITF 00-19. SFAS No. 133 requires every derivative instrument to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in the derivative's fair value recognized currently in earnings unless specific hedge accounting criteria are met. We value these derivative securities at fair value at the end of each reporting period (quarterly or annually), and their value is marked to market at the end of each reporting period with the gain or loss recognition recorded against earnings. We continue to revalue these instruments each reporting period to reflect their current value in light of the current market price of our common stock.
The Company classified the fair value, calculated using the Black-Scholes model, of these Excess Options totaling $42,600 as a liability on the balance sheet at June 30, 2007.
Commitments and Capital Expenditures
The Company had no material commitments for capital expenditures. During 2007, the Company did not obtain cash through any source but benefited from expenses paid by outide parties in the amount of $134,000 during the year ended June 30, 2007 compared to $0 for the same period the prior year. The Company also has a long-term employment agreement with our President of approximately $200,000 per year. This agreement has been extended and renewed from time to time. The amount unpaid under this agreement is $759,000 at June 30, 2007.
Critical Accounting Policies Involving Management Estimates and Assumptions
Our discussion and analysis of our financial condition and results of operations is based on our financial statements. In preparing our financial statements in conformity with accounting principles generally accepted in the United States of America, we must make a variety of estimates that affect the reported amounts and related disclosures.
Revenue Recognition.The Company recognizes revenue in accordance with the provisions of Statement of Financial Accounting Standards No. 139 and American Institute of Certified Public Accountants Statement of Position 00-2 (collectively referred to as "SOP 00-2"). Revenues from foreign theatrical, home video, television and pay television licensing contracts are recognized when the film is available for exhibition by the licensee and when certain other conditions are met. Revenues from domestic theatrical distribution of films are recognized as the films are exhibited. All revenues for the periods presented were derived from foreign distribution rights and continuing ancillary revenues, such as foreign income from soundtracks or other revenue not previously accounted for (known as "residuals") relating thereto.
Stock Based Compensation. We will account for employee stock-based compensation costs in accordance with Statement of Financial Accounting Standards ( SFAS ), No. 123R, Share-Based Payment, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in our statements of operations based on their fair values. We will utilize the Black-Scholes option pricing model to estimate the fair value of employee stock based compensation at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our stock-based compensation.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Deferred Tax Valuation Allowance. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. Income tax expense is the total of tax payable for the period and the change during the period in deferred tax assets and liabilities.
Accounting For Obligations And Instruments Potentially To Be Settled In The Company s Own Stock: We account for obligations and instruments potentially to be settled in the Company s stock in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company s Own Stock. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company s own stock.
Off-Balance Sheet Arrangements
Odyssey does not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements.
ITEM 7.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item is submitted as a separate section of this report commencing on page. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, therefore, has the ability to manage the recovery of its assets and satisfy its liabilities in the normal course of its continued operation.
ITEM 8.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
ITEM 8A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by our company is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. John Foster, our Chief Executive Officer and our Principal Accounting Officer, is responsible for establishing and maintaining disclosure controls and procedures for our company.
Our management has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2007 (under the supervision and with the participation of the Chief Executive Officer and the Principal Accounting Officer), pursuant to Rule13a-15(b) promulgated under the Exchange Act. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation, our Company's Chief Executive Officer and Principal Accounting Officer have concluded that our Company's disclosure controls and procedures were not effective as of June 30, 2007 due to the failure to file complete and timely reports with the Securities and Exchange Commission. Management with the assistance of its Securities Counsel will closely monitor all future filings to ensure completeness of all company filings.
The term "internal control over financial reporting" is defined as a process designed by, or under the supervision of, the registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant's assets that could have a material effect on the financial statements.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management, with the participation of the Chief Executive Officer, evaluated the effectiveness of the Company's internal control over financial reporting as of June 30, 2007. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control -- Integrated Framework. Based on this evaluation, our Company's Chief Executive Officer and Principal Accounting Officer have concluded that our Company's disclosure controls and procedures were not effective as of June 30, 2007 due to the following:
Company's disclosure controls and procedures were not effective as of June 30, 2007 due to the failure to file complete and timely reports with the Securities and Exchange Commission.
This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this annual report.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
In connection with the evaluation of the Company's internal controls during the Company's last fiscal year, the Company's Principal Executive Officer and Principal Accounting Officer have determined that there are no changes to the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially effect, the Company's internal controls over financial reporting.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
The Company's management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART III
ITEM 9.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company for the reported period are as follows:
Name
Age
Position
John W. Foster
Director, Chairman of the Board and CEO/President
Patrick Speeckaert
Director, Compensation Committee, Audit committee
Kjell Larsson
Director, Compensation Committee, Audit Committee
Christian Gerig
Director
Hans Joerg Finsterwald
Director
Set forth below is information regarding the business experience of the current Directors and executive officers of the Company.
John Foster has been an independent financial consultant and analyst specializing in turnaround situations and management restructuring in specific industries including the entertainment and communications industry. He has extensive background in information systems and data processing, and worked as a consultant and investment advisor in determining strategies of financing and investments in motion picture projects for investors, distributors and producers. Mr. Foster served as interim President of the Company from January 2000 through June 2000, and was formally working in the position of President from that time. His contract was extended through 2002 and 2003, and he is currently serving as Chairman, President and CEO of the Company during the reported period.
Patrick Speeckaert has served as Managing Director of Morrow & Co., Inc. of New York, a leading company specializing in advising international corporations with respect to issues involving corporate governance, shareholder relations and solicitations, until 2003. Recently, Mr. Speeckaert became the President and Chairman of OOJob America Inc. Job, based in New Canaan, Connecticut, is a ten-year old European company specializing in computerized behavior and professional assessments. Clients include large banks, retailers, manufacturers, government and employment agencies.
Mr. Kjell Larsson is based in Florida and has been involved with the film industry for over twenty years. Mr. Larsson has produced and sold in all facets of the film business and is also a shareholder of Odyssey Pictures through his company, Kemp Entertainment. In 1972. Mr. Larsson pursued a technical career receiving a Technical Engineer's Degree in Sweden and later, in his capacity of sales and marketing, created one of the first video retail chains in the Scandinavian Market, which resulted in the Presidency of the Swedish division of Scanbox A/S, a major film and video distribution company in the Scandinavian market. Serving as producer and co-producer of several feature films, Mr. Larsson has significant background in developing a film project from start to finish, including financing, budgeting and production. Mr. Larsson relocated to Palm Coast, Florida in 1993. He also served as President of TigerNetOrder, Inc., an Internet facilitator specializing in E-Trade and Web Stores.
Christian Gerig holds a Master's degree in economic history and political science and has been a journalist in the areas of international sport as well as economics and the film industry for various European magazines. He also has served on boards for other film distribution and movie theatre companies where his extensive knowledge in both the business and the creative side of the film industry comes from. Presently he is the managing director of RIALTO FILM AG, a theatrical distribution company in Switzerland.
Mr. HansJoerg Finsterwald holds a degree in business administration. He had management experience in multinational entertainment companies, has served as a consultant to producers, entertainment, communications and advertising companies and as a developer of entertainment driven business opportunities. Recently he has become a partner in an international joint-venture establishing a new entertainment broadcast network in Germany and is involved in the development of entertainment content and solutions for mobile communications. In the past, he has been managing director of the entertainment division of the leading Swiss publishing group. He has also been active in private film funds along with his production expertise in theatrical, television and commercial industries.
Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission"). Officers, directors and greater than 10% stockholders are required by the Commission's regulations to furnish the Company with copies of all section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of reports furnished to the Company during the fiscal year ended June 30, 2005, the Company's officers, directors and greater than 10% stockholders did not comply with filing requirements under section 16(a) except for disclosure provided in the Company’s 10-KSB.
ITEM 10.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or paid to the chief executive officer of the Company, the only compensated executive officer as of June 30, 2007. Other significant employees would not be required to be included in the table due to the fact that such employees were not executive officers of the Company at the end of the most recently completed fiscal year:
*Mr. Foster deferred $197,904 in each year.
Options/Stock Appreciation Rights:
There were no stock options and stock appreciation rights ("SARs") granted to executive officers during the fiscal year ended June 30, 2006 or in 2007.
Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table
Note: No bonus has been paid or distributed in the past four quarters of fiscal 2007 or fiscal 2006.
Director Compensation
The Company does not have any standard arrangements pursuant to which directors of the Company are compensated for services provided as a director. All directors are entitled to reimbursement for expenses reasonably incurred in attending Board of Directors' meetings. There have been no distributions of Stock to the Board Members as of the end of June 30, 2006 and the same period ending June 30, 2007.
Compensation Agreements, Termination of Employment and Change-in-Control Arrangements:
As of July of 2001, Mr. Foster served as President and was voted as Chairman and CEO by the Board of Directors. He received a pay increase to $14,700 per month and his contract was extended through June 30, 2002, with a 5% increase beginning July 1, 2002 through to June 30, 2003 and each year thereafter. Mr. Foster's salary has gone unpaid and remains payable by the Company as of the end of June 30, 2007 and 2006.
ITEM 11.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information concerning ownership of common stock, as of June 30, 2006, by each person known by the Company to be the beneficial owner of more than 5% of the common stock, each director and executive officer, and by all directors and executive officers of the Company as a group.
Name of beneficial owner
Status
Shares
beneficially
owned
Percentage
of Class
Patrick Speeckaert
Director
2,000
Less than 1%
John W. Foster
Director,
President/CEO
2,000
Less than 1%
Kjell Larsson
Director
1,518,055
4.7%
All Executive Officers &
Directors - (4) - as a group
1,522,055
4.7%
ITEM 12.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
PART IV
ITEM 13.
ITEM 13. EXHIBITS
3.1 Articles of Incorporation, as amended through June 30, 1995 (1)
3.2 Amendments to Articles of Incorporation filed in March and June, 1996 (8)
3.3 Amendment to Articles of Incorporation filed in January, 1997 (9)
3.4 By-laws (1)
4.1 Indenture between Odyssey and Continental Stock Transfer and Trust Company ("Continental") dated as of July 15, 1987 (1)
4.2 Form of Supplemental Indenture between Continental and the Company (1)
4.3 Form of Common Stock Certificate (1)
4.4 Form of options granted of officers, directors and 5% stockholders (2)
4.5 Form of Warrant issued to purchasers parties to the 1995 Private Placement completed September 30, 1995 (5)
4.6 Form of 12% Unsecured Promissory Note issued to purchasers parties to the 1995 Private Placement completed September 30, 1995 )5)
4.7 Form of Stock Option Agreement by and between the Company and officers and directors of the Company, for stock options issued in April 1995 (5)
4.8 Form of Common Stock Purchase Warrant by and between the Company and officers, directors, employees and consultants of the Company for warrants issued during the fiscal year ended June 30, 1996 (8)
4.9 Common Stock Purchase Warrant, dated March 6, 1996, between the Company and G & H Media, Ltd. (assignee of Stephen R. Greenwald) (7)
4.10 Common Stock Purchase Warrant, dated March 6, 1996, between the Company and Lawrence I. Schneider (7)
4.11 Common Stock Purchase Warrant, dated March 6, 1996, between the Company and Ira N. Smith (7)
4.12 Form of Common Stock Purchase Warrant by and between the Company and officers, directors, employees and consultants of the Company for warrants issued during the fiscal year ended June 30, 1997 (9)
4.13 Preferred Stock Certificate, Series A, issued to Kinnevik Media Properties, Ltd. in September, 1997 (10)
4.14 Convertible Note issued to Augustine Fund L.P. in July, 1998 (12)
4.15 Preferred Stock Certificate, Series B, issued to Kimon, Inc. in September, 1998 (10)
10.01 1989 Long Term Incentive Plan (1)
10.02 Sub-Lease for office premises at 16910 Dallas Parkway, Suite 104, Dallas Texas dated February 1, 2001 (8)
10.03 Settlement Agreement and Release between Paramount Pictures Corporation and Odyssey Distributors, Ltd. (a wholly owned subsidiary of the Company),and Guarantee agreement of the Company, each dated as of September 26, 1996 (9)
10.04 Stock Purchase Agreement between the Company and Flanders Film S.A. relating to purchase of minority stock interest in E3 Sports New Mexico, Inc. and Media Trust S.A., and related promissory notes for $135,000 and $315,000, dated March 2, 1998 (10)
10.05 Employment Agreement with Johan Schotte, dated March 2, 1998 (10)
10.31 Convertible Note issued to Augustine Fund, L.P. in July, 1998 (12)
10.32 Asset Purchase Agreement between the Company and Kimon Mediaright KB,a Swedish limited partnership, dated July 14, 1998 (10)
10.33 Employment Agreement with Pierre Koshakji, dated March 2, 1998 (11)
10.34 Employment Agreement with Ian Jessel, dated December, 1998 (13)
10.35 Settlement Agreement with Stephen Greenwald, dated September, 1999 (13)
21.1 Subsidiaries of the Registrant (3)
31.1 Officer's Certification Pursuant to Section 302 (14)
32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (14)
(1) Incorporated herein by reference to the Company's Registration Statement on Form S-4, File No. 33-34627.
(2) Incorporated herein by reference to the Company's Registration Statement on Form S-1, File No. 33-43371.
(3) Incorporated herein by reference to the Company's Current Report on Form 8-K filed April 12, 1995, File No. 0-18954.
(4) Incorporated herein by reference to the Company's Current Report on Form 8-K filed August 30, 1995, File No. 0-18954.
(5) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, File No. 0-18954.
(6) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995, File No. 0-18954.
(7) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, File No. 0-18954.
(8) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1996, File No. 0-18954.
(9) Incorporated herein by reference to the Company's Registration Statement on Form S-1, File No. 333-20701.
(10) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1997, File No. 0-18954
(11) Incorporated herein by reference to Amendment No. 1 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1997, File No. 0-18954
(12) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1998, File No. 0-18954
(13) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1999, File No. 0-18954
(14) Provided herewith.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEEES AND SERVICES
(1) Audit Fees: The Company’s principal accountant has billed for Audit services $9,500 for the Year ended 2007 and $9,500 for the Year ended 2006.
(2) Audit Related Fees: None
(3) Tax Fees: None
(4) All Other Fees: None
See Summary of Significant Accounting Policies and Notes to Financial Statements.
See Summary of Significant Accounting Policies and Notes to Financial Statements.
ODYSSEY PICTURES CORPORATION
BACKGROUND AND
Significant Accounting Policies
June 30, 2007
The Company
Organizational Background: Odyssey Pictures Corporation ("Odyssey" or the "Company"), formerly known as Communications and Entertainment Corp., was formed in December 1989 as a holding company. At such time, the Company had no material assets. In September 1990, Double Helix Films, Inc. ("Double Helix"), a producer of low budget films, and Odyssey Entertainment Ltd. ("OEL"), an international film distribution company, were merged with wholly owned subsidiaries of the Company (the "Mergers"). Subsequent to the Mergers, each of Double Helix and OEL became a wholly owned subsidiary of the Company. In June 1991, the Company sold Double Helix and thereafter began to focus on the distribution of motion pictures in overseas markets as its primary business. The Company has been engaged to operate in the entertainment industry, specifically, in connection with the development, production, marketing and distribution of films and DVD's.
Significant Accounting Policies
Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
Reclassification: Certain reclassifications have been made to prior year amounts to conform to the current period presentation.
Cash and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents.
Property and Equipment New property and equipment are recorded at cost. Property and equipment included in the bankruptcy proceedings and transferred to the Trustee had been valued at liquidation value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.
Valuation of Long-Lived Assets: We review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.
Stock Based Compensation: Stock-based awards to non-employees are accounted for using the fair value method in accordance with SFAS No. 123R, Accounting for Stock-Based Compensation, and EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.
On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards ("SFAS") 123R, "Share-Based Payment" ("SFAS 123(R)"), which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. Prior to January 1, 2006, we accounted for our stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations, and would typically recognize no compensation expense for stock option grants if options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.
We adopted SFAS 123(R) using the "modified prospective" method, which results in no restatement of prior period amounts. Under this method, the provisions of SFAS 123(R) apply to all awards granted or modified after the date of adoption. In addition, compensation expense must be recognized for any unvested stock option awards outstanding as of the date of adoption on a straight-line basis over the remaining vesting period. We calculate the fair value of options using a Black-Scholes option pricing model. We do not currently have any outstanding options subject to future vesting therefore no charge is required for the years ended June 30, 2007 or 2006. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation expense to be reported in the Statement of Cash Flows as a financing cash inflow rather than an operating cash inflow. In addition, SFAS 123(R) required a modification to the Company's calculation of the dilutive effect of stock option awards on earnings per share. For companies that adopt SFAS 123(R) using the "modified prospective" method, disclosure of pro forma information for periods prior to adoption must continue to be made.
Accounting For Obligations And Instruments Potentially To Be Settled In The Company's Own Stock: We account for obligations and instruments potentially to be settled in the Company's stock in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company's Own Stock. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company's own stock.
Fair Value of Financial Instruments: Statements of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30 2007. The respective carrying value of certain on-balance sheet financial instruments approximated their fair values.
These financial instruments include cash and cash equivalents, accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.
Revenue Recognition: The Company recognizes revenue in accordance with the provisions of Statement of Financial Accounting Standards No. 139 and American Institute of Certified Public Accountants Statement of Position 00-2 (collectively referred to as "SOP 00-2"). Revenues from foreign theatrical, home video, television and pay television licensing contracts are recognized when the film is available for exhibition by the licensee and when certain other conditions are met. Revenues from domestic theatrical distribution of films are recognized as the films are exhibited. All revenues for the periods presented were derived from foreign distribution rights and continuing ancillary revenues, such as foreign income from soundtracks or other revenue not previously accounted for (known as "residuals") relating thereto.
The Company licenses certain film rights through international distribution agreements either on a direct commission basis or that may require the payment of minimum license fees known as "Minimum Guarantees" ("MG's"). The MG's are typically payable on delivery and acceptance by the Company of the respective completed film and these MG's may be subject to further increase based on the actual distribution results in the respective territory. Minimum Guarantees related to contracts which contain holdback provisions precluding the distributor from exploiting secondary markets until certain time periods have lapsed are allocated across those markets and recognized as revenue when each holdback provision expires. The Company had no films in distribution that either require an MG nor were in a "hold-back" restriction.
Capitalized Film Costs: Capitalized film costs consist of investments in films which include the unamortized costs of completed films which have been produced by the Company. Capitalized costs include all direct production and financing costs, and production overhead. Costs of acquiring and producing films are amortized using the individual-film-forecast method, whereby these costs are amortized and participation and residual costs are accrued in the proportion that current year's revenue bears to management's estimate of ultimate revenue at the beginning of the current year expected to be recognized from the exploitation, exhibition or sale of the films.
Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release.
Capitalized film costs are stated at the lower of amortized cost or estimated fair value on an individual film basis. The valuation of investment in films is reviewed on a title-by-title basis, when an event or changes in circumstances indicated that the fair value of a film is less than its unamortized cost. The fair value of the film is determined using management's future revenue and cost estimates. Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film. Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films may be required as a consequence of changes in management's future revenue estimates.
Earnings per Common Share: Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted average number of common and dilutive equivalent shares outstanding during the period. Dilutive common equivalent shares consist of options to purchase common stock (only if those options are exercisable and at prices below the average share price for the period) and shares issueable upon the conversion of our convertible debt. Due to the net losses reported, dilutive common equivalent shares were excluded from the computation of diluted loss per share, as inclusion would be anti-dilutive for the periods presented.
Income Taxes:We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
Deferred income taxes are recorded in accordance with SFAS No. 109, "Accounting for Income Taxes," or SFAS 109. Under SFAS No. 109, deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. SFAS 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109") which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
Recent Accounting Pronouncements
.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors' requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards required (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the effect that the adoption of SFAS 157 will have on our results of operations and financial condition and are not yet in a position to determine such effects.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the Company's consolidated financial statements and the related financial statement disclosures. SAB 108 is effective for the year ending June 30, 2007. The adoption of this statement did not have an impact on our financial position or results of operations.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement 109 ("FIN 48"), which clarifies the accounting for uncertain tax positions. This Interpretation allows the tax effects from an uncertain tax position to be recognized in the Company's financial statements if the position is more likely than not to be sustained upon audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We do not expect the adoption of FIN 48 to have a material impact on our financial statements
Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.
ODYSSEY PICTURES CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
1. Notes and Loans Payable:
During 2007, the Company received several loans for overhead expenses from a series of private lenders, totaling $53,250. These loans all were made on a short-term 8% interest-bearing basis.
Convertible Debt
In January, 2007 we issued a $220,000 convertible promissory note. The note bears interest at 6% per annum until paid or converted. The initial conversion rate is $0.01 per share (subject to standard anti-dilution provisions). The convertible note matures on June, 2007.
The convertible debt securities were issued with a non-detachable conversion feature and 2,000,000 detachable warrants. We evaluate and account for such securities in accordance with EITF Issue Nos. 98-5, 00-19, 00-27, 05-02, 05-04 and 05-08, and SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as amended.
In accordance SFAS No. 133, we evaluate that the holder's conversion right provision, interest rate adjustment provision, liquidated damages clause, cash premium option (if applicable), and the redemption option (collectively, the debt features) contained in the terms governing the Notes to determine whether they are or are not clearly and closely related to the characteristics of the note. Accordingly, if the features qualify as embedded derivative instruments at issuance and, furthermore if they do or do not qualify for any scope exception within SFAS No. 133 (paragraphs 12-32), then they are required by SFAS No. 133 to be accounted for separately from the debt instrument and recorded as derivative financial instruments.
The note is convertible at the option of the holder at any time and from time to time into Common Stock of the Company at an initial conversion price of $0.01 per share, subject to standard anti-dilution adjustments..
Material Events that would cause default under the Notes include:
failure to pay principal when due;
failure to pay any interest, late fees
failure to perform other covenants under the note that is not cured by thirty-five days after notice;
any representation or warranty under the financing documents that is untrue or incorrect in any material respect;
certain events such as bankruptcy or assignment for the benefit of creditors of the Company or any of its subsidiaries;
the Company becoming party to a change of control transaction;
The 2,000,000 warrants permit the purchasers to purchase 2,000,000 shares of common stock at an initial exercise price of $0.06 per share and are exercisable from January, 2007 until January, 2010. They contain standard anti-dilution provisions similar to the convertible debt.
The values ascribed to the note, the conversion feature of the note, other potential embedded derivative features, and detachable warrants follow the guidance of EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock ; SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ; and EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments .
In accordance with the FASB Emerging Issues Task Force ("EITF") Issue No. 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" and EITF Issue No. 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments," we determined that the convertible note contains an embedded beneficial conversion feature resulting in a discount to the carrying amount of the note equal to:
(i)
the difference between the effective conversion rate and the market price of our common stock on the date of issuance; multiplied by
(ii)
the number of shares into which the Notes are convertible. Per EITF Issue No. 98-5 and EITF Issue No. 00-27, upon issuance we recorded a $211,952 discount to the convertible Notes.
For convertible debt securities, any recorded discount resulting from the allocation of proceeds to the beneficial conversion feature should be recognized as interest expense over the minimum period from the date of issuance to the date of maturity using the effective yield method.
The Company used the Black-Scholes option pricing model in valuing the detachable warrants. The inputs for the valuation analysis of the warrants include the market value of the Company's common stock, the estimated volatility of the Company's common stock, the exercise price of the warrants and the risk free interest rate. The key inputs for the valuation analysis in January, 2007 were a volatility of 100%, common stock value of $0.02 and a risk free interest rate of 4.4%. In accordance with EITF 98-5, the Company recorded the warrants as a debt discount and a derivative liability for their relative fair value of $8,048.
The note was considered to have an embedded beneficial conversion feature because the effective conversion price was less than the quoted market price at the time of the issuance. The Company allocated the proceeds of the debt between the warrants and the debt based on relative fair values which amounted to $ 8,048 and $211,952 respectively. The beneficial conversion feature of $211,952 was recorded separately based on the intrinsic value method per EITF 98-5. The intrinsic value of the beneficial conversion feature exceeds the proceeds allocable to the convertible debt therefore, the amount of the discount assigned to the beneficial conversion feature was limited to the amount of the proceeds allocable to the convertible debt.
The aggregate discount of $220,000 was amortized immediately to interest expense due to the conversion of $140,000 of the debt.
2. Income Taxes:
We have adopted SFAS 109 which provides for the recognition of a deferred tax asset based upon the value the loss carry-forwards will have to reduce future income taxes and management's estimate of the probability of the realization of these tax benefits.
We have a current operating loss carry-forward of $ 43,000,000. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all our net deferred tax asset.
Future utilization of currently generated federal and state NOL and tax credit carry forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of NOL and tax credit carry forwards before full utilization.
3. Commitments:
Leases:
The Company leases its office space on a month-to-month basis. Rent expense was $30,100 and $41,220 for the years ended June 30, 2007 and 2006 respectively.
Employment Agreements:
As of July of 2001, Mr. Foster served as President and was voted Chairman and CEO by the Board of Directors. He received a pay increase to $14,700 per month and his contract was extended through June 30, 2002 with a 5% increase beginning July 1, 2002 through June 30, 2003 and each year thereafter. Mr. Foster's salary has gone unpaid and remains payable by the Company as of the end of June 30, 2007 and 2006.
Settlements & Judgments
Material Items are as follows:
Ian Jessel v. Odyssey Pictures Corp. A settlement of this breach of contract matter had been negotiated prior to November 2001 for payment of a sum certain over time. The Company failed to perform and a judgment of $369,160 was entered by stipulation on May 13, 2004.
Dennis Morgan v. Odyssey Pictures Corp. A settlement of this breach of contract matter had been negotiated prior to 2003 for payment of a sum certain over time. The Company failed to perform and a judgment of $229,875 was entered by stipulation on April 11, 2003.
Muller-Smith v. Odyssey Pictures Corp. A lawsuit was filled for indemnification and reimbursement of legal fees regarding the Pfannebecker Case. A judgment was entered against Odyssey in the amount of $360,000. Subsequently attorney's fees of $85,000 were granted resulting in an aggregate of $445,000 due. See the "Subsequent Event" footnote below for additional developments.
In August of 2003. the Company received notice of a federal tax lien being filed in the amount of $27,210 for non-payment of federal payroll tax deposits. The Company has filed an appeal to the lien and notice and is expected to fully pay any and all amounts owning as soon as funds become available.
On March 22, 2005 a judgment was entered against the Company in favor of Distinct Web Creations, Inc. and Denise K. Houston in the amount of $32,000 plus pre judgment interest in the amount of $6,291.50 plus attorney's fees and costs in the Circuit Court in Volusia County, Florida. On April 25, 2006, a judgment was entered in favor of the Carlton Fields law firm in the amount of $21,848.12 in the Circuit Court in and for Hillsborough County, Florida for legal services in representing the Company in the Distinct Web Creations, Inc. matter.
On June 30, 2006 the Company entered into a settlement agreement with ThorFilms, LLC. as to claims of each whereby the Company agreed to make payment of $100,000 to ThorFilms, LLC prior to December 28, 2006. As of the date of this filing the Company has not made payment under this settlement agreement.
Reserve for Contingencies
We assess our exposures to loss contingencies including legal and other matters and we record accruals for such contingencies if it is judged to be probable and reasonably estimable. The legal proceedings are complex in nature and have outcomes that are difficult to predict. If the actual loss from a contingency differs from our estimate, there could be a material impact on our results of operations or financial position. Operating expenses associated with contingencies are expensed when incurred.
Currently three such proceedings have been identified and reserved. The Company has determined that losses related to these proceedings is probable and has reserved for the estimated amounts of losses and related legal expenses. Judgments that have been finalized and awarded are reclassified to "Judgments and settlements" on the balance sheet. We settled a dispute with La Jolla in 2008 for $236,000 and have included this amount in our current reserve estimate.
4. Stockholders' Equity:
Common Stock
We are currently authorized to issue up to 110,000,000 shares of $ 0.01 par value common stock. All issued shares of common stock are entitled to vote on a 1 share/1 vote basis.
During the year ended June 30, 2007 we issued 14,000,000 shares of our common stock upon the conversion of $140,000 of convertible notes payable.
5. Stock Options and Warrants:
Summary of Warrant Activity
The convertible Notes were issued with 2,000,000 detachable warrants. Exercise prices are $0.011 and expired three years from the date of issuance. We evaluate and account for such securities in accordance with EITF Issue Nos. 98-5, 00-19, 00-27, 05-02, 05-04 and 05-08, and SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as amended.
The Company used the Black-Scholes option pricing model in valuing the warrants. The inputs for the valuation analysis of the warrants include the market value of the Company's common stock, the estimated volatility of the Company's common stock, the exercise price of the warrants and the risk free interest rate. The key inputs for the valuation analysis at June 30, 2007 were a volatility of 164%, common stock value of $0.02 and a risk free interest rate of 4.4%. A table summarizing the assumptions for each year presented is as follows:
The following table provides summary information on the various warrants issued by us in private placement transactions; the warrants exercised to date; the warrants that are presently exercisable and the current weighted average exercise prices of such warrants.
* Amount by which the fair value of the stock at the balance sheet date exceeds the exercise price
Equity Instruments Classified as Derivatives
We follow the provisions of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133") along with related interpretations EITF No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" ("EITF 00-19") and EITF No. 05-2 "The Meaning of ‘Conventional Convertible Debt Instrument' in Issue No. 00-19" ("EITF 05-2"). SFAS No. 133 requires every derivative instrument (including certain derivative instruments embedded in other contracts) to be recorded in the balance sheet as either an asset or liability measured at its fair value, with changes in the derivative's fair value recognized currently in earnings unless specific hedge accounting criteria are met. We value these derivative securities under the fair value method at the end of each reporting period (quarter), and their value is marked to market at the end of each reporting period with the gain or loss recognition recorded against earnings. We continue to revalue these instruments each quarter to reflect their current value in light of the current market price of our common stock. We utilize the Black-Scholes option-pricing model to determine fair value. Key assumptions of the Black-Scholes option-pricing model include applicable volatility rates, risk-free interest rates and the instrument's expected remaining life. These assumptions require significant management judgment.
At June 30, 2007, the Company determined that approximately 2.6 million common shares committed and reserved for issuance under the options/warrants were in excess of authorized shares on a fully diluted basis (the "Excess Options"). The Company classified the fair value, calculated using the Black-Scholes model, of these Excess Options totaling $42,600 as a liability on the balance sheet at June 30, 2007.
The fair value of the derivative liability was determined using the Black-Scholes option pricing model. The key inputs for the valuation analysis at June 30, 2007 were a volatility of 164%, common stock value of $0.02 and a risk free interest rate of 4.4%.
We classify derivatives as either current or long-term in the balance sheet based on the classification of the underlying convertible debt instrument.
6. Related Party Transactions not Disclosed Elsewhere:
Due Related Parties: Amounts due related parties consist of corporate operating expenses and advances paid by affiliates. Such items totaled $610,400 and $598,200 at June 30, 2007 and 2006 respectively.
7. Results of Operations and Management's Plans:
The Company's continued existence is dependent upon its ability to resolve its liquidity problems. The Company must achieve and sustain a profitable level of operations with positive cash flows and must continue to obtain financing adequate to meet its ongoing operation requirements. To offset these factors, the company has embarked on an aggressive capital campaign and has been in development for determining it's most effective method of exploiting recently acquired film rights and re-establishing its contacts in the foreign and US Home Video markets. Since July 2001, new management has embarked on a program to reverse the unfavorable results, by significantly reducing overhead and taking steps to rebuild revenues. Net loss for the recent periods has been due to the delay in receipt of revenue and getting to the markets at the time the availability to release the films coproduced or otherwise acquired for distribution (which results are recorded in the Company's Film Costs). In December the Company did enter into an exclusive distribution agreement with a library of films. The company has just begun the process of marketing this library, which includes the development of sales materials, creating descriptive listing sheets for licensees and to seek foreign sales representatives. One sales representative is under contract for the Scandinavian market. The company attended its first film market in several years in Los Angeles and rejoined its affiliation with the American Film Marketing Association in 2002, however, in 2003, the Company was unable to continue its annual dues and expects to re-establish its membership status as soon as economically feasible.
The Company's operations have been greatly reduced as a result of the restructuring of the Company by new management. The Company's principal office is located in Plano, Texas and as of June 30, 2007, the Company had two full-time employees, consisting of Mr. Foster, the CEO and president, and an administrative secretary. The Company also hires on occasion, several professionals in sales on a contract and commission basis. These professionals are located in our major market areas of Los Angeles and Europe. Additional staff is planned in the administrative and sales areas, the latter of whom may be commission or contract basis.
8. Subsequent Events:
Regarding the N. Norman Muller and Thomas Smith v. Odyssey Pictures matter pending in the 189th Judicial District Court of Harris County, Texas as Cause No. 2003-27544 which domesticated a California judgment in Texas, the parties have settled pursuant to the terms of a confidential settlement agreement and a final payment has been made pursuant to that confidential settlement agreement and that as a consequence, any and all claims between Odyssey and Plaintiffs are deemed fully resolved and settled and the Judgment debt as to Odyssey is deemed satisfied and discharged.
In 2003 the holders of convertible promissory notes (LaJolla), and certain Directors individually (but for the benefit of the Company) entered into a put and call agreement whereby the Directors agreed to acquire any or all shares acquired by LaJolla upon the conversion of the underlying debt at a price then to be determined based upon a stipulated formula. Based upon defaults in this put and call agreement LaJolla brought suit against the individual Directors and obtained a judgment against the individual directors, which judgment was later paid. In 2007 LaJolla filed an action in the Superior Court of the State of California, County of San Diego upon defaults of subsequent put and call agreements which were entered into based upon subsequent advances. The parties, including the Company, entered into a Settlement Agreement on these subsequent claims and Mutual Release dated April 3, 2008 whereby all claims between the parties including the judgment and the convertible promissory notes would be settled and the parties released upon the payment of $236,470 to LaJolla. The payments are to be made in six equal installments commencing April 30, 2008. The 2,500,000 shares of the Company's stock obtained by LaJolla were returned and cancelled. As of March 10, 2009, four payments have been made as scheduled.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Michael F. Cronin
Certified Public Accountant
Orlando, FL 32708
Board of Directors and Shareholders
Odyssey Pictures Corp.
Plano, TX
I have audited the accompanying balance sheets of Odyssey Pictures Corp. as of June 30 2007 and 2006 and the related statements of operations, stockholders' deficiency and cash flows for the years then ended. The financial statements are the responsibility of the directors. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Odyssey Pictures Corp. as of June 30, 2007 and 2006 and the results of its operations, its cash flows and changes in stockholders' deficiency for the years then ended in conformity with accounting principles generally accepted in the United States.
Also discussed in the notes and effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in financial statement notes, the Company has incurred a $1,003,000 loss from operations and consumed $53,000 of cash due to its operating activities. The Company may not have adequate readily available resources to fund operations through June 30, 2008. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in the Notes. The financial statements do not include any adjustments that might result from the outcome of this uncertainty
March 12, 2009
/s/ Michael F. Cronin
Michael F. Cronin
Certified Public Accountant
NY, FL
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ODYSSEY PICTURES CORPORATION
Dated: March 12, 2009
by: /s/ John W. Foster
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John W. Foster,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the dates indicated have signed this report below.
/s/ John W. Foster
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John W. Foster
CEO, Chairman and President