We are a development stage company with a limited operating history. We were organized as a Delaware corporation in September 1997, under the name Keystone Entertainment, Inc., as a wholly-owned subsidiary of G/O International Inc., a publicly held Colorado corporation. In October 1997, we entered a reorganization agreement with Mac Filmworks, Inc., a Texas corporation, which was formed in November 1994 to acquire, license and distribute classic films, television serials, children's programming and other film products. Through the reorganization we acquired all of the issued and outstanding common stock of Mac Filmworks-Texas in exchange for 4,747,680 shares of our common stock, or 77% of the outstanding shares. Under the reorganization agreement, G/O International was required to register the distribution of 1,600,000 shares of Keystone common stock which it owned, to the shareholders of G/O International. In January 1998, we amended our certificate of incorporation to change our name from Keystone Entertainment, Inc. to Mac Filmworks, Inc ("Company").
On January 21, 2005, we filed our seventh amended registration statement on Form SB-2, which registered 250,000 units consisting of one share of common stock and seven redeemable warrants, each to purchase one share of common stock. Our registration statement was declared "effective" by the Securities and Exchange Commission ("SEC") on February 7, 2005 (Reg. No. 333-70526). As a result of filing our registration statement, we are obligated to file with the SEC certain interim and periodic reports including an annual report containing audited financial statements. We anticipate that we will continue to file such reports, notwithstanding the fact that, in the future, we may otherwise be required to file such reports based on the criteria set forth under Section 12(g) of the Exchange Act.
In May 2005, we completed a sale of 89 of our films to Amity Entertainment of which we received cash proceeds of $1,100,000 and $500,000 in the form of two secured notes each in the amount of $250,000, with the first maturing in May 2006 and the last maturing in May 2007.
In May 2005, Western International failed to deliver certain films to the Company pursuant to purchase contracts executed in July and August 1997. Under the contracts, the Company paid a total of $19,990, issued an aggregate of 67,400 shares of common stock and issued two notes in the aggregate principal amount of $287,000, for the purchase of the films. To settle potential claims against Western International and for receipt of $20,000, Western International agreed to cancel the two notes and return 50,000 shares of common stock.
In May 2005, Ramm Films and Video ("Ramm Films") agreed to accept payment of $78,000 in exchange for settlement in full of a note in the principal amount of $100,000. The Company issued the $100,000 note, paid $5,000 and issued 50,000 shares of common stock to Ramm Films in July 1997 for the purchase of 175 films. In May 2005, Ramm Films was unable to deliver 96 films under a purchase agreement executed in September 1997. Under the purchase agreement, the Company issued a $8,000 note, paid $6,000 cash and issued 2,000 shares of common stock to Ramm Films. To settle claims against Ramm Films and for receipt of $5,000, it agreed to cancel the $8,000 note and deliver 25 other films. Additionally, the parties agreed Ramm Films would keep 2,000 shares of common stock previously issued to it under the purchase agreement.
In June 2005, Saturn Productions agreed to accept payment of $105,000 in exchange for settlement in full of a note in the principal amount of $145,000. The Company issued the $145,000 note, paid $10,000 cash and issued 29,000 shares of common stock to Saturn Productions in July 1997 for the purchase of 300 films. Additionally, Saturn Productions agreed to amend the purchase price of our option to acquire 70 films by waiving a $10,000 cash fee and canceling a note in the principal amount of $5,000. We agreed to allow Saturn Productions to keep 100,000 shares of common stock previously issued to it, and we paid an additional $100,000 for related DVD rights.
In August 2005, our public offering of units expired because the minimum number of units in the offering was not raised.
In August 2005, the Company paid $12,167 and issued 100,000 shares of common stock to Berliner Holdings for the purchase of 276 martial arts feature films.
In October 2005, we filed our first amended registration statement on Form SB-2, which registered 250,000 units consisting of one share of common stock and seven redeemable warrants, each to purchase one share of common stock. Our registration statement was declared "effective" by the SEC on October 27, 2005 (Reg. No. 333-129022).
Our principal executive office is located at 464 Mansfield Road, Suite A-1, Shreveport, Louisiana 71118, and our telephone number is (318) 687-8785.
Overview
We are a start-up entertainment company that will engage in the development of our existing and to-be-acquired nostalgic content entertainment library of:
o full length motion pictures or feature films; o television series; and o made-for television movies.
Initially, we intend to market, sell and distribute our library through traditional distribution channels, which include network and independent televisions stations, cable and satellite, pay television and home video in the domestic and international markets, including videocassette and DVDs. If we are able to generate significant revenues or raise additional capital in the future, we intend to market and distribute our library directly to sellers through the Internet.
We currently own approximately 1036 films, of which 28 are copyrighted and 1008 are public domain titles. The film libraries, number of films purchased, and the net purchase price for the libraries acquired are as follows:
In addition to the above films, the Company owns copyrights to 46 various drama, action, suspense, horror, and comedy films.
We believe that distributors and broadcast-television and cable companies will be attracted to both our copyrighted and public domain properties as a realistic means to provide programming without the risks of failure from the new production of television shows or movies. We intend to market our properties to broadcasters and cable operators on mutually attractive barter syndication terms or at competitive licensing rates.
Our entertainment library
We intend to own masters, or films and videotapes suitable to be transferred to a master, to all of our properties. Approximately 130 properties are stored at our facilities in Shreveport. Approximately 192 properties are being stored by Sure Save Self Storage in Palm Desert, California for a monthly storage fee of $50. The remainder of our film and television properties is currently being held by their previous owners until we specify a delivery date and location.
We have included in our description of our film properties below, a sample of the titles we own. Our library contains titles from numerous genres including:
|_| film noir; |_| classics; |_| cult movies; |_| martial arts; |_| comedies; and |_| television programs.
Some of our most popular film properties which we own, include:
o Abraham Lincoln (1930) (public domain or "PD"); o At War with the Army (1950 PD) (Dean Martin, Jerry Lewis); o How Awful about Allan (1970 copyright) (Anthony Perkins, Julie Harris); o Paco (1975 copyright) (Jose Ferrer); o Planet of the Dinosaurs (1980 PD); and o Vengeance Valley (1951 PD) (Burt Lancaster).
Some of the films in the Durbin Entertainment library, all of which are public domain, include:
o Classics such as His Girl Friday with Cary Grant and Rosalind Russel, Alfred Hitchcock's The 39 Steps, The Man Who Knew Too Much (1934), and seventeen other feature films by Alfred Hitchcock.
o Cult movies such as The Night of the Living Dead, The Little Shop of Horrors with Jack Nicholson (1960), and Tunnelvision.
o Exploitation movies like TNT Jackson, CC and Company with Joe Namath and Ann Margaret, and Dance Hall Racket with Lenny Bruce.
o Westerns feature films starring the following actors: John Wayne (12 films), Roy Rogers (55 films), Hopalong Cassidy (23 films), Zane Gray (13 films), among others.
Some of the most popular television properties in the Durbin Entertainment library, in which we may select an additional 70 titles, all of which are public domain titles, and the number of episodes available in each series, include the following:
o The Adventures of Robin Hood (80) o The Adventures of Ozzie & Harriet (90) o The Andy Griffith Show (13) o Beverly Hillbillies (55) o Bonanza (31) o George Burns & Gracie Allen (12) o The Cisco Kid (35) o The Danny Thomas Show (13) o The Dick Van Dyke Show (6) o Dragnet (28) o The Jack Benny Show (20) o The Lone Ranger (17) o The Milton Berle Show (10) o You Bet Your Life (12)
Industry Background
Both the motion picture and television industries are made up of two principal activities: production and distribution. Production involves the development, financing and production of feature-length motion pictures or television series. We plan to concentrate on the distribution, sales and marketing of our current film and television library and any future properties we acquire.
Film Distribution
Films are generally licensed for network broadcast and local television stations following distribution to theaters, home video and pay television. Licensing of feature films to commercial television is generally accomplished subject to agreements that allow a fixed number of telecasts over a prescribed period of time for a specified license fee. Typical U.S. network licenses cover a six-year or seven-year period and can provide for exclusive exhibition on the network. Licensing to the major commercial network affiliates and direct licensing to local, domestic and foreign television stations can be a steady source of programming revenues.
Television Distribution
The U.S. television market is served by network affiliated stations, independent stations and cable systems, although the number of independent stations has decreased as many formerly independent stations have become affiliated with new networks in recent years. During prime time hours, network affiliates primarily broadcast programming produced for the network. In non-prime time, network affiliates telecast:
|_| network programming; |_| off-network programming; |_| first-run programming--programming produced for distribution on a syndicated basis; and |_| programming produced by the local stations themselves.
Independent television stations and cable networks, during both prime and non-prime time, produce their own programs and telecast off-network programs or first-run programs acquired from independent producers or syndicators. Syndicators generally are companies that sell to independent television stations and network affiliates programming produced or acquired by the syndicator for distribution.
Another key element to the distribution of film and television properties in the television industry is the barter of select titles with the broadcast or cable operator. The market for barter syndication exists because of the need for programming and the operator may find it more palatable to barter its advertisement slots to obtain such programs.
Business Strategy
Our mission is to become a global provider of nostalgic film and television entertainment to network and independent stations, cable and satellite systems and directly to consumers through the Internet and on-demand ordering.
Distribution and marketing of our films
We currently own 1036 films, 28 of which are copyrighted films and 1008 of which are public domain films and television programs. We intend to market and distribute these properties through home video, broadcast direct response television, and barter syndication to over-the-air, cable and independent television stations. We intend to operate similar to conventional distributors, however, we will own the properties in our library (including public domain film masters) as opposed to many distributors who only have the right to sell the property with a percentage of the revenue going to the owner.
We intend to utilize our library for the home video distribution business with a focus on the direct and retail sell-through markets. Products we intend to market for consumer purchase will primarily consist of select titles from our library on videocassettes and DVDs. Typical suggested retail prices for videocassettes to be marketed as sell-through will range from $5.99 to $19.95 per program. Suggested retail prices on DVDs may range from $6.99 to $29.98 per program.
Licensing of our films
We intend to market and license our library in domestic markets to major network and independent television stations, satellite networks, pay-per-view and cable system operators. We intend to outsource all international distribution and marketing of our library.
We intend to enter license agreements with customers that grant the customer a license to either (1) exhibit or distribute a specific film or television program for a specified term, territory and medium, or (2) in the case of a license to a pay television channel or a broadcast or cable television operator, the right to exhibit the property a specified number of times. Typically, upon the execution of a license agreement, we would deliver a copy of a sub-master of the film or television program.
In consideration for the granting of the license to a specific film or television program to retail or wholesale distributors or a pay-per-view television exhibitors, we will receive a fee which will be a percentage of revenues from the licensee's distribution or exhibition of the property and may include an advance of the fee which is then recoupable from what otherwise would have been payable to Mac Filmworks. The fee will range from 10% to 20% of the revenues the licensee generates, which may range from approximately $100 to several thousand dollars, depending upon several factors, including but not limited to the film's genre, cast, commercial success and popularity, and whether the film is copyrighted or a public domain title.
In the case of a license we grant directly to a broadcast network or station or pay or basic cable television operator, we plan to charge a licensing fee that will vary in range from several hundred dollars to several thousand dollars. The fee will vary depending on the title, the number of times the film may be broadcast, whether it is being licensed to a network, independent or cable television station, and when it will broadcast. In cases where the network or station offers barter arrangements, we may accept advertising time during the broadcast of the film that has been licensed instead of a cash license fee. If we accept a barter arrangement, we may then sell that time to advertisers or we will use it to promote and advertise our products.
Selling of our Films
We have recently expanded our business to include the sale of DVDs. We believe the market for DVDs has expanded rapidly over the past few years and provides a business opportunity. We have a library consisting of public domain and copyrighted films. We plan to copy a few select movie titles from our martial arts film library onto DVD and to market the films at upcoming conventions. If we discover the market is interested in our martial arts film library, we will seek financing to create more DVD masters and mass produce copies of the DVDs for sale. We provide no assurance, however, that the market will be interested in our martial arts library. We also plan to copy four to six public domain films, along with one of our copyrighted films, onto one DVD and to sell to the public. We believe including several public domain films along with a copyrighted film onto one DVD will help make the DVD more marketable. In addition to the films we have on-hand in our film library, we intend to obtain masters to the 46 films to which we own copyrights, and copy those films onto DVDs for sale. All of the films we copy to DVD format will be in English or Spanish dialogue. Our target market for the sales of our DVDs will be the U.S. and international markets. We hope to begin marketing our DVDs in June 2006, but because the cost of creating DVD masters is prohibitive, we will only test the market with a few of our titles. However, there is no guaranty, and we provide no assurance, that we will be able to sell any of our films on DVDs.
Marketing Strategy
Home video market
We intend to distribute DVDs and videocassettes of feature films to the domestic home video rental market primarily by selling them to wholesale distributors, who then sell the videocassettes and DVDs to rental outlets, such as video rental chains, individual video rental stores, and supermarkets. As mentioned above, we have not begun the process of transferring films from our video masters to DVDs or videocassettes, nor have we contacted companies with whom we intend to outsource such reproduction. We have not contacted any wholesale distributors or other companies which we hope to eventually sell and distribute our products.
We believe that the packaging and art work for the video boxes, posters, advertisements and other selling materials relating to the films we distribute to the United States home video rental and sell-through markets are key factors in determining the amount of sales. We plan to be involved with the design of the promotional campaign for all properties we release. While some of the art works for packaging, advertisements, trade show displays and posters may be created in-house, we plan to commission outside parties to assist in the art work for these materials. We then plan to arrange for the printing, production and distribution of all promotional materials. Although we have contacts with such companies, we have not contacted any advertising companies to design and/or produce our promotional materials, nor have we begun the design or production of any promotional materials that we may intend to complete in-house.
We intend to market films and television programs directly to consumers by the following means:
|_| selling to distributors and rack-jobbers who then sell the products to large retail outlets, convenience stores, or mass merchants;
|_| direct response advertisements appearing as trailers on our home videocassettes and at the end of broadcasts of some of our programs; and
|_| sales to specialty retail outlets such as governmental agencies, gift stores, libraries, museums, Radio Shack, The Sharper Image, General Nutrition Centers, and Home Depot.
In addition, we intend to market our properties directly to consumers through their inclusion in catalogs produced by Mac Filmworks and others. We have not created a catalog of our films, nor have we contacted other companies for the inclusion of our films in their catalogs. We intend to use a portion of the proceeds from this offering to fund various marketing expenses, including but not limited to the transfer of films to DVD and videocassette and the design and production of marketing and promotional materials and catalogs.
Broadcast and cable television
In connection with our distribution and licensing of films and television programming to the United States television market, we intend to emphasize the development, marketing and distribution of our films in the pay, basic cable and over-the-air broadcasting markets. We intend to implement this strategy by concentrating our resources on developing a strong market presence and relationship with local independent stations that serve small to middle markets and whose bulk of advertising revenues are generated from local or regional advertisers. We intend to enter into license agreements with exhibitors, such as, television networks, television stations and cable and satellite systems operators, as well as sub-distributors. We intend to outsource all international distribution, if any.
We have not begun to develop, market or distribute any of our products to broadcast or cable television markets, nor have we contacted any networks or exhibitors, or licensed any of our products.
Competition
In marketing films and television programs, we compete against the major studios, such as AOL Time Warner, The Walt Disney Company, MCA, Paramount, Fox, and Sony/Columbia, as well as smaller distribution companies owning film catalogs/libraries or syndicated television programs. Since we will expend significantly less on product acquisitions than many of these competitors we believe we can produce profits from even modest sales volume.
As a company that acts primarily as its own distributor, we compete with other distributors for wholesalers, retailers and consumers and for home video rights with products they do not produce. This competition, in the case of distribution, is influenced by box office success, advertising, publicity and other factors.
Employees
We currently have four employees, all of which are part-time. No employees are covered by a collective bargaining agreement. Management considers relations with its employees to be satisfactory.
The following table sets forth certain information regarding the Company's current directors and executive officers.
Facilities
We sublease the facilities located at 9464 Mansfield Road, Suite A-1 and Suite C, Shreveport, Louisiana, which consists of approximately 1,726 square feet, from Jim McCullough Productions, a sole proprietorship. We believe our lease rates to be competitive in the market. At the present time, we consider this space to be adequate to meet our needs.
We are temporarily renting storage space from "Amazing Space." We entered into a 1 year rental agreement in June 2005. The lease is cancelable at any time upon 30 days notice. Our monthly rental fee is $180.
Legal Proceedings
As of the date of this Report, there are no legal proceedings pending or, to our knowledge, threatened against us or to which we are a party.
Copyrights
Of the 1036 films we have purchased, 28 are under copyright protection. We also own copyrights (but no masters) to 46 various drama, action, suspense, horror and comedy films.
Those films not under copyright protection have fallen into the public domain. A film enters the public domain when (1) the initial copyright expired without renewal for a second term, or both terms have expired or (2) the copyright notice was defective or missing from the work and no efforts were made to cure the omission. In connection with our films that have fallen into the public domain, we do not have copyright protection. However, new copyrights can be granted to public domain properties if certain modifications are made to the film, including changing the musical score, color, new openings.
In connection with the public domain properties we own, we are unable to assert our exclusive right to license or distribute the films and we will have no recourse against others who also own the public domain properties.
