SEVEN ARTS ENTERTAINMENT INC. (SAPXD) SPO
|Company Name||SEVEN ARTS ENTERTAINMENT INC.|
|Company Address||8721 SUNSET BLVD.
LOS ANGELES, CA 90069
|CEO||Peter M. Hoffman|
|Employees (as of 6/15/2011)||10|
|State of Inc||NV|
|Fiscal Year End||6/30|
|Exchange||Nasdaq SmallCap Market|
|Shares Over Alloted||150,000|
|Shareholder Shares Offered||--|
|Lockup Period (days)||180|
|Quiet Period Expiration||--|
We estimate the gross proceeds from the offering, prior to deducting underwriting discounts and commissions and the estimated offering expenses payable by us, will be approximately $[---] million (approximately $[---] if the representative’s warrants are exercised in full). This estimate is based on an assumed offering price of $[---] per share. A $1.00 increase or decrease in the assumed offering price of $[---] per share would increase or decrease the gross proceeds to us from this offering by $[---] million. Based on an assumed offering price of $[---] per share, we estimate that we will receive net proceeds of $[---] from the sale of [---] shares being offered at an assumed public offering price of $[---] per share, after deducting $[---] for underwriting discounts and commissions and our underwriters’ non-accountable expense allowance and estimated expenses of approximately $[---], which includes legal, accounting, printing costs and various fees associated with the registration and listing of our shares. If the underwriters exercise their right to purchase an additional [---] shares of common stock from the selling shareholder to cover over-allotments, we will not receive any additional proceeds, and if the underwriters’ representative exercises its warrants to purchase [---] shares of common stock, we will receive an additional $[---] after deducting estimated expenses. Assuming no exercise of the representative’s warrants, we intend to use the net proceeds of the offering as follows: Application of Percentage of Net Proceeds Net Proceeds Reduction of Indebtedness $ - % Working capital $ - % Total $ - 100 % The amounts actually spent by us for any specific purpose may vary significantly. Accordingly, our management has broad discretion to allocate the net proceeds. Pending the uses described above, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. We intend to use $2,150,000 of the net proceeds to reduce indebtedness by: · Advancing approximately $1,450,000 or £1,000,000 to the Seven Arts Employee Benefit Trust (the “EBT”). See Management Compensation Seven Arts Employee Benefit Trust for a description of the EBT. EBT will in turn repay the indebtedness owed by the EBT to Armadillo Investments Limited (“Armadillo”) in this amount. We guaranteed this indebtedness when it was incurred by EBT. This indebtedness was incurred to acquire convertible preferred stock owned by Armadillo, all of our preferred stock, which has now been converted to our common stock. Upon our advance of $1,450,000 to the EBT, the EBT will return to us 200,000 shares of our common stock, reducing the dilution of our common stock by this offering. In February 2011 the Group issued 150,000 shares to New Moon LLC who pledged these shares to Armadillo who in turn extended the repayment period of the £1,000,000 to June 30, 2011. We will advance this amount to EBT from the proceeds of this offering and EBT will in turn pay this amount to Armadillo, thereby fully settling the mounts due. · Paying $700,000 in settlement to ApolloMedia in order to obtain the return to us of 140,000 shares of common stock, reducing the dilution of our common stock by the offering. This settlement was of a dispute relating to sums due to ApolloMedia with regard to the motion picture Stander . This amount is owed by SAP, an affiliate company controlled by our Chief Executive Officer, Peter Hoffman, and does not appear on our balance sheet as an obligation of ours. None of this indebtedness was incurred after June 1, 2009. The interest rate payable on this indebtedness and maturity dates are as follows: Debt Interest Rate Maturity ApolloMedia* NA Now due Employee Benefit Trust* 10% Now due *These represent obligations of our shareholders Seven Arts Pictures Inc. and the EBT, respectively.
We are smaller and less diversified than many of our competitors. As an independent distributor and producer, we constantly compete with major U.S. and international studios and independent producers and distributors. Most of the major U.S. studios are part of large diversified corporate groups with a variety of other operations, including television networks and cable channels, which can provide both the means of distributing their products and stable sources of earnings that may allow them better to offset fluctuations in the financial performance of their motion picture operations. In addition, the major studios and larger independent producers and distributors have more resources with which to compete for ideas, storylines and scripts created by third parties as well as for actors, directors and other personnel required for production. The resources of the major studios and larger independent producers and distributors may also give them an advantage in acquiring other businesses or assets, including film libraries, that we might also be interested in acquiring. Our inability to compete successfully could have a material adverse effect on our business, results of operations and financial condition. The motion picture industry is highly competitive and at times may create an oversupply of motion pictures in the market. The number of motion pictures released by our competitors may create an oversupply of product in the market, reduce our share of box office receipts and make it more difficult for our films to succeed commercially. Oversupply may become most pronounced during peak release times, such as school holidays and national holidays, when theater attendance is expected to be highest. For this reason, and because of our more limited production and advertising budgets, generally provided by third party distributors, we typically do not release our films during peak release times, which may also reduce our potential revenues for a particular release. Moreover, we cannot guarantee that we can release all of our films when they are otherwise scheduled. In addition to production or other delays that might cause us to alter our release schedule, a change in the schedule of a major studio may force us to alter the release date of a film because we cannot always compete with a major studio’s larger promotion campaign. Any such change could adversely impact a film’s financial performance. In addition, if we cannot change our schedule after such a change by a major studio because we are too close to the release date, the major studio’s release and its typically larger promotion budget may adversely impact the financial performance of our film. The foregoing could have a material adverse effect on our business, results of operations and financial condition. The limited supply of motion picture screens compounds this product oversupply problem. Currently, a substantial majority of the motion picture screens in the United States typically are committed at any one time to only ten to fifteen films distributed nationally by major studio distributors. In addition, as a result of changes in the theatrical exhibition industry, including reorganizations and consolidations and the fact that major studio releases occupy more screens, the number of screens available to us when we want to release a picture may decrease. If the number of motion picture screens decreases, box office receipts, and the correlating future revenue streams, such as from home video and pay and free television, of our motion pictures may also decrease, which could have a material adverse effect on our business, results of operations and financial condition.
We are an independent motion picture production company engaged in developing, financing, producing and licensing theatrical motion pictures with budgets in the range of $2 million to $15 million for exhibition in domestic (i.e., the United States and Canada) and foreign theatrical markets and
for subsequent post- theatrical worldwide release in other forms of media, including DVD, home video, pay-per-view, and free television. We endeavor to release many of our motion pictures into wide-theatrical exhibition initially; however, certain of our motion pictures will either receive only a limited theatrical release, or may even be released directly to post theatrical markets, primarily DVD. Those pictures that receive either a limited theatrical release or a post theatrical release typically benefit from lower prints and advertising (“P & A”) costs and, in turn, may enjoy greater gross profit margins. Our recent domestic theatrical releases include Deal (April 2008), Noise (May 2008) and Autopsy (January 2009) and Night of the Demons (October 2010), all of which received limited US theatrical releases. We have completed the production of and expect to release for domestic theatrical exhibition two additional motion pictures in the summer of 2011, notably The Pool Boys and Nine Miles Down . We currently have six motion pictures in development that we anticipate will be released within the next two to three years (i.e., 2011 – 2013) Catwalk , Waxwork , Mortal Armor: The Legend of Galahad , Romeo Spy , The Winter Queen and Neuromancer. We may supplement these motion pictures releases with certain lower cost pictures not yet fully developed, as well as with selected third party acquisitions. We currently control copyright interests directly or through affiliates for 21 completed motion pictures. An additional twelve motion pictures for which we own distribution rights are now controlled by Arrowhead Target Fund Ltd., a former hedge fund investor, which receives all of the revenues from these pictures until recoupment of current indebtedness. A substantial portion of our library revenues are derived from only a few of our library titles. Through a combination of new productions and selected acquisitions, we plan to increase our film library to 50 to 75 pictures over the next five years, but there can be no assurance or guarantee that we will be able to do so. Our recent business model has focused on distribution in the post-theatrical markets for lower-cost, "genre" motion pictures. These pictures have enjoyed only a very limited theatrical release. While we expect to continue to make such pictures, our goal is to obtain a wider theatrical release for the majority of the pictures we intend to release over the next two to three years. We recorded total revenues of $ 1,808,000 and a net loss of $ 209,265 during the six month period ended December 31 , 2010 compared to total revenues of $ 2,983,000 and a profit after taxes of $ 536,790 in the six month period ended December 31 , 2009. As of July 1, 2010, the Group agreed in an Asset Transfer Agreement of that date to transfer the assets of Seven Arts Pictures Plc. (“PLC”) (including ownership of all subsidiaries) to Seven Arts Entertainment Inc. (“SAE”), a newly formed Nevada corporation (which became a wholly owned subsidiary of the Group effective January 27, 2011), in exchange for assumption by SAE of certain indebtedness and for one share of common stock of SAE for each ordinary share of PLC to be distributed subject to a future Registration Statement to be filed by the Group. This transfer was agreed to by shareholders at an Extraordinary General Meeting on June 11, 2010. The purpose of this transfer was to eliminate the Group’s status as a foreign private issuer which Management hopes to be effective as of mid 2011 and to assume compliance with all obligations of a domestic issuer under all applicable state and Federal securities laws. The Group’s intention is to redomesticate our business with no change in the economic interests of shareholders. The re-domestication is currently being considered by the SEC. An S1 to re-register the shares as SAE Inc. will be filed once the F1 has been agreed by the SEC. ------------ Seven Arts is a corporation organized under the laws of England and Wales. Our principal executive offices are located at 136-144 New Kings Road, London SW6 4LZ . Our telephone number is 44 (203) 006 8222. The US offices of our affiliate (Seven Arts Pictures Inc.) are located at 1801 Century Park East, Suite 1830 , Los Angeles, CA 90067 . Our US telephone number is (323) 372 3080. Our website is www.7artspictures.com.