SEC Company Response from Kartoon Studios, Inc. (TOON) (CIK 0001355848) (TOON) — Jun 17, 2011
Kartoon Studios, Inc. (TOON) (CIK 0001355848)
Date: June 17, 2011 · CIK: 0001355848 · Accession: 0001374826-11-000048
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-54389
Referenced dates: May 31, 2011
Letter
VIA EDGAR SUBMISSION Division of Corporate Finance United States Securities & Exchange Commission Re: Pacific Entertainment Corporation Form 10-12G Filed May 4, 2011 File No. 000-54389
Dear Ms. Rizzo:
On behalf of Pacific Entertainment Corporation (the “Company”), we have set forth below the Company’s responses to the comment letter dated May 31, 2011 that the Company received from the Staff of the United States Securities and Exchange Commission (the “Staff”) relating to the registration statement on Form 10 (File No. 000-54389) (the “Registration Statement”) filed by the Company on May 4, 2011.
The text of the Staff’s comments has been included in this letter in bold for your convenience, and we have numbered the paragraphs below to correspond to the numbers in the Staff’s letter. For your convenience, we have also set forth the Company’s response to each of the numbered comments immediately below each numbered comment.
Simultaneously herewith, the Company is filing Amendment No. 1 (the “Amendment”) to the Registration Statement. The Amendment has been revised to reflect the Company’s responses to the comments from the Staff and certain other updating and conforming changes. All page numbers in the responses below refer to the Amendment.
General
1. Please be advised that your registration statement will automatically become effective 60 days after filing. Upon effectiveness, you will become subject to the reporting requirements of the Securities Exchange Act of 1934, even if we have not cleared comments. In the event it appears that you will not be able to respond to all of our comments by the 60th day, you may wish to consider withdrawing your registration statement and re-filing it. Please confirm your understanding.
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
Response:
The Company notes the Staff’s comment and understands that the registration statement will automatically become effective sixty days after filing at which time the Company will become subject to the reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”).
2. Please advise as to why you filed a Form 10-Q on May 12, 2011.
Response:
The financial information included in the Registration Statement was for the fiscal years ended December 31, 2011 and 2010. The Company wanted to ensure that information appearing on the EDGAR system was updated to include current financial information for investors now looking for the Company’s disclosure on EDGAR. At the time the decision was made, the Company had not yet been notified as to whether the SEC would be reviewing the Registration Statement or, if it did, what level of review would be conducted. If current financial information were not provided, obviously the SEC would comment on that. If the current financial information were provided on Form 10-Q and there was a question as to whether to conduct a review, the SEC might take the availability of the information into consideration. If no review were conducted or a review was conducted but the Company would not receive comments before the quarterly results were due, the Company wanted to ensure that the current financial information was available to the public. The Company was aware that if a review was conducted it would be asked to amend to provide the first quarter information. In fact, we received notice that a full review was being conducted by the Staff on the same day the board met to approve the filing.
In addition, the Company was trading on the OTCPinks and, in order to maintain its “Current” status on the OTCPink system, it was required to file quarterly reports containing disclosure that is substantially similar to that required by Form 10-Q under Rule 15c2-11 of the Exchange Act. Rather than file two reports - one on the EDGAR system and one on the OTCMarkets system - the Company contacted OTCMarkets Group, Inc. to determine whether if it filed a Form 10-Q the filing would suffice to meet the “current public information” requirements for OTCPinks given that the Registration Statement had not yet gone effective. The Company was informed that the Form 10-Q would meet the requirement even though the Registration Statement had not yet gone effective. Filing the Form 10-Q would therefore suffice to update the financial information for the Company in both locations - on EDGAR and on OTCMarkets - making it easier for investors to find and avoiding the need for duplicate reports.
By telephonic comment received on June 1, 2011, the Staff further requested that the Company include in its response to this comment a description of the facts surrounding the move of the Company’s common stock from OTCPinks to the OTCQB. At the time the Company contacted OTCMarkets Group, Inc. to determine whether the filing of the Form 10-Q would suffice to maintain its “Current” status on OTCPinks, it was informed by OTCMarkets Group, Inc. that upon filing of the Form 10-Q the stock would automatically be moved to the OTCQB. It was the Company’s understanding that the stock would not be eligible to trade on the OTCQB until the Registration Statement had gone effective since the eligibility standards set for the OTCQB require the company to be a fully reporting company with the SEC. As a result, this early move was unanticipated.
Page 2
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
However, the Company was informed that the OTCMarkets system is set up to automatically move the stock from the OTCPinks to the OTCQB upon filing by a company trading on the OTCPinks of both a registration statement on Form 10 and a Form 10-Q, regardless of whether the registration statement is then effective. We do not know whether the automatic move is the result of the OTCMarkets Group, Inc. defining the filing of these documents as “fully reporting” regardless of timing or as a presumption that the Form 10 would be effective prior to filing of a Form 10-Q. The Company advised the OTCMarkets Group, Inc. representative that the Registration Statement was not effective and that it was therefore not technically a fully reporting company. In addition, the Company asked what would happen if the Registration Statement were withdrawn either at the request of the Staff or voluntarily. The response was that the OTCMarkets would figure something out at that time. Because the Company was confident that any comments it might receive from the Staff could be addressed without withdrawal of the Registration Statement, the Company determined to proceed with the filing of the Form 10-Q for the afore-mentioned reasons despite the early transition of the stock to the OTCQB. The Company filed the Registration Statement in order to make itself eligible to move to the OTCQB. However, that was not the reason for filing the Form 10-Q.
Forward Looking Statements
3. Please revise the first sentence of this section and similar disclosure on page 8 to clarify that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 do not apply to you or advise.
Response:
The language in both sections has been revised in the Amendment to remove all reference to the Private Securities Litigation Reform Act of 1995. The disclosure includes revised cautionary advise to investors not to rely on forward-looking statements.
Business
General
4. Please include in one of your introductory paragraphs your revenues, assets and losses for the most recent audited period and interim stub. This snapshot will help investors evaluate the disclosure as they read the filing.
Response:
The disclosure has been revised on page 2 to include the requested disclosure beneath the third introductory paragraph.
Distribution
5. Please advise as to what you mean by “primary customer” in the second paragraph of this section. In addition, please revise to clarify which products are your “core products”.
Page 3
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
Response:
The disclosure has been revised to eliminate use of the terms “primary customers” and “core products” and to clarify that the discussion relates to the Company’s DVD and CD products.
6. Please provide quantitative information regarding the percentage of your products that you self-distribute and the percentage of your products that are distributed by third-party distributors. In addition, please provide quantitative information to clarify what you mean by “a variety” of third-party distributors.
Response:
The term “a variety” of third-party distributors was meant to indicate different types of distributors rather than number. However, because the largest of the third-party distributors of the Company’s DVD and CD products only accounted for 3.9% of gross sales in 2010, the reference has been removed and the language has been adjusted in paragraph 2 under “Distribution” on page 2 to clarify that the third-party distributors of these products only accounted for a combined 11% of gross sales in 2010.
7. Please provide support for your statement that Motta Internacional is “recognized throughout the industry as a founding pioneer of the duty-free retail marketplace as well as a premier distributor of high quality merchandise.” Alternatively, please remove this statement. Additionally, please advise as to when your agreement with Motta Internacional expired. Finally, please describe the material terms of your relationship with Motta Internacional and, to the extent you are still operating under the expired agreement, please file this agreement as an exhibit to your registration statement or advise.
Response:
Reference to Motta Internacional has been deleted from the disclosure on page 2. The information was originally included to show the existence of an international market for the Company’s DVD and CD products. However, the relationship accounted for less than 1% of gross sales in 2010 and is therefore not considered to be material. Because it is not considered to be material, the expired agreement has not been filed as an exhibit to the Amendment.
8. Please revise the last paragraph of this section to discuss the concentration of risk you experience with respect to both of your product lines.
Response:
The disclosure has been amended by the deletion of prior disclosure and the addition of two new paragraphs at the end of the “Distribution” section regarding risks of concentration associated with the DVD and CD product line and risks of concentration associated with licensed product lines.
Products
9. Please revise to describe the material terms of your agreement with Jakks Pacific’s Tollytots and what you mean by “exclusive categories” and “non-exclusive categories.” Please also revise your disclosure to update the status of the development of musical and early learning toys by Tollytots. In addition, please revise to describe the material terms of your agreements with Precious Moments, Inc. and with Dr. Ritblatt, and file these agreements as exhibits to your registration statement or advise.
Page 4
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
Response:
The disclosure has been revised on pages 3, 4 and 10 to expand discussion of the terms of the Company’s agreement with Jakks Pacific and to include information regarding the schedule for introduction of the initial products in that line. The disclosure has also been revised to include a discussion of the anticipated decrease in revenues expected to result from the gap between the cessation of sales by Battat Incorporated and the introduction of the new product line.
A new disclosure heading has been added on page 4 to disclose the terms of the joint venture agreement with Dr. Ritblatt. The disclosure was moved to a new subheading in order to avoid breaking up the disclosure on products with a discussion of those terms and the disclosure regarding the agreement under the “Products” subheading was adjusted to expand the disclosure on the intellectual property and Dr. Ritblatt. The Joint Venture Agreement between the Company and Dr. Ritblatt, as well as the Operating Agreement for Circle of Education, LLC, have been filed as Exhibits 10.14 and 10.15 to the Amendment.
The disclosure has been revised on pages 1, 4 and 11 of the Amendment to delete prior disclosure regarding the terms of the Company’s agreement with Precious Moments, Inc., which is not regarded as material, and to substitute that disclosure with a statement regarding the number of DVDs being licensed and a brief description of the royalty payments. The prior disclosure was included to demonstrate the Company’s efforts to expand its DVD and CD product line through the license of third party brands and was not intended to be a statement as to materiality of the contract.
10. Please revise to remove the words “so successful among children and parents around the world” from the fourth paragraph of this section as this statement is subjective.
Response:
The referenced paragraph, which now appears on page 3, has been revised as requested with corresponding changes to paragraph 4 on page 10.
11. Please advise as to what is meant by the disclosure in the fifth paragraph of this section that “we have created custom products using the Baby Genius brand for several book and music premiums, including Taco Bell and Gerber.”
Response:
Through third party licensees, the Company has been able to offer customized products to companies like Taco Bell and Gerber that can be offered as promotional items. For instance, little books incorporating the Baby Genius characters were created for Taco Bell and were included in kids meals. A statement has been added to the disclosure by way of example on page 3.
Page 5
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
12. Please revise to clarify what you mean by “launched a line” of classic movies and television programs on page 3. For example, please revise to clarify whether these programs aired on television or sold as DVDs or both. In addition, please revise to clarify what you mean by “classic movies and television programs.”
Response:
The disclosure has been revised on pages 2 and 3 in response to the Staff’s comment.
13. We note your disclosure on page 4 that you obtained an initial voting and economic interest of 75% of the outstanding units of the newly formed company in exchange for the contribution of “all intellectual property rights the Company had in the Circle of Education program.” Please revise to clarify which intellectual property rights you provided to the company formed in the joint venture described on page 4. In this regard, we note your disclosure regarding intellectual property on page 8.
Response:
Because the intellectual property developed for Circle of Education resulted from comprehensive research into the use of music-based curriculum and child development, and did not include registered trademarks, copyrights or patents, it is difficult to provide an exact description. The disclosure has been revised on pages 4 and 9 to include a list of the types of intellectual property included in the transfer.
Marketing
14. Please revise to remove the words “valuable” ways and “exciting” membership kit from the second sentence in the f
Show Raw Text
CORRESP
1
filename1.htm
pacific_corresp.htm
Law Offices of
Gretchen Cowen, APC
6100 Innovation Way § Carlsbad, California 92009
Telephone (760) 931-0903 § Facsimile (760) 438-3026
June 16, 2011
VIA EDGAR SUBMISSION
Division of Corporate Finance
United States Securities & Exchange Commission
Mail Stop 3561
100 F Street, NE
Washington, DC 20549
Attn: Ms. Julie Rizzo, Attorney-Advisor
Re: Pacific Entertainment Corporation
Form 10-12G
Filed May 4, 2011
File No. 000-54389
Dear Ms. Rizzo:
On behalf of Pacific Entertainment Corporation (the “Company”), we have set forth below the Company’s responses to the comment letter dated May 31, 2011 that the Company received from the Staff of the United States Securities and Exchange Commission (the “Staff”) relating to the registration statement on Form 10 (File No. 000-54389) (the “Registration Statement”) filed by the Company on May 4, 2011.
The text of the Staff’s comments has been included in this letter in bold for your convenience, and we have numbered the paragraphs below to correspond to the numbers in the Staff’s letter. For your convenience, we have also set forth the Company’s response to each of the numbered comments immediately below each numbered comment.
Simultaneously herewith, the Company is filing Amendment No. 1 (the “Amendment”) to the Registration Statement. The Amendment has been revised to reflect the Company’s responses to the comments from the Staff and certain other updating and conforming changes. All page numbers in the responses below refer to the Amendment.
General
1. Please be advised that your registration statement will automatically become effective 60 days after filing. Upon effectiveness, you will become subject to the reporting requirements of the Securities Exchange Act of 1934, even if we have not cleared comments. In the event it appears that you will not be able to respond to all of our comments by the 60th day, you may wish to consider withdrawing your registration statement and re-filing it. Please confirm your understanding.
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
Response:
The Company notes the Staff’s comment and understands that the registration statement will automatically become effective sixty days after filing at which time the Company will become subject to the reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”).
2. Please advise as to why you filed a Form 10-Q on May 12, 2011.
Response:
The financial information included in the Registration Statement was for the fiscal years ended December 31, 2011 and 2010. The Company wanted to ensure that information appearing on the EDGAR system was updated to include current financial information for investors now looking for the Company’s disclosure on EDGAR. At the time the decision was made, the Company had not yet been notified as to whether the SEC would be reviewing the Registration Statement or, if it did, what level of review would be conducted. If current financial information were not provided, obviously the SEC would comment on that. If the current financial information were provided on Form 10-Q and there was a question as to whether to conduct a review, the SEC might take the availability of the information into consideration. If no review were conducted or a review was conducted but the Company would not receive comments before the quarterly results were due, the Company wanted to ensure that the current financial information was available to the public. The Company was aware that if a review was conducted it would be asked to amend to provide the first quarter information. In fact, we received notice that a full review was being conducted by the Staff on the same day the board met to approve the filing.
In addition, the Company was trading on the OTCPinks and, in order to maintain its “Current” status on the OTCPink system, it was required to file quarterly reports containing disclosure that is substantially similar to that required by Form 10-Q under Rule 15c2-11 of the Exchange Act. Rather than file two reports - one on the EDGAR system and one on the OTCMarkets system - the Company contacted OTCMarkets Group, Inc. to determine whether if it filed a Form 10-Q the filing would suffice to meet the “current public information” requirements for OTCPinks given that the Registration Statement had not yet gone effective. The Company was informed that the Form 10-Q would meet the requirement even though the Registration Statement had not yet gone effective. Filing the Form 10-Q would therefore suffice to update the financial information for the Company in both locations - on EDGAR and on OTCMarkets - making it easier for investors to find and avoiding the need for duplicate reports.
By telephonic comment received on June 1, 2011, the Staff further requested that the Company include in its response to this comment a description of the facts surrounding the move of the Company’s common stock from OTCPinks to the OTCQB. At the time the Company contacted OTCMarkets Group, Inc. to determine whether the filing of the Form 10-Q would suffice to maintain its “Current” status on OTCPinks, it was informed by OTCMarkets Group, Inc. that upon filing of the Form 10-Q the stock would automatically be moved to the OTCQB. It was the Company’s understanding that the stock would not be eligible to trade on the OTCQB until the Registration Statement had gone effective since the eligibility standards set for the OTCQB require the company to be a fully reporting company with the SEC. As a result, this early move was unanticipated.
Page 2
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
However, the Company was informed that the OTCMarkets system is set up to automatically move the stock from the OTCPinks to the OTCQB upon filing by a company trading on the OTCPinks of both a registration statement on Form 10 and a Form 10-Q, regardless of whether the registration statement is then effective. We do not know whether the automatic move is the result of the OTCMarkets Group, Inc. defining the filing of these documents as “fully reporting” regardless of timing or as a presumption that the Form 10 would be effective prior to filing of a Form 10-Q. The Company advised the OTCMarkets Group, Inc. representative that the Registration Statement was not effective and that it was therefore not technically a fully reporting company. In addition, the Company asked what would happen if the Registration Statement were withdrawn either at the request of the Staff or voluntarily. The response was that the OTCMarkets would figure something out at that time. Because the Company was confident that any comments it might receive from the Staff could be addressed without withdrawal of the Registration Statement, the Company determined to proceed with the filing of the Form 10-Q for the afore-mentioned reasons despite the early transition of the stock to the OTCQB. The Company filed the Registration Statement in order to make itself eligible to move to the OTCQB. However, that was not the reason for filing the Form 10-Q.
Forward Looking Statements
3. Please revise the first sentence of this section and similar disclosure on page 8 to clarify that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 do not apply to you or advise.
Response:
The language in both sections has been revised in the Amendment to remove all reference to the Private Securities Litigation Reform Act of 1995. The disclosure includes revised cautionary advise to investors not to rely on forward-looking statements.
Business
General
4. Please include in one of your introductory paragraphs your revenues, assets and losses for the most recent audited period and interim stub. This snapshot will help investors evaluate the disclosure as they read the filing.
Response:
The disclosure has been revised on page 2 to include the requested disclosure beneath the third introductory paragraph.
Distribution
5. Please advise as to what you mean by “primary customer” in the second paragraph of this section. In addition, please revise to clarify which products are your “core products”.
Page 3
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
Response:
The disclosure has been revised to eliminate use of the terms “primary customers” and “core products” and to clarify that the discussion relates to the Company’s DVD and CD products.
6. Please provide quantitative information regarding the percentage of your products that you self-distribute and the percentage of your products that are distributed by third-party distributors. In addition, please provide quantitative information to clarify what you mean by “a variety” of third-party distributors.
Response:
The term “a variety” of third-party distributors was meant to indicate different types of distributors rather than number. However, because the largest of the third-party distributors of the Company’s DVD and CD products only accounted for 3.9% of gross sales in 2010, the reference has been removed and the language has been adjusted in paragraph 2 under “Distribution” on page 2 to clarify that the third-party distributors of these products only accounted for a combined 11% of gross sales in 2010.
7. Please provide support for your statement that Motta Internacional is “recognized throughout the industry as a founding pioneer of the duty-free retail marketplace as well as a premier distributor of high quality merchandise.” Alternatively, please remove this statement. Additionally, please advise as to when your agreement with Motta Internacional expired. Finally, please describe the material terms of your relationship with Motta Internacional and, to the extent you are still operating under the expired agreement, please file this agreement as an exhibit to your registration statement or advise.
Response:
Reference to Motta Internacional has been deleted from the disclosure on page 2. The information was originally included to show the existence of an international market for the Company’s DVD and CD products. However, the relationship accounted for less than 1% of gross sales in 2010 and is therefore not considered to be material. Because it is not considered to be material, the expired agreement has not been filed as an exhibit to the Amendment.
8. Please revise the last paragraph of this section to discuss the concentration of risk you experience with respect to both of your product lines.
Response:
The disclosure has been amended by the deletion of prior disclosure and the addition of two new paragraphs at the end of the “Distribution” section regarding risks of concentration associated with the DVD and CD product line and risks of concentration associated with licensed product lines.
Products
9. Please revise to describe the material terms of your agreement with Jakks Pacific’s Tollytots and what you mean by “exclusive categories” and “non-exclusive categories.” Please also revise your disclosure to update the status of the development of musical and early learning toys by Tollytots. In addition, please revise to describe the material terms of your agreements with Precious Moments, Inc. and with Dr. Ritblatt, and file these agreements as exhibits to your registration statement or advise.
Page 4
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
Response:
The disclosure has been revised on pages 3, 4 and 10 to expand discussion of the terms of the Company’s agreement with Jakks Pacific and to include information regarding the schedule for introduction of the initial products in that line. The disclosure has also been revised to include a discussion of the anticipated decrease in revenues expected to result from the gap between the cessation of sales by Battat Incorporated and the introduction of the new product line.
A new disclosure heading has been added on page 4 to disclose the terms of the joint venture agreement with Dr. Ritblatt. The disclosure was moved to a new subheading in order to avoid breaking up the disclosure on products with a discussion of those terms and the disclosure regarding the agreement under the “Products” subheading was adjusted to expand the disclosure on the intellectual property and Dr. Ritblatt. The Joint Venture Agreement between the Company and Dr. Ritblatt, as well as the Operating Agreement for Circle of Education, LLC, have been filed as Exhibits 10.14 and 10.15 to the Amendment.
The disclosure has been revised on pages 1, 4 and 11 of the Amendment to delete prior disclosure regarding the terms of the Company’s agreement with Precious Moments, Inc., which is not regarded as material, and to substitute that disclosure with a statement regarding the number of DVDs being licensed and a brief description of the royalty payments. The prior disclosure was included to demonstrate the Company’s efforts to expand its DVD and CD product line through the license of third party brands and was not intended to be a statement as to materiality of the contract.
10. Please revise to remove the words “so successful among children and parents around the world” from the fourth paragraph of this section as this statement is subjective.
Response:
The referenced paragraph, which now appears on page 3, has been revised as requested with corresponding changes to paragraph 4 on page 10.
11. Please advise as to what is meant by the disclosure in the fifth paragraph of this section that “we have created custom products using the Baby Genius brand for several book and music premiums, including Taco Bell and Gerber.”
Response:
Through third party licensees, the Company has been able to offer customized products to companies like Taco Bell and Gerber that can be offered as promotional items. For instance, little books incorporating the Baby Genius characters were created for Taco Bell and were included in kids meals. A statement has been added to the disclosure by way of example on page 3.
Page 5
United States Securities & Exchange Commission
Attn: Ms. Julie Rizzo, Attorney-Advisor
June 16, 2011
12. Please revise to clarify what you mean by “launched a line” of classic movies and television programs on page 3. For example, please revise to clarify whether these programs aired on television or sold as DVDs or both. In addition, please revise to clarify what you mean by “classic movies and television programs.”
Response:
The disclosure has been revised on pages 2 and 3 in response to the Staff’s comment.
13. We note your disclosure on page 4 that you obtained an initial voting and economic interest of 75% of the outstanding units of the newly formed company in exchange for the contribution of “all intellectual property rights the Company had in the Circle of Education program.” Please revise to clarify which intellectual property rights you provided to the company formed in the joint venture described on page 4. In this regard, we note your disclosure regarding intellectual property on page 8.
Response:
Because the intellectual property developed for Circle of Education resulted from comprehensive research into the use of music-based curriculum and child development, and did not include registered trademarks, copyrights or patents, it is difficult to provide an exact description. The disclosure has been revised on pages 4 and 9 to include a list of the types of intellectual property included in the transfer.
Marketing
14. Please revise to remove the words “valuable” ways and “exciting” membership kit from the second sentence in the f