CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO …

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s:\penthouse\status reports\first status report.docx

WEISS & SPEES LLP

Michael H. Weiss (SBN 107481)

[email protected]

Laura J. Meltzer (SBN 151889)

1925 Century Park East, Suite 650

Los Angeles, California 90067

Telephone: 424-245-3100

Facsimile: 424-217-4160

[Proposed] Attorneys for Debtor and Debtor

in Possession

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

SAN FERNANDO VALLEY DIVISION

In re:

Penthouse Global Media, Inc.,

Debtor.

Lead Case No. 1:18-bk-10098-MB

Chapter 11

Jointly Administered With:

Case No. 1:18-bk-10099-MB














DEBTORS’ FIRST STATUS REPORT

Status Conference:

Date: February 6, 2018

Time: 1:30 pm

Place: Courtroom 303

21041 Burbank Blvd.

Woodland Hills, CA 91367

In re:

Penthouse Global Broadcasting, Inc.

Penthouse Global Licensing, Inc.

Penthouse Global Digital, Inc.

Penthouse Global Publishing, Inc.

GMI Online Ventures, Ltd.

Penthouse Digital Media Productions, Inc.

Tan Door Media, Inc.

Penthouse Images Acquisitions, Ltd.

Pure Entertainment Telecommunications, Inc.

XVHUB Group, Inc.

General Media Communications, Inc.

General Media Entertainment, Inc.

Danni Ashe, Inc.

Streamray Studios, Inc.

Debtors.

x Affects All Debtors

□ Affects

□ Affects

□ Affects

□ Affects

□ See attached for additional Debtors

Case 1:18-bk-10098-MB Doc 55 Filed 01/24/18 Entered 01/24/18 09:53:40 Desc Main Document Page 1 of 29

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A. A brief description of the debtor’s business and operations, if any, and the principal

assets and liabilities of the estate.

1. Debtors’ businesses and operations

Penthouse™, the iconic men’s brand, was founded by Bob Guccione in 1965 and has been a

leader in the Adult Entertainment Industry for over 50 years. The primary Penthouse entity is Penthouse

Global Media, Inc., (“PGMI”) (Case No. 1:18-bk-10098). It owns all of the shares of all of the other

Debtors. Its sole shareholder is Kelly Holland (“Holland”).

PGMI is comprised of four operating divisions:

i. Penthouse Global Broadcasting, Inc. (PGBI) (CASE No. 1:18-10099): Penthouse operates

eight channels in over 100 countries. PGBI accounts for approximately 50% of the

companies’ revenue. Its divisions are

1. General Media Entertainment Inc. (CASE NO. 1:18-10111) holds the legacy

copyrights, movies, remake rights etc., acquired prior to the first Penthouse chapter 11

in 2004. The Debtors will move to transfer all of its assets to PGBI and then dismiss

this case. The only known creditor is Dream Media/Exworks.

2. Penthouse Digital Media, Inc. (CASE NO. NO. 1:18-10105) holds the copyrights,

moves, remake rights created between 2006 and 2016. The Debtors will transfer all of

its assets to PGBI and then dismiss the case. The only known creditor is Dream

Media/Exworks.

3. Pure Entertainment Telecommunications (CASE NO. 1:18-10108) holds “1-800”

telephone numbers, all assets will be transferred to PGBI and then case will be

dismissed. The Debtors will transfer all of its assets to PGBI and then dismiss the

case. The only known creditor is Dream Media/Exworks.

ii. Penthouse Global Publishing, Inc. (CASE NO. 1:18-10103) (“PGPI”): PGPI publishes

Penthouse Magazine as well as Penthouse Letters magazine upon which the Penthouse

brand is based.

iii. Penthouse Global Licensing, Inc. (“PGLI”) (Case No. 1:18-10101): PGLI has licensing


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agreements that rely on its extensive trademark and media library. Licenses range from

apparel to fragrances and books. Penthouse Images Acquisitions, Inc. (Case No. 1:18-

2016. PGMI plans to transfer all of PIAI’s assets to PGLI and then dismiss the case. The

only known creditor is Dream Media/Exworks.

iv. Penthouse Global Digital, Inc. (CASE NO. 1:18-10102) (“PGDI”): Penthouse runs

membership websites as well as several free websites.

v. Legacy companies without assets. PGMI acquired the following companies in 2017 in

connection with the acquisition of the Penthouse group of companies from FriendFinder:

Danni Ashe Inc. (Case No. 1:18-10112); General Media Communications, Inc. (Case No.

1:18-10110); Streamray Studios, Inc. (Case No. 1:18-10113); XVHUB Group (Case No.

1:18-10109). The Debtors believe that none of these companies has any assets of any

value and will soon seek to dismiss them for cause under 11 U.S.C. § 1112(b)(1).

vi. PGMI’s acquisition of the Penthouse group of companies. Founder Bob Guccione lost the

business in bankruptcy in 2004 following the loss of his wife to cancer and his own cancer

diagnosis. Marc Bell Capital Partners in 2004 acquired the Penthouse group of

companies. In turn, that entity was acquired by FriendFinder Networks, a collection of

casual dating sites, in 2007.

vii. In early 2016, a ten-year veteran with the company, Holland, who had worked as the

Executive Producer, President and, ultimately, Managing Director of Penthouse, acquired

the Penthouse group of companies through PGMI in a stock purchase agreement with

FriendFinder Networks. Penthouse currently has 30 employees, multiple outside

consultants and publishing contributors with gross revenues of $10,000,000.

2. Debtors’ assets and liabilities

The Debtors’ primary assets are its intellectual property. The value of those assets is not known

with any specificity. An appraisal done in late 2014 indicated that the value of the intellectual property

was approximately $17,000,000.

The Debtor has one secured creditor – ExWorks Capital Fund I, Ltd. (“ExWorks”). The Debtors


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were advised October 2017 that the obligation was assigned to Dream Media Corporation (“DMC”). The

amount due in the loan, according the Debtors’ calculations, is approximately $10,300,000.

Unsecured trade debt appears to be approximately $3,000,000 to $3,500,000.

B. Events leading to the filing of this case.

In 2016, PGMI acquired the Penthouse group of companies for a purchase price of $6,500,000

with a $9,000,000 loan at 23% interest through Ex Works Capital Partners Fund I (“Exworks”). In

October or November of 2017, PGMI received notice that the loan was acquired by Dream Media

Corporation (“DMC”). At the time of acquisition, the Penthouse group of companies acquired by PGMI

had negative EBITDA of $2,600,000 and opened its first day with approximately $750,000 in working

capital after paying professionals about $1,470,000 and ExWorks loan fees of $1,030,000. PGMI

streamlined its operations which allowed it to close the first year with a positive $200,000 positive

EBITDA.

The Exworks loan was for only one year with the right to extend for a second year. The parties

always contemplated that new financing would be need to continue operations. In 2017, PGMI sought

new capital partners to restructure its debt. During that process, PGMI discovered significant

discrepancies within its accounting department, despite quarterly audits by ExWorks. These

discrepancies included falsified financials and embezzlement. In August 2017, PGMI’s controller

resigned, and PGMI terminated its CFO/COO in September of that year.

PGMI engaged the accounting firm TGG as well as re-engaged a financial executive and Keith

Whitworth, CPA, who had been involved in creating PGMI’s original business plan and had a familiarity

with its accounting and operations. Catherine Brandt, a former executive with Merck Pharmaceutical

and Business Development Director at PGMI was named COO. Simultaneously, PGMI initiated

additional personnel and operational changes were implemented without compromising operations.

While PGMI had negative $1,700,000 at the close of its second quarter on June 30, 2017, it nevertheless

ended that year slightly positive.

Beginning in October of 2017 and predicated on re-establishing accurate financials, PGMI

returned to negotiations with several groups to establish a sustainable capital structure. During this


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process PGMI and Board member, Robert Campbell, kept in weekly communication with Ex Works.

The company’s plan and progress in re-organizing its financials was clearly communicated. In early

January negotiations broke down. On January 8, 2018, DMC advised the Debtors of its intent to seek the

appointment of a receiver on an ex parte basis in the Los Angeles Superior Court on January 12, 2018.

In anticipation of that hearing, the Debtors filed these cases.

C. The Debtors’ goals in these cases.

The Debtors seek to reorganize by adding new capital and entering into certain long term prepaid

licensing agreements.

D. The principal business and financial problems facing the Debtors.

The Debtors believe that they have turned their business around operationally and that they can

operate on profitably subject to a restructuring of debt and the infusion additional capital.

E. The Debtors’ plans to address these problems.

The Debtors are in negotiation to acquire long term capital through a long term licensing

agreement that will attract sufficient funds to reorganize the company on largely a debt free basis.

F. The main legal disputes facing the Debtors and its recommendation how to resolve

them.

The primary legal issue, although there are others, is with the claim of DMC/ExWorks. The

Debtors believe they have several significant defenses to the claim, including usury, re-characterizing the

debt as equity and avoidance of certain obligation as being for less than reasonably equivalent value.

The Debtors recommend that the Court order an immediate mediation between the Debtors and

DMC/ExWorks.

G. The Debtors are NOT a “health care business” as defined in 11 U.S.C. § 101(27A).

H. The Debtors are NOT small business debtors as defined in 11 U.S.C. § 101(51D).

I. These cases are NOT single asset real estate cases as contemplated in 11 U.S.C.

§101(51B)

J. The Debtors compliance with all of its duties under 11 U.S.C. §§ 521, 1106, 1107,


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F.R.B.P. 1007 and all applicable guidelines of the Office of the United States Trustee.

The Debtors have moved for an extension of time to file their schedules until February 23, 2018.

The Debtors have agreed with the OUST to allow them until January 29, 2018 to make their initial

disclosures to that office.

K. The Debtors’ use of cash collateral.

To date, the Debtors have used $100,318.54 in cash collateral with the consent of DMC. As of

this date, DMC has not consented to the further use of cash collateral.

L. Professionals.

The Debtors anticipate that they will retain the following professionals:

Name Role Anticipated Fees for the next 90 days

Weiss & Spees, LLP General Bankruptcy Counsel $200,000

Law Offices of Alan

Gelbard

Special Litigation Counsel $25,000

Akerman, LLP Special Litigation Counsel $25,000

Pryor Cashman, LLP Special Litigation Counsel unknown

TBD Accountants unknown

Glass Ratner CRO $30,000

M. The Debtors’ projected income, expenses, and cash flow

1. Expected income and expenses for first six months of the case

See attached Exhibit 1

2. Actual results for the 12 months prior to the filing of the case

See attached Exhibit 2

N. Proposed deadlines for filing and objecting to claims.

Filing: March 31, 2018

Objection: May 30, 2018

O. Unexpired leases

Debtor has one lease of real property. It expects to assume that lease within the requirements of

11 U.S.C § 365(c).

P. Other executory contracts and timetable for assumption of rejection

The Debtors have hundreds of such contracts. The Debtors expect to assume or reject them in


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connection with their plan.

Q. Anticipated sales of assets by motion or in connection with a plan.

None are anticipated at this time. However, the Debtors have received some expressions of

interest and will advise the court, the committee and DMC as those expressions ripen.

R. Proposed deadlines for the filing of a disclosure statement and plan and status of

proposing a plan

Disclosure Statement: May 11, 2018

Plan: July 16, 2018

Before proposing a plan, the Debtors need finalize their long term licensing transaction and

related financing. Debtors are hopeful that those transactions can be finalized shortly. The Debtors will

update the Court on the progress as soon as practicable.

Dated: January 23, 2018 WEISS & SPEES, LLP

/s Michael H. Weiss

Michael H. Weiss

Attorneys for Debtors

PENTHOUSE GLOBAL MEDIA, INC., et al.


EXHIBIT 1


Cash Flow Pojections January to April 2018‐

January January Jan/Feb February February February Feb/March March March March March April April April April

BROADCASTING 1/15 to 1/19 1/22 to 1/261/29 to 2/2 2/5 to 2/9 2/12 to 2/16 2/19 to 2/23 2/26 to 3/2 3/5 to 3/9 3/12 to 3/13/19 to 3/23 3/26 to 3/3 4/2 to 4/6 4/9 to 4/13 4/16 to 4/20 4/23 to 4/27

Bulsatcom AD‐ high balance 2017‐ 8,848 8,848 8,848 8,848

CAIW Media B.V. 2,163 2,163 2,163

Canal + International 15,720 15,720 15,720 15,720

Canal Satellite Caraibes 4,914 4,914 4,914

Canal + REUNION 8,700 8,700 8,700 8,700

Coditel Brabant sprl 577 577 577 577

Deutsche Telekom AG (DTAG) 21,148 21,148 21,148

Digital Cable Group AG 500 500 500 500

Divan TV Service (EURO) 498 498 498 498

Groupe Canal + 12,263 12,263 12,263 12,263

Hot Telecommunication Systems Ltd 4,159 4,770 4,770

Joyne B.V. 594 594 594 594

M7 19,209 19,209 19,209 19,209

Monaco Telecom 1,158 1,158 1,158 1,158

Net‐TV Zrt 1,180 1,180 1,180

Numericable 4,235 4,235 4,235 4,235

one.Vip DOO Skopje 475 475 475

Orange ‐ BELGIUM 4,258 4,258 4,258 4,258

Orange SA ‐ FRANCE 13,031 13,772 13,772 13,772

OTE SA ‐ Hellenic Telecommunications 3,724 3,724 3,724 3,724

OTE SA ‐ TVOD 446 446 446 446

PLAY boy LA/Quarterly 47,000

Proximus ‐ Belgacom SA 6,665 6,665 6,665 6,665

Sky Italia srl 7,000

Skynet iMotion Activities SA 401 401 401 401

Tele2 Netherlands B.V. 144 144 144

Telenet BVBA 20,362 20,362 20,362 20,362

Top Media Distribution Limited 400 400 400 400

TVN Dist / Nordelink Bulgaria Ltd. 1,345 1,345 1,345 1,345

Unitymedia NRW GmbH (UM)

UPC Romania (RON) 970 970 970 970

Vivacom TV 651 651 651 651

Vodafone Kabel Deutschland GmbH 288 288 288 288

Vodafone Libertel (T‐Mobile) 1,047 267 267 267

Ziggo Services B.V. 19,643 19,643 19,643 19,643

COLORADO SATELLITTE CONTRACT 83,000 83,000 83,000

Fifth Dimensions 12,771 12,771 12,771 12,771

96 Entertaiment/DirectTV 19,285 20,535 20,535 20,535

Telenet annual contrat

Bouygues 19,536 19,536 19,536 19,536

Telia 3,750 3,750 3,750

VIASAT Ukraine 500 500 500 500

Bizarre Video 9,000 9,000 9,000 9,000

salt

TOTAL BROADCAST 99,031 131,146 84,820 7,502 45,291 170,007 105,492 3,343 5,709 161,750 104,679 86,343 9,164 114,748 119,123 1,248,147.17$ total BRAODCAST

Total jan15 ‐30t 230,177 TOTAL Month 307,619 TOTAL Mon 380,973 TOTAL Mont 329,378


DIGITAL

Equinia 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000

Epoch 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000

VS CAM / Affiliate 2,000 2,000 2,000 2,000

SK Entertaiment ‐ life selector

MTACC ‐ Dating

Connected 1,500 1,500 1,500 1,500

Digital Subscription Revenues (Exworks Sweep Account) 60,000 60,000 60,000 60,000

TOTAL DIGITAL 11,000 74,500 11,000 11,000 11,000 74,500 11,000 11,000 11,000 13,000 72,500 11,000 11,000 14,500 60,000 408,000.00$ TOTAL DIGITAL

PUBLISHING

Curtis 7,800 8,600 37,000 65,000 40,000 63,000 40,000

POWERHOUSE 2,000 2,000 2,000 2,000

Threehouse 7,121 7,121 7,121 7,121

Subscription BoA ‐palm coast 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333

Midwest list

Zinio 5,000 5,000 5,000 5,000

Cybermania 20,000 20,000 20,000 20,000

TOTAL PUBLISHING 8,333 50,254 8,333 8,333 16,933 79,454 8,333 8,333 73,333 77,454 13,333 8,333 71,333 77,454 13,333 522,879.00$ TOTAL PUBLISHING

Licensing

Topco 43,000

TOTAL LICENSING 0 0 0 0 0 0 0 0 0 0 0 43,000 0 0 0 43,000.00$ TOTAL LICENSING

Revenue per week 118,364 255,900 104,153 26,835 73,224 323,961 124,825 22,676 90,042 252,204 190,512 148,676 91,497 206,702 192,456 2,222,026.17$

Licensing Agreement for DIP Financing 200,000 200,000 200,000 200,000 800,000.00$ TOTAL licensing dip

TOTAL REVENUES PER WEEK 118,364 455,900 104,153 26,835 73,224 523,961 124,825 22,676 90,042 452,204 190,512 148,676 91,497 406,702 192,456

Total Cash Projected per Month 574,264 Total February 728,172 Total Marc 880,259 Total April 839,331 3,022,026.17$

January January Jan/Feb February February February Feb/March March March March March April April April April

1/15 to 1/19 1/22 to 1/261/29 to 2/2 2/5 to 2/9 2/12 to 2/16 2/19 to 2/23 2/26 to 3/23/5 to 3/9 3/12 to 3/13/19 to 3/23 3/26 to 3/34/2 to 4/6 4/9 to 4/13 4/16 to 4/20 4/23 to 4/27

EXPENSES

Payroll including taxes 72,148 80,000 80,000 80,000 80,000 80,000 80,000

digital

licensing

publshng

broadcast

Professional fees corporate :breakout

C.HOCQUEL Inc. Catherine brandt COO 7,500 7,500 7,500 7,500 7,500 7,500 7,500

Keith withworth‐ CFO 3,333 3,333 3,333 3,333 3,333 3,333 3,333

safe Keeping Record 2,500 2,500 2,500 2,500 2,500 2,500 2,500

Professional fees broadcast

Sam Philips 1,500 1,500 1,500 1,500 1,500 1,500 1,500

Jose Ponce 4,000 4,000 4,000 4,000 4,000 4,000 4,000

Professional fees publishing

Barbara Pizio 3,000 3,000 3,000 3,000 3,000 3,000 3,000

Taxes others 7,000

Rent 22,500 22,500 22,500 22,500

utilities/storage/securities/phone/ 0 7,000 8,000 3,000 3,000 4,000 8,000 3,000 3,000 4,000 8,000 3,000 3,000 4,000 8,000

Insurances

Marsh 10,000 10,000 10,000 10,000

Aflack 5,000 2,500 2,500 2,500

Cal choice 25,339 26,000 26,000 26,000


Choice Builder 2,023 1,800 1,800 1,800

Broadcast COG

M7 0 64,000 64,000 64,000

Basmedia 0 10,000 10,000 10,000

Arkena 0 3,000 3,000 3,000

Contents licensing & buy 0 30,000 30,000 30,000 30,000

Contents Production in house 30,000 30,000 3,000

Agents Fees/ Europe OGUN /DMC US 8,000 8,000 8,000 8,000

Publishing COG

Creel ( Printing /Paper ) 58,294 59,000 58,300 59,000 58,300 59,000 58,300

Palm coast ( management subscription ) 7,900 5,000 4,396 5,000 5,000 5,000 5,000

Clark Freight ‐distribution 10,524 10,000 10,000 10,000 10,000 10,000

USPS / Palm Coast Subscription postage 13,000 7,000 13,000 7,000 13,000 7,000

Talents/editor/ art( Getty ) 10,000 30,000 30,000 30,000

Professional fees/ Willet Associate 4,600 5,000 5,000 5,000

Digital COG

Mojohost 11,000 11,000 11,000 11,000

Contractors : Webdot & Manassi 8,000 12,000 12,000 12,000

Affiliates platform/Paxum 2,000 8,000 8,000 8,000

Outside‐Legal ‐ IP‐Trademarks 0 0 15,000 15,000

divers expenses( ex :uline‐ travel‐ trade show ) 400 0 5,000 2,000 2,000 2,000

total 400 273,060 179,100 171,833 118,696 201,633 103,000 253,833 41,000 202,933 140,000 167,000 142,833 96,100 231,833

Payment of monthly interest to Exworks 60,000 60,000 60,000 60,000

PROFESSIONAL FEES 75,000 75,000 75,000 75,000

Total expenses 400 408,060 179,100 171,833 118,696 336,633 103,000 253,833 41,000 202,933 275,000 167,000 142,833 96,100 366,833

SUMMARY

TOTAL EXPENSES 400 408,060 179,100 171,833 118,696 336,633 103,000 253,833 41,000 202,933 275,000 167,000 142,833 96,100 366,833

TOTAL REVENUES PER WEEK 118,364 455,900 104,153 26,835 73,224 523,961 124,825 22,676 90,042 452,204 190,512 148,676 91,497 406,702 192,456

Cash Balance per week 117,964 47,840 (74,947) (144,998) (45,472) 187,328 21,825 (231,157) 49,042 249,271 (84,488) (18,324) (51,336) 310,602 (174,377)

839,331

End month cash flow January 165,804 February (78,090) March 4,493 April 66,565

Total cash end of april $158,772


EXHIBIT 2



















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CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO …