More than a week after Savannah-based Medient Studios ousted its CEO and founder Manu Kumaran, questions remain as to whether the movie company can maneuver its way out of the murky financial depths overshadowing its plans for a large studioplex in Effingham County.
On June 12, the company announced it had fired Kumaran and appointed its corporate financial chief, Jake Shapiro, to take his spot. Board member Charles Koppelman, an entertainment industry veteran, was named chairman of the board.
In a call to investors last week, Shapiro said he is committed to fixing the company’s problems and forging ahead with plans for the $90 million studioplex on 1,550 acres in Effingham County, albeit on a smaller, less ambitious scale.
What remains unclear is whether Medient can raise the capital it needs to continue making movies, build the studio and meet its commitment to its landlord, the Effingham County Industrial Development Authority, which owns the parcel and has a hand in developing it.
The Effingham IDA met Thursday evening and delayed approval of a supplemental agreement that would have clarified some of Medient’s deadlines pertaining to job creation and construction, prompting some discussion on the project’s status.
“We feel it’s prudent to hold off on finishing the agreement until things are more settled,” said board member Glenn Weston.
“Before, we were kind of in fantasy land … and if it’s significantly different, then the whole thing needs to be revisited,” said Dick Knowlton.
“There’s some questions around it, but it’s just not time to ask those. We need to see if anything else is going to change, and then we’ll talk about it,” said Chap Bennett.
John Henry, CEO of the IDA, said it would be premature to take a vote on anything before seeing what changes the new leadership is making.
In a report prepared for the IDA, Henry said he learned of the management change on June 9 from Shapiro and Megan Murphy, vice president of operations, and later met with them on June 12 to discuss their concerns.
“The primary outcome of that meeting was that Medient planned to focus on revenue generating portions of the development. They desired to tone down the architectural aspects and focus on building one facility at a time,” said Henry in his report.
He said several meetings will be held over the next couple of weeks to hammer out more details and the board is reserving further comment as it moves forward “in good faith” with Medient.
Medient has tried to allay concerns as well through emails to investors and a press release issued Friday announcing progress on the complex.
The company said it had selected reputable firm Hussey, Gay, Bell & DeYoung as its project engineer and completed initial studio designs. It also says it has paid all outstanding vendors, contractors and consultants involved in the studioplex.
“In short, preconstruction work is progressing, a new master plan is being completed, the interior architect is being selected and the complete studio drawings should be commenced imminently,” said the press release.
Share dilution
For investors, the real news will come when the company clarifies its financing and revenue — the main issues that plagued Kumaran’s tenure at Medient. According to its latest filing with the federal Securities and Exchange Commission, the company generated just $29,143 in revenue for the first three months of this year.
Kumaran’s funding problems led to a decision to issue millions of additional common shares, diluting the stock’s value to sub-penny level prices and upsetting shareholders who watched as the stock’s value entered free fall. As of Friday afternoon, the share price was holding around .0017, about the same as last week.
Shapiro told investors he is putting an end to stock dilution, but according to Corporate Stock Transfer, Medient’s outstanding shares increased over the week from 1.934 billion to 2.146 billion. It was unclear whether these new shares were already signed off on before Shapiro took over.
David O’Hearn, a Savannah-based investor in Medient, said he is also concerned about the board’s decision to issue millions of shares of preferred stock to Shapiro.
As part of his promotion, Shapiro is receiving 40 million preferred shares valued at $64,000. These shares have a voting power of 250 votes per share, as opposed to common stock’s one vote per share, and give Shapiro priority over common stockholders in the event that Medient goes bankrupt.
“I would call it unorthodox,” said O’Hearn. “Usually, a new CEO is given common shares so his fortunes rise with the rest of the investors.”
David Paterson, the former governor of New York and current radio talk show host, was selected to Medient’s board in May, and received close to 30 million common stock shares. In its latest S.E.C. filing, the company stated the expected value of Paterson’s contribution was $103,478.
According to Forbes Magazine, Koppelman received $155,000 in compensation from Medient in 2013.
Kumaran has gone off the grid and calls and emails to his attorney were not returned. Medient also declined to comment on questions regarding its restructuring, studioplex plans and stock dilution.
Last week, Shapiro said Medient was proceeding with its next film, a horror picture called “The Damned,” to be filmed in Savannah this July.
The Savannah Film Office said it hasn’t issued any permits yet, though William Hammargren, interim film services administrator, said this isn’t unusual as permits are typically requested closer to filming dates.
Investors flocked to the online forums at InvestorsHub.com this week to debate whether to hold on or cut their losses.
One poster noted that Medient had already altered its description in the press release to exclude India. It now reads: “Medient Studios is an entertainment content creation company with a strong presence in North America and Europe.”
“Looks like the ‘cost cutting’ has primarily been done to the company’s ‘strong presence in India,’” the investor wrote.
Other shareholders were up in the air over a future reverse stock split that would allow the company to reduce the total number of outstanding shares in hopes of making the stock more valuable. Some said they were holding on for a big payoff.
“Do I sell five million and take a huge loss, or wait to see if Jake (Shapiro) has changed his ways. Still waiting for the company to clarify their intentions with (reverse stock split),” said one poster.
Another investor under username armour1955 said he was distressed that they had not heard anything from Kumaran, Koppelman or Shapiro since last week.
“In my experience when you make a large and abrupt change like this on such a large project, it takes months and months and months to calm all the players down, re-establish relationships, re-establish trust and get things moving again,” the investor wrote. “Where is the Dream that we all bought into?”