UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from To
Commission file number 000-28553
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 95-4786792
------------------------------------ -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
15452 Cabrieto Rd., Suite 204, Van Nuys, CA 91406
--------------------------------------------------
(Address of principal executive offices)
(310) 205-7998
(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: 17,069,526 as of March 31,
Transitional Small Business Disclosure Format (check one). Yes ; No X
1
PART I
Item 1. Financial Statements
INDEPENDENT ACCOUNTANT'S REPORT
Stereo Vision Entertainment, Inc.
(A Development Stage Company)
We have reviewed the accompanying balance sheet of Stereo Vision
Entertainment, Inc. (a development stage company) as of March 31, 2002 and June
30, 2001, and the related statements of operations for the three and nine months
ended March 31, 2002 and 2001, and cash flows for the nine months ended March
31, 2002 and 2001. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
Respectfully submitted
\s\ Robison, Hill & Co.
------------------------
Certified Public Accountants
Salt Lake City, Utah
May 17, 2002
2
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
March 31, June 30,
ASSETS: 2002 2001
--------------- --------------
Current Assets:
Cash $ 53 $ 66
--------------- --------------
Total Current Assets 53 66
--------------- --------------
Fixed Assets:
Office Equipment 13,745 13,745
3-D Production and Exhibition Equipment - 3,306,900
Less Accumulated Depreciation (7,560) (3,312,398)
--------------- --------------
Net Fixed Assets 6,185 8,247
--------------- --------------
Intangible and Other Assets:
Investments 3-D Projects - 350,000
Investment in Wilfield Entertainment 220,000 220,000
Films, Manuscripts, Recordings and Similar Property 303,793 286,292
Intellectual Property - 100,000
Licensing & Distribution Rights - 255,000
Less Accumulated Amortization - (214,666)
--------------- --------------
Net Intangible and Other Assets 523,793 996,626
--------------- --------------
Total Assets: $ 530,031 $ 1,004,939
=============== ==============
3
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
March 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY: 2002 2001
-------------------------------------
--------------- --------------
Liabilities:
Accounts Payable $ 190,769 $ 271,341
Accrued Expenses 71,515 99,399
Payable to SAG for Route 66 71,493 71,493
Loans from Shareholders 375,444 989,836
Short-term Notes Payable - 16,000
--------------- --------------
Total Current Liabilities 709,221 1,448,069
--------------- --------------
Stockholders' Equity:
Common Stock, $.001 Par value
Authorized 100,000,000 shares,
Issued 17,069,526 shares at March 31, 2002
and 7,859,100 shares at June 30, 2001 17,070 7,859
Additional Paid in Capital 8,801,074 6,459,026
Stock Options Outstanding 487,500 487,500
Deficit Accumulated During the Development Stage (9,484,834) (7,397,515)
--------------- --------------
Total Stockholders' Equity (179,190) (443,130)
--------------- --------------
Total Liabilities and Stockholders' Equity $ 530,031 $ 1,004,939
=============== ==============
See accompanying notes and accountants' report.
4
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
Since May 5,
For the Three Months For the Nine Months 1999
Ended Ended Inception of
March 31, March 31, Development
-------------------------- --------------------------
2002 2001 2002 2001 Stage
------------ ------------- ------------ ------------- --------------
Revenues $ - $ - $ - $ - $ -
------------ ------------- ------------ ------------- --------------
Expenses
Research & Development - - - - 293,000
General & Administrative 153,407 534,226 1,963,344 2,226,721 8,165,427
Consulting - 6,000 - 234,200 978,130
Advertising & Promotion - 23,533 - 133,533 148,033
------------ ------------- ------------ ------------- --------------
Operating Loss (153,407) (563,759) (1,963,344) (2,594,454) (9,584,590)
Other income (expense):
Interest (6,776) (20,038) (123,975) (54,174) (297,133)
Loss on Sale of Assets - - - - (15,883)
Gain (Loss) on Trading
Investments - - - - 412,772
------------ ------------- ------------ ------------- --------------
Loss before taxes (160,183) (583,797) (2,087,319) (2,648,628) (9,484,834)
Income taxes - - - - -
------------ ------------- ------------ ------------- --------------
Net Loss $ (160,183)$ (583,797)$ (2,087,319)$ (2,648,628)$ (9,484,834)
============ ============= ============ ============= ==============
Basic & Diluted loss
Per Share $ (0.01) $ (0.09) $ (0.20) $ (0.49)
============ ============= ============ =============
See accompanying notes and accountants' report.
5
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
Since May 5,
For the Nine Months 1999
Ended Inception of
March 31, Development
------------------------------
2002 2001 Stage
--------------- -------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (2,087,319)$ (2,648,628) $ (9,484,834)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and Amortization 2,062 909,287 3,530,243
Issuance of Common Stock for Expenses 1,841,257 1,108,587 3,418,157
Issuance of Common Stock for Investment in
Wilfield Entertainment - - 220,000
Issuance of Stock Options - 487,500 487,500
Notes Payable Converted to Stock 161,196 (280,000) 825,847
Realized gain on trading investments - - (412,773)
Loss on sale of assets - - 15,883
Cash acquired in merger - - 332
Change in operating assets and liabilities:
Accounts Payable (80,572) 13,528 173,339
Accrued Expenses (27,884) 47,036 71,516
Payable to SAG for Route 66 - 71,493 71,493
--------------- -------------- --------------
Net Cash Used in operating activities (191,260) (291,197) (1,083,297)
--------------- -------------- --------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment - - (13,745)
Investment in films, manuscripts, recordings
and similar property (17,500) (261,293) (473,792)
Proceeds from sale of assets - - 51,117
Proceeds from sale of investments - - 565,773
--------------- -------------- --------------
Net cash used in investing activities (17,500) (261,293) 129,353
--------------- -------------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from loans from shareholders 74,147 549,433 1,673,035
Payments of principal on loans from shareholders (8,400) (31,000) (1,031,538)
Proceeds from issuance of common stock 143,000 25,000 248,500
6
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
Cumulative
Since May 5,
For the Nine Months 1999
Ended Inception of
March 31, Development
-------------------------------
2002 2,001 Stage
--------------- --------------- --------------
Proceeds from issuance of short-term notes $ - $ - $ 64,000
--------------- --------------- --------------
Net Cash Provided by
Financing Activities 208,747 $ 543,433 953,997
--------------- --------------- --------------
Net (Decrease) Increase in
Cash and Cash Equivalents (13) (9,057) 53
Cash and Cash Equivalents
at Beginning of Period 66 9,057 -
--------------- --------------- --------------
Cash and Cash Equivalents
at End of Period $ 53 $ $ - 53
=============== =============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ 43,773
--------------- --------------- --------------
Income taxes $ - $ - $ -
--------------- --------------- --------------
SUPPLEMENTAL DISCLOSURE OF NON-
CASH INVESTING AND FINANCING
ACTIVITIES:
On December 2, 1999, the Company issued 1,470,000 shares of common stock in
exchange for $350,000 investment in 3-D projects, $255,000 licensing and
distribution rights, $3,306,900 3-D film production and exhibition equipment,
and $100,000 patent pending. On September 25, 2001 the deal was rescinded and
the assets were returned and shares of common stock were canceled.
See accompanying notes and accountants' report.
7
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Stereo Vision Entertainment,
Inc. is presented to assist in understanding the Company's financial statements.
The accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial statements.
The unaudited financial statements as of March 31, 2002 and for the
three and nine months then ended reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly state the financial position and results of operations for the three and
nine months. Operating results for interim periods are not necessarily
indicative of the results which can be expected for full years.
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of Nevada on
May 5, 1999. The Company as of March 31, 2002 is in the development stage, and
has not commenced planned principal operations.
Nature of Business
The Company intends to position itself to evolve into a vertically
integrated, diversified global media entertainment company. The Company intends
to acquire a number of diversified entertainment companies that will allow for
the pursuit of opportunities currently available in the global marketplace.
The Company anticipates generating revenues from several sources,
including, 3-D film production, distribution, exhibition and technology
development, and music production, publishing and distribution and providing
integrated solutions to help organizations broadcast audio, video, 3-D video,
animation, and 3-D animation and music over the Internet as well as expanding
into other areas of the entertainment industry.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
8
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives, principally on a straight-line basis from 3
to 5 years.
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their useful lives.
The Company identifies and records impairment losses on long-lived
assets such as property and equipment when events and circumstances indicate
that such assets might be impaired. The Company considers factors such as
significant changes in the regulatory or business climate and projected future
cash flows from the respective asset. Impairment losses are measured as the
amount by which the carrying amount of intangible asset exceeds its fair value.
Stock Compensation for Non-Employees
The Company accounts for the fair value of its stock compensation grants
for non-employees in accordance with FASB Statement 123. The fair value of each
grant is equal to the market price of the Company's stock on the date of grant
if an active market exists or at a value determined in an arms length
negotiation between the Company and the non-employee.
9
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Intangible Assets
Intangible assets are valued at cost and are being amortized on the
straight-line basis over a period of five years. The amortization period is
management's estimate of useful economic life of the asset. The initial
valuation of licensing and distribution rights for the 3-D products were derived
from what Management believes to be arms length negotiation.
The Company identifies and records impairment losses on intangible
assets when events and circumstances indicate that such assets might be
impaired. The Company considers factors such as significant changes in the
regulatory or business climate and projected future cash flows from the
respective asset. Impairment losses are measured as the amount by which the
carrying amount of intangible asset exceeds its fair value.
Joint Venture Operations Accounting
Joint venture operations are accounted for under the equity method of
accounting.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements. The Company maintains the majority of its cash
balances with one financial institution, in the form of demand deposits.
Advertising Costs
Advertising costs are expensed as incurred. There was no advertising
expense for the three months ended March 31, 2002.
Loss per Share
The reconciliations of the numerators and denominators of the basic loss
per share computations are as follows:
10
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Loss per Share(Continued)
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
For the Three Months ended March 31, 2002
Basic Loss per Share
Loss to common shareholders $ (160,183) 15,857,926 $ (0.01)
=============== =============== ==============
For the Three Months ended March 31, 2001
Basic Loss per Share
Loss to common shareholders $ (583,797) 6,376,567 $ (0.09)
=============== =============== ==============
For the Nine Months ended March 31, 2002
Basic Loss per Share
Loss to common shareholders $ (2,087,319) 10,295,729 $ (0.20)
=============== =============== ==============
For the Nine Months ended March 31, 2001
Basic Loss per Share
Loss to common shareholders $ (2,648,628) 5,357,290 $ (0.49)
=============== =============== ==============
The effect of outstanding common stock equivalents would be
anti-dilutive for March 31, 2002 and 2001 and are thus not considered. The
Company has $66,950 debt convertible into 133,900 shares at $.50 per share and
commitments to issue approximately 600,000 shares (see note 7).
NOTE 2 - INCOME TAXES
As of March 31, 2002, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $9,480,000 that may be offset
against future taxable income through 2022. Current tax laws limit the amount of
loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset future
taxable income may be limited. Accordingly, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.
11
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Continued)
NOTE 3 - DEVELOPMENT STAGE COMPANY/ GOING CONCERN
The Company has not begun principal operations and as is common with a
development stage company, the Company has had recurring losses during its
development stage. Continuation of the Company as a going concern is dependent
upon obtaining the additional working capital necessary to be successful in its
planned activity, and the management of the Company has developed a strategy,
which it believes will accomplish this objective through additional equity
funding and long term financing, which will enable the Company to operate for
the coming year.
NOTE 4 - RENT EXPENSE
The Company has entered into lease agreements for various office,
storage and warehouse facilities. Beginning October 1, 2001, the Company will
begin leasing a new office space located in Van Nuys, CA for $500 plus 1,667
shares a month. For the quarters ended March 31, 2002 the rental payments were
$1,500 and $3,500, respectively.
NOTE 5 - LOANS FROM SHAREHOLDERS AND OTHER RELATED PARTY
TRANSACTIONS
The loans are payable to various shareholders, are unsecured with
interest at rates of between 4.75% to12% and have no fixed terms of repayment.
Approximately $66,950 of the loans are convertible into common shares at a
conversion price of $.50 per share. At the time of the issuance of the notes to
shareholders there were no beneficial conversion features. To the best knowledge
of management the stock was not trading at that time, and the note was not "in
the money" at that time.
Management at present anticipates the need to raise approximately
$500,000 in additional operating capital. Such funding may be accomplished
through public financial markets, private offerings of equity or debt, and joint
venture opportunities. The Company's stockholders, officers and/or directors
have committed to advancing the operating costs of the Company at 6.1% interest.
NOTE 6 - COMMON STOCK TRANSACTIONS
The Company was initially incorporated to allow for the issuance of up
to 25,000 shares of no par value common stock. As a result of the merger with
Kestrel Equity Corporation the authorized number of shares is 100,000,000 with a
par value of $.001.
At inception, the Company issued 1,530,000 shares of common stock to
its officers and directors for services performed and payments made on the
Company's behalf during its formation. This transaction was valued at
approximately $0.003 per share or an aggregate approximate $5,000.
12
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Continued)
NOTE 6 - COMMON STOCK TRANSACTIONS (Continued)
On December 2, 1999 the Company issued 1,470,000 shares of common stock
in exchange for $350,000 investment in 3-D projects, $255,000 licensing and
distribution rights, $3,306,900 3-D film production and exhibition equipment,
and $100,000 patent pending. On September 25, 2001 the asset acquisition was
rescinded. The assets acquired were returned and the common stock was returned
to treasury.
In addition to the asset acquisition, on December 3, 1999 the Company
entered into an acquisition agreement and plan of reverse merger with Kestrel
Equity Corporation whereby the Company acquired $332 cash, $153,001 trading
investments, $100,686 reduction in accounts payable, and $366,084 notes payable
in exchange for 1,200,000 shares of common stock. By virtue of the merger and
the asset acquisition, the Company issued 2,670,000 shares of common stock of
the surviving corporation and acquired assets valued at $4,013,100 or
approximately $1.50 per share.
On December 31, 1999 the Company issued 350,000 shares to various
employees and consultants for services rendered valued at $2.00 per share.
On February 14, 2000 the Company issued 100,000 shares of common stock
as payment for services rendered by Mr. Herky Williams valued at $2 per share.
The services rendered were for the development of the Company's music division.
On August 10, 2000, the Company purchased a motion picture entitled
"ROUTE 66" including all rights and materials, the rights as the creator and the
writer of the original screenplay, all copyright rights, trade names and
trademarks and all other forms of exploitation of the Property, and all
ancillary, merchandise, music and book-publishing rights in exchange for 265,000
restricted common shares, $96,492.73 (payable $25,000 August 14, 2000 and
$11,915.46 per month from December 14, 2000 to May 14, 2001 and $25,000 plus a 1
1/2% royalty on any merchandise and 2% royalty on sequels).
On September 27, 2000 the Company entered into a contract with Ron
Whiten to make strategic introductions on behalf of the Company to the
investments community in exchange for 100,000 common shares. On September 29,
2000 the shares were issued at a value of $95,000, which was the quoted market
price on the date of issue. The contract is for a period of time covering 3
quarterly financial statements. To the best knowledge and belief of the Company
no services have been performed by Mr. Whiten pursuant to this agreement. On May
25, 2001, the 100,000 shares of stock issued to Mr. Whiten were canceled for
non-performance of services.
On October 27, 2000 the Company issued 12,500 shares of common stock
valued at $1.00 per share to National Financial Group for services previously
rendered.
13
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Continued)
NOTE 6 - COMMON STOCK TRANSACTIONS (Continued)
Pursuant to an agreement made with an affiliate company of Mr. Williams
(the Secretary- Treasurer and Director of the Company) called Wilfield
Entertainment, the company issued 400,000 shares of common stock at a market
price of $.55 per share on April 18, 2001 for its participation in the joint
venture. The joint venture with Wilfield is for the production of thirteen music
albums. The Company will supply the necessary funding for the production of said
albums and after capital repayment has occurred, the Company will receive 51% of
the profits from the projects. The estimated production costs per album is
projected to be $80,000.
On May 25, 2001, 350,000 shares that were issued to various people for
services were cancelled. These shares were cancelled for non-performance of
services.
During the quarter ended September 30, 2001,100,000 shares were issued
for conversion of notes payable totaling $25,600. The value of these shares was
$.26 per share.
During the quarter ended September 30, 2001, the Company issued
3,080,000 shares to various consultants for services at the market value on the
date of issuance and 90,000 restricted common shares to individuals for cash at
$.50 per share.
During the quarter ended December 31, 2001, the Company issued 647,795
shares of stock for conversion of notes payable totaling $135,596, for accrued
interest on the notes payable of $12,275, and for consulting services of
$20,778. The value of the shares was between $.14 and $.35 per share.
During the quarter ended December 31, 2001, the Company issued 2,370,631
shares to various consultants for services at the market value on the date of
issuance. Also, 40,000 shares issued on July 30, 2001 for services were
cancelled on October 2, 2001 for non-performance of services.
On January 15, 2002, 300,000 shares of common stock were issued for cash
at $.33 per share. Also during the quarter, 2,662,000 were issued in connection
with previous debt cancellation.
14
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Continued)
NOTE 7 - COMMITMENTS
On August 10, 2000, the Company purchased a motion picture entitled
"ROUTE 66" including all rights and materials, the rights as the creator and the
writer of the original screenplay, all copyright rights, trade names and
trademarks and all other forms of exploitation of the Property, and all
ancillary, merchandise, music and book-publishing rights in exchange for 265,000
restricted common shares, $96,492.73 (payable $25,000 August 14, 2000 and
$11,915.46 per month from December 14, 2000 to May 14, 2001 and $25,000 plus a 1
1/2% royalty on any merchandise and 2% royalty on sequels). Currently, this
project is being restructured.
On April 25, 2000 the Board of Directors approved a stock option plan
whereby 2,675,000 common shares have been set aside for employees and
consultants to be distributed at the discretion of the Board of Directors. The
option shares will be exercisable on a cashless basis at a 15% discount to
market value. No formal plan has been adopted as of the date of this report.
On April 26, 2000 the Company entered into a consulting agreement with
Natural Vision Corporation (Daniel Symmes). Mr. Symmes provided consulting in
3-D technologies in exchange for 17,000 shares valued at $102,000. The contract
provided for a topping up of the shares in the event that the Company's common
stock was not selling for $6 per share or greater.
On November 22, 2000, 102,000 shares, valued at $1 per share, were
issued to Mr. Symmes. In addition, the Company agreed to pay Natural Vision
Corporation $1,000 per week for Mr. Symmes' consulting services for a 2 year
period. Mr. Symmes spends between 15 to 20 hours each week in performing the
consulting services and will provided services on an as needed basis for the
remainder of the contract. Natural Vision will also receive options based on
gross income of the Company over four six-month intervals. The exercise price of
the options is $6 per share and they expire two years after grant.
On September 28, 2000 the Company signed a consulting agreement with
Solomon Broadcasting International for consulting services on a non-exclusive
basis for the purposes of financing, production, acquisition and distribution of
Stereo Vision products in various media throughout the world. The contract is
for 2 years at $300,000 per year plus an option to purchase 250,000 common
shares at $.01 per share. The option is exercisable after September 28, 2002.
On October 27, 2000 The Company entered into an agreement with Jannus
Records Inc. (which is owned and controlled by John C. Bodziack, Jr. a Director
of the Company) to engage in the promotion and development of concerts, records,
and Internet broadcasting of the concert events. It is the intention of the
Company to utilize "Jannus landing", Mr. Bodziack's concert venue to jointly
present entertainment and recordings of the concerts in conjunction with the
Wilfield Entertainment Agreement.. The agreement calls for the Company to
contribute up to $225,000 in
15
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Continued)
NOTE 7 - COMMITMENTS (Continued)
the form of a convertible loan at the rate of 9% interest, payable within
twenty-four months after the date the loan is funded by the Company. At the
option of the Company, the loan amount plus 100,000 shares of the common stock
of the Company, may be converted to 51% of the outstanding common stock of
Jannus Records. To date, no funds have been paid under this agreement and the
100,000 shares have not been issued. This project is currently being
restructured.
On November 13, 2000 the Company entered into a five year employment
agreement with Robert L. Friedman. The agreement provides for a salary of
$21,000 per month for the first six months and $25,000 per month there after, a
bonus payable on December 31, 2001 of 50% of the annual salary, appropriate
health, life, medical, dental and pharmaceutical plan, $1,000 per month
automobile allowance, and stock options to purchase 250,000 shares of common
stock at $.01 per share. The options are exercisable beginning November 13,
2005. On the date of grant the difference between the fair market value of the
option and the option price has been recorded as an expense. In January 2001,
Mr. Friedman tendered his resignation because he had an opportunity to assume a
similar position with a competitor company in the entertainment industry. Upon
acceptance of his resignation by the board, the Agreement was canceled and no
further sums are due Mr. Friedman.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
Currently, the ordinary week-to-week working of the company involves
administrative activities, regulatory compliance, capital formation, and content
development and planning. In the future the Company intends to position itself
to evolve into a vertically integrated, diversified global media entertainment
company. The Company intends to acquire a number of diversified entertainment
companies that will allow for the pursuit of opportunities currently available
in the global marketplace.
The Company anticipates generating revenues from several sources,
including, production of new and existing feature films, as well as expanding
into other areas of the entertainment industry.
16
The Company's common stock is traded on the over-the-counter and
reported on the OTC Bulletin Board (OTCBB) under the symbol "SVED."
Results of Operations
There were no revenues from sales for the period from inception to March
31, 2002. The Company has sustained a net loss of approximately $9 million for
the period from inception to March 31, 2002, which was due to primarily to
general and administrative expenses. The company currently has four employees
and they are as follows. John Honour, President and CEO. Mr. Honour handles the
day to day administrative, strategic, capital formation, and most other
day-to-day operational activities of the company. Elizabeth Storarski is the
administrative manager and handles the day-today administrative tasks and
general office tasks of the company. The third employee is Mr. Daniel Symmes.
Mr. Symmes is the director of technology and handles all 3-D technological
issues as well as R&D for the company's next generation of 3-D production and
exhibition optics. Mr. Honour spends in excess of 60 hours per week working for
Stereo Vision. The forth employee is Mr. Herky Williams, Secretary/Treasurer who
spends approximately 15-20 hours per week working for the joint venture partner
on projects for Stereo Vision. Mr. Condon was originally considered a key
advisor of the company. Mr. Condon and the company did not finalize a written
contract and during the early part of 2000, the parties mutually decided to not
enter into an agreement. In April 2000, the company entered into a contract with
Mr. Condon's long time associate, Mr. Daniel Symmes, who is considered to be
equally as capable as Mr. Condon regarding stereoscopic 3-D technology and film
production. Mr. Friedman resigned from the company in early January 2001 due to
the company's inability to perform under the terms of his contract. Mr. Solomon
resigned in February 2001 to pursue a position of chairman and CEO of TMTV, a
NASDAQ company.
Liquidity and Capital Resources
The Company is in the process of developing a detailed plan of
operations to exploit its 3-D equipment asset base. The assets were primarily
invented, manufactured, and assembled by Mr. Condon periodically during the
period of 1980 through 1993. Since the Company's acquisition of the equipment,
it has been in storage and constantly maintained in order to preserve its
operational capabilities and to prevent any deterioration or loss of value. On a
preliminary basis, the Company estimates that it will require from $3,000,000 to
$5,000,000 over a period of 18 months to fund this plan of operations. This plan
of operations is expected to include both exploitation of existing 3-D movies
and equipment, and efforts to arrange development of additional 3-D movies. The
Company may attempt to arrange joint ventures with studios to facilitate the
development of new 3-D movies.
The Company is also in the business of producing music entertainment
products through its March 2000 acquisition of a joint venture interest.
Wilfield Entertainment ("Wilfield"). Mr Herky Williams owns fifty (50%) percent
of Wilfield and simultaneously serves as the Secretary-Treasurer and Director of
Stereo Vision Entertainment, Inc. The Company and Wilfield , under a revised
Agreement dated February 21, 2001, have entered into a joint venture to produce
thirteen (13) music albums for sale and distribution by the Company. Pursuant to
that Agreement, the Company will issue 400,000 shares of its restricted common
stock to Mr. Williams as consideration for its participation in the joint
venture. The Agreement calls for the Company to pay for the production
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costs for each album (estimated to be $80,000 per album). The Company expects
that this effort will require capital of approximately $750,000 to $1,000,000.
From the anticipated revenues generated from the sales of the albums, the
Company will first deduct the production costs it has paid and then share the
remaining monies, fifty-one (51%) percent to the Company and forty-nine (49%)
percent to Wilfield. Historically the joint venture partner has been an active
producer for over 30 years. Producing over 40 albums including gold and platinum
albums produced for Tanya Tucker, Lee Greenwood, Anne Murry, and many others. In
the last three years the joint venture partner has concentrated on publishing,
acquiring or creating content to be recorded. In the last three years 2 albums
have been made, including Lee Greenwood's "Same River Different Bridge," Mark
Neslar's "I'm Just that Way."
The aforementioned estimates of capital required are still preliminary
in nature and are subject to substantial and continuing revisions. Although the
Company has not yet commenced any formal capital raising efforts, the Company
expects that any capital that it raises will be in the form of one or more debt
or equity financings. However, there can be no assurances that the Company will
be successful in raising any required capital on a timely basis and/or under
acceptable terms and conditions. To the extent that the Company does not raise
sufficient capital to implement its plan of operations on a timely basis, it
will have to curtail, revise and/or delay its business plans. The Company has
financed its operations to date from the sale of stock of another Company and
loans from related parties. The Company purchased approximately 264,000 shares
of common stock of New Visual Entertainment, Inc., from a major shareholder for
a $400,000 convertible note in September 1999. This note was paid by the
issuance of 200,000 shares of common stock. The sale of this stock generated
approximately $566,000 of net proceeds during September 1999 through June 30,
2000, which the Company used to support its operations.
The Company has also relied on loans from officers, directors and
shareholders to support its operations. During October 1999 through March 31,
2002, seven persons, including the aforementioned major shareholder and one
director, loaned the Company approximately $1,340,000. However, there can be no
assurances that additional loans will be forthcoming from officers, directors,
and shareholders.
Government Regulations
The Company is subject to all pertinent Federal, State, and Local laws
governing its business. The Company is subject to licensing and regulation by a
number of authorities in its Province (State) or municipality. These may include
health, safety, and fire regulations. The Company's operations are also subject
to Federal and State minimum wage laws governing such matters as working
conditions and overtime.
Competition
SVED competes with a large array of diverse global media conglomerates,
upstart "entertainment, information and commerce" companies, as well as with a
number of smaller, independent production companies. Currently, no companies
have established a substantial presence in the 3-D video software home market.
The competitive environment in this market consists of limited suppliers of 3-D
viewers and content (DVD, CD-ROM, videotape) kits such as V-REX,
18
VIDMAX, and others. Conversely, competition in the special venue markets
(theatrical) is much more developed. SVED's current and potential competitors
include:
o IMAX, Iwerks, Showscan, Cinema Ride and New Visual
Entertainment
o Fox, Disney, Warner Bros., Universal and others
o Globcast, Vyvx and COMSAT World Systems
o Universal music, EMI, BMG and others
A portion of these companies compete for motion picture projects and
talent and are producing motion pictures that compete for exhibition time at
theaters, on television, and on home video with pictures produced by the
Company. Other companies compete in areas of satellite production and
transmission services and music production, distribution and promotion. The
Company's innovative 3-D technology combined with lower cost production and
exhibition is anticipated to achieve favorable results in effectively competing
and establishing itself in the marketplace. SVED also intends to use its core
competencies in areas of music production and production services to diversify
and compete in the global marketplace.
Most of SVED's competitors have operating histories, larger customer
bases and significantly greater financial, marketing and other resources.
Certain of SVED's competitors have the financial resources to devote greater
resources to marketing and promotional campaigns and devote substantially more
resources to technology development. Increased competition may result in reduced
operating margins.
Employees
As of March 31, 2002, the Company had four employees. John H. Honour,
CEO; Herky Williams, Secretary/Treasurer who spends approximately 15-20 hours
per week; Daniel Symmes, consultant (who devotes approximately 15 to 20 hours
each week) and Elizabeth Stolarski, Secretary.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any legal proceedings other than the
ordinary routine litigation incidental to its business operations, which the
Company does not believe, in the aggregate, will have a material adverse effect
on the Company, or its operations.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
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None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included as part of this report:
Exhibit
Number Exhibit
------ -----------------------------------------------------------------
3.1 Articles of Incorporation (1)
3.2 Amended Articles of Incorporation (1)
3.3 Bylaws (1)
(1) Incorporated by reference to the Registrant's registration statement on
Form 10-SB filed on August 9, 2000.
(b) The Company has not filed a report on Form 8-K for the period
ended March 31, 2002.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
STEREO VISION ENTERTAINMENT, INC.
(Registrant)
Dated: May 20, 2002 By /S/ John Honour
------------------------------------
John Honour,
C.E.O. and President,
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 20th day of May 2002.
Signatures & Title
/S/ John Honour
--------------------------------------------------
John Honour
C.E.O. and President
(Principal Executive Officer)
/S/ Herky Williams
--------------------------------------------------
Herky Williams
Secretary-Treasurer, Director
(Principal Financial and Accounting Officer)
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