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: September 30, 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
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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: 21,668,485 as of November 15,
2002
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 September 30, 2002 and
June 30, 2002, and the related statements of operations and cash flows for the
three months ended September 30, 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 generally accepted accounting principles.
Respectfully submitted
\s\ Robison, Hill & Co.
----------------------------
Certified Public Accountants
Salt Lake City, Utah
November 19, 2002
2
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
BALANCE SHEETS
September 30, June 30,
ASSETS: 2002 2002
------- ------------------ ------------------
Current Assets:
Cash $ 8,445 $ 1,007
------------------ ------------------
Total Current Assets 8,445 1,007
------------------ ------------------
Fixed Assets:
Office Equipment 13,745 13,745
Less Accumulated Depreciation (8,934) (8,247)
------------------ ------------------
Net Fixed Assets 4,811 5,498
------------------ ------------------
Intangible and Other Assets:
Investment in Wilfield Entertainment 220,000 220,000
Films, Manuscripts, Recordings and Similar Property 324,008 318,461
------------------ ------------------
Net Intangible and Other Assets 544,008 538,461
------------------ ------------------
Total Assets: $ 557,264 $ 544,966
================== ==================
3
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
BALANCE SHEETS
September 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY: 2002 2002
------------------------------------- ------------------ ------------------
Liabilities:
Accounts Payable $ 203,312 $ 201,407
Accrued Expenses 75,522 69,051
Payable to SAG for Route 66 71,493 71,493
Loans from Shareholders 434,520 386,944
Total Current Liabilities 784,847 728,895
------------------ ------------------
Stockholders' Equity:
Common Stock, $.001 Par value
Authorized 100,000,000 shares,
Issued 21,668,485 shares at September 30, 2002
and 18,485,151 shares at June 30, 2002 21,668 18,485
Additional Paid in Capital 8,961,768 8,873,784
Stock Options Outstanding 487,500 487,500
Deficit Accumulated During the Development Stage (9,698,519) (9,563,698)
------------------ ------------------
Total Stockholders' Equity (227,583) (183,929)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 557,264 $ 544,966
================== ==================
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 1999
Ended Inception of
September 30, Development
----------------------------------
2002 2001 Stage
---------------- ---------------- -----------------
Revenues $ - $ - $ -
---------------- ---------------- -----------------
Expenses
Research & Development - - 293,000
General & Administrative 46,684 1,206,635 8,274,792
Consulting - - 988,855
Advertising & Promotion - - 148,033
---------------- ---------------- -----------------
Operating Loss (46,684) (1,206,635) (9,704,680)
Other income (expense):
Interest (88,137) (109,116) (390,728)
Loss on Sale of Assets - - (15,883)
Gain (Loss) on Trading
Investments - - 412,772
---------------- ---------------- -----------------
Loss before taxes (134,821) (1,315,751) (9,698,519)
Income taxes - - -
---------------- ---------------- -----------------
Net Loss $ (134,821) $ (1,315,751)$ (9,698,519)
================ ================ =================
Basic & Diluted loss
Per Share $ (0.01) $ (0.16)
================ ================
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 Three Months 1999
Ended Inception of
September 30, Development
------------------------------------
2002 2001 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES: $ (134,821)$ (1,315,751) $ (9,698,519)
Net Loss
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and Amortization 687 687 3,531,617
Issuance of Common Stock for Expenses 81,667 1,291,251 3,682,147
Issuance of Stock Options - - 487,500
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 1,906 (41,438) 185,883
Accrued Expenses 6,470 8,615 75,521
Payable to SAG for Route 66 - - 71,493
----------------- ------------------ ------------------
Net Cash Used in operating activities (44,091) (56,636) (2,060,916)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment - - (13,745)
Investment in films, manuscripts, recordings
and similar property (5,547) - (259,008)
Proceeds from sale of assets - - 51,117
Proceeds from sale of investments - - 565,773
----------------- ------------------ ------------------
Net cash provided (used) in investing activities (5,547) - 344,137
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from loans from shareholders 54,940 27,996 1,764,475
Payments of principal on loans from shareholders (7,364) (400) (374,251)
Proceeds from issuance of common stock 9,500 43,000 271,000
6
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
------------------------------------
Cumulative
Since May 5,
For the Three Months 1999
Ended Inception of
September 30, Development
-------------------------------------
2002 2001 Stage
----------------- ------------------ ------------------
Proceeds from issuance of short-term notes $ - $ - $ 64,000
----------------- ------------------ ------------------
Net Cash Provided by
Financing Activities 57,076 70,596 1,725,224
----------------- ------------------ ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents 7,438 13,960 8,445
Cash and Cash Equivalents
at Beginning of Period 1,007 66 -
----------------- ------------------ ------------------
Cash and Cash Equivalents
at End of Period $ 8,445 $14,026 $ 8,445
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 26 $ - $ 43,799
----------------- ------------------ ------------------
Income taxes $ - $ - $ -
----------------- ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF NON-
CASH INVESTING AND FINANCING
ACTIVITIES:
Common Stock Issued for Investment in
Wilfield Entertainment - - 220,000
Common Stock Issued for Investment in
Mad Dogs & Oakies Project - - 3,000
Common Stock Issued for Investment in
In the Garden of Evil Project - - 12,000
Notes Payable Converted to Stock - - 858,474
See accompanying notes and accountants' report.
7
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
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 September 30, 2002 and for the
three 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 months. Operating
results for interim periods are not necessarily indicative of the results which
can be expected for full years.
Nature of Operations and Going Concern
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assumes that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern". The Company has incurred net losses of
approximately $9,698,519 for the period from May 5, 1999 (inception) to
September 30, 2002, has a liquidity problem, and requires additional financing
in order to finance its business activities on an ongoing basis. The Company is
actively pursuing alternative financing and has had discussions with various
third parties, although no firm commitments have been obtained. In the interim,
shareholders of the Company have committed to meeting its minimal operating
expenses.
The Company's future capital requirements will depend on numerous
factors including, but not limited to, continued progress developing its
products and market penetration and profitable operations.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported expenses, and the balance
sheet classifications used.
8
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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 September 30, 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.
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.
Joint Venture Operations Accounting
Joint venture operations are accounted for under the equity method of
accounting.
9
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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.
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
10
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Intangible Assets (Continued)
-----------------
respective asset. Impairment losses are measured as the amount by which the
carrying amount of intangible asset exceeds its fair value.
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 September 30, 2002.
Loss per Share
The reconciliations of the numerators and denominators of the basic
loss per share computations are as follows:
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
For the Three Months ended September 30, 2002
Basic Loss per Share
Loss to common shareholders $ (134,821) 21,456,347 $ (0.01)
================== =================== ==================
For the Three Months ended September 30, 2001
Basic Loss per Share
Loss to common shareholders $ (1,315,751) 8,278,600 $ (0.16)
================== =================== ==================
The effect of outstanding common stock equivalents would be
anti-dilutive for September 30, 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).
11
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Continued)
NOTE 2 - INCOME TAXES
As of September 30, 2002, the Company had a net operating loss
carryforward for income tax reporting purposes of approximately $9,700,000 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.
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 quarter ended September 30, 2002 and 2001 no rental
payments were made..
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.
12
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Continued)
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.
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).
13
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Continued)
NOTE 6 - COMMON STOCK TRANSACTIONS (Continued)
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.
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.
14
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Continued)
NOTE 6 - COMMON STOCK TRANSACTIONS (Continued)
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.
On April 29, 2002, 200,000 common shares were issued for the purchase
of "In the Garden of Evil" album. The value of the shares were $.06.
On May 30, 2002, 100,000 common shares were issued to various people
for services connected with the project "Mad Dog and Oakies." The value of the
shares were $.03.
During the quarter ended June 30, 2002, the Company issued 300,000
shares of common stock for cash. Shares were issued for$.025 to .075 per share.
Also during the quarter, 250,000 shares were issued for consulting and rent
expense. The value of the shares was between $.03 and $.08 per share.
On July 1, 2002, 850,000 common shares were issued for cash. Shares
were issued for $.01 to $.025 per share. Also on July 8, 2002 , 2,333,334 were
issued in connection with a previous debt cancellation.
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.
15
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Continued)
NOTE 7 - COMMITMENTS (Continued)
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 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.
16
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.
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
September 30, 2002. The Company has sustained a net loss of approximately $9.7
million for the period from inception to September 30, 2002, which was primarily
due to general and administrative expenses. From May 5, 1999 the Company was a
development stage company and had not begun principal operations. Accordingly,
comparisons with prior periods are not meaningful.
Liquidity and Capital Resources
The Company is in the process of developing a detailed plan of
operations to exploit its asset base. 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 movies and equipment, and efforts to
arrange development of additional movies. The Company may attempt to arrange
joint ventures with studios to facilitate the development of new movies.
The Company is also in the business of producing music entertainment
products through its March 2000 acquisition of a joint venture interest in a
music producer. During the forthcoming year, the Company, through this joint
venture, expects to produce 13 country and western and pop albums. The Company
expects that this effort will require capital of approximately $750,000 to
$1,000,000.
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
17
Company has financed its operations to date from the sale of stock of another
Company and loans from related parties. The Company purchased approximately
400,000 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 the year, three persons,
including the aforementioned major shareholder and one director, loaned the
Company $795,000. 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
SVEI 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. SVEI's current and
potential competitors include:
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. SVEI
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 SVEI's competitors have operating histories, larger customer
bases and significantly greater financial, marketing and other resources.
Certain of SVEI'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 September 30, 2002, SVEI employed four employees. SVEI considers
its employee
18
relations to be satisfactory at present.
Item 3. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this Quarterly Report on Form 10-Q, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary whether:
(i) this Quarterly Report on Form 10-Q contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this
Quarterly Report on Form 10-Q, and
(ii) the financial statements, and other financial information
included in this Quarterly Report on Form 10-Q, fairly present
in all material respects the financial condition, results of
operations and cash flows of the Company as of, and for, the
periods presented in this Quarterly Report on Form 10-Q.
There have been no significant changes in the Company's internal
controls or in other factors since the date of the Chief Executive Officer's and
Chief Financial Officer's evaluation that could significantly affect these
internal controls, including any corrective actions with regards to significant
deficiencies and material weaknesses.
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
On July 1, 2002, 850,000 common shares were issued for cash. Shares
were issued for $.01 to $.025 per share. Also on July 8, 2002 , 2,333,334 were
issued in connection with a previous debt cancellation.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
19
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)
99.1 Certification Pursuant to 18 U.S.C. ss 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. ss 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(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 September 30, 2002.
20
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: November 19, 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 19th day of November
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)
I, John Honour, certify that:
1. I have reviewed this quarterly report on form 10-QSB of Stereo
Vision Entertainment, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
21
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
exchange act rules 13a-14 and 15d-14) for the registrant and have:
A) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
B) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "evaluation
date"); and
C) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the evaluation date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
/S/ John Honour
--------------------------------------------------
John Honour
C.E.O. and President
(Principal Executive Officer)
I, Herky Williams, certify that:
1. I have reviewed this quarterly report on form 10-QSB of Stereo
Vision Entertainment, Inc.
22
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
exchange act rules 13a-14 and 15d-14) for the registrant and have:
A) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
B) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "evaluation
date"); and
C) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the evaluation date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002
23
/S/ Herky Williams
-----------------------------------------------------------
Herky Williams
Secretary-Treasurer, Director
(Principal Financial and Accounting Officer)
24