<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 COMMISSION FILE NO 0-28530
STAN LEE MEDIA, INC.
Incorporated in the State of Colorado IRS No. 84-1341980
15821 Ventura Boulevard, Suite 675,
Encino, California 91436
(818) 461-1757
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Common Stock without par value 11,431,029 shares
outstanding at September 30, 1999
<PAGE> 2
INDEX
STAN LEE MEDIA, INC.
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Balance sheet (unaudited) -
September 30, 1999 2
Statements of operations (unaudited) -
Nine months ended September 30, 1999 and 1998 and; 3
Cumulative from October 13, 1998 (date of inception) to September 30, 1999
Statements of cash flows (unaudited) -
Nine months ended September 30, 1999 and
Cumulative from October 13, 1998 (date of inception) to September 30, 1999 4
Notes to financial statements 5
Item 2. Plan of Operations 11
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
1
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STAN LEE MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
--------------
<S> <C>
Assets
Current assets:
Accounts receivable $ 3,250
Prepaid expenses 27,996
Total current assets 31,246
Investment 51,300
Property and equipment, net 145,512
Trademarks 57,303
Unamortized debt discount 56,186
----------
Total assets $ 341,547
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 5,478
Accounts payable 572,606
Obligations under capital leases, current portion 7,171
Deferred Revenue 51,300
Loans payable 410,000
---------
Total current liabilities 1,046,555
Obligations under capital leases, long-term portion 81,717
----------
Total liabilities 1,128,272
Commitments
Shareholders' deficit:
Preferred stock, no par value, 10,000,000 shares
authorized, none issued and outstanding -
Common stock, no par value, 100,000,000 shares
authorized, 11,431,029 issued and outstanding 11,432
Additional paid-in capital 2,095,851
Deficit accumulated during the development stage (2,894,008)
----------
Total shareholders' deficit (786,725)
----------
Total liabilities and stockholders' deficit $ 341,547
==========
</TABLE>
See notes to financial statements.
2
<PAGE> 4
STAN LEE MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM OCTOBER 13,
NINE MONTHS ENDED 1998 (DATE OF INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------- --------------------
1999 1998 1999
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Sales $ 20,605 $ - $ 20,605
Cost of sales 450 - 450
------------ -------------- -------------
Net sales 20,155 - 20,155
Operating expenses
Salaries and benefits 802,543 - 802,543
Consulting fees 637,847 - 660,867
Advertising and promotion 165,537 - 170,537
Production consulting 158,969 - 158,969
Professional fees 551,206 - 551,206
Rent 97,044 - 97,044
Office expense 79,543 - 79,808
Entertainment and travel 67,684 - 70,860
Printing and reproduction 43,433 - 43,433
Equipment lease and rental 39,271 - 39,271
Automobile expense 24,777 - 25,182
Amortization and depreciation 24,229 - 24,283
Telephone 21,160 - 21,340
Insurance 20,561 - 20,561
Internet access 17,607 - 17,677
Repairs 6,991 - 6,991
Public relations 2,472 - 2,622
Franchise taxes 100 - 100
------------ -------------- -------------
Total operating expenses 2,760,974 - 2,793,294
------------ -------------- -------------
Operating loss (2,740,819) - (2,773,139)
Net interest expense (768) - (869)
------------ -------------- -------------
Income before non-recurring cost
incurred on merger (2,741,587) - (2,774,008)
Non-recurring costs incurred on merger (120,000) - (120,000)
------------ -------------- -------------
Net loss $ (2,861,587) $ - $ (2,894,008)
------------ -------------- -------------
Earnings per common share:
Basic $ (0.31) $ - $ (0.32)
Diluted $ (0.31) $ - $ (0.32)
Weighted average shares used in computation:
Basic 9,228,801 - 8,922,255
Diluted 9,228,801 - 8,922,255
</TABLE>
See notes to financial statements.
3
<PAGE> 5
STAN LEE MEDIA, INC.
(A DEVELOMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM OCTOBER 13,
NINE MONTHS ENDED 1998 (DATE OF INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1999
-------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,861,587) $ (2,894,008)
Adjustments to reconcile net loss to net cash
used in operating
activities:
Depreciation and amortization 24,229 24,283
Stock issued for services 460 880
Stock issued during merger 2,525 2,525
Stock options issued for services 441,712 441,712
Changes in assets and liabilities:
Accounts receivable (3,250) (3,250)
Prepaid expenses (17,996) (27,996)
Accounts payable 567,431 572,606
--------------- --------------
Net cash used in operating activities (1,846,474) (1,883,247)
--------------- --------------
Cash flows from investing activities:
Acquistion of property and equipment (167,843) (169,794)
Application for trademarks (57,303) (57,303)
--------------- --------------
Net cash used in investing activities (225,146) (227,097)
--------------- --------------
Cash flows from financing activities:
Loans payable 410,000 410,000
Lease obligations 88,888 88,888
Subscription stock 275,000 -
Stocks issued 346 8,026
Capital contribution 1,270,632 1,597,952
--------------- --------------
Net cash provided by financing activities 2,044,866 2,104,866
--------------- --------------
Net decrease in cash (26,754) (5,478)
Cash, beginning of period 21,276 -
--------------- --------------
Cash, end of period $ (5,478) $ (5,478)
--------------- --------------
Supplemental disclosure of non-cash transactions:
Common Stock issued for services $ 460 $ 880
Common Stock issued during merger 2,525 2,525
</TABLE>
See notes to financial statements.
4
<PAGE> 6
STAN LEE MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - NATURE OF BUSINESS:
Stan Lee Entertainment, Inc. ("Entertainment") (a Development Stage Enterprise)
was incorporated in the State of Delaware on October 13, 1998. Stan Lee Media,
Inc. ("SLM Delaware") was originally incorporated in the State of Delaware on
January 14, 1999. Entertainment was merged with SLM Delaware on April 14, 1999
in the State of Delaware with the name of the surviving corporation being Stan
Lee Media, Inc.
Effective July 23, 1999, SLM Delaware engaged in a share exchange with Boulder
Capital Opportunities, Inc. ("Boulder") a public company, incorporated in the
State of Colorado. The new name of the company after the share exchange is Stan
Lee Media, Inc. ("SLM") This share exchange was accounted for as a reverse
acquisition in which SLM Delaware is considered the predecessor of SLM
because it had operations at the time of the share exchange. In this share
exchange, the shareholders of SLM Delaware received 8,500,000 shares of common
stock of Boulder in exchange for all of the issued and outstanding shares of
common stock of SLM Delaware. The number of shares outstanding after this
transaction were 11,025,000.
SLM is a newly established, internet based, multi-media company producing
original characters and content built on Stan Lee's branded recognition. This
development stage company will create a web-site with games, merchandise and
trading areas. A lifetime employment agreement, effective April 1, 1999, was
made between SLM and Stan Lee which provides that SLM is granted all of Stan
Lee's rights, title, and interest in all ideas, names, titles, characters,
symbols, logos, designs, visual representations, artwork, and literary property
including Stan Lee's name and likeness used and created by Stan Lee for SLM.
Under this agreement, Stan Lee will serve as Chairman and Chief Creative Officer
of SLM and his services are exclusive with the exception of those services he is
required to provide for Marvel Enterprises, Inc., as Chairman Emeritus, which
will require no more than an average of 10-15 hours per week of his time. See
Note 5 commitments.
NOTE 2 - BASIS OF PRESENTATION:
The accompanying financial statements should be read in conjunction with the
more detailed financial statements and related footnotes included in SLM's Form
8-K/A dated July 23, 1999 filed with the Securities and Exchange Commission.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (which include only normal recurring accruals),
necessary to present fairly the financial position of SLM as of September 30,
1999, and the results of its operations for the nine months ended September 30,
1999 and 1998 and the period from October 13, 1998 (date of inception) through
September 30, 1999, and its cash flows for the nine months ended September 30,
1999 and the period from October 13, 1998 (date of inception) through September
30, 1999. The results of operations for the nine month period ended September
30, 1999 are not necessarily indicative of the results expected for the entire
year ending December 31, 1999.
5
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STAN LEE MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED)
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, Estimated
1999 Useful Life
---------------------------------------------------------------------
<S> <C> <C>
Computer equipment $ 155,213 3 years
Computer software 3,092 3 years
Furniture and fixtures 11,436 5 years
---------------------------------------------------------------------
169,741
Less accumulated depreciation 24,229
---------------------------------------------------------------------
$ 145,512
---------------------------------------------------------------------
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS:
Two unsecured promissory notes were issued September 15, 1999 and September 21,
1999, by two shareholders of SLM to Stan Lee Media, Inc. in the amount
of $100,000 each, with interest on unpaid principal at 8% per annum. The
principal and accrued and unpaid interest shall be payable in one lump sum not
later than 60 days from September 15, 1999 and 90 days from September 21, 1999,
respectively. The note holders are entitled to warrants for 5,000 shares of
Common Stock, no par value, at a purchase price per share of $5.00, that are
exercisable until September 14, 2002 and September 20, 2002, respectively. As of
November 10, 1999 both notes have not been repaid interest or principal and the
expected interest payable for both notes at the end of 60 days is $1,315.07.
SLM received loans from related parties of $210,000 at September 30, 1999 as
working capital. The balances are non-interest bearing and due on demand with no
specific payment provisions.
NOTE 5 - COMMITMENTS:
SLM entered into lease agreements to lease office spaces from November 1, 1998
to October 31, 2004. Minimum future annual payments under these agreement as of
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ended Amount
--------------------------------------------------------------------------------
<S> <C>
1999 $ 63,412
2000 310,712
2001 317,476
2002 225,169
2003 181,435
2004 154,957
--------------------------------------------------------------------------------
$ 1,253,161
--------------------------------------------------------------------------------
</TABLE>
6
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STAN LEE MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED)
NOTE 5 - COMMITMENTS (CONT'D):
SLM has entered into an employment agreement with Stan Lee. Under the
agreement Stan Lee will receive a base salary of $250,000 per year, beginning
April 1, 1999 and is payable for the remainder of his life. In addition, Stan
Lee shall also receive an annual bonus equal to ten percent of all net profits
after taxes reported by SLM. Stan Lee will serve as Chairman and Chief
Creative Officer of SLM.
Equipment Leases
SLM entered into various capital leases for computers and related equipment. The
leases range from 24 to 60 month terms. Minimum future annual payments under the
agreements as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ended Amount
--------------------------------------------------------------------------------
<S> <C>
1999 $ 11,772
2000 47,087
2001 39,693
2002 16,002
2003 5,772
2004 1,443
--------------------------------------------------------------------------------
$ 121,769
--------------------------------------------------------------------------------
</TABLE>
NOTE 6 - INVESTMENT IN NPO ONLINE, INC. STOCK
On March 16, 1999, SLM entered into an agreement with NPO Online, Inc. ("NPO"),
a company which will provide an e-commerce store front Internet site, that is
linked with SLM's Internet site, which will enable purchasing of retail Comic
Books and related retail Comic Book products of SLM and NPO. In exchange for
exclusive retail linking rights, and joint marketing and promotions, SLM will
receive 10% of the gross revenue received for the NPO sales transacted through
this Internet site to be paid to SLM, on a monthly basis for the previous
month's sales. If SLM sells any merchandise through the NPO site and fulfills
the order itself, SLM will pay 10% of those gross sales to NPO. For any resale
or collectible merchandise sold by SLM using NPO's storefront, which is not
readily available on the retail market, SLM will pay 7.5% of those gross sales
to NPO.
NPO will be the exclusive provider of retail comic books for SLM and neither SLM
nor Mr. Stan Lee shall endorse or promote the marketing or sale of comic books
by any other online retailer other than NPO. For this exclusivity, NPO issued
180,000 shares of its common stock with a fair value of $0.285 per share to SLM,
at the grant date of March 16, 1999. If SLM decides to sell any of the shares,
NPO has the first right to purchase those shares.
The total authorized capital stock of NPO is 11,000,000 shares of common stock,
$0.001 par value per share, of which 7,003,158 shares are issued and outstanding
as of March 16, 1999.
7
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STAN LEE MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED)
NOTE 6 - INVESTMENT IN NPO ONLINE, INC. STOCK (CONTINUED)
The obligations under the agreement are in effect on the date that the website
becomes operational and the agreement term is for an initial period of three
years from March 16, 1999.
NOTE 7 - SHAREHOLDERS' EQUITY:
SLM has 100,000,000 authorized shares of common stock at no par value, stated
value of $0.001 per share and 10,000,000 shares of preferred stock at no par
value. No preferred stock was issued as of September 30, 1999.
Stock Options and Warrants
On July 23, 1999 SLM entered into written compensatory stock option and warrant
agreements with certain executives and key employees to purchase 1,250,000
shares at $2.50 per share, the estimated fair market value at the date of grant.
The maximum term of the options and warrants is five years. The options and
warrants are subject to various vesting terms over the next two to four years.
In July 1999, SLM entered into agreements with two parties for consulting
services in exchange for options to purchase 725,000 shares of SLM's common
stock, at an exercise price of $2.50 per share, the estimated fair market value
at the date of grant. 575,000 of these options were granted to Ziffren,
Brittenham, Branca & Fischer LLP as consideration for future services as SLM's
general entertainment counsel in connection with structuring and negotiating
entertainment-related transactions and all other entertainment related matters.
The options vest as of January 22, 2000 and may be exercised any time after
vesting to and including July 22, 2009.
Restricted Stock
On July 23, 1999, 10,000 shares of restricted common stock were issued to
certain employees in consideration for past services issued at $2.50 per share.
Another 50,000 shares of restricted common stock were also issued and to be
delivered in June 2000 subject to employment conditions.
On July 30, 1999, 37,500 shares of restricted common stock were issued as part
of a Private Placement resulting in proceeds of $150,000 (valued at $4.00 per
share).
During August 1999, SLM completed a private placement of 62,500 shares
of restricted common stock resulting in proveeds of $250,000 ($4.00 per share).
Subscription Stock
During May through July of 1999, a total of $738,100 in cash was received for
subscription stock. The subscription stock consists of 246,029 shares of
restrictive stock that were issued on July 23, 1999 in consideration for
purchase for a value of $3.00 per share. In addition, warrants were issued to
purchase another 246,029 shares at $5.00 per share. All subscribed stock was
issued prior to September 30, 1999.
8
<PAGE> 10
STAN LEE MEDIA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED)
NOTE 8 - SUBSEQUENT EVENTS:
Financial Consulting Agreement
On October 11, 1999, the company entered into an agreement with VMR Capital
Markets U.S. ("VMR") in which VMR will assist SLM in its financing and
marketing efforts. The agreement calls for VMR to obtain a Bridge Loan and
equity capital in the form of a private placement of no less than $6,000,000 in
equity before January 1, 2000 and a secondary public offering of no less than
$15,000,000 in equity before July 1, 2000. Additionally, VMR will facilitate the
listing of the company's stock on the Frankfurt Stock Exchange and develop a
trading market on the same exchange. In consideration for such services, VMR
will receive shares of SLM's restricted common stock, warrants and cash
placement fees.
On October 12, 1999 a Bridge Loan was obtained from VMR Luxembourg, S.A.
("Luxembourg") in the amount of $500,000 at 8% per annum due April 11, 2000. The
Bridge Loan is convertible by the holder at $7.00 principal amount for one share
of SLM common stock. VMR received a warrant for 25,000 shares of SLM's
common stock at an exercise price of $6.18 per share. The warrants expire on
October 11, 2002. In accordance with the compensation terms described above, VMR
received 10,000 shares of SLM's "restricted" common stock.
On November 8, 1999, SLM's common stock was listed on the Frankfurt
Stock Exchange and VMR received 10,000 shares of SLM's "restricted"
common stock in accordance with the compensation terms above.
Business Development Agreement
On October 5, 1999, SLM entered into an agreement with Paraversal, Inc.
("Paraversal"), a Company owned by a related party, to provide SLM with
strategic business development services, including structuring of corporate
partnering relationships and strategic alliances. The agreement calls for SLM to
pay Paraversal $16,500 in monthly compensation which may increase as a result of
completed equity placements.
Under the agreement, Paraversal is entitled to an annual bonus in accordance
with the terms and provisions mutually agreed upon with SLM.
9
<PAGE> 11
Under the agreement, upon each annual anniversary date of October 5, 1999,
Paraversal will receives 200,000 shares of SLM's common stock at a price equal
to 110% of the closing bid price on the Nasdaq National Market System, the
Nasdaq SmallCap Market or the OTC Electronic Bulletin Board.
On October 5, 1999, Paraversal was granted options to purchase 500,000 shares of
SLM's common stock exercisable at $5.00 vesting on January 22, 2000.
Under the agreement, if Paraversal is terminated for any reason other than for
Cause or Death and Disability, Paraversal will be entitled to a lump sum
severance payment.
At September 30, 1999, deferred compensation of $300,000 due to Paraversal for
services rendered since December 1998 was recorded. This amount will be paid in
two installments at times mutually agreed upon between SLM and Paraversal.
Short-Term Financing
On November 1, 1999, SLM executed an unsecured promissory note (the
"Note") in the amount of $50,000 with a related party (the "related party") who
is a shareholder of SLM. The terms of the note call for SLM to
pay interest at 8% per annum. The principal and accrued and unpaid interest
shall be payable in one lump sum not later than 30 days from November 1, 1999.
Pursuant to the promissory note, warrants for 2,500 shares of SLM's
common stock exercisable at $6.00 per share expiring October 31, 2002 were
granted to the related party. As of November 15, 1999 the Note has not been
repaid interest or principal and the expected interest payable at the end of 60
days is $767.12.
Preferred Stock Issuance
On November 3, 1999, SLM pursuant to an agreement with Macromedia, Inc.
("Macromedia") issued 714,286 shares of SLM's preferred stock at $7.00 per
preferred share. On November 5, 1999, a total of $5,000,002 cash was received by
SLM. SLM entered into a five-year distribution agreement with Macromedia to
distribute 5 series of flash-animated episodes produced by SLM. In addition to
the distribution relationship provided by Macromedia, SLM has the right to
produce internet programming featuring elements it does not own or control for
and with third parties, and to maintain other SLM-branded websites. SLM is
required to pay $178,000 of the advertising costs to launch the first series.
NOTE 9 - WARNER BROS. / ACMECITY AGREEMENT:
On June 14, 1999, SLM and Warner Bros./AcmeCity ("WBAC") signed a "Community"
agreement which provides that SLM will receive all web community hosting;
e-mail; community tools which include free home pages, chat and message boards;
with direct buttons from each home page to stanlee.net home page of SLM. These
services will be given to SLM at no cost, as well as 50% of the net advertising
revenue earned from the site to be paid on a quarterly basis by WBAC to SLM in
exchange for exclusively hosting SLM's global community of users. SLM will also
have the option to sell advertising inventory on the WBAC site.
WBAC will be the exclusive provider of personal home page services for SLM and
will have exclusive access among all personal home page providers.
The E-Commerce rights state that WBAC will be responsible for sales and
fulfillment of any premium services such as purchasing additional memory for a
personal home page, and will pay SLM 20% of the net revenues derived from the
sale of these products.
10
<PAGE> 12
SLM will be responsible for sales and fulfillment of all goods and services
within the Community relating to Stan Lee products and merchandise and will pay
WBAC 12.5% of the gross revenue derived from these sales regardless of whether
such sales are completed online or by other means. If SLM does not source the
products then SLM shall pay WBAC 50% of all revenue it receives from sales of
the products if the sale was due to the traffic from the WBAC site. In addition,
SLM shall pay WBAC 50% of all revenue it receives from the sale of comic books
through any other third party if such sale was due to traffic driven from the
site.
The terms of the agreement will be for 18 months from June 14, 1999 and WBAC
will have one option to renew for an additional 18 months. The option must be
exercised by WBAC no later than 60 days prior to the initial term.
NOTE 10 - REVOLVING CREDIT AGREEMENTS
On July 23, 1999 SLM Inc. entered into two revolving credit agreements for a
total of US$2,000,000 dollars available credit. Each credit agreement will
expire on July 31, 2000. For each borrowing, a promissory note will be executed
that will bear interest, from the date of the borrowing, at LIBOR, as published
on The Wall Street Journal plus two percent (2%) per annum computed over a 360
day year. Interest is due and payable monthly on the first day of each month
beginning at least 30 days after issuance of the promissory note. As of
September 30, 1999, both revolving credit agreements had a zero balance.
ITEM 2 - Plan of Operations.
FORWARD-LOOKING INFORMATION
Certain statements in this Report on Form 10-QSB, particularly under Item 2,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance, or achievements of SLM to be
materially different from any future results, performance, or achievements,
expressed or implied by such forward-looking statements. Many factors could
cause SLM's actual results to differ materially from those in the
forward looking statements, including, but not limited to, SLM's listing
on the NASDAQ Over the Counter Bulletin Board.
GENERAL
SLM is a newly established, internet based, global branded content creation,
production and marketing company using the exclusive services of its founder,
pop culture icon Stan Lee, to conceive, create and produce marketable characters
and stories for entertainment, merchandising and promotional exploitation around
the world. Through no cost, percentage of gross relationships entered into by
SLM with the leading retail e-commerce company in the comic book field, Next
Planet Over.com and the leading entertainment community hosting company,
Warner/Acme City, SLM has achieved the requisites of content, commerce and
community defining a robust internet company. With the conclusion of an equity
based distribution deal with Macromedia Inc. and its subsidiary Shockwave.com
(the largest animation portal for original content on the internet) the company
has the opportunity to deliver original, high concept episodic animation to a
global audience over the internet. SLM will demonstrate that the internet is now
a viable, independent entertainment medium on a par with television and features
delivering a distinct, compelling animation entertainment experience to a global
universe of 188,000,000 users who have already downloaded or installed Flash
animation software.
SLM's strategy of harnessing off line strategic publishing/media partners around
the world along with the best of breed online content distribution partners to
assemble the largest global youth audience registering at the community based
hub site, stanlee.net will ensure continued visibility and support for building
the Stan Lee brand and community without traditional huge resource commitments
to generating traffic internet companies historically make in order to aggregate
eyeballs. Through licensed distribution with a leading animation portal, e.g.
Macromedia's Shockwave.com, SLM content will be assured a global audience of
millions of registered users which will be encouraged to visit the stanlee.net
hub site for community chat, games and related "sticky" experiences. Using this
model, SLM will leverage on the audiences of its distribution partners to
deliver a dedicated global audience to stanlee.net expeditiously. The company's
revenues will be derived from traditional internet advertising, sponsorship and
e-commerce sources while the larger revenue streams will be derived from
ancillary applications of the new branded content launched on the internet and
exploited in television animation, features, comic book publishing,
merchandising and licensing.
After the exclusive contract with Founder Stan Lee, SLM's greatest asset has
become the creative power represented by the most formidable pan media creative
team to be assembled for original internet content creation and production. This
team integrates seasoned comic book artists and writers with digital artists and
technicians, and senior producers having unsurpassed experience in on line
publishing and community building, all producing under the direction of award
winning television writers and animation storyboard supervisors. This team
currently is producing seven original Stan Lee Super Hero franchises while it
prepares for production of additional co-owned global branded content which will
harness the audiences of other recognized brands not currently being produced on
the internet.
LIQUIDITY AND CAPITAL RESOURCES
SLM's primary sources of liquidity and capital resources have been private
placements of common stock and borrowings from related and non-related parties.
Refer to the Subsequent Events Note 8 for further description of availability of
funds to meet operating requirements.
SLM expects that the cash on hand coupled with the cash to be raised
from additional private placements and public offerings, assuming they will be
successful, will be sufficient for operating expenses and capital until such
time as revenues are sufficient to meet operating requirements.
11
<PAGE> 13
No assurance can be given that SLM will be successful in raising
additional funds. The unavailability of additional funds when needed could have
a material adverse effect on SLM.
RESULTS OF OPERATIONS
Operating expenses for the nine months ended September 30, 1999 and the period
from October 13, 1998 (date of inception) to September 30, 1999 are $2,760,974
and $2,793,294, respectively. Operating expenses are increasing as SLM is hiring
additional personnel and incurring other expenses as it produces original
characters and content for delivery on the internet and other media pursuant to
existing and anticipated contractual arrangements. There were no operations for
the comparable periods for the prior year.
PURCHASE OF EQUIPMENT
Although we have no material commitments for capital expenditures, we anticipate
an increase in our capital expenditures and lease commitments consistent with
anticipated growth in operations, infrastructure and personnel.
CHANGES IN THE NUMBER OF EMPLOYEES
As of November 12, 1999, there are 46 full-time employees, 33 of whom were in
content creation and production, and product development, 4 of whom were in
marketing and sales, and 9 of whom were in general and administrative. We
anticipate hiring additional staff in all areas consistent with anticipated
growth in operations.
12
<PAGE> 14
YEAR 2000 COMPLIANCE
SLM has reviewed its computer systems to identify those areas that could be
adversely affected by Y2K software failures. SLM believes all of its computer
systems are Y2K compliant. While, SLM anticipates that any potential future
expenditures made in connection with Y2K issues will not be material, there can
be no assurance in this regard. SLM believes that some of its customers may be
impacted by the Y2K problem, which in turn may affect SLM. Currently, SLM
cannot predict the effect that Y2K problems may have on companies with whom it
transacts business and there cannot be any assurance that these problems will
not materially and adversely affect SLM's financial condition, results of
operations or cash flow.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no matters during this reporting period that require disclosure
under this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
There have been no matters during this reporting period that require disclosure
under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There have been no matters during this reporting period that require disclosure
under this item.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of security holders during this
reporting period.
ITEM 5. OTHER INFORMATION
There have been no matters during this reporting period that require disclosure
under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith: Financial Data Schedule
(EDGAR filing only).
(b) A Report on Form 8-K was filed on August 3, 1999, as amended by
Form 8-K/A filed on September 14, 1999 reporting under Item 2.
Acquisition or Disposition of Assets.
13
<PAGE> 15
Pursuant to the requirements of the Securities Exchange Act of 1934, Stan
Lee Media, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Stan Lee Media, Inc.
/s/ Robert M. Schultz
Robert M. Schultz
Principal Accounting Officer
November 15, 1999
14
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