U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Fiscal Year Ended: June 30, 2000
or
[ ] 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.
(Name of small business issuer in its charter)
Nevada 95-4786792
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
130 S. El Camino Dr., Beverly Hills, CA 90212
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(Address of principal executive offices) (Zip code)
11166 Burbank Blvd, North Hollywood, CA 91601
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(Former address)
Issuer's telephone number (310) 205-7998
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Securities registered under Section 12(b) of the Act: NONE Securities registered
under Section 12(g) of the Act:
Common Stock, par value $.001
(Title of class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $ -0-
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As of November 15, 2000, there were 5,178,000 shares of the
Registrant's common stock, par value $0.001, issued and outstanding. The
aggregate market value of the Registrant's voting stock held by non-affiliates
of the Registrant was approximately $1,381,745 computed at the average bid and
asked price as of November 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"):
NONE
Transitional Small Business Disclosure Format (check one):
Yes ; NO X
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Number and Caption Page
PART I
<S> <C> <C>
Item 1. Description of Business..................................................................................4
Item 2. Description of Property.................................................................................15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders.....................................................15
PART II
Item 5. Market for Common Equity and Related Stockholder Matters................................................16
Item 6. Management's Discussion and Analysis or Plan of Operations..............................................18
Item 7. Financial Statements....................................................................................20
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure...........................................................................20
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act..............................................21
Item 10. Executive Compensation..................................................................................24
Item 11. Security Ownership of Certain Beneficial Owners and Management..........................................25
Item 12. Certain Relationships and Related Transactions..........................................................26
Item 13. Exhibits and Reports on Form 8-K........................................................................26
</TABLE>
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
General
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 National Quotation Bureau
(NQB)Pink Sheets under the symbol "SVED."
History
Stereo Vision Entertainment, Inc. ("SVEI") was originally incorporated
in the State of Arizona as Arizona Tax Pros & Insurance Wholesalers, Inc., on
December14, 1993. Arizona Tax Pros & Insurance Wholesalers, Inc., changed its
name to Kestrel Equity Corporation ("Kestrel") on September 30, 1997. On July
20, 1999, Kestrel entered into an Acquisition Agreement and Plan of Reverse
Merger with Stereo Vision Entertainment, Inc., a privately held Nevada
corporation ("Stereo") (the "Merger"). Pursuant to the Merger, which was not
actually consummated until December 30, 1999, Stereo was merged with and into
"Kestrel". Each share of Stereo common stock outstanding was exchanged for 120
shares of Kestrel's common stock, $.001 par value (the "Common Stock").
On January 31, 2000, "Kestrel" changed its state of incorporation from
Arizona to Nevada, and also changed its name to Stereo Vision Entertainment,
Inc.
Since the time of its inception until the effective date of the Merger,
Kestrel Equity Corporation was a development stage company with no active
business operations and no revenues. As such, Kestrel was considered a "shell"
corporation with a principal purpose of locating and consummating a merger or
acquisition with a private entity. Beginning in August 1999, the business
activities of Kestrel, prior to the Merger, encompassed administrative and
organizational matters and identifying additional acquisition opportunities for
operating companies and intellectual property assets in the global multi-media
industries. Upon the consummation of the Merger, Kestrel acquired all of the
assets of Stereo with the intent of continuing Stereo's business and expanding
into new areas of the entertainment industry. Stereo was incorporated in the
State of Nevada on May 5, 1999 for purposes of acquiring
<PAGE>
multi-media/entertainment industry assets and pursuing merger opportunities with
an existing publicly traded company. Mr. Kallett, an officer and director of
Kestrel Equity Corporation, and Mr. Honour, a principal shareholder of Kestrel,
both owned common stock in Stereo representing an aggregate of 51% of the issued
and outstanding capital stock of Stereo. The operations and management of the
merged companies (SVEI) were then integrated following the replacement of
Stereo's sole officer and director with the then sole officer and director of
Kestrel.
On December 17, 1999 "Kestrel" filed its Form 10-SB with the U.S.
Securities and Exchange Commission. Upon the consummation of the merger on
December 30, 1999, shortly thereafter in January of 2000, SVEI elected new
officers and directors. Since January 2000, the Company's activities have been
developing entertainment projects, both musical and theatrical, and identifying
and securing candidates with entertainment industry experience to serve on the
SVEI Board of Directors and identifying additional opportunities for the
acquisition of operating entertainment oriented companies as well as acquiring
intellectual property assets. Although acquisition opportunities have been
identified, no transactions have been consummated and there is no guarantee that
any transactions will be consummated in the near future. As is reflected in the
Directors, Executive Officers, and Key Advisors Section of this registration
statement, on November 13, 2000 SVEI expanded its Board of Directors from five
to seven members, all of which have entertainment industry experience.
As a result of the merger "SVEI" acquired certain stereoscopic 3-D
assets which primarily consisted of but was not limited to numerous 3-D camera
and projection optical units and lenses for the 3-D production and exhibition of
stereoscopic 3-D Films and content. The equipment was previously invented,
manufactured, and assembled by Mr. Christopher Condon and owned by him and his
spouse, Marjorie Condon. "Stereo" acquired the assets in 1999 and prior to that
time Mr. Condon and his family owned the assets. Since 1994 which was the most
recent date that the Condon family operated as a legally organized entity, Mr.
Condon has utilized a portion of the assets as a semi-retired consultant. The
assets were primarily invented, manufactured, and assembled by Mr. Condon
periodically during the period of 1970 through 1994. In approximately 1980, Mr.
Condon also secured a patent, which was an integral part of the uniqueness of
the equipment. The patent expired in approximately 1997. The valuation of the
equipment which was utilized in determining its acquisition price, was a result
of arms length negotiations between Stereo and the Condon family and was
partially a result of verification of recent sale transactions to other third
parties by the Condon family of similar equipment. Additionally, an independent
third party valuation of the assets was analyzed. The assets were utilized in
projects by Disney, Warner Brothers, Chevrolet, Toyota and Kodak. The camera
lenses, part of the purchased assets, were also used by James Cameron for
Universal's "Terminator 2- - 3-D" and by Universal for the production of "Jaws
3-D". The projection lenses and units were used in approximately 6,000 play
dates for such exhibitors as AMC, General Cinema and United Artists.
SVEI has secured the consulting services of Mr. Daniel Symmes a thirty
year acquaintance and business associate of the Condon's who also possesses
<PAGE>
specialized skills in stereoscopic 3-D. Since 1968, Mr. Symmes has been actively
involved in technology development and the production, distribution and
exhibition of high quality 35 mm and 70 mm three-dimensional ("3-D") films,
featurettes, commercials and film shorts. SVEI intends to continue to utilize
its 3-D assets and implement a strategy to theatrically produce and distribute
new and existing 3-D feature films. SVEI also intends to establish an
Internet-based music portal and record label site where it can distribute motion
picture soundtracks from its proposed 3-D and independent films, as well as
other original recordings that it either acquires or produces.
The executive offices of the Company are located at 130 S. El Camino
Dr. Beverly Hills, CA 90212. Its telephone number is (310) 205-7998.
OPERATING LOSSES
The Company has incurred net losses of approximately $2,580,000 for
fiscal year ended June 30, 2000 and $145,000 for the period from inception to
June 30, 1999. Such operating losses reflect developmental and other start-up
activities for 2000 and 1999. The Company expects to incur losses in the near
future until profitability is achieved. The Company's operations are subject to
numerous risks associated with establishing any new business, including
unforeseen expenses, delays and complications. There can be no assurance that
the Company will achieve or sustain profitable operations or that it will be
able to remain in business.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
SVEI anticipates generating operating revenues during its next fiscal
year as it becomes operational and acquires operating companies and/or
intellectual property assets. "SVEI" management acknowledges that during its
next fiscal year there is no assurance that "SVEI" will transition itself from a
development stage company to an operational one and SVEI's continued operations
may be dependent upon additional shareholder loans and/or proceeds from "SVEI"
debt/equity offerings. There currently are no agreements in place for future
shareholder loans and management has no assurances as to any market acceptance
of any future SVEI debt/equity offerings.
BUSINESS - OVERVIEW
Currently, management believes that SVEI's principal expertise is in
the content production segment of the multi-media entertainment industry. SVEI
also intends to acquire additional intellectual property assets. In utilizing
the SVEI's existing physical and managerial assets, SVEI's initial operating
activities are anticipated to encompass the production, acquisition, marketing
and distribution of music content and the production, distribution, exhibition
of stereoscopic 3-D and independent feature length theatrical films and related
technology development of 3-D optics. Additionally, SVEI will pursue the
re-release of selected 3-D classic films. SVEI intends to use traditional
distribution channels for its content and, when available and if practical,
alternative and complimentary distribution channels such as the Internet.
<PAGE>
MUSIC DIVISION
SVEI's music division anticipates generating revenues during the fourth
quarter of 2001. SVEI is pursuing opportunities within the global music industry
that may include producing well-known and new artists and acquiring royalty and
publishing rights from established artists. The company is restructuring its
agreement with Wilfield Entertainment into a joint venture agreement for the
purpose of producing thirteen albums. It is anticipated that the Company will
issue 200,000 shares of common stock for its participation in the joint venture.
SVEI 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.
STEREO VISION ENTERTAINMENT PRODUCTIONS
The film content production business is very capital intensive and SVEI
will need to raise and secure significant equity or debt financing to implement
its production objectives. If SVEI receives such financing, it anticipates
producing and/or co-producing 3-D and traditional independent feature length
theatrical productions. Financing for these productions, when possible, will be
accomplished on an "off-balance sheet" basis, or through major studio joint
ventures. When feasible, SVEI anticipates each production will be structured as
a stand-alone limited liability company, thus diminishing the equity dilution
impact on SVEI. SVEI intends to act as the executive producer of each film
project. There is no assurance that SVEI can secure financing to produce films
or even if films are produced that they can be profitably distributed.
SVX "TRU 3-D" THEATER NETWORK
SVEI intends to develop a 3-D theater network with the goal of bringing
"theme park quality 3-D" to local multiplex theaters within the next 18 months.
Using a low-cost, efficient theater modification model, SVEI will provide
multiplex theater owners with a turn-key package at a no-cost or no-risk
arrangement to the operator. The multiplex owner will maintain the ability to
exhibit conventional two-dimensional movies in the converted theater if so
desired.
SVEI will attempt to establish a branded or co-branded theater network
with theater locations in major markets, both domestically and in key foreign
locations. Initially utilizing the SVEI's inventory of approximately 800
projection units, SVEI anticipates expanding its theater network thereafter. In
addition to 3-D films which may be produced and/or co-produced by SVEI, SVEI
intends to generate revenues from the re-release of selected existing 3-D
classics and the distribution of other marketable existing or newly produced 3-D
films. SVEI shall attempt to build and position its SVX "Tru 3-D" theater
network for transition into the proposed digital projection systems which are
anticipated to be installed in most theaters within the next three to five
years.
<PAGE>
3-D CONTENT INDUSTRY
3-D entertainment markets are currently characterized by relatively
short content (one hour or less), and explosive action in color, images, events
or scenery. Prime 3-D markets include music videos, action television
programming, nature documentaries, sports events, promotional material,
merchandising tie-ins, and specialized films for location-based visual
entertainment. SVEI believes that with continued technological development the
re-emergence of full-length 3-D movies will be more in demand in the near
future.
The visual entertainment market for SVEI's 3-D technology and content
encompasses three distinct entertainment industries - broadcast and cable
television, video software and motion pictures. In addition, location-based
entertainment theaters represent a profitable and rapidly growing market
segment.
The content production business is very capital intensive and SVEI
expects that it will require additional equity financing to complete the
capitalization of its business plan. SVEI can give no assurance that it can
successfully negotiate or obtain additional financing, or that it will obtain
financing on terms favorable or acceptable to it. If SVEI does not obtain
adequate financing or such financing is not available on acceptable terms,
SVEI's ability to finance the production or acquisition of 3-D films would be
significantly limited.
BROADCAST AND CABLE TELEVISION INDUSTRY
Subsequent 3-D penetration of visual broadcast markets may be pursued,
such as sports events, music videos and special programming. As the mass
television audience acquires 3-D viewers, SVEI believes the scope of 3-D
programming opportunities will expand. Syndicated 3-D programs, or even
dedicated time slots or channels may be broadcast in 3-D and could facilitate
widespread video software and additional 3-D motion picture opportunities.
Household television penetration in the United States now exceeds 98% of total
households, with nearly 100% being color television sets. Currently, the
television population in the United States exceeds 217 million sets, with the
average household having a television on for over seven hours each day. Because
of the interest in 3-D productions shown at theme parks and movie theaters, SVEI
believes there is a growing opportunity for enhancing the television viewing
experience with 3-D technology; provided, however, that technology can be
developed that will permit a similar high-quality viewing experience.
VIDEO SOFTWARE INDUSTRY
Over 75 million households in the United States have videocassette
recorders. Currently, distribution of 3-D content to the home entertainment
market is nearly non-existent. The distribution of video software is primarily
controlled by specialty video stores, such as Blockbuster Entertainment. These
video specialty stores generate over 80% of total revenue from video rentals.
<PAGE>
LOCATION-BASED ENTERTAINMENT THEATERS
SVEI believes that there is an increasing worldwide demand for a
variety of out-of-home entertainment options. Secondarily to its 3-D theatrical
films and 3-D theater network strategies, SVEI may become a provider of a
complete line of services and products to support the design, development and
operation of specialty format theater attractions. These products may include
3-D film-based software and projector optics to be utilized in the video
simulation, large format and specialty venues attractions.
3-D MOTION PICTURE PRODUCTION AND EXHIBITION EQUIPMENT
Traditional true stereo or 3-D production techniques have required the
use of two cameras locked together to produce two strips of film, one for the
right eye and one for the left eye. To project the film two projectors are also
required along with a reflective screen surface for polarized viewing. Because
two cameras and two projectors are required, as well as twice the film, the
expense for both production and exhibition of traditional 3-D films is
significantly greater than for standard two-dimensional ("2-D") formats.
As a result of the Merger with Stereo, SVEI acquired rights and access
to certain proprietary technology, that allow for high-quality 3-D production at
a cost equivalent to 2-D formats. Stereo had originally acquired these assets
from the Condon Family Partnership for an aggregate purchase price of
$6,787,400. Mr. Condon, a partner in the selling partnership, is a key creative
advisor to SVEI.
This technology employs a dual element, single lens technology that can
shoot 35mm or 70mm 3-D productions with one standard camera, as opposed to two
synchronized cameras, and allows the films to be exhibited through a
singleprojector. The system also allows for the production of 2-D and 3-D
products simultaneously. To create the 3-D effect, the audience uses either
polarized glasses or electronic glasses that separate the left and right eye
images. The Company believes that this 3-D system offers consumers one of the
most realistic 3-D experiences available today.
EXHIBITION AND DISTRIBUTION NETWORK
The Company intends that theatrical releases of 3-D productions will be
achieved using the SVEI's unique turnkey distribution solution. SVEI currently
owns over 800 3-D projection systems. Unlike other wide screen 3-D solutions,
the exhibition of SVEI's 3-D entertainment products will not require spending
millions of dollars on the construction of specialized venues or on the purchase
of specialized projection hardware to view "theme park" quality 3-D films. By
using SVEI's system, superior 3-D special effects can be achieved at a fraction
of the costs of competing solutions.
Management believes that the ownership of the proprietary 3-D equipment
is important to the future success of SVEI. Since SVEI intends to produce new
3-D movies, it believes that it will be more profitable for SVEI to rely on its
own highly specialized equipment. To the best of management's knowledge, there
is no other suitable source in quantity of this type of equipment. This
<PAGE>
equipment was developed by one of SVEI's key creative advisors, Chris Condon.
Until recently, this technology was patent protected. Although the patent has
since expired, improvements to the technology are currently subject to trade
secret protection.
As a result of the Merger with Stereo, SVEI acquired the renewable
rights, and intends to begin distribution of, five 3-D feature films: "Fantastic
Invasion of Planet Earth," "Target New York," "The Creeps," "The Stewardesses"
and "Wild Ride."
SVEI intends to update its film distribution licenses with the owners
of these five 3-D feature films that were previously licensed to Stereo.
Management believes that SVEI can achieve revenues within the next six months.
This assumption is due to renewed interest by the public in 3-D films currently
being shown all over the world by IMAX Corp., Disney theme parks and others.
MARKETING, DISTRIBUTION AND PROMOTIONS
SVEI intends to market its 3-D technology by providing the industry
with the necessary tools to allow for 3-D production and viewing within the
current 2-D infrastructure. The marketing plan includes the following:
(i) Producing and distributing 3-D content for the video,
broadcast television and motion picture industries;
(ii) Establishing special theaters for showcasing 3-D content;
(iii) Creating a mass audience and mainstream distribution channel; and
(iv) Licensing the technology to the entertainment industry.
SVEI also intends to include sponsorship opportunities for its own
original productions, as well as for third parties. Sponsorship activities may
include branding 3-D glasses for live events, and developing custom corporate
3-D images, campaigns and messages. SVEI also intends to offer, and is capable
of delivering, 3-D products in a full spectrum of 3-D formats which include
film, video, DVD, the Internet and print.
ANCILLARY PRODUCTS, MERCHANDISING AND LICENSING
In addition to servicing the proprietary and wholesale promotion
industries, SVEI intends to establish a website dedicated to the sale of 3-D
related retail products. The website may offer some or all of the following
products: 3-D viewers, slides, holograms, lenticular images and various types of
3-D glasses for viewing 3-D content on television or over the Internet.
<PAGE>
BUSINESS EXPANSION; CAPITAL GROWTH
SVEI intends to position itself to evolve into a vertically integrated,
diversified global media entertainment company and SVEI intends to pursue the
acquisition of diversified entertainment companies or intellectual property
assets that will allow for the pursuit of opportunities currently available in
the global marketplace. SVEI believes that synergism among its divisions will
allow SVEI to effectively compete for its incremental share of the global
consumer's discretionary expenditures. SVEI intends to finance its business
expansion and acquisitions through the sale of equity securities. SVEI can give
no assurance that any offering of its securities will be successful. If SVEI is
unable to successfully raise equity financing or alternative financing SVEI's
ability to fund its business plan would be significantly limited.
The ability of SVEI to implement its business strategy depends upon its
ability to successfully create, produce, and market entertainment content or
ancillary products for traditional real-world distribution channels including,
but not limited to, retailers, radio, television, theaters and home markets and
newly emerging distribution channels such as the Internet. The size and quality
of SVEI's library of film software titles is a material factor in competing for
sales of SVEI's attractions and developing the Company's products and base of
recurring revenue.
SVEI intends to produce and develop specialty films and videos for its
library, as well as acquire additional music assets. While SVEI may enter into
participation, licensing or other financial arrangements with third parties in
order to minimize its financial involvement in production, SVEI will be subject
to substantial financial risks relating to the video software. SVEI expects that
it will typically be required to pay for the production of software during the
production period prior to release but will most likely be unable to recoup
these costs from revenues from exhibition licenses prior to 24 to 36 months
following release.
SVEI anticipates generating revenues from several sources, including,
production and distribution of new and existing 3-D and independent feature
films, intellectual property music assets, and also providing integrated
solutions to help organizations broadcast audio, video, 3-D video, animation,
and 3-D animation and music over the Internet. When appropriate, SVEI will
attempt to acquire other assets and existing operating global multi-media
entertainment companies with seasoned management teams.
MANAGEMENT OF GROWTH
In order to maximize potential growth in SVEI's market opportunities,
SVEI believes that it must expand rapidly and significantly upon its entrance
into the marketplace. This impetus for expansion will place a significant strain
on SVEI's management, operational and financial resources. In order to manage
growth, SVEI must implement and continually improve its operational and
financial systems, expand operations, attract and retain superior management and
train, manage and expand its employee base. SVEI cannot guarantee that it will
effectively manage the rapid expansion of its operations, that its systems,
<PAGE>
procedures or controls will adequately support its operations or that SVEI's
management will successfully implement its business plan. If SVEI cannot
effectively manage its growth, its business, financial condition and results of
operations could suffer a material adverse effect.
SVEI expects that it will require additional equity and/or credit
financing prior to becoming cash self-sufficient. There can be no assurances
that SVEI will successfully negotiate or obtain additional financing, or that it
will obtain financing on terms favorable or acceptable to it. SVEI does not have
any commitments for additional financing. The Company's ability to obtain
additional capital depends on market conditions, the global economy and other
factors outside its control. If SVEI does not obtain adequate financing or such
financing is not available on acceptable terms, SVEI's ability to finance its
expansion, develop or enhance products or services or respond to competitive
pressures would be significantly limited. SVEI's failure to secure necessary
financing could have a material adverse effect on its business, prospects,
financial condition and results of operations.
GOVERNMENT REGULATION
The Classification and Rating Administration of the Motion Picture
Association of America, an industry trade association, assigns ratings for
age-group suitability for motion pictures. SVEI plans to submit its pictures for
such ratings. Management's current policy is to produce motion pictures that
qualify for a rating no more restrictive than "R."
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 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.
RISK OF LOW-PRICED STOCKS
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act
of 1934 (the "Exchange Act") impose sales practice and disclosure requirements
on certain brokers and dealers who engage in certain transactions involving "a
penny stock."
Currently, the Company's Common Stock is considered a penny stock for
purposes of the Exchange Act. The additional sales practice and disclosure
requirements imposed on certain brokers and dealers could impede the sale of the
Company's Common Stock in the secondary market. In addition, the market
liquidity for the Company's securities may be severely adversely affected, with
concomitant adverse effects on the price of the Company's securities.
Under the penny stock regulations, a broker or dealer selling penny
stock to anyone other than an established customer or "accredited investor"
(generally, an individual with net worth in excess of $1,000,000 or annual
incomes exceeding $200,000, or $300,000 together with his or her spouse) must
<PAGE>
make a special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale, unless the broker
or dealer or the transaction is otherwise exempt. In addition, the penny stock
regulations require the broker or dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission (the "SEC") relating to the penny stock market, unless the
broker or dealer or the transaction is otherwise exempt. A broker or dealer is
also required to disclose commissions payable to the broker or dealer and the
registered representative and current quotations for the Securities. In
addition, a broker or dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account and information with respect to the limited market in penny stocks.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies on a combination of trade secret, copyright and
trademark law, nondisclosure agreements and technical security measures to
protect its products. Notwithstanding these safeguards, it is possible for
competitors of the company to obtain its trade secrets and to imitate its
products. Furthermore, others may independently develop products similar or
superior to those developed or planned by the Company.
SVEI's success depends substantially upon its proprietary technology.
This technology includes optical design formulas designed by Mr. Condon and
protected by trade secret law. The type of glass, the exact spacing and
curvatures of the primary dispersing optics and the method of controlling the
exact assembly tolerances using custom-made laboratory testing equipment are
integral parts of this technology which results in optical resolution exceeding
100 lines per million and is fully compatible with the latest 35mm Panavision
and Arriflex motion picture cameras, as well as high definition video cameras.
The 3-D projection optics are fully compatible with all 35-mm motion picture
projectors and are designed for easy installation, even by semi-skilled
personnel. In addition, Mr. Condon has designed and built a 3-D projection unit
compatible with the latest Hughes digital video projectors. This technology will
provide SVEI with a competitive advantage because of the enhanced quality of the
3-D images produced as a result of SVEI's trade secrets. Additionally, SVEI has
secured the employment services of Mr. Daniel Symmes, a longtime 3-D technology
associate of Mr.Condon, to lead its efforts for research and development and
manufacturing of SVEI's next generation 3-D production and exhibition optical
equipment. Mr. Symmes per his employment agreement will be allocating 50% of his
time to SVEI. The Company will rely on a combination of trademark, copyright and
trade secret laws, as well as confidentiality agreements, to protect its
proprietary rights. SVEI's predecessor, Stereo, maintained a policy of obtaining
patent protection and, consequently, SVEI currently has the following patent
pending:
PATENTS PENDING: One-High Speed for Above and Below 3-D Cameras
This technology entails the use of brighter optics for 3-D single camera
cinematography, which allows for filming in lower light situations.
<PAGE>
SVEI also has technology in development that has grown out of
previously patented technology held by Stereo. SVEI is working on a 3-D camera
optical system that has remote wireless convergence control so that it can be
used on the Panaglide and Steadicam. SVEI intends to apply for patent protection
for this proprietary technology as well. SVEI can give no assurance that such
patents will be granted or that third parties will not claim infringement with
respect to current or future technology developed by SVEI.
Distribution rights to motion pictures are also granted legal
protection under the copyright laws of the United States and most foreign
countries. These copyright laws provide substantial civil and criminal sanctions
for unauthorized duplication and exhibition of motion pictures. Motion pictures,
musical works, sound recordings, artwork, still photography and motion picture
properties are each separate works subject to copyright under most copyright
laws, including the United States Copyright Act of 1976, as amended.
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. 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, VIDMAX, and
others. Conversely, competition in the special venue markets (theatrical) is
much more developed. SVEI'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. 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.
<PAGE>
EMPLOYEES
As of November 13, 2000, SVEI employed three full-time employees. SVEI
considers its employee relations to be satisfactory at present.
ITEM 2 DESCRIPTION OF PROPERTY
SVEI's principal executive offices are located at 130 El Camino Drive,
Beverly Hills, CA 90212 and consist of approximately 273 square feet of
furnished executive suite offices and reception and conference room
arrangements. The lease expires in six months from November 1, 2000. The monthly
rent for the property is $1,7356.78. SVEI maintains a research and development
office and storage warehouse facility at 1611 Rancho Santa Fe Road, Suite E, San
Marcos, CA 92069 that consists of approximately 1,000 square feet. This facility
is also leased on a month-to-month basis for the monthly rent of $650. SVEI also
leases on a month-to-month basis various storage facilities for its equipment
inventory that consists of approximately 1,500 square feet of additional space
at a monthly rent of $1,500. SVEI also rents housing in Studio City, California
for office use and use by its out-of-town officers, directors and employees. The
monthly rent paid for this corporate housing is $4,000. SVEI rents a 4,000
square foot studio production and offices facility on a month to month basis for
$1,700 plus 800 shares of common stock.
ITEM 3 LEGAL PROCEEDINGS
As of the date hereof, SVEI is not a party to any material pending
legal proceeding and is not aware of any threatened legal proceeding.
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
In accordance with Nevada corporate law, no matters were subject to a
vote of security holders during the year ended June 30, 2000. However the
actions of the board of directors to increase the number of board members from
three to seven was ratified by shareholders controlling 69% of the voting stock.
<PAGE>
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the NQB Pink Sheets under the
symbol "SVED." The following table presents the high and low bid quotations for
the Common Stock as reported by the NASD for each quarter during the last two
years. Such prices reflect inter-dealer quotations without adjustments for
retail markup, markdown or commission, and do not necessarily represent actual
transactions.
Prior to December 2, 1999, there was no trading market for Company's
Common Stock. As of December 2, 1999, SVEI's Common Stock has been traded on the
"pink sheets" under the trading symbol "SVED." For the period from December 2,
1999 through February 17, 2000, the price for the Common Stock has ranged from
$5.00 to $5.95 per share. There has been no solicitation of the sale or purchase
of the Common Stock. The price for the common stock has approximately ranged in
price as follows:
1999: High Low
Quarter ended September 30, 1998 - -
Quarter ended December 31, 1998 - -
Quarter ended March 31, 1999 - -
Quarter ended June 30, 1999 - -
2000:
Quarter ended September 30, 1999 - -
Quarter ended December 31, 1999 $5.95 $5.00
Quarter ended March 31, 2000 $5.95 $5.00
Quarter ended June 30, 2000 $2.00 $0.10
DIVIDENDS
SVEI has never paid a cash dividend on its Common Stock nor does SVEI
anticipate paying cash dividends on its Common Stock in the near future. It is
the present policy of SVEI not to pay cash dividends on the Common Stock but to
retain earnings, if any, to fund growth and expansion. Any payment of cash
dividends on the Common Stock in the future will be dependent upon SVEI's
financial condition, results of operations, current and anticipated cash
requirements, plans for expansion, as well as other factors the Board of
Directors deems relevant.
<PAGE>
The number of shareholders of record of the Company's Common Stock as
of November 13, 2000 was approximately 88.
RECENT SALES OF UNREGISTERED SECURITIES
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 3, 1999 the Company entered into an acquisition agreement
and plan of reverse merger with Kestrel Equity Corporation and at the same time
entered into an asset acquisition agreement for the acquisition of 3-D projects,
equipment, licensing and distribution rights. 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. The services rendered
were for the development of the Company's music division.
From April to June 2000, the Company issued 200,000 restricted common
shares to various consultants for services and 90,500 restricted common shares
to individuals for cash all at $1.00 per share.
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.
No underwriter was involved in any of the above issuances of
securities. All of the above securities were issued in reliance upon the
exemptions set forth in Section 4(2) of the Securities Act (including, in
certain instances Regulation promulgated there under) on the basis that they
were issued under circumstances not involving a public offering. These
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act because all such individuals were believed to be sophisticated
and given sufficient access to all information regarding SVEI, Kestrel, and/ or
their predecessors.
<PAGE>
ITEM 6 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
Plan of Operations - The following discussion should be read in conjunction with
the Company's audited financial statements.
The Company was organized for the purpose of creating a corporate
vehicle to seek, investigate and, if such investigation warrants, acquire an
interest in one or more business opportunities presented to it by persons or
firms who or which desire to seek perceived advantages of a publicly held
corporation.
The Company may incur significant post-merger or acquisition
registration costs in the event management wishes to register a portion of their
shares for subsequent sale. The Company will also incur significant legal and
accounting costs in connection with the acquisition including the costs of
preparing post- effective amendments, Forms 8-K, agreements and related reports
and documents.
The Company will not have sufficient funds (unless it is able to raise
funds in a private placement) to undertake any significant development,
marketing and manufacturing of the products acquired. Accordingly, following the
acquisition, the Company will, in all likelihood, be required to either seek
debt or equity financing or obtain funding from third parties, in exchange for
which the Company may be required to give up a substantial portion of its
interest in the acquired product. There is no assurance that the Company will be
able either to obtain additional financing or interest third parties in
providing funding for the further development, marketing and manufacturing of
any products acquired.
The current plan of SVEI incorporates operational resources that will
make 3-D media a mainstream entertainment form. SVEI plans to reach the mass
market by aligning itself with already-established, branded products and titles
for the production, promotion and distribution of 3-D products. The Company's
management intends to aggressively evaluate and pursue production opportunities
in order to increase SVEI's content library and maintain a leadership position
as the foremost provider of 3-D products. As a development stage company, SVEI
has minimal historical operations, no revenues and negative cash flows. In order
to satisfy cash requirements for SVEI's production and revenue goals, management
must obtain working capital through either debt or equity financing.
The entertainment industry is an intensely competitive one, where
price, service, location, and quality are critical factors. The Company has many
established competitors, ranging from similar local single unit operations to
large multi-national operations. Some of these competitors have substantially
greater financial resources and may be established or indeed become established
in areas where the Company operates. The entertainment industry may be affected
<PAGE>
by changes in customer tastes, economic, and demographic trends. Factors such as
inflation, increased supplies costs and the availability of suitable employees
may adversely affect the entertainment industry in general and the Company in
particular. In view of the Company's limited financial resources and management
availability, the Company will continue to be at a significant competitive
disadvantage vis-a-vis the Company's competitors.
Results of Operations - There were no revenues from sales for the period from
inception to June 30, 2000. SVEI has sustained a net loss of approximately $2.5
million for the year ended June 30, 2000, which was due to general and
administrative expenses incurred by SVEI. 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 3-D equipment 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 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 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 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 June 2000, seven persons,
including the aforementioned major shareholder and one director, loaned the
Company $750,000. However, there can be no assurances that additional loans will
be forthcoming from officers, directors, and shareholders.
<PAGE>
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 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.
ITEM 7 FINANCIAL STATEMENTS
The financial statements of the Company and supplementary data are
included beginning immediately following the signature page to this report. See
Item 13 for a list of the financial statements and financial statement schedules
included.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company
and its accountants on any matter of accounting principles, practices or
financial statements disclosure.
<PAGE>
PART III
ITEM 9 DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
Executive Officers and Directors
The members of the Board of Directors of the Company serve until the next annual
meeting of stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors. The following table
sets forth the name, age, and position of each executive officer and director of
the Company:
<TABLE>
<CAPTION>
Director's Name Age Office Term Expires
<S> <C> <C> <C>
Thomas E. Noonan 69 Chairman of the Board, Director next annual meeting
Robert L. Friedman 70 Vice-Chairman, President, Director next annual meeting
Herky Williams 47 Secretary-Treasurer, Director next annual meeting
John C. Bodziak, Jr. 27 Director next annual meeting
Rocco Urbisci 51 Director next annual meeting
Michael J. Solomon 61 Director next annual meeting
Mike Jabara 48 Director next annual meeting
</TABLE>
THOMAS E. NOONAN - CHAIRMAN - BOARD OF DIRECTORS: Mr. Noonan has served on the
Board of Directors since August 4, 2000. Tom Noonan is currently the head of
Columbia/Epic Records Alumni Association, which was started in 1995, and is now
with 500 Members, many in top positions in the current music record industry.
>From 1995 to 2000 he has been President of Noonan Consulting, a record industry
consulting firm to artists, labels, video companies, music publishers, trade
publications, artist managers, new companies and foreign affiliates. Mr. Noonan
was formerly a senior executive at Billboard Magazine where he founded the Hot
100 Charts and also evaluated albums and music assets for the Internal Revenue
Service. Furthermore, Mr. Noonan has been a U.S. Government Expert Witness
before investigative Congressional Committees. He has provided marketing
services for major artists such as Barbara Streisand, Janet Jackson, Michael
Jackson, George Michael, Bob Seger, Janis Joplin, Marvin Gaye, Diana Ross and
the Supremes, Bob Dylan, Johnny Cash, Tony Bennett, and many other known
artists. Mr. Noonan holds a Bachelor of Science degree in Business
Administration from Seton Hall University.
ROBERT L. FRIEDMAN - VICE-CHAIRMAN - BOARD OF DIRECTORS, PRESIDENT - CEO: Mr.
Friedman has served on the Board of Directors since November 13, 2000. Robert
Friedman is a former president of Columbia Pictures distribution and executive
vice-president of United Artists distribution. From 1995 through November 1999,
Mr. Friedman served as president of the AMC Entertainment Motion Picture Group.
<PAGE>
From November 1999 through November 2000, Mr. Friedman served as president of
RLF Entertainment, an entertainment industry consulting company, and he
continues to serve as a special adviser to the investment banking firm of Chanin
Capital Partners and the Ray-Art Motion Picture and Television Studios in
addition to other key motion picture production entities. Mr. Friedman is a
board member of the executive division of the Academy of Motion Picture Arts and
Sciences, and on the boards of directors of the Will Rogers Hospital, the
Variety Club of Southern California, DARE America and Motion Picture Pioneers.
HERKY WILLIAMS - BOARD OF DIRECTORS MEMBER: Mr. Williams has served as a Member
of the Board of Directors for Stereo Vision Entertainment since May 5, 2000. Mr.
Williams has an extensive background and knowledge in various facets of the
Music Industry. Mr. Williams served as Senior Director of A&R for Capitol
Records in 1995-1996, where his duties included signing artists and artist
development. Such artists include Willie Nelson, Garth Brooks, Charlie Daniels,
Asleep at the Wheel, and Tanya Tucker. From 1997-2000, he went on to serve as
Senior Director of Creativity for A.S.C.A.P. (American Society of Composers,
Authors, and Publishers, established in 1914). A.S.C.A.P is a member-owned
company, which collected over $500,000,000 this year for its artists. Mr.
Williams' duties include securing publishing and record deals for A.S.C.A.P.
members as well as placing songs with artists, labels, and producers.
JOHN C. BODZIAK JR. - BOARD OF DIRECTOR MEMBER: Mr. Bodziak has served as
President/CEO for Stereo Vision Entertainment, Inc. since August 4, 2000. Mr.
Bodziak has educational as well as working experience in the capacity of
ownership, management, and operating small and large businesses in the
restaurant, liquor, and concert entertainment arenas. From 1995 to 1997 Mr.
Bodziak was General Manager for Key Largo International (located on the Jannus
Landing block) where his duties included operating and managing Benson's Gourmet
and Tami Ami Nightclub. Working alongside the Jannus Landing Corporation, in
1997 Mr. Bodziak began promoting and coordinating entertainment acts for
nightclubs on the Jannus Landing block as well as managing the real estate for
which Jannus Landing owns including Pelican Pub, Detroit Liquors, and the
legendary Jannus Landing Courtyard which was voted in Rolling Stone Magazine to
be the one of the top 10 best concert venues in the nation; Each year over 75
major acts play Jannus Landing Courtyard's main stage. From 1997 to 2000 Mr.
Bodziak has served as President/CEO of Jannus Landing Corporation, where he
oversees the daily operation and schedules entertainment, and acts as
coordinator of the concert venue. Mr. Bodziak graduated from the University of
Florida with a Bachelor's Degree in Business Administration as well as Financing
and Economics. Mr. Bodziak was also president of his College Business
Fraternity, ALPHA KAPPA SAI.
ROCCO URBISCI - BOARD OF DIRECTORS MEMBER: Mr. Urbisci has served as a Member of
the Board of Directors since May 5, 2000. From the years 1995 to 2000, Mr.
Urbisci worked as an Independent Contractor to the Entertainment Industry. Mr.
Urbisci has a vast repertoire of producing and directing credits. Over the past
five years, some of his credits and completed projects include numerous George
Carlin HBO Specials, which Mr. Urbisci produced and directed. Three of these
specials were live, which creates a natural linkage to the company's business
plan. In 1998, Mr. Urbisci's remarkable diversity was apparent in his receiving
the Writer's Guild Award for writing "The Earth Day Special", a three-hour ABC
<PAGE>
prime-time special, starring Bette Midler, Dustin Hoffman and Kevin Costner,
which he also produced. Mr. Urbisci most recently is busy under production with
several projects, including the animated television show, "Max" with Rhythm &
Hues, a 3-D digital animation company that worked on Universal's Flintstones
sequel, "The Flintstones in Viva Rock Vegas." Mr. Urbisci graduated from the
Cooper School of Art in 1969.
MICHAEL J. SOLOMON - BOARD OF DIRECTORS MEMBER: Mr. Solomon has served as a
Member of the Board of Directors since October 25, 2000. Solomon has a 44 year
distinguished career in the entertainment industry. He is currently chairman and
CEO of Solomon International Enterprises and Solomon Broadcasting International.
Career highlights include: co-founding Telepictures Corporation; merging
Telepictures with Lorimar to form Lorimar Telepictures. Solomon became president
of Warner Bros. International from 1989 through 1994. He is currently co-owner
of Iguana Productions, the largest independent television production company in
Latin America and Channel 11 in Peru. He is in the process of building an
Entertainment Center in Puerto Rico equipped with film and television studios
and complete post production facilities.
MIKE JABARA - BOARD OF DIRECTORS MEMBER: Mr Jabara has served as a Member of the
Board of Directors since November 13, 2000. From 1995 to the present, Mr. Jabara
has served as the manager of Jabara & Co., LLC, a financial advisory firm. From
November 1997 through the present, Mr. Jabara has served as manager to
NewHoldings.com, LLC, an Internet investment company. From April 2000 to the
present, Mr. Jabara has served as chairman and CEO of Itruckers, Inc., an
Internet truck transportation service company. Mr. Jabara received an MBA from
U.C. Berkeley.
Conflicts of Interest
Certain conflicts of interest existed at June 30, 2000 and may continue to exist
between the Company and its officers and directors due to the fact that each has
other business interests to which he devotes his primary attention. Each officer
and director may continue to do so notwithstanding the fact that management time
should be devoted to the business of the Company.
Certain conflicts of interest may exist between the Company and its management,
and conflicts may develop in the future. The Company has not established
policies or procedures for the resolution of current or potential conflicts of
interests between the Company, its officers and directors or affiliated
entities. There can be no assurance that management will resolve all conflicts
of interest in favor of the Company, and failure by management to conduct the
Company's business in the Company's best interest may result in liability to the
management. The officers and directors are accountable to the Company as
fiduciaries, which means that they are required to exercise good faith and
integrity in handling the Company's affairs. Shareholders who believe that the
Company has been harmed by failure of an officer or director to appropriately
resolve any conflict of interest may, subject to applicable rule of civil
procedure, be able to bring a class action or derivative suit to enforce their
rights and the Company's rights.
<PAGE>
Board Meetings and Committees
The Directors and Officers currently do not receive cash remuneration
from the Company and may not until cash flow from operations permits, all in the
discretion of the Board of Directors. The Company intends on compensating its
officers and directors with common stock in the Company, which is anticipated to
be included in a future stock option plan. Directors may be paid their expenses,
if any, of attendance at such meeting of the Board of Directors, and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. No
compensation has been paid to the Directors. The Board of Directors may
designate from among its members an executive committee and one or more other
committees. No such committees have been appointed.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of forms 3, 4, and 5 and amendments thereto,
furnished to the Company during or respecting its last fiscal year, no director,
officer, beneficial owner of more than 10% of any class of equity securities of
the Company or any other person known to be subject to Section 16 of the
Exchange Act of 1934, as amended, failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act for the last fiscal year.
ITEM 10 EXECUTIVE COMPENSATION
None of the executive officer's annual salary and bonus exceeded
$100,000 during any of the Company's last two fiscal years.
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.
On September 28, 2000 the company entered into a two year consulting
agreement with Michael J. Solomon. The agreement provides for compensation of
$300,000 per year, payable at a minimum of $10,000 per month with the balance
due September 28, 2001. In addition Mr. Solomon will receive stock options to
purchase 250,000 common shares at $.01 per share.
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS
AND MANAGEMENT
Principal Shareholders
The table below sets forth information as to each person owning of
record or who was known by the Company to own beneficially more than 5% of the
4,940,500 shares of issued and outstanding Common Stock of the Company as of
June 30, 2000 and information as to the ownership of the Company's Stock by each
of its directors and executive officers and by the directors and executive
officers as a group. Except as otherwise indicated, all shares are owned
directly, and the persons named in the table have sole voting and investment
power with respect to shares shown as beneficially owned by them.
Name and Address
of Beneficial Owners / Nature of Shares
Directors Ownership Owned Percent
--------------------------------------------------------------------------------
All Executive Officers
and Directors as a Group
(4 persons) common stock 366,000 7%
John Honour
12490 Viewcrest
Studio City, CA 91604 common stock 2,465,918 50%
Lawrence Kallet
2201 San Dieguito
Del Mar, CA 92014 common stock 376,549 8%
Dr. Dale A. Rorabaugh
P.O. Box 3799
Rancho Santa Fe, CA
92061 common stock 311,400 6%
Max McDade III
P.O. Box 1864
Rancho Santa Fe, CA
92067 common stock 400,000 8%
*The address of all four directors is in care of the Company.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 25, 1999, pursuant to the terms of an asset exchange
agreement, SVEI acquired certain assets from John Honour, a principal
shareholder of SVEI. The assets consisted of 400,000 freely-trading shares of
New Visual Entertainment Inc., common stock. Pursuant to the terms of the asset
exchange agreement, SVEI issued a convertible promissory note in the aggregate
principal amount of Four Hundred Thousand Dollars ($400,000) in exchange for the
assets (the "Note"). On September 25, 1999, the Note was converted into Two
Hundred Thousand (200,000) shares of Company Common Stock which was the agreed
value of $2.00 per share.
The company is restructuring its agreement with an affiliate company of
Mr. Williams (the Secretary-Treasurer and Director of the Company) called
Wilfield Entertainment. It is anticipated that the Company will issue 200,000
shares of common stock for its participation in the joint venture. The joint
venture with Wilfield is for the production of thirteen music albums. SVEI 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.
In the opinion of the disinterested members of SVEI's board of directors, the
above transactions were fair and were made upon terms that were no less
favorable to SVEI than would have been obtained if negotiated with unaffiliated
third parties.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
<TABLE>
<CAPTION>
1. Financial Statements Page
<S> <C>
Report of Robison, Hill & Co., Independent Certified Public Accountants.........................................F-1
Balance Sheets as of June 30, 2000 and 1999.....................................................................F-2
Statements of Operations for the year ended
June 30, 2000 and the Period May 5, 1999 (inception) to June 30, 1999......................................F-3
Statement of Stockholders' Equity for the year ended
June 30, 2000 and the Period May 5, 1999 (inception) to June 30, 1999......................................F-4
Statements of Cash Flows for the year ended
June 30, 2000 and the Period May 5, 1999 (inception) to June 30, 1999......................................F-5
Notes to Financial Statements...................................................................................F-7
</TABLE>
<PAGE>
2. Financial Statement Schedules
The following financial statement schedules required by Regulation S-X
are included herein.
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. Exhibits
The following exhibits are included as part of this report:
Exhibit
Number Title of Document
2.1 * Acquisition Agreement and Plan of Reverse Merger by and between Stereo
Vision Entertainment, Inc. and Kestrel Equity Corporation dated December
3, 1999. (incorporated by reference to Form 10-SB filed with the SEC on
December 17, 1999)
2.2 * Agreement and Plan of Merger by and between Kestrel Equity Corporation
and SVE Merger, Inc. dated January 10, 2000.
3.1 * Articles of Incorporation of Kestrel Equity Corporation filed with the
State of Arizona on December 14, 1993. (incorporated by reference to Form
10-SB filed with the SEC on December 17, 1999)
3.2 * Articles of Amendment of Articles of Incorporation of Kestrel Equity
Corporation filed with the State of Arizona on June 18, 1997.
(incorporated by reference to Form 10-SB filed with the SEC on December
17, 1999)
3.3 * Articles of Amendment of Articles of Incorporation of Kestrel Equity
Corporation filed with the State of Arizona on September 30, 1997.
(incorporated by reference to Form 10-SB filed with the SEC on December
17, 1999)
<PAGE>
3.4 * Bylaws of the Kestrel Equity Corporation. (incorporated by reference to
Form 10-SB filed with the SEC on December 17, 1999)
3.5 * Articles of Incorporation of SVE Merger, Inc. filed with the State of
Nevada on December 23, 1999.
3.6 * Bylaws of SVE Merger, Inc.
4.1 * Specimen Stock Certificate of Kestrel Equity Corporation. (incorporated
by reference to Form 10-SB filed with the SEC on December 17, 1999)
4.2 * Specimen Stock Certificate of SVE Merger, Inc.
10.1* Stock Purchase Agreement by and between Kestrel Equity Corporation and
John Honour, dated September 25, 1999.
10.2 Consulting Contract between Registrant and Daniel Symmes dated April 26,
2000.
10.3 Consulting Contract between SVEI and Rick Ducommun dated July 19, 1999.
10.4 Consulting Contract between SVEI and Rocco Urbisci dated October 4, 1999.
10.5 Acquisition Agreement between SVEI and Wilfield Entertainment dated March
10, 2000 for the acquisition of 51% of Wilfield Entertainment.
27.1 Financial Data Schedule.
(1) Incorporated by reference to the Registrant's registration statement on
Form 10-SB filed on August 9, 2000.
(b) Reports on Form 8-K filed.
There were no Form 8-K's filed during the quarter ended June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.
STEREO VISION ENTERTAINMENT, INC.
Dated: November 20, 2000 By /S/ Robert L. Friedman
-----------------------------------
Robert L. Friedman,
C.E.O., Vice-Chairman, President, Director
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 November
2000.
Signatures & Title
/S/ Robert L. Friedman /S/ Tom Noonan
--------------------------------- -----------------------------------
Robert L. Friedman Tom Noonan
C.E.O., Vice-Chairman, President, Director Chairman, Director
(Principal Executive Officer)
/S/ Herky Williams /S/ Michael J. Solomon
--------------------------------- -----------------------------------
Herky Williams Michael J. Solomon
Secretary-Treasurer, Director Director
(Principal Financial and Accounting Officer)
/S/ John C. Bodziak /S/ Rocco Urbisci
--------------------------------- -----------------------------------
John C. Bodziak Rocco Urbisci
Director Director
/S/ Mike Jabara
---------------------------------
Mike Jabara
Director
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
-:-
INDEPENDENT AUDITOR'S REPORT
JUNE 30, 2000 and 1999
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
Page
<S> <C>
Independent Auditor's Report...............................................................................F - 1
Balance Sheets
June 30, 2000 and 1999 .................................................................................F - 2
Statements of Operations for the
Year Ended June 30, 2000 and the
Period May 5, 1999 (inception) to June 30, 1999 ........................................................F - 3
Statement of Stockholders' Equity for the
Year Ended June 30, 2000 and the
Period May 5, 1999 (inception) to June 30, 1999 ........................................................F - 4
Statements of Cash Flows for the
Year Ended June 30, 2000 and the
Period May 5, 1999 (inception) to June 30, 1999 ........................................................F - 5
Notes to Financial Statements..............................................................................F - 7
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Stereo Vision Entertainment, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Stereo Vision
Entertainment, Inc. (a development stage company) as of June 30, 2000 and 1999
and the related statements of operations, stockholders' equity, and cash flows
for the year ended June 30, 2000 and the period May 5, 1999 (inception) to June
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Stereo Vision
Entertainment, Inc. (a development stage company) as of June 30, 2000 and 1999
and the results of its operations and its cash flows for the year ended June 30,
2000 and the period May 5,1999 (inception) to June 30, 1999, in conformity with
generally accepted accounting principles.
Respectfully submitted
/s/ Robison, Hill & Co.
---------------------------------
Certified Public Accountants
Salt Lake City, Utah
November 10, 2000
F-1
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
--------------------------
2000 1999
----------- -----------
Current Assets:
<S> <C> <C>
Cash .............................................. $ 9,057 $ 7,493
Trading Investments ............................... -- --
----------- -----------
Total Current Assets .......................... 9,057 7,493
----------- -----------
Fixed Assets:
Office Equipment .................................. 13,745 13,745
3-D Production and Exhibition Equipment ........... 3,306,900 --
Less Accumulated Depreciation ..................... (645,757) (229)
----------- -----------
Net Fixed Assets .............................. 2,674,888 13,516
----------- -----------
Intangible and Other Assets:
Investments 3-D Projects .......................... 350,000 --
Films, Manuscripts, Recordings and Similar Property 25,000
Intellectual Property ............................. 100,000 --
Licensing & Distribution Rights ................... 255,000 --
Less Accumulated Amortization ..................... (107,333) --
----------- -----------
Net Intangible and Other Assets ............... 622,667
----------- -----------
Total Assets: ........................................ $ 3,306,612 $ 21,009
=========== ===========
Liabilities
Accounts Payable .................................. $ 250,363 $ 96,268
Accrued Expenses .................................. 26,312 3,718
Loans from Shareholders ........................... 821,792 55,000
Short-term Notes Payable .......................... 38,000 6,000
----------- -----------
Total Current Liabilities ...................... 1,136,467 160,986
----------- -----------
Stockholders' Equity:
Common Stock, $.001 Par value
Authorized 100,000,000 shares,
Issued 4,940,500 shares at June 30, 2000
and 1,530,000 shares at June 30, 1999 .......... 4,941 1,530
Additional Paid in Capital ......................... 4,990,394 3,470
Deficit Accumulated During the
Development Stage ................................ (2,825,190) (144,977)
----------- -----------
Total Stockholders' Equity ...................... 2,170,145 (139,977)
----------- -----------
Total Liabilities and
Stockholders' Equity .......................... $ 3,306,612 $ 21,009
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
For the Period since
For the May 5, 1999 inception
Year Ended (Inception) to of
June 30, June 30, development
2000 1999 stage
----------- ----------- -----------
Revenues: ......................... $ -- $ -- $ --
Research & Development ............ (293,000) -- (293,000)
General & Administrative
Expenses ....................... (2,695,401) (141,259) (2,836,660)
Other Income (Expense)
Interest ....................... (88,701) (3,718) (92,419)
Loss on Sale of Assets ......... (15,883) -- (15,883)
Gain on Trading Investments .... 412,772 -- 412,772
----------- ----------- -----------
Net Loss ..................... $(2,680,213) $ (144,977) $(2,825,190)
=========== =========== ===========
Basic & Diluted loss per share .... $ (0.81) $ (0.09)
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid in Development
-------------------------
Shares Value Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
May 5, 1999 Issuance of Stock
for services and payment of
accounts payable ................... 1,530,000 $ 1,530 $ 3,470 $ --
Net Loss ............................. -- -- (144,977)
----------- ----------- ----------- -----------
Balance at June 30, 1999 ............. 1,530,000 1,530 3,470 (144,977)
December 2, 1999 Issuance of Stock in
exchange for Assets ............... 1,470,000 1,470 4,010,430 --
December 3, 1999 Issuance of Stock
in connection with merger with
Kestrel Equity Corporation ........ 1,200,000 1,200 (113,266) --
December 31, 1999 Issuance of Stock
for services ...................... 350,000 350 699,650 --
February 14, 2000 Issuance of Stock
for services ...................... 100,000 100 99,900 --
April 17, 2000 Issuance of Stock for
services .......................... 100,000 100 99,900 --
May 4, 2000 Issuance of Stock for Cash 55,000 55 54,945 --
June 2, 2000 Issuance of Stock for
services .......................... 100,000 100 99,900 --
June 30, 2000 Issuance of Stock for
Cash .............................. 35,500 36 35,465
Net Loss ............................. -- -- -- (2,680,213)
----------- ----------- ----------- -----------
Balance at June 30, 2000 ............. 4,940,500 $ 4,941 $ 4,990,394 $(2,825,190)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
For the Period Since
For the May 5, 1999 Inception
Year Ended (inception) to of
June 30, June 30, Development
2000 1999 Stage
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss ....................................... $(2,680,213) $ (144,977) $(2,825,190)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ............... 753,978 229 754,207
Issuance of common stock for expenses ....... 1,000,000 5,000 1,005,000
Realized gain on trading investments ........ (412,773) -- (412,773)
Loss on sale of assets ...................... 15,883 -- 15,883
Cash acquired in merger ..................... 332 -- 332
Change in operating assets and liabilities:
Accounts Payable ............................ 136,665 96,268 232,933
Accrued Expenses ............................ 22,594 3,718 26,312
----------- ----------- -----------
Net Cash Used in operating activities ........ (1,163,534) (39,762) (1,203,296)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment ....................... -- (13,745) (13,745)
Investment in films, manuscripts, recordings
and similar property ..................... 25,000 -- 25,000
Proceeds from sale of assets ................ 51,117 -- 51,117
Proceeds from sale of investments ........... 565,773 -- 565,773
----------- ----------- -----------
Net cash used in investing activities .......... 641,890 (13,745) 628,145
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from loans from shareholders .......... 750,708 55,000 805,708
Payments of principal on loans form shareholders (350,000) -- (350,000)
Proceeds from issuance of common stock ......... 90,500 -- 90,500
Proceeds from issuance of short-term notes .... 32,000 6,000 38,000
----------- ----------- -----------
Net Cash Provided by
Financing Activities ........................ 523,208 61,000 584,208
----------- ----------- -----------
</TABLE>
F-5
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Cumulative
For the Period Since
For the May 5, 1999 Inception
Year Ended (inception) to of
June 30, June 30, Development
2000 1999 Stage
----------- ----------- -----------
<S> <C> <C> <C>
Net (Decrease) Increase in
Cash and Cash Equivalents ..................... $ 1,564 $ 7,493 $ 9,057
Cash and Cash Equivalents
at Beginning of Period ........................ 7,493 -- --
---------- ----------- -----------
Cash and Cash Equivalents
at End of Period .............................. $ 9,057 $ 7,493 $ 9,057
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ...................................... $ 43,773 $ -- $ 43,773
---------- ----------- -----------
Income taxes .................................. $ -- $ -- $ --
---------- ----------- -----------
</TABLE>
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 December 3, 1999 in a reverse merger the Company acquired $332 cash,
$153,001trading investments, $100,686 reduction in accounts payable, and
$366,084 notes payable in exchange for 1,200,000 shares of common stock.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000 AND
THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
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.
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 June 30, 2000 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, production of and exhibition of new and existing 3-D feature films
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.
F-7
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
(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.
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 Year ended June 30, 2000
Basic Loss per Share
Loss to common shareholders ........ $(2,680,213) 3,318,878 $ (0.81)
=========== =========== ===========
Period May 5, 1999 (inception) to June 30, 1999
Basic Loss per Share
Loss to common shareholders ........ $ (144,977) 1,530,000 $ (0.09)
=========== =========== ===========
The effect of outstanding common stock equivalents would be
anti-dilutive for June 30, 2000 and 1999 and are thus not considered.
F-8
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------------------
Investments
The Company's securities investments that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities. Trading securities are recorded at fair value on the balance
sheet in current assets, with the change in fair value during the period
included in earnings.
Investments in securities are summarized as follows:
June 30, 2000
---------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
----------- ----------- -----------
Trading Securities ................... $ -- $ -- $ --
=========== =========== ===========
June 30, 1999
---------------------------------------
Gross Gross
Unrealized Unrealized Fair
Gain Loss Value
----------- ----------- -----------
Trading Securities ................... $ -- $ -- $ --
=========== =========== ===========
Realized Gains and losses are determined on the basis of specific
identification. During the years ended June 30, 2000 and 1999, sales proceeds
and gross realized gains and losses on securities classified as trading
securities were:
For the Period
For the May 5, 1999
Year Ended (Inception) to
June 30, June 30,
2000 1999
----------- -----------
Sale Proceeds ................................. $ 565,773 $ --
=========== ===========
Gross Realized Losses ......................... $ (23) $ --
=========== ===========
Gross Realized Gains .......................... $ 412,796 $ --
=========== ===========
F-9
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF 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 initial valuation of
licensing and distribution rights for the 3-D products were derived from what
Management believes to be arms length negotiation.
Films, manuscripts, recordings and similar property are valued at cost
and will be amortized on the income forecast method.
There have been no production costs as of June 30, 2000. It is
anticipated that when production costs are incurred the income forecast method
will be used to amortize the cost of production for films, manuscripts,
recordings and similar property.
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.
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.
Reclassification
Certain reclassifications have been made in the June 30, 1999 financial
statements to conform with the June 30, 2000 presentation.
Joint Venture Operations Accounting
Joint venture operations are accounted for under the equity method of
accounting.
F-10
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE, 30, 2000 AND
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
(Continued)
NOTE 2 - INCOME TAXES
As of June 30, 2000, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $2,800,000 that may be offset
against future taxable income through 2014. 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
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.
NOTE 4 - RENT EXPENSE
The Company has entered into lease agreements for various office,
storage and warehouse facilities. The rental agreements are on a month to month
basis with total rent of $6,750 per month. For the year ended June 30, 2000 and
the period May 5, 1999 (inception) to June 30, 1999 the rental payments were
$58,500 and $3,630 respectively. On October 1, 2000 the Company occupied a
production and office facility on a month to month basis for $1,700 plus 800
common shares per month. The Company has negotiated a six month lease beginning
November 1, 2000 for a furnished office space at 130 El Camino Drive, Beverly
Hill, CA for $1,736.78 per month.
NOTE 5 - LOANS FROM SHAREHOLDERS
The loans are payable to various shareholders, are unsecured with
interest at rates of between 6.1% to15% and have no fixed terms of repayment.
Approximately $238,000 of the loans are convertible into common shares at a
conversion price of $.50 per share.
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.
F-11
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
(Continued)
NOTE 6 - SHORT-TERM NOTES PAYABLE
Short-Term Notes on June 30, 2000 and 1999 in the Amounts of $38,000
and $6,000 respectively, are due on demand with interest rates between 6.1% and
10%.
NOTE 7 - 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 3, 1999 the Company entered into an acquisition agreement
and plan of reverse merger with Kestrel Equity Corporation and at the same time
entered into an asset acquisition agreement for the acquisition of 3-D projects,
equipment, licensing and distribution rights. 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. The services rendered
were for the development of the Company's music division.
From April to June 2000, the Company issued 200,000 restricted common
shares to various consultants for services and 90,500 restricted common shares
to individuals for cash all at $1.00 per share.
F-12
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
(Continued)
NOTE 8 - 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).
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. As of the date of this
report, no shares have been issued for this contract. The $102,000 is included
in accounts payable at June 30, 2000. 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 has spent approximately 1/2 time 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 are $6 per share and they expire two years after grant.
On September 27, 2000 the Company entered into an agreement for
advertising and promotional services in exchange for 100,000 common shares.
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.
F-13
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000 AND
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
(Continued)
NOTE 8 - COMMITMENTS (continued)
On October 27, 2000 The Company entered into an agreement with Jannus
Records Inc. to engage in the promotion and development of concerts, records,
and Internet stream. The Company will contribute up to $225,000 in the form of a
convertible loan at a rate of 9% interest, payable in twenty-four months. The
loan plus 100,000 common shares of the Company may be converted into the
equivalent of 51% of Jannus's outstanding stock.
Also on October 27, 2000 the Company entered into an agreement with National
Financial Group for promotional services in exchange for 12,500 shares of common
stock.
The company is restructuring its agreement with an affiliate company of
Mr. Williams (the Secretary-Treasurer and Director of the Company) called
Wilfield Entertainment. It is anticipated that the Company will issue 200,000
shares of common stock 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 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.
As of June 30, 2000 some of the activities of the Company have been
conducted by corporate officers from shared office space with the Law Firm of
Phillips, Haskett & Ingwalson in San Diego, California. The Company does not pay
rent for the use of this space. Currently, there are no outstanding debts owed
by the company for the use of these facilities and there are no commitments for
future use of the facilities.
F-14
