U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: September 30, 2000
Commission File Number: 0-29011
MAGELLAN FILMED ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
52-2048394
(IRS Employer Identification No.)
8756 122nd Avenue NE
Kirkland, Washington
(Address of principal executive offices)
98033
(Zip Code)
(425) 827-7817
(Issuer's Telephone Number)
The Storm High Performance Sound Corporation
--------------------------------------------
(Former name, former address and former fiscal year,
if changed last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 .
--- ---
The number of shares of the registrant's only class of common stock issued and
outstanding, as of September 30, 2000, was 63,905,518 shares.
1
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month and nine month periods
ended September 30, 2000, are attached hereto.
The unaudited financial statements presented herein are those of Magellan Filmed
Entertainment, Inc. (the "Company"). As previously disclosed in the Company's
Information Statement under Form 14C filed on October 10, 2000, the Company's
corporate name was changed from The Storm High Performance Sound Corporation
("Storm") to Magellan Filmed Entertainment, Inc. The Company's authorized
capital and bylaws were revised and the company changed its corporate
jurisdiction to the State of Nevada. The Company had no business activity
prior to December, 1999 and therefore, there are no comparative financial
statements for the three Months or nine months ended September 30, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
- - Plan of Operations
The following discussion should be read in conjunction with the Financial
Statements and notes thereto included herein.
The Company began its business development activity and was incorporated in
December, 1999 as North Coast Productions, Inc. ("North Coast"). North Coast
was a successor to Storm under a Stock Purchase Agreement between Storm and
North Coast dated January 28, 2000 and effective March 31, 2000 and a related
Share Exchange Agreement and Plan of Merger between Storm and North Coast dated
as of April 4, 2000 and effective as of April 5, 2000. The Stock Purchase
Agreement and the Share Exchange Agreement ("the Agreements") were disclosed
previously in the Company's Form 8-K filed on April 3, 2000 and Form 8-K filed
on April 24, 2000, and amended on July 12, 2000. As discussed in Item 1, the
Company is now operating as Magellan Filmed Entertainment, Inc.
The Company generated no revenues during the three month period ended September
30, 2000. The Company's current plan is to concentrate its business development
efforts on opportunities available in the film production business, including
made for TV projects.
The Company completed the filming of its first feature length film, Rennie's
Landing, and is currently in the process of post production editing of the movie
for a scheduled formal release in the second quarter of 2001. The Company plans
to start production on a second film in early 2001.
The Company is in the process of establishing itself as producer and distributor
of filmed entertainment products. Foreign or world wide distribution of USA
produced entertainment projects is one of the fastest growing segments of the
industry. It is the intention of management to exploit that market as the
foundation of the Company's future.
The Company's major marketing strategy is based on selling "within budget"
productions to the marketplace at competitive prices. This includes video and
cable distribution outlets in addition to the foreign markets. The growing
availability for viewers in countries outside the USA to receive USA cable
network productions from HBO, Show Time and others, has increased demand for the
type of programming that the Company is planning to produce.
The Company plans to establish distribution outlets, through strategic
alliances, throughout its market place. A strong company representative
network, coupled with well-chosen, competently produced projects is designed to
provide a basis for success.
2
Under its marketing plan, management is also developing relationships with
writers and independent producers to assure that the Company has a constant flow
of projects under review. Included in this stream of projects are feature length
films, made for TV films, mini series for TV and TV feature series. The Company
has as one of its missions, the cost efficient production of its projects. A
strategy of cost efficiency is to become a hallmark of the Company and the
source of our internal growth.
The Company plans to formulate an aggressive joint venture acquisition plan for
stimulating growth. As in most industries, the consolidation movement is
growing. Management believes that growth by strategic acquisition is necessary
for the Company to reach its full potential.
To date the Company's current business activities have consisted primarily of
developing a business plan, assembling a management team, and pursuing film
production opportunities and financing. As part of this plan the Company
acquired The Nickel Palace, Inc. (Nickel) in September, 2000 (see the Company's
Form 8K filed October 12, 2000). Nickel Palace owns 50 % of the rights to
Rennie's Landing, a movie script that is currently in the final stages of
completion and scheduled for release in the second quarter of 2001. The director
and producers of this film have previously worked on bigger budget films for
major studios. They are experienced, bright and have the vision necessary to
recognize what the viewing public, the 18 to 34 year old wants to see. The
addition of the Nickel executives to the Company's management team brings the X
& Y Generation vision to the Company.
An Option to purchase True Fiction, Inc. (formerly know as Magellin
Entertainment of Malibu, CA) has been signed. A definitive agreement is being
negotiated.
True Fiction owns 50% of Rennie's Landing and also holds the rights to other
movie scripts which may be pursued by Magellan. Magellan advanced True Fiction
$54,042 in the quarter ended September, 30, 2000 and has advanced a total of
$128,630.
True Fiction's management team brings 20 plus years of industry experience to
the Company. Their experience includes acting, distribution and most
importantly, producing. They have first hand knowledge of industry cost
controls capable of assisting management in reaching its goal of being cost
efficient. Subject to negotiating a definitive agreement to acquire True
Fiction, it is planned that these individuals will participate in Magellan's
entry into the industry.
The Company estimates that it will have sufficient capital to enable it to meet
its financial needs to continue with its business development activity at a
minimal level through the end of the current year. The Company expects to
receive funds from the distribution of Rennie's Landing in the first quarter of
2001, and plans to use these funds for operating capital.
The Company has no plans for any product research and development and no
expected purchase or sale of plant and significant equipment over the next 12
months.
The Company expects a significant increase in the number of its employees in
order to produce the film opportunities it is pursuing under its plan of
operations. The hiring of additional employees is dependent upon and subject to
the Company's ability to raise additional financing, or the receipt of funds
from the distribution of Rennie's Landing.
FORWARD LOOKING STATEMENTS
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
the Company cautions readers regarding certain forward looking statements in the
following discussion and elsewhere in this report and in any other statement
made by, or on behalf of the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results or other developments. Forward looking statements
are necessarily based upon estimates and assumptions that are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the Company's control and many of
which, with respect to future business decisions, are subject to change. These
uncertainties and contingencies can affect actual results and could cause actual
results to differ materially from those expressed in any forward looking
statements made by, or on behalf of, the Company. The Company disclaims any
obligation to update forward looking statements.
3
MAGELLAN FILMED ENTERTAINMENT, INC.
(Formerly THE STORM HIGH PERFORMANCE SOUND CORPORATION)
(A Development Stage Company)
BALANCE SHEET
(Unaudited)
September 30, 2000 December 31, 2000
-------------------- ------------------
ASSETS
CURRENT ASSETS
Cash $ 68,129 $
Expense Advances 0
Deposits 11,300
Other Receivables 19,700
--------------------
99,129 0
OTHER ASSETS
Notes Receivable 128,630
Deferred Interest 612,903
Deferred Project Costs 1,436,458
--------------------
Total Other Assets 2,177,991 0
$ 2,277,120 $ 0
==================== ==================
LIABILITIES AND STOCKHOLDERS' (EQUITY)
CURRENT LIABILITIES
Accounts payable $ 82,750 $
Payable to officers 65,500
--------------------
Total current liabilities 148,250
OTHER LIABILITIES
Debentures payable 1,000,000
Notes Payable 194,500
--------------------
Total other liabilities 1,194,500 0
COMMITMENTS and CONTINGENCIES -
MINORITY INTERESTS 77
--------------------
1,342,827 0
STOCKHOLDERS' (Equity)
Common stock $.001 par value; 200,000,000 shares
authorized; 63,905,518 shares issued and outstanding 63,906 5,000
Additional Paid-in Capital 2,163,219
Accumulated deficit (1,292,833) -5,000
-------------------- ------------------
934,292 0
-------------------- ------------------
$ 2,277,119 $ 0
==================== ==================
The Accompanying notes are an integral part of these financial statements
4
MAGELLAN FILMED ENTERTAINMENT, INC.
(formerly THE STORM HIGH PERFORMANCE SOUND CORPORATION)
(A Development Stage Company)
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, 2000 September 30, 2000
------------------- --------------------
REVENUES $ 550 $ 550
EXPENSES
General and administrative $ 158,623 $ 393,414
Net loss from operations 158,073 392,864
Interest and loan fees - 471,860
Reverse merger consulting fees - 125,200
------------------- --------------------
Net loss from continuing operations 158,073 989,924
Loss from discontinued operations - 297,832
------------------- --------------------
Net loss before minority interest 158,073 1,287,756
Income allocated to minority interests (77)
--------------------
Net Loss pre-tax $ 158,073 $ 1,287,833
Income Taxes 0 0
------------------- --------------------
Net Loss after tax $ 158,073 $ 1,287,833
LOSS PER COMMON SHARE $ 0.00 $ 0.03
=================== ====================
LOSS PER COMMON SHARE, DISCONTINUED OPERATIONS $ - $ 0.01
=================== ====================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 53,816,743 40,161,768
=================== ====================
The Accompanying notes are an integral part of these financial statements
5
Cumulative
Through the
Development
Stage
(December 29, 1999
to September 30, 2000)
-----------------------
REVENUES $ 550
EXPENSES
General and administrative $ 398,414
Net loss from operations 397,864
Interest and loan fees 471,860
Reverse merger consulting fees 125,200
-----------------------
Net loss from continuing operations 994,924
Loss from discontinued operations 297,832
-----------------------
Net loss before minority interest 1,292,756
Income allocated to minority interests (77)
-----------------------
Net Loss pre-tax $ 1,292,833
Income Taxes 0
-----------------------
Net Loss after tax $ 1,292,833
LOSS PER COMMON SHARE $ 0.03
=======================
LOSS PER COMMON SHARE, DISCONTINUED OPERATIONS $ 0.01
=======================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 40,539,077
=======================
The Accompanying notes are an integral part of these financial statements
6
MAGELLAN FILMED ENTERTAINMENT, INC.
(Formerly THE STORM HIGH PERFORMANCE SOUND CORPORATION)
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Unaudited)
Cumulative
Through the
Development
Nine Months Stage
Ended (December 29, 1999
September 30, 2000 to September 30, 2000)
-------------------- -----------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (1,287,833) $ (1,292,833)
Adjustments to reconcile Net Loss to Cash
provided (used) by operating activities:
Non-cash expenses paid by debentures to officers 84,000 84,000
Non-cash expenses paid by debentures for services 54,500 54,500
Interest charged for beneficial conversion feature of debentures payable 428,571 428,571
Stock issued for services 2,042 7,042
Increase (decrease) in Accounts Payable 7,000 7,000
(Increase) decrease in Other Receivables (19,700) (19,700)
(Increase) decrease in Deposits (11,300) (11,300)
Increase (decrease) in Notes Payable 194,500 194,500
Increase (decrease) in payable to officers 75,750 75,750
NET CASH USED IN OPERATING ACTIVITIES (472,470) (472,470)
-------------------- -----------------------
CASH FLOW FROM INVESTING ACTIVITIES
Deferred Project Costs (1,436,380) (1,436,380)
Advance to True Fiction, Inc. (128,630) (128,630)
Investment by North Coast into Storm (2,201) (2,201)
CASH USED IN INVESTING ACTIVITY (1,567,211) (1,567,211)
-------------------- -----------------------
CASH FLOW FROM FINANCING ACTIVITIES
Debentures sold for cash 1,861,500 1,861,500
Cash loans from Officers - Net 65,500 65,500
Stock issued to acquire Nickel Palace, Inc. 180,810 180,810
CASH PROVIDED FROM FINANCING ACTIVITIES 2,107,810 2,107,810
-------------------- -----------------------
NET INCREASE IN CASH 68,129 68,129
CASH AT BEGINNING OF PERIOD - -
-------------------- -----------------------
CASH AT END OF PERIOD $ 68,129 $ 68,129
==================== =======================
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest $ - $ -
==================== =======================
Income taxes $ - $ -
==================== =======================
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Issuance of common stock related to reverse acquisition $ 2,180 $ 2,180
==================== =======================
Deferred Interest from Beneficial conversion feature of Notes $ 612,903 $ 612,903
==================== =======================
Conversion of debentures to Common Stock $ 1,000,000 $ 1,000,000
==================== =======================
Conversion of loans payable to debentures payable $ 120,000 $ 120,000
==================== =======================
The Accompanying notes are an integral part of these financial statements
7
MAGELLAN FILMED ENTERTAINMENT, INC.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The unaudited financial statements presented herein are those of Magellan Filmed
Entertainment, Inc. ("Magellan", or the "Company"),. Magellan was the surviving
corporation following its merger with North Coast Productions Inc., ("North
Coast") which was the successor to The Storm High Performance Sound Corporation
("Storm"). The merger of Magellan with North Coast was completed to
reincorporate the corporation from the state of Florida to the state of Nevada
(see the company's Form DEF 14C filed on October 10, 2000). North Coast was
incorporated December 29, 1999 and had no business activity prior to that date.
Therefore, there are no comparative financial statements for the three Months or
nine months ended September 30, 1999.
The accompanying unaudited balance sheet at September 30, 2000 and the unaudited
statements of operations and cash flow for the three and nine months ended
September 30, 2000, have been prepared by management and they do not include all
information and notes to the financial statements necessary for a complete
presentation of the Company financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included.
These notes should be read in connection with the notes to the December 31, 1999
audited financial statement of North Coast Productions, Inc., the Company's
predecessor.
Interim Financial Statements
The interim financial statements as of and for the quarter and nine months ended
September 30, 2000, included herein, have been prepared for the Company without
audit. These statements reflect all adjustments, which are, in the opinion of
management, necessary to present fairly the results of operations for these
periods. All such adjustments are normal recurring adjustments. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full fiscal year.
Note 2 - SERIES A CONVERTIBLE DEBENTURES
The Series A Debentures were originally issued by The Nickel Palace, Inc., and
assumed by the Company, and are convertible into common stock of the Company at
a conversion price equal to 62% of the average daily closing bid price of the
common stock for the five (5) trading days immediately preceding the date of
receipt of the conversion notice. The debentures are convertible at any time
prior to their payment due date of September 22, 2002. Upon 5 days notice to
holder, the Company shall have the option to pay to the holder 130% of the
principal amounts of the Debenture, in full, to the extent conversion has not
occurred, or pay upon maturity if the Debenture is not converted. In the
quarter ended September 30, 2000, the Company charged $612,903 to deferred
interest expense representing the beneficial conversion feature of these Series
A Convertible Debentures. The deferred interest will be amortized to interest
expense over a two year period (the life of the Debentures), beginning in
October, 2000 or upon conversion of the debentures.
During the month of October, 2000, $264,500 of the notes were converted into
8,050,746 shares of the Company's common stock. All such shares were issued
exempt from registration in reliance on Rule 504 of Regulation D of the
Securities Act of 1933.
8
Note 3. - CAPITAL STRUCTURE.
In September, the Company's corporate jurisdiction was changed to the state of
Nevada from the state of Florida through an Agreement of Merger and Plan of
Merger and Reorganization between Magellan Filmed Entertainment, Inc. , a Nevada
corporation, and The Storm High Performance Sound Corporation, a Florida
corporation. The affirmative vote of a majority of the outstanding shares
approved the Plan of Merger and Reorganization including approval of the name
change to Magellan Filmed Entertainment, Inc., and of the Articles of
Incorporation, and the Bylaws of Magellan. The Articles of Incorporation of
Magellan include a capital structure consisting of 200,000,000 shares of common
stock, par value $0.001 authorized and 50,000,000 shares of preferred stock, par
value $0.001 authorized.
Also in September, the Company acquired all of the stock of The Nickel Palace,
Inc. in exchange for 3,000,000 shares of the Company's common stock. These
shares have not been registered and are restricted. The assets and liabilities
of Nickel were then merged into Magellan.
Note 4 - MINORITY INTEREST
At September 30, 2000, minority shareholders held fifty percent interest in
Rennie's Landing LLC. The value for this minority interest is shown on the
accompanying balance sheet, as $77 for the period ending September 30, 2000.
Note 5 - PRINCIPALS OF CONSOLIDATION
The Company's financial statements include the accounts of the Company and its
majority owned subsidiary, Rennie's Landing LLC. All material intercompany
transactions and accounts have been eliminated in the consolidated financial
statements.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
ITEM 2 CHANGES IN SECURITIES
a) NONE
b) NONE
c) The following is a summary of the information required for all the sales of
unregistered securities by Registrant for the reporting period July 1, through
September 30, 2000.
During the period July 1, to September 30, 2000, $490,000 of the Series A
Debentures were converted to 19,555,798 shares of Common Stock of the Company,
and in October, 2000, an additional $264,500 of the Nickel Palace Debentures
were converted into 8,050,746 shares of Common Stock. All such shares were
issued without registration pursuant to the exemption from registration under
Section 3(a)(9) of the Securities Act of 1933. The Company assumed the
obligations of Nickel Palace under the Nickel Palace debentures.
Three Million shares of common stock were issued in exchange for all of the
outstanding shares of The Nickel Palace Inc., and 100,000 shares were issued as
a donation, and 527,000 were issued for services provided to the Company. The
shares so issued were issued without registration pursuant to the exemption from
registration under Section 4 (2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K -
October 12, 2000 - Share Exchange Agreement between The Nickel
Palace, Inc., and Magellan Filmed Entertainment, Inc. dated as of
September 26, 2000, and effective as of September 26, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Magellan Filmed Entertainment, Inc.
Date: November 14, 2000 By:/s/ Patrick F. Charles
--------------------------
Patrick F. Charles, President
and CEO
11