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: March 31, 2001
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)
--------------------------------------------
(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 March 31, 2001, was 194,203,275 shares.
1
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month period ended March 31,
2001, is attached hereto.
The unaudited financial statements presented herein are those of Magellan Filmed
Entertainment, Inc. and its wholly owned subsidiaries, Magellan Film Sails,
Inc., True Fiction, Inc. and Rennie's Landing, LLC. (the Consolidated entities
are hereinafter referred to as the "Company").
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 generated no revenues during the three month period ended March 31,
2001. 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 has completed the filming of its first feature length film,
"Rennie's Landing," and has entered into a contract for distribution of the
movie for foreign markets with Franchise Pictures, LLC and is currently
evaluating options for domestic distribution of the movie. The movie has been
introduced domestically in a limited screening in the first quarter of 2001, and
will be exhibited at the Seattle Film Festival in the Second Quarter of 2001.
The Company has begun preproduction activities for its second feature length
movie, "The Pleasure of Your Company" and, subject to securing commitments for
financing, plans to begin actual production in third quarter of 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.
2
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.
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 obtained the rights to a number of screen plays and other projects which it
plans to produce on its own or through production partners. The Company has as
one of its missions, the cost efficient production of such 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 developed a business plan, assembled a management team, and
produced its first feature length film, "Rennie's Landing." As part of its plan,
the Company acquired The Nickel Palace, Inc. (Nickel) in September, 2000, owner
of 50 % of Rennie's Landing LLC (which owns the film "Rennie's Landing"). As
part of the acquisition of Nickel, the Company assumed the liabilities of The
Nickel Palace, Inc., including 8% Series A senior subordinated convertible
redeemable debentures issued by The Nickel Palace in September 2000 in the
aggregate principal amount of $1,000,000. The Series A debentures are
convertible into Magellan common stock at a conversion price of 62% of the
average lowest closing bid price of the common stock for any of the five
consecutive trading days immediately preceding the date of receipt of the
conversion notice. During the quarter ended March 31, 2001, $570,000 of the
debenture was converted into 83,687,558 shares of common stock at an average
price of $0.0068 per share. At March 31, 2001, all of these debentures had been
converted into a total of 119,089,197 shares of common stock at an average price
of $0.0084 per share.
In November, 2000 the Company completed the acquisition of True Fiction, Inc.,
which company holds, in addition to the rights to a number of additional film
projects, the other 50% interest in Rennie's Landing LLC, giving the Company
100% ownership in the film "Rennie's Landing."
The director and producers of Rennie's Landing" 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 these seasoned individuals to the Company's
management team brings the X & Y Generation vision to the Company.
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.
The Company estimates that it will have sufficient capital to enable it to meet
its financial needs to continue with its business development activity through
the end of the current year. The Company expects to receive funds from the
distribution of Rennie's Landing in the second 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.
3
The Company does not expect a significant increase in the number of its
employees in calendar year 2001, but will instead utilize contract personnel to
accomplish its planned activities.
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.
4
MAGELLAN FILMED ENTERTAINMENT, INC.
(A DEVELOPMENTAL STAGE ENTERPRISE)
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
C O N T E N T S
Consolidated Balance Sheets (Unaudited) F-2
Consolidated Statements of Operations (Unaudited) F-3
Consolidated Statements of Cash Flows (Unaudited) F-4
Condensed Notes to the Consolidated
Financial Statements (Unaudited) F-5
5
MAGELLAN FILMED ENTERTAINMENT, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31,
2001
------------
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,060
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200
------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . 10,260
OTHER ASSETS
Screen play inventory . . . . . . . . . . . . . . . . . . . . . . . . 232,629
Deferred project costs. . . . . . . . . . . . . . . . . . . . . . . . 2,330,291
------------
Total Other Assets. . . . . . . . . . . . . . . . . . . . . . . . 2,562,920
------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,573,180
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 235,740
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,728
Accrued consulting fees to officers. . . . . . . . . . . . . . . . . . 342,999
Payable to officers. . . . . . . . . . . . . . . . . . . . . . . . . . 67,700
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,250
------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 868,417
OTHER LIABILITIES
Debentures payable . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
------------
Total other liabilities . . . . . . . . . . . . . . . . . . . . . . 450,000
COMMITMENTS and CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . -
------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 1,318,417
STOCKHOLDERS' Equity
Common stock $.001 par value; 200,000,000 shares
authorized; 194,203,274 shares issued and outstanding . . . . . . . 194,203
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . 3,091,236
Accumulated deficit during the development stage . . . . . . . . . . . (2,030,676)
------------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . . 1,254,763
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . . . . $ 2,573,180
============
See Accompanying Condensed Notes to Consolidated Financial Statements
F2
6
MAGELLAN FILMED ENTERTAINMENT, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
From
Quarter Qarter December 29, 1999
Ended Ended (Inception) to
March 31,2001 March 31, 2000 to March 31, 2001)
--------------- ---------------- -------------------
REVENUES. . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ -
OPERATING EXPENSES
General and administrative expenses. . . . . . . . 197,907 101,979 233,334
Consulting fees. . . . . . . . . . . . . . . . . . 277,160 364,169
Professional fees. . . . . . . . . . . . . . . . . 29,500 53,325
--------------- ---------------- -------------------
TOTAL EXPENSES. . . . . . . . . . . . . . . . . 504,567 101,979 650,828
--------------- ---------------- -------------------
LOSS FROM OPERATIONS. . . . . . . . . . . . . . . . . (504,567) (101,979) (650,828)
OTHER INCOME (EXPENSES)
Interest income. . . . . . . . . . . . . . . . . . - - 550
Interest expense . . . . . . . . . . . . . . . . . (246,989) (39,000) (1,380,398)
--------------- ---------------- -------------------
TOTAL OTHER INCOME (EXPENSE). . . . . . . . . . (246,989) (39,000) (1,379,848)
--------------- ---------------- -------------------
LOSS BEFORE INCOME TAXES. . . . . . . . . . . . . . . (751,556) (140,979) (2,030,676)
INCOME TAX EXPENSE. . . . . . . . . . . . . . . . . . - - -
--------------- ---------------- -------------------
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . $ (751,556) $ (140,979) $ (2,030,676)
=============== ================ ===================
LOSS PER COMMON SHARE, BASIC AND DILUTED. . . . . . . $ (0.00) $ (0.01) $ (0.03)
=============== ================ ===================
WEIGHTED AVERAGE NUMBER OF BASIC AND
DILUTED COMMON STOCK SHARES OUTSTANDING. . . . . . 166,274,083 25,000,000 71,933,197
=============== ================ ===================
See Accompanying Condensed Notes to Consolidated Financial Statements
these
F3
7
MAGELLAN FILMED ENTERTAINMENT, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
From
Quarter Quarter December 31, 1999
Ended Ended (Inception) to
March 31, 2001 March 31, 2000 March 31, 2001
---------------- ---------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . $ (751,556) $ (140,979) $ (2,030,676)
Adjustments to reconcile Net Loss to Cash
provided (used) by operating activities:
Non-cash expenses paid by debentures for . - -
services. . . . . . . . . . . . . . . . 54,500
Non-cash expenses paid by common stock . . - - 10,000
Interest charged for beneficial conversion
feature of debentures payable . . . . . 226,428 - 1,359,837
Stock issued for services. . . . . . . . . 9,425 - 14,425
Stock issued for donation. . . . . . . . . - - 6,900
Stock issued as bonus for services . . . . - - 95,590
Stock issued in payment of interest. . . . - - 16,444
Decrease (Increase) in prepaid expenses. . (200) - (2,200)
Increase in accounts payable . . . . . . . 170,959 158,700 179,570
Increase (decrease) in accrued consulting
fees to officers. . . . . . . . . . . . (56,001) 50,000 (56,001)
Increase in accrured interest. . . . . . . 14,611 39,000 48,728
Increase (decrease) in notes payable . . . 8,250 15,000 173,250
---------------- ---------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . (378,084) 121,721 (129,633)
---------------- ---------------- -------------------
CASH FLOW FROM INVESTING ACTIVITIES
Deposits paid. . . . . . . . . . . . . . . . . . 1,001 - -
Payment for screen play inventory. . . . . . . . - - (127,629)
Cash paid for acquisitions . . . . . . . . . . . - (422,832) (422,832)
Cash paid for project costs. . . . . . . . . . . 52,297 (2,168) (1,704,546)
---------------- ---------------- -------------------
CASH USED IN INVESTING ACTIVITY . . . . . . . . . . 53,298 (425,000) (2,255,007)
---------------- ---------------- -------------------
CASH FLOW FROM FINANCING ACTIVITIES
Debentures sold for cash . . . . . . . . . . . . 300,000 - 2,325,000
Cash loans from Officers - Net . . . . . . . . . (4,000) 305,000 67,700
---------------- ---------------- -------------------
CASH PROVIDED FROM FINANCING ACTIVITIES . . . . . . 296,000 305,000 2,392,700
---------------- ---------------- -------------------
NET INCREASE IN CASH. . . . . . . . . . . . . . . . (28,786) 1,721 8,060
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . 36,846 - -
---------------- ---------------- -------------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . $ 8,060 $ 1,721 $ 8,060
================ ================ ===================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the period:
Interest . . . . . . . . . . . . . . . . . . . . $ - $ - $ -
================ ================ ===================
Income taxes . . . . . . . . . . . . . . . . . . $ - $ - $ -
================ ================ ===================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACIVITIES
Issuance of common stock related
to reverse acquisition . . . . . . . . . . . $ - $ 2,991 $ 2,991
================ ================ ===================
Conversion of debentures and interest.
to common stock . . . . . . . . . . . . . . $ 570,000 $ - $ 1.929,500
================ ================ ===================
Conversion of loans payable to debentures. . . . $ - $ 20,000 $ 20,000
================ ================ ===================
Issuance of common stock to acquire assets . . . $ - $ 285,810 $ 285,810
================ ================ ===================
See Accompanying Condensed Notes to Consolidated Financial Statements
F4
8
MAGELLAN FILMED ENTERTAINMENT, INC.
(A Development Stage Company)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
NOTE 1 - Basis of Presentation
-----------------------
The accompanying consolidated balance sheet of Magellan Filmed Entertainment,
Inc. and subsidiaries (A Development Stage Company) at March 31, 2001, and the
consolidated statements of operations for the three months ended March 31, 2000
and 2001 and the cumulative period during the development stage from December
29, 1999 (Inception) through March 31, 2001 and the consolidated statements of
cash flows for three months ended March 31, 2000 and 2001 and the period during
the development stage from December 29, 1999 (Inception) through March 31, 2001,
have been prepared by the Company's management and they do not include all
information of the 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 and all such
adjustments are a normal recurring nature. The unaudited consolidated financial
statements should be read in conjunction with the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
December 31, 2000.
Operating results for the three months ended March 31, 2001, are not
necessarily indicative of the results that can be expected for the year ending
December 31, 2001.
NOTE 2 - Common Stock Issuances
----------------------
Shares of common stock of Magellan issued during the 3 months ended March 31,
2001 are summarized as follows:
Effective Date Description Transaction Average Per Number of
Value Share Price Shares Issued
- -------------- -------------------------------- ------------ ------------- -------------
5/00-12/00 Conversion of debentures
and accrued interest . . $ 570,000 0.0068 83,687,558
10&11/00 Consulting services 9,425 0.0140 675,000
--------- -----------
Total $ 579,425 84,362,558
============ ============
F5
9
NOTE 3 - STOCKHOLDERS' EQUITY
Debentures Converted to Common Stock
- ----------------------------------------
On September 26, 2000, the Company assumed the liabilities of The Nickel Palace,
Inc., including 8% Series A senior subordinated convertible redeemable
debentures issued by The Nickel Palace in September 2000 in the aggregate
principal amount of $1,000,000. The Series A debentures are convertible into
Magellan common stock at a conversion price of 62% of the average lowest closing
bid price of the common stock for any of the five consecutive trading days
immediately preceding the date of receipt of the conversion notice. At March 31,
2001, all of these debentures were funded and had been converted into
119,089,197 shares of common stock at an average price of $0.0084 per share.
On November 22, 2000, the Company acquired True Fiction, Inc., and assumed the
liabilities of True Fiction, Inc., including 8% Series A senior subordinated
convertible redeemable debentures issued by True Fiction in November, 2000 in
the aggregate principal amount of $1,000,000. The Series A debentures are
convertible into Magellan common stock at a conversion price of 62% of the
average lowest closing bid price of the common stock for any of the five
consecutive trading days immediately preceding the date of receipt of the
conversion notice. At March 31, 2001 $450,000 of these debentures were funded
and were outstanding. Accrued interest at March 31, 2001 is $7,400 on the
debenture payable.
The beneficial conversion feature of the debentures was accounted for as
additional interest expense at the date the debenture first became convertible
and, as a result, such interest expense charged to operations for the 3 months
ended March 31, 2001 amounted to approximately $226,428.
NOTE 4 - SUBSEQUENT EVENTS
Subsequent to March 31, 2001, the Company authorized a one for four reverse
split of its common stock to be effective May 29, 2001.
F62
10
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 January 1,
through March 31, 2001.
During the period January 1, to March 31, 2001, $570,000 of the Nickel Palace
Series A Debentures were converted to 83,687,558 shares of Common Stock of the
Company. 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.
Six Hundred Seventy five thousand shares of Common stock of the Company 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
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
(b) Reports on Form 8-K -
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: May 18, 2001 By:/s/ Patrick F. Charles
--------------------------
Patrick F. Charles, President
and CEO
Date: May 18, 2001 By:/s/ James G. Brewer
--------------------------
James G. Brewer, Vice-President, Finance,
CFO and Chief Accounting Officer
12