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, 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 September 30, 2001, was 273,026,763 shares.
1
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three month and nine month periods
ended September 30, 2001, are 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 $200,000 in revenues from foreign sales during the three
and nine month periods ended September 30, 2001, from the first sales of the
Company's first full length feature film, "Rennie's Landing." The Company's
current plan is to continue to concentrate its business development efforts on
opportunities available in the film production business, including made for TV
projects.
Marketing and distribution efforts relative to the Company's recently completed
first feature length film "Rennie's Landing" have culminated in mixed results.
The Company has received initial revenues from sales to foreign markets under a
contract signed with Franchise Pictures, LLC and prospects look promising for
continuance of future foreign sales of Rennie's under the Franchise agreement.
However, efforts to develop the domestic markets for Rennie's have been
disappointing.
A year ago, the Company had formed a subsidiary, Magellan Productions Corp,
which entered into employment contracts with two managers to develop and
implement a comprehensive foreign and domestic marketing and distribution plan
for sales of the Company's filmed entertainment products. While this plan of
operation achieved modest success with respect to Rennie's sales to foreign
markets, this plan of operation has not achieved the Company's goals with
respect to sales to the domestic markets. Therefore, to bolster its marketing
and distribution efforts, the Company has revised its strategy and plans to
outsource such services in the future. Consequently the operations of its
subsidiary, Magellan Productions Corp. and the employment contracts with the two
managers previously hired have been recently terminated. The Company has
commenced interviewing several professional filmed entertainment marketing and
distribution companies and plans to announce its selection in the very near
future.
The film industry, in anticipation of an extended strike by the Screen Actors
Guild (SAG) expected for mid 2001, produced an abundance of filmed entertainment
products resulting in a glut in the market and a decline in demand for films,
both foreign and domestically. While the Company believes this to be a temporary
condition, the Company has taken the precaution of writing off $661,000 of
capitalized production costs of Rennie's Landing to expense during the Quarter
ended September 30, 2001. Pending outcome of the effects of the Company's
change in its marketing and distribution plan of operations, prediction of
Rennie's domestic market potential is currently not readily ascertainable. The
write down, in part, reflects this uncertainty.
The Company has begun pre-production planning activities for its second feature
length movie, "The Pleasure of Your Company" and, subject to securing
commitments for financing, plans to begin production in 2002.
2
The Company is in the process of establishing itself as an independent producer
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.
Under its operating 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").
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." As part of the acquisition of
True Fiction, the Company assumed the liabilities of True Fiction, Inc.,
including 8% Series A senior subordinated convertible redeemable debentures
issued by True Fiction previously 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.
The Company estimates that it will have sufficient capital to enable it to meet
its minimal financial needs to continue with its business development activity
through the next twelve months. The Company expects to continue receiving funds
from the distribution of "Rennie's Landing" over the next twelve months, and
plans to use these funds for operating capital. The Company expects to raise
additional capital from joint venture partners to complete the filming projects
planned for 2002.
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 the next 12 months, but will instead outsource services 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. and SUBSIDIARIES
(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-5
Condensed Notes to the Consolidated
Financial Statements (Unaudited) F-6
5
MAGELLAN FILMED ENTERTAINMENT, INC. and SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30, December 31,
2001 2000
(Unaudited)
--------------- --------------
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 161 $ 36,846
Prepaid expenses . . . . . . . . . . . . . . . . . - 2,000
--------------- --------------
Total Current Assets. . . . . . . . . . . . . 161 38,846
OTHER ASSETS
Screen play inventory . . . . . . . . . . . . . . 397,444 232,629
Film production costs (net) . . . . . . . . . . . 1,856,018 2,225,088
Deposits. . . . . . . . . . . . . . . . . . . . . 5,120 1,001
--------------- --------------
Total Other Assets. . . . . . . . . . . . . . 2,258,582 2,458,718
--------------- --------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . $ 2,258,743 $ 2,497,564
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . $ 620,028 $ 64,781
Accrued interest . . . . . . . . . . . . . . . . . 85,033 34,117
Accrued compensation to officers . . . . . . . . . 510,000 241,500
Payable to officers. . . . . . . . . . . . . . . . 28,200 71,700
Notes payable. . . . . . . . . . . . . . . . . . . 299,650 165,000
--------------- --------------
Total current liabilities . . . . . . . . . . . 1,542,911 577,098
--------------- --------------
OTHER LIABILITIES
Debentures payable . . . . . . . . . . . . . . . . 701,517 720,000
--------------- --------------
Total other liabilities . . . . . . . . . . . . 701,517 720,000
--------------- --------------
COMMITMENTS and CONTINGENCIES . . . . . . . . . . . . - -
TOTAL LIABILITIES . . . . . . . . . . . . . . . 2,244,428 1,297,098
--------------- --------------
STOCKHOLDERS' Equity
Preferred stock $.0001 par value, 300,000,000 shares
Authorized; none outstanding. . . . . . . . . . - -
Common stock $.0001 par value; 950,000,000 shares
authorized; 273,026,763 and 27,460,179 shares
issued and outstanding. . . . . . . . . . . . . 27,303 2,746
Additional Paid-in Capital . . . . . . . . . . . . 3,853,329 2,476,840
Accumulated deficit during the development stage . (3,866,316) (1,279,120)
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . 14,315 1,200,466
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . $ 2,258,743 $ 2,497,564
=============== ==============
See Condensed Consolidated Notes to Financial Statements
F-2
6
MAGELLAN FILMED ENTERTAINMENT, INC. and SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
September 30, 2001 September 30, 2000
-------------------- --------------------
REVENUES
Movie Sales. . . . . . . . . . . . . . . . . . . . $ 200,000 $ -
Less Cost of Sales
Commissions . . . . . . . . . . . . . . . . . . 37,500 -
Marketing . . . . . . . . . . . . . . . . . . . 70,000 -
Amortization of film production costs . . . . . 91,500 -
-------------------- --------------------
GROSS PROFIT ON SALES. . . . . . . . . . . . 1,000 -
OPERATING EXPENSES
General and administrative expenses. . . . . . . . 160,973 158,623
Consulting fees. . . . . . . . . . . . . . . . . . 169,267 -
Professional fees. . . . . . . . . . . . . . . . . 2,854 -
Impairment of film production costs. . . . . . . . 661,000 -
-------------------- --------------------
TOTAL EXPENSES. . . . . . . . . . . . . . . . . 994,094 158,623
-------------------- --------------------
LOSS FROM OPERATIONS. . . . . . . . . . . . . . . . . (994,094) (158,623)
OTHER INCOME (EXPENSES)
Interest income. . . . . . . . . . . . . . . . . . - 550
Interest expense . . . . . . . . . . . . . . . . . (168,726) -
-------------------- --------------------
TOTAL OTHER INCOME (EXPENSE). . . . . . . . . . (168,726) 550
-------------------- --------------------
LOSS BEFORE INCOME TAXES. . . . . . . . . . . . . . . (1,161,820) (158,073)
INCOME TAX EXPENSE. . . . . . . . . . . . . . . . . . - -
-------------------- --------------------
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . $ (1,161,820) $ (158,073)
==================== ====================
NET LOSS PER COMMON SHARE, BASIC AND DILUTED. . . . . .$ (0.01) $ (0.01)
==================== ====================
WEIGHTED AVERAGE NUMBER OF BASIC AND
DILUTED COMMON STOCK SHARES OUTSTANDING. . . . . . 221,912,581 13,454,186
==================== ====================
See Condensed Consolidated Notes to Financial Statements
F-3
7
MAGELLAN FILMED ENTERTAINMENT, INC. and SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
From
Nine Months Nine Months December 29, 1999
Ended Ended (Inception) to
Sept. 30, 2001 Sept. 30, 2000 to Sept. 30, 2001
---------------- ---------------- -------------------
REVENUES
Movie Sales. . . . . . . . . . . . . . . . . $ 200,000 $ - $ 200,000
Less Cost of Sales
Commissions . . . . . . . . . . . . . . . 37,500 - 37,500
Marketing . . . . . . . . . . . . . . . . 70,000 - 70,000
Amortization of film production costs . . 91,500 - 91,500
---------------- ---------------- -------------------
GROSS PROFIT ON SALES. . . . . . . . . 1,000 - 1,000
OPERATING EXPENSES
General and administrative expenses. . . . . 653,376 393,414 688,803
Consulting fees. . . . . . . . . . . . . . . 613,427 - 700,436
Professional fees. . . . . . . . . . . . . . 39,341 - 63,166
Impairment of film production costs. . . . . 661,000 - 661,000
---------------- ---------------- -------------------
TOTAL EXPENSES. . . . . . . . . . . . . . 1,967,144 393,414 2,113,405
---------------- ---------------- -------------------
LOSS FROM OPERATIONS. . . . . . . . . . . . . . (1,966,144) (393,414) (2,112,405)
OTHER INCOME (EXPENSES)
Interest income. . . . . . . . . . . . . . . - 473 550
Interest expense . . . . . . . . . . . . . . (621,053) (471,860) (1,754,462)
---------------- ---------------- -------------------
TOTAL OTHER INCOME (EXPENSE). . . . . . . (621,053) (471,387) (1,753,912)
---------------- ---------------- -------------------
LOSS BEFORE INCOME TAXES. . . . . . . . . . . . (2,587,197) (864,801) (3,866,317)
INCOME TAX EXPENSE. . . . . . . . . . . . . . . - - -
---------------- ---------------- -------------------
NET LOSS. . . . . . . . . . . . . . . . . . . . $ (2,587,197) $ (864,801) $ (3,866,317)
================ ================ ===================
NET LOSS PER COMMON SHARE, BASIC AND DILUTED. . .$ (0.02) $ (0.09) $ (0.08)
================ ================ ===================
WEIGHTED AVERAGE NUMBER OF BASIC AND
DILUTED COMMON STOCK SHARES OUTSTANDING. . . 161,397,849 10,040,442 49,639,340
================ ================ ===================
See Condensed Consolidated Notes to Financial Statements
F-4
8
MAGELLAN FILMED ENTERTAINMENT, INC. and SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
From
Nine Months Nine Months December 29, 1999
Ended Ended (Inception) to
Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2001
---------------- ---------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . $ (2,587,197) $ (864,801) $ (3,866,317)
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 . . . . . 532,878 428,571 1,666,287
Amortization of film production costs. . . 91,500 - 91,500
Impairment of film production costs. . . . 661,000 - 661,000
Stock issued for services. . . . . . . . . 9,425 1,842 14,425
Stock issued for donation. . . . . . . . . - - 6,900
Stock issued as bonus for services . . . . 40,260 54,500 135,850
Stock issued in payment of interest. . . . - - 16,444
Changes in Assets & Liabilities
Decrease (Increase) in prepaid expenses. . 2,000 (19,700) -
Increase in accounts payable . . . . . . . 555,247 7,000 563,858
Increase (decrease) in accrued compensation
to officers. . . . . . . . . . . . . . . 268,500 159,750 268,500
Increase in accrued interest . . . . . . . 50,916 - 85,033
---------------- ---------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . (375,471) (232,838) (292,020)
---------------- ---------------- -------------------
CASH FLOW FROM INVESTING ACTIVITIES
Deposits paid. . . . . . . . . . . . . . . . . . (4,119) (11,300) (5,120)
Payment for screen play inventory. . . . . . . . (164,815) (128,630) (292,444)
Cash paid for acquisitions . . . . . . . . . . . - (422,832) (422,832)
Cash paid for project costs. . . . . . . . . . . (383,430) (1,257,771) (2,140,273)
---------------- ---------------- -------------------
CASH USED IN INVESTING ACTIVITY . . . . . . . . . . (552,364) (1,820,533) (2,860,669)
---------------- ---------------- -------------------
CASH FLOW FROM FINANCING ACTIVITIES
Debentures sold for cash . . . . . . . . . . . . 800,000 1,861,500 2,825,000
Cash loans from Officers - Net . . . . . . . . . (43,500) 65,500 28,200
Increase (decrease) in notes payable . . . . . . 134,650 194,500 299,650
---------------- --------------- -------------------
CASH PROVIDED FROM FINANCING ACTIVITIES . . . . . . 891,150 2,121,500 3,152,850
--------------- ---------------- -------------------
NET INCREASE (DECREASE) IN CASH. . . . . . . . . . (36,685) 68,129 161
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . 36,846 - -
---------------- ---------------- -------------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . $ 161 $ 68,129 $ 161
================ ================ ===================
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 . . . . . . . . . . . $ - $ 2,991 $ 2,991
================ ================ ===================
Conversion of debentures and interest
to common stock. . . . . . . . . . . . . . . $ 818,482 $ 510,000 $ 2,177,980
================ ================ ===================
Conversion of loans payable to debentures. . . . $ - $ 20,000 $ 20,000
================ ================ ===================
Issuance of common stock to acquire assets . . . $ - $ 180,810 $ 285,810
================ ================ ===================
See Condensed Consolidated Notes to Financial Statements
F-5
9
MAGELLAN FILMED ENTERTAINMENT, INC. and SUBSIDIARIES
(A Development Stage Company)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)
NOTE 1 - Basis of Presentation
-----------------------
The accompanying consolidated balance sheet of Magellan Filmed Entertainment,
Inc. and subsidiaries (A Development Stage Company) at September 30, 2001, and
the consolidated statements of operations for the three and nine month periods
ended September 30, 2000 and 2001 and the cumulative period during the
development stage from December 29, 1999 (Inception) through September 30, 2001
and the consolidated statements of cash flows for nine months ended September
30, 2000 and 2001 and the period during the development stage from December 29,
1999 (Inception) through September 30, 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 of 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.
All share amounts have been adjusted to reflect a 4 for 1 reverse stock split
effective May 29, 2001, and the change in par value from $0.001 to $0.0001
effected on August 23, 2001.
Operating results for the nine months ended September 30, 2001, are not
necessarily indicative of the results that can be expected for the year ending
December 31, 2001.
Note 2 - Film Production Costs
---------------------
The Company accounts for revenue, film costs, participation costs and
exploitation costs in accordance with Statement of Position (SOP) 00-2 (entitled
"Accounting by Producers or Distributors of Films") issued by the Accounting
Standards Executive Committee of the American Institution of Certified Public
Accountants. Accordingly, all costs of producing motion picture films are
capitalized as non-current assets in the period of expenditure and amortized
over the life of the respective film utilizing the Individual-Film-Forecast
Method of Amortization, in which the total costs of a film are amortized in
relation to the amount of revenues received in any period to the total amount
expected to be received over the life of the film (not to exceed 10 years).
Under this method, revenue is recognized from a sale or licensing arrangement of
a film when all of the following conditions are met: i) Persuasive evidence of a
sale or licensing arrangement with a customer exists; ii) the film is complete
and, in accordance with the terms of the arrangement, has been delivered or is
available for immediate and unconditional delivery; iii) the license period of
the arrangement has begun and the customer can begin its exploitation,
exhibition, or sale; iv) the arrangement fee is fixed or determinable; and v)
collection of the arrangement fee is reasonably assured. The Company has
capitalized a total of $2,608,518 in the production of its sole completed film,
"Rennie's Landing," which has been released in foreign markets but has not been
released in the US market. In the third quarter of 2001, the Company wrote-off
to expense, $661,000 as impairment to the capitalized costs, recognizing that in
the current market, the Company does not expect to recover all of its
capitalized costs of producing Rennie's Landing, which includes approximately
$710,000 of allocated General and Administrative and interest expenses incurred
during the preparation for and filming of the movie. During the quarter ended
September 30, 2001, $91,500 of the remaining capitalized costs were amortized.
The Company anticipates that during the next twelve months, an additional
$1,000,000 will be amortized, and that 100% of the costs will be amortized
within the next three years. The Company does not anticipate that any
participation costs (amounts due parties involved in the production of a film
who are entitled to contingent payments based on the financial results of a film
pursuant to contractual formulas or collective bargaining agreements), will be
incurred for "Rennie's Landing."
F6
10
NOTE 3 - Common Stock Issuances
----------------------
Shares of common stock of Magellan issued during the 9 months ended September
30, 2001 are summarized as follows:
Effective Date Description Transaction Average Per Number of
Value Share Price Shares Issued*
- -------------- -------------------------------- ------------ ------------- -------------
1/01-2/01 Conversion of debentures
and accrued interest . . $ 570,000 $0.0272 20,921,890
1/01 & 02/01 Consulting services 9,425 $0.0559 168,750
5/01 Additional Shares issued due to
Rounding for Reverse Split 25
5/01-6/01 Conversion of debentures 146,276 $0.0032 46,127,989
7/01-8/01 Compensation to Officers and
consultants for services 40,260 $0.0010 40,200,000
7/01-9/01 Conversion of debentures 102,207 $0.0007 138,147,930
--------- -----------
Total $ 868,168 245,566,584
============ ============
* Adjusted for one for four reverse stock split effected May 29,2001
NOTE 4 - STOCKHOLDERS' EQUITY
Debentures Converted to Common Stock
- ----------------------------------------
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 previously 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 September 30, 2001 $950,000 of these debentures were
funded, and $284,483 had been converted into common stock of the Company. The
balance outstanding on the debenture payable at September 30, 2001 is $701,517,
and accumulated accrued interest is $35,316.
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 three and
nine month periods ended September 30, 2001 amounted to $122,580 and
$490,320 respectively.
NOTE 5 - SUBSEQUENT EVENTS
------------------
In October, 2001, the Company's Board of Directors approved and issued
30,000,000 Class "A" preferred 8% non-cumulative dividend preferred shares of
the Company. Each Class "A" preferred share issued shall be entitled to 20
votes, and is convertible at any time, at the option of the holder, into the
corporation's common stock at one common share for each Class "A" preferred
share held.
F7
11
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, 2001.
During the quarter ended September 30, 2001 $102,207 of the True Fiction Series
A Debentures were converted to 138,147,943 shares of common stock of the Company
at an average price of $0.0007 per share. 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 True
Fiction under the True Fiction debentures issued exempt from registration in
reliance on Rule 504 of Regulation D of the Securities Act of 1933. The Company
also issued 40,200,000 shares of common stock to Officers, employees and
consultants to the Company as a payment for services at an average price of
$.001 per share. The shares so issued were issued without registration pursuant
to the exemption from registration under Section 4 (2) of the Securities Act of
1933.
All shares noted above have been adjusted for one for four reverse stock split
effected May 29, 2001.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company, at an Annual meeting of the Shareholders held August 23, 2001,
approved (i) an amendment to the Company's Articles to increase the number of
shares of common stock authorized for issuance from 200 million to 950 million
and to increase the number of shares of preferred stock authorized for issuance
from 50 million to 300 million; (ii) an amendment to the Company's Articles to
change the par value of the common stock from $0.001 to $0.0001 and to change
the par value of the preferred stock from $0.001 to $0.0001; and (iii) an
amendment to the Company's Articles of Incorporation to provide that the board
of Directors have the authority to issue the Common stock and Preferred Stock in
series and to determine for each series the voting powers, designations,
preferences, rights, qualifications, limitations or restrictions expressed in
the resolutions providing for the issue of such series, and to add provisions to
the Articles of Incorporation to clarify features relating to the authorized
capital stock.
ITEM 5. OTHER INFORMATION - NONE
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits - None
(b) Reports on Form 8-K - None
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: _______, 2001 By:/s/ Patrick F. Charles
--------------------------
Patrick F. Charles, CEO
Date: _______, 2001 By:/s/ James G. Brewer
--------------------------
James G. Brewer, Vice-President, Finance,
CFO and Chief Accounting Officer
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