Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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. [X] Yes [ ] No
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accredited filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “Smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. [ ] Yes [X] No
As of May 20, 2013 the Registrant had 17,800,000 shares of its $0.001 par value Common Stock outstanding.
1
TABLE OF CONTENTS
PAGE
PART I — FINANCIAL INFORMATION
3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
ITEM 2. MANAGEMENT’S DISCUSSON AND ANALYSIS OF FINANCIALS CONDITION AND RESULTS OF OPERATIONS 12
PART II — OTHER INFORMATION
19
ITEM 1. LEGAL PROCEEDINGS
19
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
19
ITEMS 3. DEFAULTS UPON SENIOR SECURITIES
19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
19
ITEM 5. OTHER INFORMATION
19
None
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
19
SIGNATURES
20
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
SILVERTON ADVENTURES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2013 (Unaudited)
NOTE 5 – ROYALTIES
The Company entered into several royalty agreements wherein the Company acquired rights to licensed content. The Company intends to either reproduce and distribute the media or sublicense the rights to another party. The agreements require the Company to pay an upfront royalty fee and then ongoing royalty fees of 15 to 30 percent of gross sales receipts over the life of the licensing agreement. The agreements vary in length from three to five years. Royalty expenses totaled $13,582 and $15,835 for the nine months ended March 31, 2013 and 2012, respectively. As of March 31, 2013 and June 30, 2012, royalty payables under these agreements totaled $36,972 and $23,368, respectively.
Under some of these arrangements, the Company pays an upfront royalty fee that is applied to future royalties as the Company achieves sales and incurs corresponding royalty expense. The upfront fees that are to be applied against future royalty expenses are capitalized and amortized as royalty expenses are applied. As of March 31, 2013 and June 30, 2012, the Company has recorded $9,481 and $9,753 as prepaid royalties, respectively.
The Company has also entered into similar royalty agreements wherein the Company licenses content rights to third parties in exchange for a royalty fee. During the nine months ended March 31, 2013 and 2012, the Company recognized royalty revenue of $32,808 and $-0-, respectively.
NOTE 6 – CONVERTIBLE NOTES PAYABLE
On July 20, 2011, the Company entered into a convertible note payable in the amount of $10,000. The note bears interest at 8.50 percent per annum and has a maturity date of July 20, 2014. The creditor has the option at any time to convert the principal and any accrued interest into common stock of the Company according to the following stock prices: year one, $0.75 per share; year two, $1.00 per share; and year three, $1.25 per share. The entire note with a principal balance of $10,000 along with $1,306.44 was
assigned to a third party. In addition the Company assigned another note payable in the amount of $30,000 and accrued interest of $2,544 to the third party. The total aggregate amount assigned to the third party was $43,851. The terms of the assigned notes were amended. The amended terms are:
·
The assigned notes bear interest at 10%
·
The assigned notes are due on demand
·
The principal balance of the note along with accrued interest is convertible at any time, at the option of the note holder, into the Company's common stock at a price of 45 percent of the current market price. The current market price is defined as the average of the lowest three trading prices for the Common Stock during the ten day period on the latest complete trading day prior to the conversion date.
As a result of this note assignment the Company determined that a beneficial conversion feature existed and because the assigned note is due on demand the full amount of the beneficial conversion feature of $43,851 was recorded to interest expense.
As at March 31, 2013, the note has not been converted to common stock by the note holder.
On November 6, 2012, the Company borrowed $42,500 from an unrelated third party entity in the form of a convertible note, $33,000 of which was received in cash and $9,500 of which was for professional fees. The note bears interest at 8 percent per annum with principal and interest due in full on August 8, 2013.
The principal balance of the note along with accrued interest is convertible at any time, at the option of the note holder, into the Company's common stock at a price of 55 percent of the current market price. The current market price is defined as the average of the lowest three trading prices for the Common Stock during the ten day period on the latest complete trading day prior to the conversion date.
Pursuant to this conversion feature, the Company recognized a discount on convertible debt in the amount of $42,500 on the note date. As of March 31, 2013 the Company had amortized $22,409 of the debt discount to interest expense, leaving $20,091 in unamortized debt discount at March 31, 2013.
The fair value of the conversion option of the convertible note of $67,374 has been recognized as a derivative liability on the date of issuance with all future changes in the fair value of these conversion options being recognized in earnings in the Company’s statement of operations under the caption “Other income (expense) – Gain (loss) on derivative liability” until such time as the note is converted or the conversion feature expires.
SILVERTON ADVENTURES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2013 (Unaudited)
NOTE 6 – CONVERTIBLE NOTES PAYABLE (continued)
The Company uses the Black-Scholes option pricing model to value the derivative liability and subsequent remeasurements. Included in the model are the following assumptions: stock price at valuation date of $0.9, exercise price of $0.495, dividend yield of zero, years to maturity of 0.75, risk free rate of 0.19 percent, and annualized volatility of 226 percent.
ASC 815 requires the Company to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value of the derivatives as gain (loss) on the income statements. At March 31, 2013 the derivative liability was revalued at $56,562, which led to the Company recording a gain on derivative liability in the amount of $10,813.
On December 26, 2012 the Company entered into a convertible note agreement. Pursuant to the agreement, the agreement was consummated on January 2, 2013 upon the Company’s receipt of $32,500 cash proceeds from the note. The note bears interest at 8 percent per annum with principal and interest due in full on September 30, 2013.
The principal balance of the note along with accrued interest is convertible after 180 days, at the option of the note holder, into the Company's common stock at a price of 55 percent of the current market price. The current market price is defined as the average of the lowest three trading prices for the Common Stock during the ten day period on the latest complete trading day prior to the conversion date.
Pursuant to this conversion feature, the Company recognized a discount on convertible debt in the amount of $32,500 on the note date. As of March 31, 2013 the Company had amortized $10,554 of the debt discount to interest expense, leaving $21,946 in unamortized debt discount at March 31, 2013.
The fair value of the conversion option of the convertible note of $41,012 has been recognized as a derivative liability on the date of issuance with all future changes in the fair value of these conversion options being recognized in earnings in the Company’s statement of operations under the caption “Other income (expense) – Gain (loss) on derivative liability” until such time as the note is converted or the conversion feature expires.
The Company uses the Black-Scholes option pricing model to value the derivative liability and subsequent remeasurements. Included in the model are the following assumptions: stock price at valuation date of $0.49 to $0.9, exercise price of $0.3025 to $0.0495, dividend yield of zero, years to maturity of 0.74to 0.50, risk free rate of 0.14 to 0.11 percent, and annualized volatility of 247 to 350 percent.
ASC 815 requires the Company to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value of the derivatives as gain (loss) on the income statements. At March 31, 2013 the derivative liability was revalued at $49,848, which led to the Company recording a loss on derivative liability in the amount of $8,836.
On February 5, 2013 the Company borrowed $37,500 from an unrelated third party entity in the form of a convertible note. The note bears interest at 8 percent per annum with principal and interest due in full on November 7, 2013.
The principal balance of the note along with accrued interest is convertible after 180 days, at the option of the note holder, into the Company's common stock at a price of 55 percent of the current market price. The current market price is defined as the average of the lowest three trading prices for the Common Stock during the ten day period on the latest complete trading day prior to the conversion date.
Pursuant to this conversion feature, the Company recognized a discount on convertible debt in the amount of $37,500 on the note date. As of March 31, 2013 the Company had amortized $7,364 of the debt discount to interest expense, leaving $30,136 in unamortized debt discount at March 31, 2013.
The fair value of the conversion option of the convertible note of $116,141 has been recognized as a derivative liability on the date of issuance with all future changes in the fair value of these conversion options being recognized in earnings in the Company’s statement of operations under the caption “Other income (expense) – Gain (loss) on derivative liability” until such time as the note is converted or the conversion feature expires.
The Company uses the Black-Scholes option pricing model to value the derivative liability and subsequent remeasurements. Included in the model are the following assumptions: stock price at valuation date of $0.68 to $0.9, exercise price of $0.1925 to $0.0495, dividend yield of zero, years to maturity of 0.75 to 0.61, risk free rate of 0.13 to 0.11 percent, and annualized volatility of 263 to 320 percent.
ASC 815 requires the Company to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value of the derivatives as gain (loss) on the income statements. At March 31, 2013 the derivative liability was revalued at $57,661, which led to the Company recording a gain on derivative liability in the amount of $58,480.
SILVERTON ADVENTURES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2013 (Unaudited)
NOTE 6 – CONVERTIBLE NOTES PAYABLE (continued)
On March 27, 2013 the Company borrowed $25,000 from an unrelated third party entity in the form of a convertible note. Pursuant to the note agreement the Company was charged a 10% original issue discount of $2,500. The note bears no interest for the first three months. If the Company does not repay the note on or before 90 days from the effective date, a one-time interest charge of 12% shall be applied to the Principle sum of the note. Principal and interest on the note are due in full on March 27, 2014.
The principal balance of the note along with accrued interest is convertible at any time at the option of the note holder, into the Company's common stock at a price of the lessor of, $0.09, or 60 percent of the lowest trading price for the Common Stock during the twenty five day period on the latest complete trading day prior to the conversion date.
Pursuant to this conversion feature, the Company recognized a discount on convertible debt in the amount of $25,000 on the note date. As of March 31, 2013 the Company had amortized $274 of the debt discount to interest expense, leaving $24,726 in unamortized debt discount at March 31, 2013.
The fair value of the conversion option of the convertible note of $36,222 has been recognized as a derivative liability on the date of issuance with all future changes in the fair value of these conversion options being recognized in earnings in the Company’s statement of operations under the caption “Other income (expense) – Gain (loss) on derivative liability” until such time as the note is converted or the conversion feature expires.
The Company uses the Black-Scholes option pricing model to value the derivative liability and subsequent remeasurements. Included in the model are the following assumptions: stock price at valuation date of $0.9, exercise price of $0.054, dividend yield of zero, years to maturity of 1 to 0.99, risk free rate of 0.14 to 0.11 percent, and annualized volatility of 274 to 276 percent.
ASC 815 requires the Company to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value of the derivatives as gain (loss) on the income statements. At March 31, 2013 the derivative liability was revalued at $36,256, which led to the Company recording a loss on derivative liability in the amount of $34.
NOTE 7 – SEGMENT DISCLOSURES
Operating segments are defined as components of an enterprise about which separate and discreet financial information is available and is evaluated regularly by the chief operating decision-maker in assessing performance and determining how to best allocate Company resources. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.
The Company has three principal operating segments: (1) printing services, (2) media development and distribution, and (3) the corporate operations overseeing each segment and the financial reporting obligations of the combined entity. These operating segments were delineated based on the nature of the products and services offered.
The Company has determined that there are two reportable segments: (1) printing services and (2) media development and distribution. The Company evaluates the financial performance of the respective segments based on several factors, of which the primary measure is business segment income before taxes. The accounting policies of the business segments are the same as those described in ‘‘Note 3: Significant Accounting Policies.’’ All significant intercompany transactions and balances have been eliminated. The following tables show the operations of the Company’s reportable segments for the three and nine months ended March 31, 2013 and 2012:
ITEM 2. MANAGEMENT’S DISCUSSON AND ANALYSIS OF FINANCIALS CONDITION AND RESULTS OF OPERATIONS
This section must be read in conjunction with the unaudited Financial Statements included in this report.
A.
Management’s Discussion
Silverton Adventures, Inc. ("SAI" or the "Company"), was originally incorporated in the State of Nevada on May 31, 2006 as Mor Travel, Inc. (“Mor”). On December 26, 2007, the Company changed its name to Silverton Adventures, Inc.
The Company recently formed a new wholly owned subsidiary named Silverton Printing, Inc. (“Silverton Printing”) whereby it operates its original printing and mailing services to companies nationwide. On December 30, 2010, the Company acquired 100% of the outstanding common stock of Worldwide Media Organization, Inc. making it a wholly owned subsidiary (“Worldwide Media”). Worldwide Media is a marketing, production and distribution company with its principal business objective being the production, acquisition (through exclusive licensing arrangements with independent producers worldwide), sale and distribution of special interest, family oriented, inspirational and children’s DVDs and programs. Video distribution is made by a non-theatrical home video retailer, catalog, mass-merchant and rack-jobber markets (including specialty markets such as gift and museum shops, premium and direct response markets). WMO also licenses to the television broadcast markets, as well as the educational, school and public library markets, both nationally and worldwide. This distribution includes emerging venues such as digital downloads via Internet, video-on-demand (VOD) and download streaming on various platforms, among others.
Company Overview
The Company operates two wholly owned subsidiaries. Through Silverton Printing, the Company has a principal business objective of providing printing and mailing services to companies nationwide. Through Worldwide Media, the Company has a principal business objective of the production, acquisition (through exclusive licensing arrangements with independent producers worldwide), sale and distribution of special interest, family oriented, inspirational and children’s DVDs and programs.
During the three months ended March 31, 2013, the Company generated revenues of $58,941 (as compared to revenues of $72,862 for three months ended March 31, 2012) while incurring $37,992 in cost of sales resulting in a gross margin of $20,949 (as compared to a gross margin of $42,726 for three months ended March 31, 2012). After the Company deducted $131,927 for total operating expenses and $122,132 in other expenses, we incurred a loss from operations of $233,110 for the three months ended March 31, 2013 (as compared to a loss from operations of $79,317 for three months ended March 31, 2012).
The net loss for the three months ended March 31, 2013 is attributable primarily to a 19% drop in our total revenues (from $72,862 for three months ended March 31, 2012 to $58,941 for three months ended March 31, 2013) and to an increase in other expenses from $79,317 for the three months ended March 31, 2012 to $233,110 for the three months ended March 31, 2013.
During the nine months ended March 31, 2013, the Company generated revenues of $194,287 (as compared to revenues of $366,657 for nine months ended March 31, 2012) while incurring $72,572 in cost of sales resulting in a gross margin of $121,715 (as compared to a gross margin of $272,833 for nine months ended March 31, 2012). After the Company deducted $391,414 for total operating expenses and $367,923 in other expenses, we incurred a loss from operations of $269,699 for the nine months ended March 31, 2013(as compared to a loss from operations of $95,090 for nine months ended March 31, 2012).
The net loss for the nine months ended March 31, 2013 is attributable primarily to a 47% drop in our total revenues (from $366,657 for nine months ended March 31, 2012 to $194,287 for nine months ended March 31, 2013). To reach and maintain quarterly profitability, the Company must raise significant investment capital to be able to expand our inventory of educational and family oriented DVD titles under our subsidiary Worldwide Media, and marketing our printing services regionally under our subsidiary Silverton Printing, Inc. Our significant decrease in our total revenues was the
direct result of the licensing loss of several popular family oriented DVD titles during the fiscal year which ended June 30, 2012.
The Company has changed its method of marketing its products in both subsidiaries.
Worldwide Media Organization, Inc. (“WMA”) started marketing its products directly to retailers through major distributors thus lowering its cost of marketing while at the same time increasing its sales. In the future, WMA plans on raising capital in order to increase their DVD products through self productions and acquisition of DVD catalogs. We anticipate WMA will continue to increase its revenue stream each quarter as we increase the titles available to our distributors.
Silverton Printing, Inc. has changed the printing services it provides and has focused on marketing to clients low run color jobs, high volume black and white printing, brochures, convention related booklets, and related printing. We have also started to be more aggressive in our marketing efforts nationwide.
Liquidity and Capital Resources
As of March 31, 2013, the Company had negative working capital of $726,054, which is current assets minus current liabilities. This negative working capital is attributable to accounts payable, accrued liabilities, notes payable, derivative liability, and convertible notes payable. The Company’s current assets as of March 31, 2013 consisted of cash of $4,543, $9,481 in prepaid royalties, and $15,895 in trade account receivable, net.
SAI has limited capital resources from which to operate. Without the realization of either significant cash flow from ongoing revenue or additional capital investment, the Company may not be able to continue without short term loans from its current officer and director. However, the Company’s independent auditors have expressed substantial doubt about the Company's ability to continue as a going concern.
B.
Plan of Operation
The Company operates two wholly owned subsidiaries. Through Silverton Printing, the Company has a principal business objective of providing printing and mailing services to companies nationwide. Through Worldwide Media, the Company has a principal business objective of the production, acquisition (through exclusive licensing arrangements with independent producers worldwide), sale and distribution of special interest, family oriented, inspirational and children’s DVDs and programs.
SILVERTON PRINTING, INC.
Business Segment Summary
Silverton Printing has
a
principal business objective of providing printing and mailing services to companies nationwide. The Company plans on
completing the printing and mailing from its corporate offices depending on the size of the job. In other cases, the Company has
developed accounts with wholesale printers who are more equipped to handle large print and mailing orders. Our mission is to provide
the highest quality print and mail services to our clients.
Since inception, we have generated
consistent
revenues, but have incurred a cumulative net loss as reflected in the financial
statements. The Company has never been party to any bankruptcy, receivership or similar proceeding, nor has it
u
ndergone any
material reclassification, merger, consolidation, purchase or sale of a significant amount of assets not in the ordinary course of
business.
Product Development
Silverton Printing’s mission is to provide small and large businesses a printing and mailing services of a wide variety of products (See list
below). Also, the Company will provide a mailing service which will include Automated Presort and Insert and Address. This service
will be primarily for companies that want to save money on postage. Instead of paying $0.42 for a first class letter, Silverton will sort
the mail pieces by zip codes saving the customer almost 50% in postage costs.
The following are print and mail services offered by the Company:
• Business Cards
• Carbonless Forms
• Catalogs/Booklets
• Flyers
• Posters
• Graphic Design
• Automated Presort
• Brochures
• Copying
• Envelopes
• Letterhead
• Postcards
• Presentation Folders
• Insert and Address
Marketing
Silverton Printing is gearing up to be a direct marketer of printing and mailing to businesses nationwide. The Company will be placing
Yellow Page advertisements offering our services under the classification of printers and mailers in major cities throughout the United
States. Even though the Company maintains its facility in Las Vegas, Nevada, the Company will ship all orders directly to the
customer for a small shipping charge. Additionally, the Company plans to constantly mail postcards throughout the United
S
tates to
new and upcoming businesses that have been recently approved for a business license.
WORLDWIDE MEDIA ORGANIZATION, INC.
Business Segment Summary
Worldwide Media is a marketing, production and distribution company with its principal business objective being the production, acquisition (through exclusive licensing arrangements with independent producers worldwide), sale and distribution of special interest, family oriented, inspirational and children’s DVDs and programs. Distribution is made into the non-theatrical home video retailer, catalog, mass-merchant and rack-jobber markets (including specialty markets such as gift and museum shops, premium and direct response markets). Worldwide Media also licenses to the television broadcast markets, as well as the educational, school and public library markets, both nationally and worldwide. This distribution includes emerging venues such as digital downloads via Internet, video-on-demand (VOD) and download streaming on various platforms, among others
.
Product Development
There are two key product development strategies for general market sale and distribution that Worldwide Media is involved in; inexpensive, but high quality and high-perceived value productions and, strategic partnership exclusive acquisition of other quality programs from outside producers.
First, Worldwide Media has established relationships with talented, highly experienced producers, writers and editors that contract with Worldwide Media to produce low-cost but high quality productions that are suitable for sale into Worldwide Media’s market niches. One strategy Worldwide Media has developed in this regard is what is called in the industry “theatrical drafting” wherein smaller independent producers under contract with Worldwide Media create low budget, ancillary and parallel programs that tie into subjects and/or events dealing with current major theatrical releases, thereby taking advantage of the consumer interest and “buzz” caused by the multi-million dollar budget advertising campaigns major studios spend to successfully market their big-budget films, by tapping into this interest without the enormous financial expenditures associated in creating this “Buzz”, hence “drafting” in the studios wake. This was done with Worldwide Media’s production of
The Extraordinary Life of Amelia Earhart
(following the Hillary Swank biopic,
“Amelia”),
The Mystery of Sherlock Holmes
(following the Robert Downey blockbuster “Sherlock Holmes”) and the upcoming
The True Legend of Robin Hood
(in anticipation of the big budget 3D release of Russell Crowe’s “Robin Hood” later this year). Worldwide Media is continually researching the upcoming film release announcements to anticipate these various potential hits. Along with this, Worldwide Media is continually producing timely biographies and documentaries that would have interest in both the general consumer market, as well as the educational markets, including recent productions dealing with Great Women Leaders In World History, The Life of Albert Einstein, Famous Explorers, Joan of Arc (upcoming), the Korean War (upcoming) and a documentary on the life of, and conquest of Everest by, Sir Edmund Hillary (in anticipation of an upcoming feature film starring Liam Neeson, about the mysterious death and controversy surrounding George Mallory, who supposedly summited Everest 30 years before Hillary’s attempt.).
Secondly, Worldwide Media is also strategically acquiring various films, programs and series that meet its market niches. There is a vast source of quality programming produced by numerous independent producers worldwide, that simply do not have the resources, nor ability, to distribute their product and profitably into the market. Worldwide Media negotiates distribution contracts with these producers for the distribution of their programs in niche markets, often with little or no advance monies paid up front, providing instead the producers royalties on actual per unit sales. This is a favorable situation for both Worldwide Media (in providing the marketplace with a steady stream of finished quality programs at virtually no upfront costs, other than package design, that are fresh and appealing to the markets that Worldwide Media services), and to the producer (in that, they now have an effective distribution partner, allowing them to continue producing quality programming, while realizing a steady stream of royalty revenue from their productions). A good example of this is Worldwide Media’s recent acquisition of a series of entertaining inspirational feature films with a leading Christian producer, Eternal Pictures; and the imminent agreement with one of the industry’s leading independent family friendly production companies, Grizzly Adams Productions, Inc. These are but two examples. There are numerous others either consummated or in-negotiation. To better effect this critical growth strategy, and in conjunction with e-mail and direct mail solicitations for programs, Worldwide Media also attends several key international film conventions throughout the year featuring independent producers, and is bringing unique, family friendly, inspirational and educational programs to the market from these sources.
Marketing and Industry Analysis
Market research and analysis reveals that the population is gradually becoming older, thereby more conservative, with the aging of the baby boom generation. With the increase in recreational and discretionary time that this maturing generation will have, along with their greater flexible spending ability, all indications point to even greater desire by the consumer for more family-friendly and special quality programming that is inexpensive and can be enjoyed by a wide demographic in society. History has shown time and time again that G/PG and family films consistently do well at the box office both in audience attendance and revenue. Furthermore, this programming has excellent “shelf life” in that these are generally films people want to watch over and over again, thereby driving greater sales (versus rental) of these types of DVD’s for home DVD collections. Children’s programming in general can do particularly well. Another area that can do well, is the special interest niche market, such as travel, history, military, art, biography, and of course, wildlife and nature programming….all genres that have unique and devoted viewers and collectors served by different catalogs, specialty stores, retail chains and internet sites. Worldwide Media’s product mix, both through acquisition and production, is specifically targeted for these markets…in content, packaging and retail pricing.
Worldwide Media has also pursued the inspirational DVD market, which is a vastly underserved market. Surveys consistently show that over 85% of the population defines itself as spiritual in some way. The usual Hollywood market has simply not addressed that market; which is numerous and broad-based, best described as mid-America having traditional family values, and highly desirous of programming that reflects those values. Reasons for this lack of product content through traditional DVD venues may reside in the industry’s lack of understanding, or perhaps dismissiveness in general, of the potential of the market. Worldwide Media is positioned to serve that market with general quality light inspirational programming provided through the traditional home video distribution venues consumers generally frequent (such as home catalogs, retail stores and mass-merchants, warehouse chains), and feels that Worldwide Media can become a leading brand and label for that market. Furthermore, current management has extensive experience in servicing that market niche through previous business affiliations, thereby further solidifying understanding the needs of that market and how best to serve it with proper content.
Worldwide Media management also has extensive experience in creating high-perceived value combo, specialty DVD packs for price conscious consumers, thereby serving the mass market, all the while maintain maximum gross and net profit margins. These “collection sets” are very popular in the sell-thru, versus rent-thru, markets, which relates back directly to Worldwide Media’s business model.
Worldwide Media is becoming an established brand in the educational, public library and home-school markets. The principles have over 25 years experience in servicing the needs of that particular market, with quality documentary, special interest and educational programs suited for the K-12 grade levels. Education is a consistent priority in terms of funding and curriculum quality on the local, state and federal levels. There is a constant need in the market for relevant and new programming to meet those requirements. Worldwide Media is uniquely positioned in that regard, having relationships with hundreds of independent producers worldwide that have relevant quality content for the educational market, but lack the means to distribute it on a wide scale. Worldwide Media has the distribution means in place either directly through direct solicitation or through strategic relationships with several of the top wholesalers and re-sellers into the educational/library markets. Worldwide Media has also entered into strategic alliances with several companies in providing educational programming for on-line streaming and closed circuit broadcast into digital libraries serving schools and libraries throughout North America, a technology growing exponentially.
Growth Strategy of the Company
The home video/DVD/educational markets are broad, complex and fragmented into different distribution channels and niches: retail, mass merchants (box stores), catalog, internet, resellers that purchase from wholesalers and producers, specialty chains and stores (gift stores, museum shops, airport stores, etc.), and, of course, individual consumers served directly by web advertising, schools, libraries, and school districts, among others. The time required establishing profitable relationships with these various venues and buyers directly can be both time consuming and capital intensive, in terms of direct face-to-face meetings, attending trade shows and constantly forwarding market material and press releases to generate interest in particular programs and films. Worldwide Media’s management has made a strategic decision that, rather than expending the time, energy and resources in cultivating those markets, Worldwide Media’s business interests and growth strategies are better served by leveraging key relationships with a handful of well-established, well respected and aggressive sub-distributors, resellers and sub-licensors that have established, personal and solid vendor relationships and established SKU’s and vendor accounts with all of the key players and buyers in these various market niches and accounts. By maintaining above average gross margins in the discount pricing provided to these resellers, Worldwide Media is able to penetrate the market more quickly, efficiently, cost effectively and deeply with its programs without the expenditures of time and resources noted above. Examples of some of the key relationships are listed below:
Allegro Media Group
- a direct premium independent distributor into the retail home video music CD’s, and digital content market with over 25 years in representing a handful of labels into the general retail market and over 400 direct vendor/buyer account relationships; including but not limited to, Walmart, Target, Sams Clubs, Anderson Merchandising, Costco, Amazon, Netflix, Barnes & Noble, Baker & Taylor, Ingram (serving over 5,000 individual stores), Best Buy, Critics Choice, Movies Unlimited, AAFES (Navy PX’s), Eurpac (military PX’s worldwide), Waxworks, Library Video, Midwest Tape, Blockbuster, Borders, VPD, etc. (complete account list available).
Total Content
– a sub-licensor dealing with top catalogers with 20+ years experience; including, but not limited to: Publishers Clearing House, Readers Digest, Avon, Carol Wright, Johnson Smith, Colombia House, Miles Kimball, Christian Book Distributors (serving over 25 million home schoolers), Discovery Catalog, Guideposts, Doubleday Direct, Harriet Carter, Wireless, Taylor Gifts, etc. (complete account list available).
Echo Bridge
– sub licensor with proprietary displays and end caps in a large number of grocery, retail, drugstores chains, mass merchants, specializing in very high volume (“tonnage”) discount videos/DVD sales for the consumer mass market; including, but not limited to Walmart, Safeway, a number of Midwest grocery chains and hardware/drug store chains, specialty catalogs, etc. Echo Bridge is very focused and selective in product acquisition; and, when distributing, can generally move in excess of several thousand units per title. Echo Bridge has licensed six family films from Worldwide Media and is considering a number of others.
Cerebellum
– market’s leading distributor for educational media with 15+ years experience serving all major distributors and resellers into the educational, K-12, university, and public library markets; including but not limited to, Follett,
Library Video, Barnes Noble, Christian Book Distributors (educational division), Brodarts, Midwest Tapes, Mackin Distributors, Quality Books, Scholastic Media, Discovery, AIM, Learn 360 (digital downstreaming into individual classrooms nationwide), etc. (complete account list available).
John McClean Media
– major distributor and licensor into the international television and DVD markets, with over 20 years experience and relationships cultivated with all major players in all broadcast and media markets worldwide. Worldwide Media has entered into an exclusive licensing arrangement to have JMM represent all current, and future, productions into this sizable and very lucrative market. Our current mix includes five of Worldwide Media’s productions, with a commitment for acquiring licensing rights to an additional twelve to thirteen productions, along with future productions still in developmental phase.
In addition to the above relationships, Worldwide Media has signed distribution agreements with major players in specialty markets, including:
Starcrest Catalog
– major specialty catalog with mailings to over 26 million homes 4 to 6 times a year. This brand is popular with buyers of family/special interest programs.
5min Media
– an innovative 5 year-old company in the business as internet content provider that has established contracts with all major search engines whereby millions of users are directed to informational and themed streaming videos, based on their queries on-line, and whereby Worldwide Media is then paid a royalty for each “hit” on line. Additionally links on the site are provided to drive the user directly to Worldwide Media’s various websites, leading to further consumer direct sales.
To control outside costs with key vendors, Worldwide Media has entered into relationships with large, fully licensed and industry professional duplication/replication companies to manufacture, assemble, shrinkwrap and ship its DVD programs: CDI Media in Salt Lake City, Utah and VEA Associates in Irvine, CA. Worldwide Media has negotiated very favorable most-favored-nation pricing for its manufacturing and shipping needs. Worldwide Media is negotiating with a third lab, RLX Media, in Coral Gables, FL. as well; in order to cover all US retail and catalog drop-ship locations in the most cost effective way possible.
Competitor Analysis
Direct competition for Worldwide Media is hard to pinpoint and fragmented. Worldwide Media’s management feels it is in a superior position to affectively seize market share in its niche over and above its competitors, due to Worldwide Media’s unique business paradigm and diversification into a number of distribution venues; its ability to leverage relationships in a highly favorable and profitable way with both independent production companies and major distributors in the industry; its control of overhead by having key production and marketing support elements in-house, including the ability to produce and edit high quality programs for very low cost, and print and reconfigure all packaging and ancillary marketing material quickly; a warehouse and duplication capabilities in house to handle smaller incremental orders for product; and finally, and perhaps most importantly, extensive experience in the industry on a senior management and sales.