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SILVERTON ADVENTURES, INC. - 10-Q - MANAGEMENT'S DISCUSSON AND ANALYSIS OF FINANCIALS CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) 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 December 31, 2012, the Company generated revenues
of $59,915 (as compared to revenues of $98,863 for three months ended December
31, 2011) while incurring $12,335 in cost of sales resulting in a gross margin
of $47,580 (as compared to a gross margin of $80,439 for three months ended
December 31, 2011). After the Company deducted $134,649 for total operating
expenses and $30,017 in other expenses, we incurred a loss from operations of
$117,086 for the three months ended December 31, 2012 (as compared to a loss
from operations of $74,058 for three months ended December 31, 2011).
The net loss for the three months ended December 31, 2012 is attributable
primarily to a 39% drop in our total revenues (from $98,863 for three months
ended December 31, 2011 to $59,915 for three months ended December 31, 2012).
During the six months ended December 31, 2012, the Company generated revenues of
$135,346 (as compared to revenues of $264,395 for six months ended December 31,
2011) while incurring $34,580 in cost of sales resulting in a gross margin of
$100,766 (as compared to a gross margin of $193,352 for six months ended
December 31, 2011). After the Company deducted $259,487 for total operating
expenses and $31,351 in other expenses, we incurred a loss from operations of
$190,072 for the six months ended
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December 31, 2012 (as compared to a loss from operations of $50,467 for six
months ended December 31, 2011).
The net loss for the six months ended December 31, 2012 is attributable
primarily to a 49% drop in our total revenues (from $264,395 for six months
ended December 31, 2011 to $135,346 for six months ended December 31, 2012). 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 December 31, 2012, the Company had negative working capital of $536,194,
which is current assets minus current liabilities. This negative working
capital is attributable to monies owed on accounts payable, accrued liabilities,
and notes payable. The Company's current assets as of December 31, 2012
consisted of $9,585 in prepaid royalties, and $14,403 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
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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 undergone 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 States 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,
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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
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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
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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).
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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.
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