U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                 FORM 10-KSB

                                Amendment No. 2

(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934

                      For Fiscal Year Ended: June 30, 2000

                                       or

[    ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

             For the transition period from ___________ To ____________


                      Commission file number          000-28553
                                                      ---------

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                 (Name of small business issuer in its charter)

      Nevada                                                95-4786792
 -------------------------------                          ---------------
 State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization                           Identification No.)

                  130 S. El Camino Dr., Beverly Hills, CA 90212
      --------------------------------------------------------------------
               (Address of principal executive offices) (Zip code)

                  11166 Burbank Blvd, North Hollywood, CA 91601
       ------------------------------------------------------------------
                                (Former address)


Issuer's telephone number       (310) 205-7998
                                ---------------

Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:

                          Common Stock, par value $.001
                                (Title of class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of

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the Exchange Act 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

     Check if there is no disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-B is not  contained in this form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ ]

     State issuer's revenues for its most recent fiscal year. $ -0-

     As of November 15, 2000,  there were 5,178,000  shares of the  Registrant's
common stock,  par value $0.001,  issued and  outstanding.  The aggregate market
value of the Registrant's  voting stock held by non-affiliates of the Registrant
was approximately  $1,381,745  computed at the average bid and asked price as of
November 15, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

     If the following documents are incorporated by reference,  briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated:  (1) any annual report to security  holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"): NONE

     Transitional Small Business Disclosure Format (check one): Yes ; NO X























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                                TABLE OF CONTENTS


Item Number and Caption                                                     Page

PART I

Item 1.  Description of Business...............................................4

Item 2.  Description of Property..............................................14

Item 3.  Legal Proceedings....................................................15
Item 4.  Submission of Matters to a Vote of Security Holders..................15


PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.............15

Item 6.  Management's Discussion and Analysis or Plan of Operations...........17

Item 7.  Financial Statements.................................................19

Item 8.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure.................................................19

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act....................20

Item 10. Executive Compensation...............................................23

Item 11. Security Ownership of Certain Beneficial Owners and Management.......23

Item 12. Certain Relationships and Related Transactions.......................24

Item 13. Exhibits and Reports on Form 8-K.....................................25








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                                     PART I


                         ITEM 1 DESCRIPTION OF BUSINESS


General

     The  Company  intends  to  position  itself  to  evolve  into a  vertically
integrated,  diversified global media entertainment company. The Company intends
to acquire a number of diversified  entertainment  companies that will allow for
the pursuit of opportunities currently available in the global marketplace.

     The  Company   anticipates   generating   revenues  from  several  sources,
including,  production of new and existing  feature films,  as well as expanding
into other areas of the entertainment industry.

     The  Company's  common  stock is traded on the  National  Quotation  Bureau
(NQB)Pink Sheets under the symbol "SVED."

History

     Stereo Vision Entertainment,  Inc. ("SVEI") was originally  incorporated in
the State of Arizona as  Arizona  Tax Pros &  Insurance  Wholesalers,  Inc.,  on
December14,  1993. Arizona Tax Pros & Insurance  Wholesalers,  Inc., changed its
name to Kestrel  Equity  Corporation  ("Kestrel") on September 30, 1997. On July
20, 1999,  Kestrel  entered into an  Acquisition  Agreement  and Plan of Reverse
Merger  with  Stereo  Vision  Entertainment,   Inc.,  a  privately  held  Nevada
corporation  ("Stereo")  (the "Merger").  Pursuant to the Merger,  which was not
actually  consummated  until December 30, 1999,  Stereo was merged with and into
"Kestrel".  Each share of Stereo common stock  outstanding was exchanged for 120
shares of Kestrel's common stock, $.001 par value (the "Common Stock").

     On January 31,  2000,  "Kestrel"  changed its state of  incorporation  from
Arizona to Nevada,  and also  changed its name to Stereo  Vision  Entertainment,
Inc.

     Since the time of its  inception  until the  effective  date of the Merger,
Kestrel  Equity  Corporation  was a  development  stage  company  with no active
business  operations and no revenues.  As such, Kestrel was considered a "shell"
corporation  with a principal  purpose of locating and  consummating a merger or
acquisition  with a private  entity.  Beginning  in August  1999,  the  business
activities  of Kestrel,  prior to the  Merger,  encompassed  administrative  and
organizational matters and identifying additional acquisition  opportunities for
operating  companies and intellectual  property assets in the global multi-media
industries.  Upon the  consummation of the Merger,  Kestrel  acquired all of the
assets of Stereo with the intent of continuing  Stereo's  business and expanding
into new areas of the  entertainment  industry.  Stereo was  incorporated in the
State   of    Nevada   on   May   5,   1999   for    purposes    of    acquiring
multi-media/entertainment industry assets and pursuing merger opportunities with
an existing publicly traded company. Mr. Kallett, an officer and director of

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Kestrel Equity Corporation,  and Mr. Honour, a principal shareholder of Kestrel,
both owned common stock in Stereo representing an aggregate of 51% of the issued
and  outstanding  capital stock of Stereo.  The operations and management of the
merged  companies  (SVEI) were then  integrated  following  the  replacement  of
Stereo's  sole officer and  director  with the then sole officer and director of
Kestrel.

     On  December  17,  1999  "Kestrel"  filed  its  Form  10-SB  with  the U.S.
Securities  and  Exchange  Commission.  Upon the  consummation  of the merger on
December  30,  1999,  shortly  thereafter  in January of 2000,  SVEI elected new
officers and directors.  Since January 2000, the Company's  activities have been
developing entertainment projects, both musical and theatrical,  and identifying
and securing  candidates with entertainment  industry experience to serve on the
SVEI  Board  of  Directors  and  identifying  additional  opportunities  for the
acquisition of operating  entertainment  oriented companies as well as acquiring
intellectual  property  assets.  Although  acquisition  opportunities  have been
identified, no transactions have been consummated and there is no guarantee that
any transactions  will be consummated in the near future. As is reflected in the
Directors,  Executive  Officers,  and Key Advisors Section of this  registration
statement,  on November 13, 2000 SVEI expanded its Board of Directors  from five
to seven members, all of which have entertainment industry experience.

     As a result of the merger "SVEI" acquired  certain  stereoscopic 3-D assets
which  primarily  consisted  of but was not limited to  numerous  3-D camera and
projection  optical units and lenses for the 3-D  production  and  exhibition of
stereoscopic  3-D Films and content.  The  equipment  was  previously  invented,
manufactured,  and assembled by Mr.  Christopher Condon and owned by him and his
spouse,  Marjorie Condon. "Stereo" acquired the assets in 1999 and prior to that
time Mr.  Condon and his family owned the assets.  Since 1994 which was the most
recent date that the Condon family operated as a legally organized  entity,  Mr.
Condon has utilized a portion of the assets as a  semi-retired  consultant.  The
assets were  primarily  invented,  manufactured,  and  assembled  by Mr.  Condon
periodically  during the period of 1970 through 1994. In approximately 1980, Mr.
Condon also secured a patent,  which was an integral  part of the  uniqueness of
the equipment.  The patent expired in  approximately  1997. The valuation of the
equipment which was utilized in determining its acquisition  price, was a result
of arms  length  negotiations  between  Stereo  and the  Condon  family  and was
partially a result of  verification  of recent sale  transactions to other third
parties by the Condon family of similar equipment.  Additionally, an independent
third party  valuation of the assets was  analyzed.  The assets were utilized in
projects by Disney,  Warner  Brothers,  Chevrolet,  Toyota and Kodak. The camera
lenses,  part of the  purchased  assets,  were  also used by James  Cameron  for
Universal's  "Terminator  2- - 3-D" and by Universal for the production of "Jaws
3-D".  The  projection  lenses and units were used in  approximately  6,000 play
dates for such exhibitors as AMC, General Cinema and United Artists.

     SVEI has secured the consulting services of Mr. Daniel Symmes a thirty year
acquaintance  and  business   associate  of  the  Condon's  who  also  possesses
specialized skills in stereoscopic 3-D. Since 1968, Mr. Symmes has been actively
involved  in  technology  development  and  the  production,   distribution  and
exhibition  of high  quality 35 mm and 70 mm  three-dimensional  ("3-D")  films,
featurettes,  commercials  and film shorts.  SVEI intends to continue to utilize
its 3-D assets and implement a strategy to  theatrically  produce and distribute
new and existing 3-D feature films. SVEI

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also intends to establish an  Internet-based  music portal and record label site
where it can  distribute  motion picture  soundtracks  from its proposed 3-D and
independent films, as well as other original  recordings that it either acquires
or produces.

     The  executive  offices of the  Company are located at 130 S. El Camino Dr.
Beverly Hills, CA 90212. Its telephone number is (310) 205-7998.

OPERATING LOSSES

     The Company has incurred net losses of approximately  $2,580,000 for fiscal
year ended June 30, 2000 and $145,000 for the period from  inception to June 30,
1999. Such operating losses reflect  developmental and other start-up activities
for 2000 and 1999. The Company  expects to incur losses in the near future until
profitability  is achieved.  The  Company's  operations  are subject to numerous
risks  associated  with  establishing  any new  business,  including  unforeseen
expenses,  delays and complications.  There can be no assurance that the Company
will achieve or sustain profitable  operations or that it will be able to remain
in business.

FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING

     SVEI anticipates  generating operating revenues during its next fiscal year
as it becomes  operational and acquires operating  companies and/or intellectual
property assets. "SVEI" management acknowledges that during its next fiscal year
there is no  assurance  that "SVEI" will  transition  itself from a  development
stage  company to an  operational  one and SVEI's  continued  operations  may be
dependent  upon  additional   shareholder  loans  and/or  proceeds  from  "SVEI"
debt/equity  offerings.  There  currently  are no agreements in place for future
shareholder  loans and management has no assurances as to any market  acceptance
of any future SVEI debt/equity offerings.

BUSINESS - OVERVIEW

     Currently,  management  believes that SVEI's principal  expertise is in the
content production segment of the multi-media  entertainment industry. SVEI also
intends to acquire  additional  intellectual  property assets.  In utilizing the
SVEI's  existing  physical  and  managerial  assets,  SVEI's  initial  operating
activities are anticipated to encompass the production,  acquisition,  marketing
and distribution of music content and the production,  distribution,  exhibition
of stereoscopic 3-D and independent  feature length theatrical films and related
technology  development  of 3-D  optics.  Additionally,  SVEI  will  pursue  the
re-release  of  selected  3-D classic  films.  SVEI  intends to use  traditional
distribution  channels for its content and,  when  available  and if  practical,
alternative and complimentary distribution channels such as the Internet.

MUSIC DIVISION

     SVEI's music division  anticipates  generating  revenues  during the fourth
quarter of 2001. SVEI is pursuing opportunities within the global music industry
that may include producing  well-known and new artists and acquiring royalty and
publishing rights from established artists. The

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company is restructuring its agreement with Wilfield  Entertainment into a joint
venture  agreement  for  the  purpose  of  producing   thirteen  albums.  It  is
anticipated  that the Company will issue 200,000  shares of common stock for its
participation in the joint venture.  SVEI will supply the necessary  funding for
the  production  of said albums and after capital  repayment  has occurred,  the
Company  will  receive  51% of the  profits  from the  projects.  The  estimated
production costs per album is projected to be $80,000.


STEREO VISION ENTERTAINMENT PRODUCTIONS


     The film content  production  business is very capital  intensive  and SVEI
will need to raise and secure  significant equity or debt financing to implement
its  production  objectives.  If SVEI receives such  financing,  it  anticipates
producing  and/or  co-producing 3-D and traditional  independent  feature length
theatrical productions.  Financing for these productions, when possible, will be
accomplished  through  partnerships  or  joint  ventures.  When  feasible,  SVEI
anticipates  each  production  will  be  structured  as  a  stand-alone  limited
liability  company,  thus  diminishing  the equity dilution impact on SVEI. SVEI
intends  to act as the  executive  producer  of each film  project.  There is no
assurance  that SVEI can secure  financing to produce films or even if films are
produced that they can be profitably distributed.


SVX "TRU 3-D" THEATER NETWORK

     SVEI  intends to develop a 3-D  theater  network  with the goal of bringing
"theme park quality 3-D" to local multiplex  theaters within the next 18 months.
Using a  low-cost,  efficient  theater  modification  model,  SVEI will  provide
multiplex  theater  owners  with a  turn-key  package  at a no-cost  or  no-risk
arrangement  to the operator.  The multiplex  owner will maintain the ability to
exhibit  conventional  two-dimensional  movies in the  converted  theater  if so
desired.

     SVEI will attempt to establish a branded or co-branded theater network with
theater  locations  in  major  markets,  both  domestically  and in key  foreign
locations.  Initially  utilizing  the  SVEI's  inventory  of  approximately  800
projection units, SVEI anticipates expanding its theater network thereafter.  In
addition to 3-D films which may be produced  and/or  co-produced  by SVEI,  SVEI
intends to  generate  revenues  from the  re-release  of selected  existing  3-D
classics and the distribution of other marketable existing or newly produced 3-D
films.  SVEI  shall  attempt  to build and  position  its SVX "Tru 3-D"  theater
network for transition into the proposed  digital  projection  systems which are
anticipated  to be  installed  in most  theaters  within  the next three to five
years.

3-D CONTENT INDUSTRY

     3-D entertainment  markets are currently  characterized by relatively short
content (one hour or less),  and explosive  action in color,  images,  events or
scenery. Prime 3-D markets include music videos, action television  programming,
nature  documentaries,   sports  events,  promotional  material,   merchandising
tie-ins,  and specialized films for location-based  visual  entertainment.  SVEI
believes that with  continued  technological  development  the  re-emergence  of
full-length 3-D movies will be more in demand in the near future.

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     The visual  entertainment  market for SVEI's  3-D  technology  and  content
encompasses  three  distinct  entertainment  industries  -  broadcast  and cable
television,  video  software and motion  pictures.  In addition,  location-based
entertainment  theaters  represent  a  profitable  and  rapidly  growing  market
segment.

     The content production  business is very capital intensive and SVEI expects
that it will require  additional equity financing to complete the capitalization
of its  business  plan.  SVEI can  give no  assurance  that it can  successfully
negotiate or obtain  additional  financing,  or that it will obtain financing on
terms favorable or acceptable to it. If SVEI does not obtain adequate  financing
or such  financing  is not  available on  acceptable  terms,  SVEI's  ability to
finance  the  production  or  acquisition  of 3-D films  would be  significantly
limited.

BROADCAST AND CABLE TELEVISION INDUSTRY

     Subsequent 3-D penetration of visual broadcast markets may be pursued, such
as sports events, music videos and special  programming.  As the mass television
audience  acquires  3-D  viewers,  SVEI  believes  the scope of 3-D  programming
opportunities will expand. Syndicated 3-D programs, or even dedicated time slots
or  channels  may be  broadcast  in 3-D and could  facilitate  widespread  video
software and additional 3-D motion picture opportunities.

Household  television  penetration in the United States now exceeds 98% of total
households,  with  nearly  100% being  color  television  sets.  Currently,  the
television  population in the United States  exceeds 217 million sets,  with the
average  household having a television on for over seven hours each day. Because
of the interest in 3-D productions shown at theme parks and movie theaters, SVEI
believes there is a growing  opportunity  for enhancing the  television  viewing
experience  with 3-D  technology;  provided,  however,  that  technology  can be
developed that will permit a similar high-quality viewing experience.

VIDEO SOFTWARE INDUSTRY

     Over  75  million  households  in  the  United  States  have  videocassette
recorders.  Currently,  distribution  of 3-D  content to the home  entertainment
market is nearly  non-existent.  The distribution of video software is primarily
controlled by specialty video stores, such as Blockbuster  Entertainment.  These
video specialty stores generate over 80% of total revenue from video rentals.

LOCATION-BASED ENTERTAINMENT THEATERS

     SVEI believes that there is an increasing worldwide demand for a variety of
out-of-home  entertainment options.  Secondarily to its 3-D theatrical films and
3-D theater network strategies, SVEI may become a provider of a complete line of
services  and  products to support  the design,  development  and  operation  of
specialty format theater attractions.  These products may include 3-D film-based
software  and  projector  optics to be utilized in the video  simulation,  large
format and specialty venues attractions.

3-D MOTION PICTURE PRODUCTION AND EXHIBITION EQUIPMENT

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     Traditional true stereo or 3-D production  techniques have required the use
of two cameras locked  together to produce two strips of film, one for the right
eye and one for the left  eye.  To  project  the film  two  projectors  are also
required along with a reflective screen surface for polarized  viewing.  Because
two cameras and two  projectors  are  required,  as well as twice the film,  the
expense  for  both  production  and  exhibition  of  traditional  3-D  films  is
significantly greater than for standard two-dimensional ("2-D") formats.


     As a result of the Merger with Stereo,  SVEI acquired  rights and access to
certain proprietary technology,  that allow for high-quality 3-D production at a
cost  equivalent to 2-D formats.  Stereo had  originally  acquired 3-D projects,
licensing and  distribution  rights,  production and exhibition  equipment,  and
patent  pending from the Condon  Family  Partnership  for an aggregate  purchase
price of $4,011,900 . Mr. Condon, a partner in the selling partnership, is a key
creative advisor to SVEI.


     This  technology  employs a dual element,  single lens  technology that can
shoot 35mm or 70mm 3-D productions with one standard  camera,  as opposed to two
synchronized   cameras,   and  allows  the  films  to  be  exhibited  through  a
singleprojector.  The  system  also  allows  for the  production  of 2-D and 3-D
products  simultaneously.  To create the 3-D effect,  the  audience  uses either
polarized  glasses or  electronic  glasses that  separate the left and right eye
images.  The Company  believes that this 3-D system offers  consumers one of the
most realistic 3-D experiences available today.

EXHIBITION AND DISTRIBUTION NETWORK

     The Company  intends that theatrical  releases of 3-D  productions  will be
achieved using the SVEI's unique turnkey distribution  solution.  SVEI currently
owns over 800 3-D  projection  systems.  Unlike other wide screen 3-D solutions,
the exhibition of SVEI's 3-D  entertainment  products will not require  spending
millions of dollars on the construction of specialized venues or on the purchase
of specialized  projection  hardware to view "theme park" quality 3-D films.  By
using SVEI's system,  superior 3-D special effects can be achieved at a fraction
of the costs of competing solutions.

     Management  believes that the ownership of the proprietary 3-D equipment is
important to the future  success of SVEI.  Since SVEI intends to produce new 3-D
movies,  it believes that it will be more profitable for SVEI to rely on its own
highly specialized equipment. To the best of management's knowledge, there is no
other suitable source in quantity of this type of equipment.  This equipment was
developed by one of SVEI's key creative advisors,  Chris Condon. Until recently,
this  technology  was patent  protected.  Although the patent has since expired,
improvements to the technology are currently subject to trade secret protection.

     As a result of the Merger with Stereo,  SVEI acquired the renewable rights,
and  intends  to begin  distribution  of,  five 3-D  feature  films:  "Fantastic
Invasion of Planet Earth,"  "Target New York," "The Creeps," "The  Stewardesses"
and "Wild Ride."

     SVEI intends to update its film  distribution  licenses  with the owners of
these five 3-D feature films that were previously licensed to Stereo. Management
believes  that  SVEI can  achieve  revenues  within  the next six  months.  This
assumption is due to renewed interest by the public in 3-D films

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currently  being shown all over the world by IMAX Corp.,  Disney theme parks and
others.

MARKETING, DISTRIBUTION AND PROMOTIONS

     SVEI intends to market its 3-D  technology  by providing  the industry with
the necessary  tools to allow for 3-D  production and viewing within the current
2-D infrastructure. The marketing plan includes the following:

         (i)   Producing and distributing 3-D content for the video,
               broadcast television and motion picture industries;

         (ii)  Establishing special theaters for showcasing 3-D content;

         (iii) Creating a mass audience and mainstream distribution channel; and

         (iv)  Licensing the technology to the entertainment industry.

     SVEI also intends to include sponsorship opportunities for its own original
productions,  as well as for third parties.  Sponsorship  activities may include
branding  3-D glasses for live  events,  and  developing  custom  corporate  3-D
images,  campaigns and messages.  SVEI also intends to offer,  and is capable of
delivering,  3-D products in a full  spectrum of 3-D formats which include film,
video, DVD, the Internet and print.

ANCILLARY PRODUCTS, MERCHANDISING AND LICENSING

     In  addition  to  servicing  the   proprietary   and  wholesale   promotion
industries,  SVEI  intends to  establish a website  dedicated to the sale of 3-D
related  retail  products.  The website  may offer some or all of the  following
products: 3-D viewers, slides, holograms, lenticular images and various types of
3-D glasses for viewing 3-D content on television or over the Internet.



BUSINESS EXPANSION; CAPITAL GROWTH

     SVEI  intends to position  itself to evolve into a  vertically  integrated,
diversified  global media  entertainment  company and SVEI intends to pursue the
acquisition  of diversified  entertainment  companies or  intellectual  property
assets that will allow for the pursuit of opportunities  currently  available in
the global  marketplace.  SVEI believes that synergism  among its divisions will
allow  SVEI to  effectively  compete  for its  incremental  share of the  global
consumer's  discretionary  expenditures.  SVEI  intends to finance its  business
expansion and acquisitions through the sale of equity securities.  SVEI can give
no assurance that any offering of its securities will be successful.  If SVEI is
unable to successfully  raise equity  financing or alternative  financing SVEI's
ability to fund its business plan would be significantly limited.

     The ability of SVEI to  implement  its business  strategy  depends upon its
ability to

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successfully  create,  produce,  and market  entertainment  content or ancillary
products for traditional  real-world  distribution  channels including,  but not
limited to, retailers,  radio,  television,  theaters and home markets and newly
emerging  distribution  channels such as the  Internet.  The size and quality of
SVEI's  library of film  software  titles is a material  factor in competing for
sales of SVEI's  attractions  and developing the Company's  products and base of
recurring revenue.

     SVEI  intends to produce  and  develop  specialty  films and videos for its
library,  as well as acquire additional music assets.  While SVEI may enter into
participation,  licensing or other financial  arrangements with third parties in
order to minimize its financial involvement in production,  SVEI will be subject
to substantial financial risks relating to the video software. SVEI expects that
it will typically be required to pay for the  production of software  during the
production  period  prior to  release  but will most  likely be unable to recoup
these costs from  revenues  from  exhibition  licenses  prior to 24 to 36 months
following release.

     SVEI  anticipates  generating  revenues  from several  sources,  including,
production  and  distribution  of new and existing 3-D and  independent  feature
films,  intellectual  property  music  assets,  and  also  providing  integrated
solutions to help organizations  broadcast audio,  video, 3-D video,  animation,
and 3-D  animation  and music over the  Internet.  When  appropriate,  SVEI will
attempt to  acquire  other  assets and  existing  operating  global  multi-media
entertainment companies with seasoned management teams.

MANAGEMENT OF GROWTH

     In order to maximize potential growth in SVEI's market opportunities,  SVEI
believes that it must expand  rapidly and  significantly  upon its entrance into
the marketplace.  This impetus for expansion will place a significant  strain on
SVEI's  management,  operational  and  financial  resources.  In order to manage
growth,  SVEI  must  implement  and  continually  improve  its  operational  and
financial systems, expand operations, attract and retain superior management and
train,  manage and expand its employee base. SVEI cannot  guarantee that it will
effectively  manage the rapid  expansion  of its  operations,  that its systems,
procedures or controls  will  adequately  support its  operations or that SVEI's
management  will  successfully  implement  its  business  plan.  If SVEI  cannot
effectively manage its growth, its business,  financial condition and results of
operations could suffer a material adverse effect.

     SVEI expects that it will require additional equity and/or credit financing
prior to becoming cash  self-sufficient.  There can be no  assurances  that SVEI
will  successfully  negotiate or obtain  additional  financing,  or that it will
obtain  financing on terms favorable or acceptable to it. SVEI does not have any
commitments for additional financing. The Company's ability to obtain additional
capital  depends on market  conditions,  the global  economy  and other  factors
outside  its  control.  If SVEI  does  not  obtain  adequate  financing  or such
financing is not available on acceptable  terms,  SVEI's  ability to finance its
expansion,  develop or enhance  products or  services or respond to  competitive
pressures would be  significantly  limited.  SVEI's failure to secure  necessary
financing  could  have a material  adverse  effect on its  business,  prospects,
financial condition and results of operations.


                                       11

<PAGE>



GOVERNMENT REGULATION

     The  Classification  and  Rating   Administration  of  the  Motion  Picture
Association  of America,  an industry  trade  association,  assigns  ratings for
age-group suitability for motion pictures. SVEI plans to submit its pictures for
such ratings.  Management's  current policy is to produce  motion  pictures that
qualify for a rating no more restrictive than "R."

     The  Company is subject to all  pertinent  Federal,  State,  and Local laws
governing its business.  The Company is subject to licensing and regulation by a
number of authorities in its State or  municipality.  These may include  health,
safety,  and fire  regulations.  The  Company's  operations  are also subject to
Federal and State minimum wage laws governing such matters as working conditions
and overtime.

RISK OF LOW-PRICED STOCKS

     Rules 15g-1 through 15g-9 promulgated under the Securities  Exchange Act of
1934 (the "Exchange  Act") impose sales practice and disclosure  requirements on
certain  brokers  and dealers who engage in certain  transactions  involving  "a
penny stock."

     Currently,  the  Company's  Common  Stock is  considered  a penny stock for
purposes of the  Exchange  Act. The  additional  sales  practice and  disclosure
requirements imposed on certain brokers and dealers could impede the sale of the
Company's  Common  Stock  in the  secondary  market.  In  addition,  the  market
liquidity for the Company's securities may be severely adversely affected,  with
concomitant adverse effects on the price of the Company's securities.

     Under the penny stock  regulations,  a broker or dealer selling penny stock
to  anyone  other  than  an  established   customer  or  "accredited   investor"
(generally,  an  individual  with net worth in excess  of  $1,000,000  or annual
incomes  exceeding  $200,000,  or $300,000 together with his or her spouse) must
make a special suitability  determination for the purchaser and must receive the
purchaser's  written consent to the transaction prior to sale, unless the broker
or dealer or the transaction is otherwise exempt.  In addition,  the penny stock
regulations  require the broker or dealer to deliver,  prior to any  transaction
involving a penny stock,  a disclosure  schedule  prepared by the Securities and
Exchange  Commission (the "SEC") relating to the penny stock market,  unless the
broker or dealer or the transaction is otherwise  exempt.  A broker or dealer is
also  required to disclose  commissions  payable to the broker or dealer and the
registered   representative  and  current  quotations  for  the  Securities.  In
addition,  a broker or dealer is required to send monthly statements  disclosing
recent  price  information  with respect to the penny stock held in a customer's
account and information with respect to the limited market in penny stocks.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     The  Company  relies  on a  combination  of  trade  secret,  copyright  and
trademark  law,  nondisclosure  agreements  and technical  security  measures to
protect its  products.  Notwithstanding  these  safeguards,  it is possible  for
competitors  of the  company to obtain  its trade  secrets  and to  imitate  its
products.  Furthermore,  others may  independently  develop  products similar or
superior

                                       12

<PAGE>



to those developed or planned by the Company.

     SVEI's success depends substantially upon its proprietary technology.  This
technology includes optical design formulas designed by Mr. Condon and protected
by trade secret law. The type of glass,  the exact spacing and curvatures of the
primary  dispersing  optics and the  method of  controlling  the exact  assembly
tolerances using custom-made  laboratory testing equipment are integral parts of
this  technology  which  results in optical  resolution  exceeding 100 lines per
million and is fully  compatible  with the latest 35mm  Panavision  and Arriflex
motion  picture  cameras,  as well as high  definition  video  cameras.  The 3-D
projection optics are fully compatible with all 35-mm motion picture  projectors
and are designed  for easy  installation,  even by  semi-skilled  personnel.  In
addition,  Mr. Condon has designed and built a 3-D  projection  unit  compatible
with the latest Hughes digital video  projectors.  This  technology will provide
SVEI with a  competitive  advantage  because of the enhanced  quality of the 3-D
images  produced as a result of SVEI's  trade  secrets.  Additionally,  SVEI has
secured the employment  services of Mr. Daniel Symmes, a longtime 3-D technology
associate of  Mr.Condon,  to lead its efforts for research and  development  and
manufacturing  of SVEI's next  generation 3-D production and exhibition  optical
equipment. Mr. Symmes per his employment agreement will be allocating 50% of his
time to SVEI. The Company will rely on a combination of trademark, copyright and
trade  secret  laws,  as well as  confidentiality  agreements,  to  protect  its
proprietary rights. SVEI's predecessor, Stereo, maintained a policy of obtaining
patent  protection and,  consequently,  SVEI currently has the following  patent
pending:

PATENTS PENDING: One-High Speed for Above and Below 3-D Cameras

This  technology  entails  the use of  brighter  optics  for 3-D  single  camera
cinematography, which allows for filming in lower light situations.

     SVEI also has  technology in  development  that has grown out of previously
patented  technology  held by Stereo.  SVEI is  working on a 3-D camera  optical
system that has remote  wireless  convergence  control so that it can be used on
the Panaglide and  Steadicam.  SVEI intends to apply for patent  protection  for
this  proprietary  technology  as well.  SVEI can give no  assurance  that  such
patents will be granted or that third parties will not claim  infringement  with
respect to current or future technology developed by SVEI.

     Distribution  rights to motion  pictures are also granted legal  protection
under the copyright laws of the United States and most foreign countries.  These
copyright laws provide substantial civil and criminal sanctions for unauthorized
duplication and exhibition of motion pictures.  Motion pictures,  musical works,
sound recordings,  artwork,  still photography and motion picture properties are
each separate works subject to copyright  under most copyright  laws,  including
the United States Copyright Act of 1976, as amended.

COMPETITION

     SVEI  competes  with a large array of diverse  global media  conglomerates,
upstart  "entertainment,  information and commerce" companies, as well as with a
number of smaller,  independent  production companies.  Currently,  no companies
have established a substantial presence

                                       13

<PAGE>



in the 3-D video  software  home market.  The  competitive  environment  in this
market  consists of limited  suppliers of 3-D viewers and content (DVD,  CD-ROM,
videotape) kits such as V-REX,  VIDMAX, and others.  Conversely,  competition in
the special venue markets  (theatrical) is much more  developed.  SVEI's current
and potential competitors include:

         o        IMAX, Iwerks, Showscan, Cinema Ride and New Visual
                  Entertainment
         o        Fox, Disney, Warner Bros., Universal and others
         o        Globcast, Vyvx and COMSAT World Systems
         o        Universal music, EMI, BMG and others

     A portion of these companies compete for motion picture projects and talent
and are producing  motion pictures that compete for exhibition time at theaters,
on television,  and on home video with pictures  produced by the Company.  Other
companies compete in areas of satellite production and transmission services and
music  production,  distribution  and  promotion.  The Company's  innovative 3-D
technology  combined with lower cost production and exhibition is anticipated to
achieve  favorable results in effectively  competing and establishing  itself in
the  marketplace.  SVEI also  intends to use its core  competencies  in areas of
music production and production  services to diversify and compete in the global
marketplace.

     Most of SVEI's competitors have operating histories,  larger customer bases
and significantly greater financial,  marketing and other resources.  Certain of
SVEI's  competitors have the financial  resources to devote greater resources to
marketing and promotional  campaigns and devote  substantially more resources to
technology  development.  Increased  competition may result in reduced operating
margins.


EMPLOYEES

     As of November 13, 2000,  SVEI employed  three  full-time  employees.  SVEI
considers its employee relations to be satisfactory at present.


                         ITEM 2 DESCRIPTION OF PROPERTY


     SVEI's  principal  executive  offices are  located at 130 El Camino  Drive,
Beverly  Hills,  CA 90212  and  consist  of  approximately  273  square  feet of
furnished   executive   suite  offices  and  reception   and   conference   room
arrangements. The lease expires in six months from November 1, 2000. The monthly
rent for the property is $1,7356.78.  SVEI maintains a research and  development
office and storage warehouse facility at 1611 Rancho Santa Fe Road, Suite E, San
Marcos, CA 92069 that consists of approximately 1,000 square feet. This facility
is also leased on a month-to-month basis for the monthly rent of $650. SVEI also
leases on a  month-to-month  basis various storage  facilities for its equipment
inventory that consists of  approximately  1,500 square feet of additional space
at a monthly rent of $1,500. SVEI also rents housing in Studio City, California

                                       14

<PAGE>



for office use and use by its out-of-town officers, directors and employees. The
monthly  rent paid for this  corporate  housing  is  $4,000.  SVEI rents a 4,000
square foot studio production and offices facility on a month to month basis for
$1,700 plus 800 shares of common stock.


                            ITEM 3 LEGAL PROCEEDINGS


     As of the date hereof,  SVEI is not a party to any material  pending  legal
proceeding and is not aware of any threatened legal proceeding.



                        ITEM 4 SUBMISSION OF MATTERS TO A
                            VOTE OF SECURITY HOLDERS


     In accordance with Nevada  corporate law, no matters were subject to a vote
of security holders during the year ended June 30, 2000.  However the actions of
the board of  directors  to increase  the number of board  members from three to
seven was ratified by shareholders controlling 69% of the voting stock.

                                     PART II

                       ITEM 5 MARKET FOR COMMON EQUITY AND
                           RELATED STOCKHOLDER MATTERS


MARKET INFORMATION

     The  Company's  Common  Stock is  traded on the NQB Pink  Sheets  under the
symbol "SVED." The following  table presents the high and low bid quotations for
the Common  Stock as reported by the NASD for each  quarter  during the last two
years.  Such prices reflect  inter-dealer  quotations  without  adjustments  for
retail markup,  markdown or commission,  and do not necessarily represent actual
transactions.

     Prior to December 2, 1999, there was no trading market for Company's Common
Stock. As of December 2, 1999,  SVEI's Common Stock has been traded on the "pink
sheets"  under the trading  symbol  "SVED." For the period from December 2, 1999
through  February 17, 2000, the price for the Common Stock has ranged from $5.00
to $5.95 per share.  There has been no  solicitation  of the sale or purchase of
the Common  Stock.  The price for the common stock has  approximately  ranged in
price as follows:



                                       15

<PAGE>




                       1999:             High                Low
Quarter ended September 30, 1998          -                   -
Quarter ended December 31, 1998           -                   -
Quarter ended March 31, 1999              -                   -
Quarter ended June 30, 1999               -                   -

                       2000:
Quarter ended September 30, 1999          -                   -
Quarter ended December 31, 1999         $  5.95            $  5.00
Quarter ended March 31, 2000            $  5.95            $  5.00
Quarter ended June 30, 2000             $  2.00            $  0.10

DIVIDENDS

     SVEI has  never  paid a cash  dividend  on its  Common  Stock nor does SVEI
anticipate  paying cash dividends on its Common Stock in the near future.  It is
the present  policy of SVEI not to pay cash dividends on the Common Stock but to
retain  earnings,  if any,  to fund  growth and  expansion.  Any payment of cash
dividends  on the  Common  Stock in the future  will be  dependent  upon  SVEI's
financial  condition,  results  of  operations,  current  and  anticipated  cash
requirements,  plans  for  expansion,  as well as  other  factors  the  Board of
Directors deems relevant.

     The number of  shareholders  of record of the Company's  Common Stock as of
November 13, 2000 was approximately 88.

RECENT SALES OF UNREGISTERED SECURITIES

     The Company was initially  incorporated  to allow for the issuance of up to
25,000  shares of no par value  common  stock.  As a result of the  merger  with
Kestrel Equity Corporation the authorized number of shares is 100,000,000 with a
par value of $.001.

     At inception,  the Company issued  1,530,000  shares of common stock to its
officers and directors for services performed and payments made on the Company's
behalf during its formation. This transaction was valued at approximately $0.003
per share or an aggregate approximate $5,000.

     On December 3, 1999 the Company  entered into an acquisition  agreement and
plan of reverse  merger with  Kestrel  Equity  Corporation  and at the same time
entered into an asset acquisition agreement for the acquisition of 3-D projects,
equipment,  licensing and distribution  rights.  By virtue of the merger and the
asset  acquisition,  the Company issued  2,670,000 shares of common stock of the
surviving  corporation and acquired assets valued at $4,013,100 or approximately
$1.50 per share.

     On December 31, 1999 the Company issued 350,000 shares to various employees
and consultants for services rendered valued at $2.00 per share.

     On February 14, 2000 the Company  issued  100,000 shares of common stock as
payment for services rendered by Mr. Herky Williams.  The services rendered were
for the development of the

                                       16

<PAGE>



Company's music division.

     From April to June 2000,  the  Company  issued  200,000  restricted  common
shares to various  consultants for services and 90,500  restricted common shares
to individuals for cash all at $1.00 per share.

     On April 25,  2000 the Board of  Directors  approved  a stock  option  plan
whereby   2,675,000  common  shares  have  been  set  aside  for  employees  and
consultants to be  distributed at the discretion of the Board of Directors.  The
option  shares  will be  exercisable  on a cashless  basis at a 15%  discount to
market value. No formal plan has been adopted as of the date of this report.

     No  underwriter  was involved in any of the above  issuances of securities.
All of the above  securities  were issued in reliance  upon the  exemptions  set
forth in Section 4(2) of the Securities  Act  (including,  in certain  instances
Regulation  promulgated  there  under) on the basis that they were issued  under
circumstances  not involving a public offering.  These  transactions were exempt
from  registration  pursuant to Section 4(2) of the  Securities  Act because all
such individuals were believed to be sophisticated  and given sufficient  access
to all information regarding SVEI, Kestrel, and/ or their predecessors.


                       ITEM 6 MANAGEMENT'S DISCUSSION AND
                         ANALYSIS OR PLAN OF OPERATIONS


Plan of Operations - The following discussion should be read in conjunction with
the Company's audited financial statements.

     The Company was organized  for the purpose of creating a corporate  vehicle
to seek, investigate and, if such investigation warrants, acquire an interest in
one or more  business  opportunities  presented to it by persons or firms who or
which desire to seek perceived advantages of a publicly held corporation.

     The Company may incur significant  post-merger or acquisition  registration
costs in the event  management  wishes to register a portion of their shares for
subsequent  sale. The Company will also incur  significant  legal and accounting
costs in connection with the acquisition  including the costs of preparing post-
effective amendments, Forms 8-K, agreements and related reports and documents.

     The  Company  will not have  sufficient  funds  (unless it is able to raise
funds  in  a  private  placement)  to  undertake  any  significant  development,
marketing and manufacturing of the products acquired. Accordingly, following the
acquisition,  the Company  will, in all  likelihood,  be required to either seek
debt or equity  financing or obtain funding from third parties,  in exchange for
which the  Company  may be  required  to give up a  substantial  portion  of its
interest in the acquired product. There is no assurance that the Company will be
able  either to  obtain  additional  financing  or  interest  third  parties  in
providing  funding for the further  development,  marketing and manufacturing of
any products acquired.

                                       17

<PAGE>



     The current plan of SVEI incorporates  operational resources that will make
3-D media a mainstream  entertainment  form. SVEI plans to reach the mass market
by aligning itself with already-established, branded products and titles for the
production, promotion and distribution of 3-D products. The Company's management
intends to aggressively evaluate and pursue production opportunities in order to
increase  SVEI's  content  library  and  maintain a  leadership  position as the
foremost  provider of 3-D products.  As a development  stage  company,  SVEI has
minimal historical operations,  no revenues and negative cash flows. In order to
satisfy cash  requirements for SVEI's  production and revenue goals,  management
must obtain working capital through either debt or equity financing.


     The  entertainment  industry is an intensely  competitive one, where price,
service,  location,  and  quality  are  critical  factors.  The Company has many
established  competitors,  ranging from similar local single unit  operations to
large  multi-national  operations.  Some of these competitors have substantially
greater financial  resources and may be established or indeed become established
in areas where the Company operates.  The entertainment industry may be affected
by changes in customer tastes, economic, and demographic trends. Factors such as
inflation,  increased  supplies costs and the availability of suitable employees
may adversely  affect the  entertainment  industry in general and the Company in
particular.  In view of the Company's limited financial resources and management
availability,  the  Company  will  continue to be at a  significant  competitive
disadvantage vis-a-vis the Company's competitors.

Results of  Operations  - There were no revenues  from sales for the period from
inception to June 30, 2000. SVEI has sustained a net loss of approximately  $2.5
million  for the  year  ended  June  30,  2000,  which  was due to  general  and
administrative  expenses  incurred  by SVEI.  From May 5, 1999 the Company was a
development stage company and had not begun principal  operations.  Accordingly,
comparisons with prior periods are not meaningful.

LIQUIDITY AND CAPITAL RESOURCES

     The Company is in the process of  developing a detailed  plan of operations
to exploit its 3-D equipment  asset base. On a  preliminary  basis,  the Company
estimates that it will require from $3,000,000 to $5,000,000 over a period of 18
months to fund this plan of  operations.  This plan of operations is expected to
include both  exploitation of existing 3-D movies and equipment,  and efforts to
arrange development of additional 3-D movies. The Company may attempt to arrange
joint ventures with studios to facilitate the development of new 3-D movies.

The Company is also in the business of producing  music  entertainment  products
through  its March  2000  acquisition  of a joint  venture  interest  in a music
producer.  During the forthcoming year, the Company, through this joint venture,
expects to produce 13 country and western  and pop albums.  The Company  expects
that this effort will require capital of approximately $750,000 to $1,000,000.

The aforementioned estimates of capital required are still preliminary in nature
and are subject to substantial  and continuing  revisions.  Although the Company
has not yet commenced any formal capital  raising  efforts,  the Company expects
that any capital that it raises will be in the form of one

                                       18

<PAGE>




or more debt or equity financings.  However, there can be no assurances that the
Company will be  successful  in raising any  required  capital on a timely basis
and/or under  acceptable  terms and  conditions.  To the extent that the Company
does not raise  sufficient  capital to  implement  its plan of  operations  on a
timely basis,  it will have to curtail,  revise and/or delay its business plans.
The  Company  has  financed  its  operations  to date  from the sale of stock of
another  Company  and  loans  from  related  parties.   The  Company   purchased
approximately 400,00 shares of common stock of New Visual  Entertainment,  Inc.,
from a major shareholder for a $400,000 convertible note in September 1999. This
note was paid by the  issuance of 200,000  shares of common  stock.  The sale of
this stock generated  approximately  $566,000 of net proceeds  during  September
1999 through June 30, 2000, which the Company used to support its operations.


The Company has also relied on loans from officers,  directors and  shareholders
to support its operations. During October 1999 through June 2000, seven persons,
including the  aforementioned  major  shareholder  and one director,  loaned the
Company $750,000. However, there can be no assurances that additional loans will
be forthcoming from officers, directors, and shareholders.

Government Regulations - The Company is subject to all pertinent Federal, State,
and Local laws  governing its business.  The Company is subject to licensing and
regulation by a number of  authorities in its State or  municipality.  These may
include health, safety, and fire regulations.  The Company's operations are also
subject to Federal and State minimum wage laws governing such matters as working
conditions and overtime.


                           ITEM 7 FINANCIAL STATEMENTS


     The financial statements of the Company and supplementary data are included
beginning  immediately  following the signature page to this report. See Item 13
for a  list  of the  financial  statements  and  financial  statement  schedules
included.


              ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE


     There are not and have not been any  disagreements  between the Company and
its accountants on any matter of accounting  principles,  practices or financial
statements disclosure.









                                       19

<PAGE>



                                    PART III


               ITEM 9 DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND
                CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
                                THE EXCHANGE ACT


Executive Officers and Directors

The members of the Board of Directors of the Company serve until the next annual
meeting of  stockholders,  or until  their  successors  have been  elected.  The
officers  serve at the pleasure of the Board of Directors.  The following  table
sets forth the name, age, and position of each executive officer and director of
the Company:
<TABLE>
<CAPTION>

<S>                     <C>      <C>                                    <C>
Director's   Name       Age                Office                       Term Expires
Thomas E. Noonan        69          Chairman of the Board, Director      next annual meeting
Robert L. Friedman      70        Vice-Chairman, President, Director     next annual meeting
Herky Williams          47          Secretary-Treasurer, Director        next annual meeting
John C. Bodziak, Jr.    27                 Director                      next annual meeting
Rocco Urbisci           51                 Director                      next annual meeting
Michael J. Solomon      61                 Director                      next annual meeting
Michael D. Jabara       48                 Director                      next annual meeting
</TABLE>

THOMAS E. NOONAN - CHAIRMAN - BOARD OF  DIRECTORS:  Mr. Noonan has served on the
Board of  Directors  since August 4, 2000.  Tom Noonan is currently  the head of
Columbia/Epic Records Alumni Association,  which was started in 1995, and is now
with 500 Members,  many in top positions in the current  music record  industry.
>From 1995 to 2000 he has been President of Noonan Consulting, a record industry
consulting firm to artists,  labels,  video companies,  music publishers,  trade
publications,  artist managers, new companies and foreign affiliates. Mr. Noonan
was formerly a senior  executive at Billboard  Magazine where he founded the Hot
100 Charts and also evaluated  albums and music assets for the Internal  Revenue
Service.  Furthermore,  Mr.  Noonan has been a U.S.  Government  Expert  Witness
before  investigative   Congressional  Committees.  He  has  provided  marketing
services for major artists such as Barbara  Streisand,  Janet  Jackson,  Michael
Jackson,  George Michael,  Bob Seger, Janis Joplin,  Marvin Gaye, Diana Ross and
the  Supremes,  Bob Dylan,  Johnny  Cash,  Tony  Bennett,  and many other  known
artists.   Mr.   Noonan   holds  a  Bachelor  of  Science   degree  in  Business
Administration from Seton Hall University.

ROBERT L. FRIEDMAN - VICE-CHAIRMAN - BOARD OF DIRECTORS, PRESIDENT - CEO:
Mr.  Friedman  has served on the Board of  Directors  since  November  13, 2000.
Robert  Friedman is a former  president of Columbia  Pictures  distribution  and
executive  vice-president  of United  Artists  distribution.  From 1995  through
November 1999, Mr. Friedman served as president of the AMC Entertainment  Motion
Picture Group.  From November 1999 through November 2000, Mr. Friedman served as
president of RLF Entertainment,  an entertainment  industry  consulting company,
and he continues to serve as a special adviser to the investment banking firm of
Chanin Capital Partners and

                                       20

<PAGE>



the  Ray-Art  Motion  Picture  and  Television  Studios in addition to other key
motion  picture  production  entities.  Mr.  Friedman  is a board  member of the
executive  division of the Academy of Motion  Picture Arts and Sciences,  and on
the  boards of  directors  of the Will  Rogers  Hospital,  the  Variety  Club of
Southern California, DARE America and Motion Picture Pioneers.

HERKY WILLIAMS - BOARD OF DIRECTORS MEMBER:  Mr. Williams has served as a Member
of the Board of Directors for Stereo Vision Entertainment since May 5, 2000. Mr.
Williams  has an extensive  background  and  knowledge in various  facets of the
Music  Industry.  Mr.  Williams  served as Senior  Director  of A&R for  Capitol
Records in  1995-1996,  where his duties  included  signing  artists  and artist
development.  Such artists include Willie Nelson, Garth Brooks, Charlie Daniels,
Asleep at the Wheel,  and Tanya Tucker.  From 1997-2000,  he went on to serve as
Senior  Director of Creativity  for A.S.C.A.P.  (American  Society of Composers,
Authors,  and  Publishers,  established  in 1914).  A.S.C.A.P is a  member-owned
company,  which  collected  over  $500,000,000  this year for its  artists.  Mr.
Williams'  duties  include  securing  publishing and record deals for A.S.C.A.P.
members as well as placing songs with artists, labels, and producers.

JOHN C.  BODZIAK  JR. - BOARD OF  DIRECTOR  MEMBER:  Mr.  Bodziak  has served as
President/CEO  for Stereo Vision  Entertainment,  Inc. since August 4, 2000. Mr.
Bodziak  has  educational  as well as  working  experience  in the  capacity  of
ownership,   management,  and  operating  small  and  large  businesses  in  the
restaurant,  liquor,  and concert  entertainment  arenas.  From 1995 to 1997 Mr.
Bodziak was General Manager for Key Largo  International  (located on the Jannus
Landing block) where his duties included operating and managing Benson's Gourmet
and Tami Ami Nightclub.  Working  alongside the Jannus Landing  Corporation,  in
1997  Mr.  Bodziak  began  promoting  and  coordinating  entertainment  acts for
nightclubs  on the Jannus  Landing block as well as managing the real estate for
which  Jannus  Landing owns  including  Pelican Pub,  Detroit  Liquors,  and the
legendary Jannus Landing  Courtyard which was voted in Rolling Stone Magazine to
be the one of the top 10 best  concert  venues in the nation;  Each year over 75
major acts play Jannus  Landing  Courtyard's  main stage.  From 1997 to 2000 Mr.
Bodziak has served as  President/CEO  of Jannus  Landing  Corporation,  where he
oversees  the  daily  operation  and  schedules   entertainment,   and  acts  as
coordinator of the concert venue.  Mr. Bodziak  graduated from the University of
Florida with a Bachelor's Degree in Business Administration as well as Financing
and  Economics.   Mr.  Bodziak  was  also  president  of  his  College  Business
Fraternity, ALPHA KAPPA SAI.

ROCCO URBISCI - BOARD OF DIRECTORS MEMBER: Mr. Urbisci has served as a Member of
the Board of  Directors  since May 5,  2000.  From the years  1995 to 2000,  Mr.
Urbisci worked as an Independent  Contractor to the Entertainment  Industry. Mr.
Urbisci has a vast repertoire of producing and directing credits.  Over the past
five years,  some of his credits and completed  projects include numerous George
Carlin HBO Specials,  which Mr.  Urbisci  produced and directed.  Three of these
specials were live,  which creates a natural  linkage to the company's  business
plan. In 1998, Mr. Urbisci's  remarkable diversity was apparent in his receiving
the Writer's  Guild Award for writing "The Earth Day Special",  a three-hour ABC
prime-time  special,  starring  Bette Midler,  Dustin Hoffman and Kevin Costner,
which he also produced.  Mr. Urbisci most recently is busy under production with
several  projects,  including the animated  television show, "Max" with Rhythm &
Hues, a 3-D digital  animation  company that worked on  Universal's  Flintstones
sequel,  "The  Flintstones in Viva Rock Vegas." Mr.  Urbisci  graduated from the
Cooper School of Art in 1969.

                                       21

<PAGE>



MICHAEL J.  SOLOMON - BOARD OF  DIRECTORS  MEMBER:  Mr.  Solomon has served as a
Member of the Board of Directors  since October 25, 2000.  Solomon has a 44 year
distinguished career in the entertainment industry. He is currently chairman and
CEO of Solomon International Enterprises and Solomon Broadcasting International.
Career  highlights  include:   co-founding  Telepictures  Corporation;   merging
Telepictures with Lorimar to form Lorimar Telepictures. Solomon became president
of Warner Bros.  International  from 1989 through 1994. He is currently co-owner
of Iguana Productions,  the largest independent television production company in
Latin  America  and  Channel 11 in Peru.  He is in the  process of  building  an
Entertainment  Center in Puerto Rico equipped with film and  television  studios
and complete post production facilities.

MICHAEL D. JABARA - BOARD OF DIRECTORS  MEMBER: Mr Jabara has served as a Member
of the Board of Directors since November 13, 2000. From 1995 to the present, Mr.
Jabara has  served as the  manager of Jabara & Co.,  LLC, a  financial  advisory
firm.  From November 1997 through the present,  Mr. Jabara has served as manager
to NewHoldings.com,  LLC, an Internet investment company. From April 2000 to the
present,  Mr.  Jabara has served as  chairman  and CEO of  Itruckers,  Inc.,  an
Internet truck  transportation  service company. Mr. Jabara received an MBA from
U.C. Berkeley.

Conflicts of Interest

Certain conflicts of interest existed at June 30, 2000 and may continue to exist
between the Company and its officers and directors due to the fact that each has
other business interests to which he devotes his primary attention. Each officer
and director may continue to do so notwithstanding the fact that management time
should be devoted to the business of the Company.

Certain  conflicts of interest may exist between the Company and its management,
and  conflicts  may  develop in the  future.  The  Company  has not  established
policies or procedures for the  resolution of current or potential  conflicts of
interests  between  the  Company,  its  officers  and  directors  or  affiliated
entities.  There can be no assurance that  management will resolve all conflicts
of interest in favor of the Company,  and failure by  management  to conduct the
Company's business in the Company's best interest may result in liability to the
management.  The  officers  and  directors  are  accountable  to the  Company as
fiduciaries,  which  means that they are  required  to  exercise  good faith and
integrity in handling the Company's  affairs.  Shareholders who believe that the
Company has been  harmed by failure of an officer or  director to  appropriately
resolve any  conflict  of  interest  may,  subject to  applicable  rule of civil
procedure,  be able to bring a class action or derivative  suit to enforce their
rights and the Company's rights.


Board Meetings and Committees

     The Directors and Officers  currently do not receive cash remuneration from
the  Company  and may not until cash flow from  operations  permits,  all in the
discretion of the Board of Directors.  The Company intends on  compensating  its
officers and directors with common stock in the Company, which is anticipated to
be included in a future stock option plan. Directors may be paid their expenses,
if any, of attendance at such meeting of the Board of Directors, and may be paid
a

                                       22

<PAGE>



fixed sum for  attendance  at each meeting of the Board of Directors or a stated
salary as Director. No such payment shall preclude any Director from serving the
Corporation  in any other  capacity  and  receiving  compensation  therefor.  No
compensation  has  been  paid to the  Directors.  The  Board  of  Directors  may
designate  from among its members an executive  committee  and one or more other
committees. No such committees have been appointed.


Compliance with Section 16(a) of the Exchange Act

     Based  solely  upon a review of forms 3, 4, and 5 and  amendments  thereto,
furnished to the Company during or respecting its last fiscal year, no director,
officer,  beneficial owner of more than 10% of any class of equity securities of
the  Company  or any other  person  known to be  subject  to  Section  16 of the
Exchange  Act of 1934,  as  amended,  failed to file on a timely  basis  reports
required by Section 16(a) of the Exchange Act for the last fiscal year.


                         ITEM 10 EXECUTIVE COMPENSATION


     None of the executive  officer's annual salary and bonus exceeded  $100,000
during any of the Company's last two fiscal years.

     On  November  13,  2000 the  Company  entered  into a five year  employment
agreement  with  Robert L.  Friedman.  The  agreement  provides  for a salary of
$21,000 per month for the first six months and $25,000 per month there after,  a
bonus  payable on  December  31, 2001 of 50% of the annual  salary,  appropriate
health,  life,  medical,  dental  and  pharmaceutical  plan,  $1,000  per  month
automobile  allowance,  and stock options to purchase  250,000  shares of common
stock at $.01 per share.

     On  September  28,  2000 the  company  entered  into a two year  consulting
agreement with Michael J. Solomon.  The agreement  provides for  compensation of
$300,000  per year,  payable at a minimum of $10,000  per month with the balance
due September  28, 2001.  In addition Mr.  Solomon will receive stock options to
purchase 250,000 common shares at $.01 per share.

                 ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS
                                 AND MANAGEMENT


Principal Shareholders

     The table below sets forth  information  as to each person owning of record
or who  was  known  by the  Company  to own  beneficially  more  than  5% of the
4,940,500  shares of issued and  outstanding  Common  Stock of the Company as of
June 30, 2000 and information as to the ownership of the Company's Stock by each
of its  directors  and  executive  officers and by the  directors  and executive
officers  as a group.  Except  as  otherwise  indicated,  all  shares  are owned
directly, and the persons

                                       23

<PAGE>



named in the table have sole voting and investment  power with respect to shares
shown as beneficially owned by them.


Name and Address
of Beneficial Owners /       Nature of        Shares
Directors                    Ownership        Owned           Percent
--------------------------------------------------------------------------------


All Executive Officers
and Directors as a Group
(4 persons)                  common stock     366,000           7%

John Honour
12490 Viewcrest
Studio City, CA 91604        common stock     2,465,918         50%

Lawrence Kallet
2201 San Dieguito
Del Mar, CA 92014            common stock     376,549           8%

Dr. Dale A. Rorabaugh
P.O. Box 3799
Rancho Santa Fe, CA
 92061                       common stock     311,400           6%

Max McDade III
P.O. Box 1864
Rancho Santa Fe, CA
 92067                       common stock      400,000          8%

*The address of all four directors is in care of the Company.


             ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



     On  September  25,  1999,  pursuant  to  the  terms  of an  asset  exchange
agreement,   SVEI  acquired   certain  assets  from  John  Honour,  a  principal
shareholder of SVEI. The assets  consisted of 400,000  freely-trading  shares of
New Visual Entertainment Inc., common stock.  Pursuant to the terms of the asset
exchange agreement,  SVEI issued a convertible  promissory note in the aggregate
principal amount of Four Hundred Thousand Dollars ($400,000) in exchange for the
assets (the  "Note").  On September 25, 1999,  the Note was  converted  into Two
Hundred  Thousand  (200,000) shares of Company Common Stock which was the agreed
value of $2.00 per share.


                                       24

<PAGE>




     The company has restructured its agreement with an affiliate company of Mr.
Williams (the  Secretary-Treasurer  and Director of the Company) called Wilfield
Entertainment.  The Company  will issue  400,000  shares of common stock for its
participation  in the joint venture.  The joint venture with Wilfield is for the
production of thirteen music albums.  SVEI will supply the necessary funding for
the  production  of said albums and after capital  repayment  has occurred,  the
Company  will  receive  51% of the  profits  from the  projects.  The  estimated
production costs per album is projected to be $80,000.


In the opinion of the  disinterested  members of SVEI's board of directors,  the
above  transactions  were  fair and  were  made  upon  terms  that  were no less
favorable to SVEI than would have been obtained if negotiated with  unaffiliated
third parties.


                   ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K


(a)  The following documents are filed as part of this report.

1.Financial Statements                                                      Page

Report of Robison, Hill & Co., Independent Certified Public Accountants......F-1

Balance Sheets as of June 30, 2000 and 1999..................................F-2


Statements of Operations for the year ended
     June 30, 2000 and the Period May 5, 1999 (inception) to June 30, 1999...F-3

Statement of Stockholders' Equity for the year ended
     June 30, 2000 and the Period May 5, 1999 (inception) to June 30, 1999...F-4

Statements of Cash Flows for the year ended
     June 30, 2000 and the Period May 5, 1999 (inception) to June 30, 1999...F-5

Notes to Financial Statements................................................F-7







     2. Financial Statement Schedules

     The following  financial statement schedules required by Regulation S-X are
included herein.

                                       25

<PAGE>



     All schedules are omitted  because they are not  applicable or the required
information is shown in the financial statements or notes thereto.

     3. Exhibits

     The following exhibits are included as part of this report:

Exhibit
Number               Title of Document


2.1 *  Acquisition Agreement and Plan of Reverse Merger by and between Stereo
       Vision Entertainment, Inc. and Kestrel Equity Corporation dated December
       3, 1999. (incorporated by reference to Form 10-SB filed with the SEC on
       December 17, 1999)

2.2 *  Agreement and Plan of Merger by and between Kestrel Equity Corporation
       and SVE Merger, Inc. dated January 10, 2000.

3.1    * Articles of Incorporation of Kestrel Equity  Corporation filed with the
       State of Arizona on December 14, 1993. (incorporated by reference to Form
       10-SB filed with the SEC on December 17, 1999)

3.2    * Articles of Amendment of Articles of  Incorporation  of Kestrel  Equity
       Corporation   filed  with  the  State  of  Arizona  on  June  18,   1997.
       (incorporated  by  reference to Form 10-SB filed with the SEC on December
       17, 1999)

3.3    * Articles of Amendment of Articles of  Incorporation  of Kestrel  Equity
       Corporation  filed  with the State of  Arizona  on  September  30,  1997.
       (incorporated  by  reference to Form 10-SB filed with the SEC on December
       17, 1999)

3.4 *  Bylaws of the Kestrel Equity Corporation. (incorporated by reference to
       Form 10-SB filed with the SEC on December 17, 1999)

3.5 *  Articles of Incorporation of SVE Merger, Inc. filed with the State of
       Nevada on December 23, 1999.

3.6 *  Bylaws of SVE Merger, Inc.

4.1 *  Specimen Stock Certificate of Kestrel Equity Corporation. (incorporated
       by reference to Form 10-SB filed with the SEC on December 17, 1999)

4.2 *  Specimen Stock Certificate of SVE Merger, Inc.

                                       26

<PAGE>



10.1*  Stock Purchase Agreement by and between Kestrel Equity Corporation and
       John Honour, dated September 25, 1999.

10.2   Consulting Contract between Registrant and Daniel Symmes dated April 26,
       2000.

10.3   Consulting Contract between SVEI and Rick Ducommun dated July 19, 1999.

10.4   Consulting Contract between SVEI and Rocco Urbisci dated October 4, 1999.


10.5   Joint Venture Agreement between SVEI and Wilfield Entertainment dated
       February 21, 2001 for the production of no more than 13 albums.


27.1*   Financial Data Schedule.

(*)    Incorporated by reference to the Registrant's  registration statement
       on Form 10-SB filed on August 9, 2000.

(b)  Reports on Form 8-K filed.

     There were no Form 8-K's filed during the quarter ended June 30, 2000.

                                       27

<PAGE>



                                   SIGNATURES


     Pursuant  to the  requirements  of  section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.

                       STEREO VISION ENTERTAINMENT, INC.

Dated: February 27, 2001                        By  /S/     John Honour
                                                -----------------------
                                                John Honour,
                                                C.E.O., President,

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the  Registrant  and in the  capacities  indicated  on this 27th day of February
2001.

Signatures & Title


/S/     John Honour
John Honour
C.E.O., President
(Principal Executive Officer)



/S/     Herky Williams
Herky Williams
Secretary-Treasurer, Director
(Principal Financial and Accounting Officer)



/S/    John C. Bodziak
John C. Bodziak
Director



/S/   Michael D. Jabara
Director

                                       28
                        STEREO VISION ENTERTAINMENT, INC.
                          (A Development Stage Company)

                                       -:-

                          INDEPENDENT AUDITOR'S REPORT


                             JUNE 30, 2000 and 1999







<PAGE>






                                    CONTENTS


                                                                          Page

Independent Auditor's Report..............................................F - 1

Balance Sheets
   June 30, 2000 and 1999 ................................................F - 2

Statements of Operations for the
   Year Ended June 30, 2000 and the
   Period May 5, 1999 (inception) to June 30, 1999 .......................F - 3

Statement of Stockholders' Equity for the
   Year Ended June 30, 2000 and the
   Period May 5, 1999 (inception) to June 30, 1999 .......................F - 4

Statements of Cash Flows for the
   Year Ended June 30, 2000 and the
   Period May 5, 1999 (inception) to June 30, 1999 .......................F - 5

Notes to Financial Statements.............................................F - 7



<PAGE>











                          INDEPENDENT AUDITOR'S REPORT

Stereo Vision Entertainment, Inc.
(A Development Stage Company)

            We have  audited the  accompanying  balance  sheet of Stereo  Vision
Entertainment,  Inc. (a development  stage company) as of June 30, 2000 and 1999
and the related statements of operations,  stockholders'  equity, and cash flows
for the year ended June 30, 2000 and the period May 5, 1999  (inception) to June
30, 1999.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

            We  conducted  our  audit  in  accordance  with  generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

            In our opinion,  the financial  statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Stereo  Vision
Entertainment,  Inc. (a development  stage company) as of June 30, 2000 and 1999
and the results of its operations and its cash flows for the year ended June 30,
2000 and the period May 5,1999  (inception) to June 30, 1999, in conformity with
generally accepted accounting principles.


                                                    Respectfully submitted


                                                    \s\ Robison, Hill & Co.
                                                    Certified Public Accountants

Salt Lake City, Utah
November 10, 2000



                                      F - 1

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                                 BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                  June 30,
                                                         --------------------------
                                                             2000           1999
                                                         -----------    -----------
Current Assets:
<S>                                                      <C>            <C>
   Cash ..............................................   $     9,057    $     7,493
   Trading Investments ...............................          --             --
                                                         -----------    -----------
       Total Current Assets ..........................         9,057          7,493
                                                         -----------    -----------
Fixed Assets:
   Office Equipment ..................................        13,745         13,745
   3-D Production and Exhibition Equipment ...........     3,306,900           --
   Less Accumulated Depreciation .....................      (645,757)          (229)
                                                         -----------    -----------
       Net Fixed Assets ..............................     2,674,888         13,516
                                                         -----------    -----------
Intangible and Other Assets:
   Investments 3-D Projects ..........................       350,000           --
   Films, Manuscripts, Recordings and Similar Property        25,000
   Intellectual Property .............................       100,000           --
   Licensing & Distribution Rights ...................       255,000           --
   Less Accumulated Amortization .....................      (107,333)          --
                                                         -----------    -----------
       Net Intangible and Other Assets ...............       622,667
                                                         -----------    -----------

Total Assets: ........................................   $ 3,306,612    $    21,009
                                                         ===========    ===========

Liabilities
   Accounts Payable ..................................   $   250,363    $    96,268
   Accrued Expenses ..................................        26,312          3,718
   Loans from Shareholders ...........................       821,792         55,000
   Short-term Notes Payable ..........................        38,000          6,000
                                                         -----------    -----------
      Total Current Liabilities ......................     1,136,467        160,986
                                                         -----------    -----------
Stockholders' Equity:
  Common Stock, $.001 Par value
    Authorized 100,000,000 shares,
    Issued 4,940,500 shares at June 30, 2000
      and 1,530,000 shares at June 30, 1999 ..........         4,941          1,530
  Additional Paid in Capital .........................     4,990,394          3,470
  Deficit Accumulated During the
    Development Stage ................................    (2,825,190)      (144,977)
                                                         -----------    -----------
     Total Stockholders' Equity ......................     2,170,145       (139,977)
                                                         -----------    -----------
     Total Liabilities and
       Stockholders' Equity ..........................   $ 3,306,612    $    21,009
                                                         ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F - 2

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                            STATEMENTS OF OPERATIONS





                                                               Cumulative
                                             For the Period      since
                                   For the     May 5, 1999      inception
                                  Year Ended  (Inception) to       of
                                    June 30,      June 30,     development
                                     2000           1999          stage
                                 -----------    -----------    -----------
Revenues: ....................   $      --      $      --      $      --

Research & Development .......      (293,000)          --         (293,000)
General & Administrative
   Expenses ..................    (2,695,401)      (141,259)    (2,836,660)
Other Income (Expense)
   Interest ..................       (88,701)        (3,718)       (92,419)
   Loss on Sale of Assets ....       (15,883)          --          (15,883)
   Gain on Trading Investments       412,772           --          412,772
                                 -----------    -----------    -----------

     Net Loss ................   $(2,680,213)   $  (144,977)   $(2,825,190)
                                 ===========    ===========    ===========

Basic & Diluted loss per share   $     (0.81)   $     (0.09)
                                 ===========    ===========

















   The accompanying notes are an integral part of these financial statements.

                                      F - 3

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                        STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                                                     Deficit
                                                                                   Accumulated
                                                                      Additional     During
                                                 Common Stock           Paid in    Development
                                         -------------------------
                                            Shares        Value         Capital        Stage
                                         -----------   -----------    -----------    ----------
May 5, 1999 Issuance of Stock
  for services and payment of
<S>                                      <C>           <C>           <C>            <C>
  accounts payable ...................     1,530,000   $     1,530   $     3,470    $    --

Net Loss .............................          --            --        (144,977)
                                         -----------   -----------    -----------    ----------

Balance at June 30, 1999 .............     1,530,000         1,530         3,470       (144,977)

December 2, 1999 Issuance of Stock in
   exchange for Assets ...............     1,470,000         1,470     4,010,430           --

December 3, 1999 Issuance of Stock
   in connection with merger with
   Kestrel Equity Corporation ........     1,200,000         1,200      (113,266)          --

December 31, 1999 Issuance of Stock
   for services ......................       350,000           350       699,650           --

February 14, 2000 Issuance of Stock
   for services ......................       100,000           100        99,900           --

April 17, 2000 Issuance of Stock for
   services ..........................       100,000           100        99,900           --

May 4, 2000 Issuance of Stock for Cash        55,000            55        54,945           --

June 2, 2000 Issuance of Stock for
   services ..........................       100,000           100        99,900           --

June 30, 2000 Issuance of Stock for
   Cash ..............................        35,500            36        35,465

Net Loss .............................          --            --            --       (2,680,213)
                                         -----------   -----------    -----------    ----------

Balance at June 30, 2000 .............     4,940,500   $     4,941   $ 4,990,394    $(2,825,190)
                                         ===========   ===========    ===========    ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F - 4

<PAGE>


                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                 Cumulative
                                                                    For the        Since
                                                                     Period
                                                    For the       May 5, 1999     Inception
                                                   Year Ended   (inception) to        of
                                                     June 30,        June 30,     Development
                                                       2000           1999          Stage
                                                   -----------    -----------    -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S>                                                <C>            <C>            <C>
Net Loss .......................................   $(2,680,213)   $  (144,977)   $(2,825,190)
Adjustments to reconcile net loss to net
cash used in operating activities:
   Depreciation and amortization ...............       753,978            229        754,207
   Issuance of common stock for expenses .......     1,000,000          5,000      1,005,000
   Realized gain on trading investments ........      (412,773)          --         (412,773)
   Loss on sale of assets ......................        15,883           --           15,883
   Cash acquired in merger .....................           332           --              332
Change in operating assets and liabilities:
   Accounts Payable ............................       136,665         96,268        232,933
   Accrued Expenses ............................        22,594          3,718         26,312
                                                   -----------    -----------    -----------
  Net Cash Used in operating activities ........    (1,163,534)       (39,762)    (1,203,296)
                                                   -----------    -----------    -----------

CASH FLOWS FROM INVESTING
ACTIVITIES:
   Purchase of equipment .......................          --          (13,745)       (13,745)
   Investment in films, manuscripts, recordings
      and similar property .....................        25,000           --           25,000
   Proceeds from sale of assets ................        51,117           --           51,117
   Proceeds from sale of investments ...........       565,773           --          565,773
                                                   -----------    -----------    -----------
Net cash used in investing activities ..........       641,890        (13,745)       628,145
                                                   -----------    -----------    -----------

CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from loans from shareholders ..........       750,708         55,000        805,708
Payments of principal on loans form shareholders      (350,000)          --         (350,000)
Proceeds from issuance of common stock .........        90,500           --           90,500
 Proceeds from issuance of short-term notes ....        32,000          6,000         38,000
                                                   -----------    -----------    -----------
Net Cash Provided by
   Financing Activities ........................       523,208         61,000        584,208
                                                   -----------    -----------    -----------
</TABLE>


                                      F - 5

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          -----------------------------
                      STATEMENTS OF CASH FLOWS (Continued)
                      ------------------------------------

<TABLE>
<CAPTION>

                                                                       Cumulative
                                                        For the Period    Since
                                              For the     May 5, 1999   Inception
                                             Year Ended  (inception) to    of
                                               June 30,     June 30,   Development
                                                 2000         1999        Stage
                                               -------      -------      -------
Net (Decrease) Increase in
<S>                                            <C>          <C>          <C>
  Cash and Cash Equivalents .............      $ 1,564      $ 7,493      $ 9,057
Cash and Cash Equivalents
  at Beginning of Period ................        7,493         --           --
                                               -------      -------      -------
Cash and Cash Equivalents
  at End of Period ......................      $ 9,057      $ 7,493      $ 9,057
                                               =======      =======      =======

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
  Interest ..............................      $43,773      $  --        $43,773
                                               -------      -------      -------
  Income taxes ..........................      $  --        $  --        $  --
                                               -------      -------      -------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-
CASH INVESTING AND FINANCING
ACTIVITIES:

On December  2, 1999 the  Company  issued  1,470,000  shares of common  stock in
exchange  for  $350,000  investment  in 3-D  projects,  $255,000  licensing  and
distribution  rights,  $3,306,900 3-D film production and exhibition  equipment,
and $100,000 patent pending.

On  December  3,  1999 in a reverse  merger  the  Company  acquired  $332  cash,
$153,001trading  investments,   $100,686  reduction  in  accounts  payable,  and
$366,084 notes payable in exchange for 1,200,000 shares of common stock.







   The accompanying notes are an integral part of these financial statements.


                                      F - 6

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE 30, 2000 AND
               THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
              ----------------------------------------------------

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            This summary of accounting policies for Stereo Vision Entertainment,
Inc. is presented to assist in understanding the Company's financial statements.
The accounting policies conform to generally accepted accounting  principles and
have been consistently applied in the preparation of the financial statements.

Organization and Basis of Presentation

            The Company was  incorporated  under the laws of the State of Nevada
on May 5, 1999. The Company as of June 30, 2000 is in the development stage, and
has not commenced planned principal operations.

Nature of Business

            The Company  intends to position  itself to evolve into a vertically
integrated,  diversified global media entertainment company. The Company intends
to acquire a number of diversified  entertainment  companies that will allow for
the pursuit of opportunities currently available in the global marketplace.

            The Company  anticipates  generating  revenues from several sources,
including,  production  of and  exhibition of new and existing 3-D feature films
and providing integrated solutions to help organizations broadcast audio, video,
3-D video,  animation,  and 3-D animation and music over the Internet as well as
expanding into other areas of the entertainment industry .

Cash and Cash Equivalents

            For purposes of the statement of cash flows,  the Company  considers
all highly liquid debt instruments  purchased with a maturity of three months or
less to be cash  equivalents  to the  extent  the funds  are not being  held for
investment purposes.

Pervasiveness of Estimates

            The preparation of financial statements in conformity with generally
accepted  accounting  principles  required  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.


                                      F - 7

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE 30, 2000 AND
             FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
            --------------------------------------------------------
                                   (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Property and Equipment

            Property and equipment are stated at cost.  Depreciation is provided
for in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives,  principally on a straight-line basis from 3
to 5 years.

            Upon sale or other  disposition of property and equipment,  the cost
and related  accumulated  depreciation  or  amortization  are  removed  from the
accounts  and any gain or loss is  included  in the  determination  of income or
loss.

            Expenditures  for  maintenance and repairs are charged to expense as
incurred.  Major overhauls and betterments are capitalized and depreciated  over
their useful lives.


            The Company  identifies and records  impairment losses on long-lived
assets such as property and  equipment  when events and  circumstances  indicate
that such assets  might be  impaired.  The  Company  considers  factors  such as
significant  changes in the regulatory or business  climate and projected future
cash flows from the  respective  asset.  Impairment  losses are  measured as the
amount by which the carrying amount of intangible asset exceeds its fair value.

Stock Compensation for Non-Employees

            The Company  accounts  for the fair value of its stock  compensation
grants for  non-employees  in accordance with FASB Statement 123. The fair value
of each grant is equal to the market price of the Company's stock on the date of
grant if an active  market  exists or at a value  determined  in an arms  length
negotiation between the Company and the non-employee.


Concentration of Credit Risk

            The Company has no significant  off-balance-sheet  concentrations of
credit  risk such as foreign  exchange  contracts,  options  contracts  or other
foreign  hedging  arrangements.  The Company  maintains the majority of its cash
balances with one financial institution, in the form of demand deposits.


                                      F - 8

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE 30, 2000 AND
             FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
            --------------------------------------------------------
                                   (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Loss per Share

            The  reconciliations of the numerators and denominators of the basic
loss per share computations are as follows:


                                                                     Per-Share
                                         Income       Shares          Amount
                                         ------       ------          ------
                                      (Numerator)  (Denominator)

                                        For the Year ended June 30, 2000
Basic Loss per Share
Loss to common shareholders          $ (2,680,213)     3,318,878   $      (0.81)
                                     ============   ============   ============

                                Period May 5, 1999 (inception) to June 30, 1999
Basic Loss per Share
Loss to common shareholders          $   (144,977)     1,530,000   $      (0.09)
                                     ============   ============   ============


            The  effect  of  outstanding   common  stock  equivalents  would  be
anti-dilutive  for June 30,  2000  and  1999  and are thus not  considered.  The
Company has $238,000 debt  convertible into 476,000 shares at $.50 per share and
commitments to issue approximately 1,194,500 shares (see note 8).



Reclassification

            Certain  reclassifications  have  been  made in the  June  30,  1999
financial statements to conform with the June 30, 2000 presentation.

Joint Venture Operations Accounting

            Joint venture  operations  are accounted for under the equity method
of accounting.



                                      F - 9

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE 30, 2000 AND
             FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
            --------------------------------------------------------
                                   (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------

Investments

            The  Company's  securities  investments  that  are  bought  and held
principally  for the purpose of selling them in the near term are  classified as
trading securities. Trading securities are recorded at fair value on the balance
sheet in  current  assets,  with the  change in fair  value  during  the  period
included in earnings.

            Investments in securities are summarized as follows:

                                                    June 30, 2000
                                        ---------------------------------------
                                           Gross         Gross
                                        Unrealized    Unrealized       Fair
                                            Gain          Loss         Value
                                        -----------   -----------   -----------
Trading Securities                      $      --     $      --     $      --
                                        ===========   ===========   ===========


                                                    June 30, 1999
                                        ---------------------------------------
                                           Gross         Gross
                                        Unrealized    Unrealized       Fair
                                            Gain          Loss         Value
                                        -----------   -----------   -----------
Trading Securities                      $      --     $      --     $      --
                                        ===========   ===========   ===========

            Realized  Gains and losses are  determined  on the basis of specific
identification.  During the years ended June 30, 2000 and 1999,  sales  proceeds
and  gross  realized  gains and  losses  on  securities  classified  as  trading
securities were:

                                                                  For the Period
                                                      For the       May 5, 1999
                                                     Year Ended   (Inception) to
                                                       June 30,       June 30,
                                                         2000           1999
                                                     -----------    -----------

Sale Proceeds                                        $   565,773    $     --
                                                     ===========    ===========

Gross Realized Losses                                $       (23)   $     --
                                                     ===========    ===========

Gross Realized Gains                                 $   412,796    $     --
                                                     ===========    ===========



                                     F - 10

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE, 30, 2000 AND
             FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
            --------------------------------------------------------
                                   (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------------

Intangible Assets


            Intangible  assets are valued at cost and are being amortized on the
straight-line  basis over a period of five  years.  The  amortization  period is
management's  estimate  of  useful  economic  life  of the  asset.  The  initial
valuation of licensing and distribution rights for the 3-D products were derived
from what Management believes to be arms length negotiation.


            Films,  manuscripts,  recordings and similar  property are valued at
cost and will be amortized on the income forecast method.

            There  have  been no  production  costs as of June 30,  2000.  It is
anticipated  that when production  costs are incurred the income forecast method
will  be  used to  amortize  the  cost of  production  for  films,  manuscripts,
recordings and similar property.

            The Company  identifies and records  impairment losses on intangible
assets  when  events  and  circumstances  indicate  that  such  assets  might be
impaired.  The Company  considers  factors  such as  significant  changes in the
regulatory  or  business  climate  and  projected  future  cash  flows  from the
respective  asset.  Impairment  losses are  measured  as the amount by which the
carrying amount of intangible asset exceeds its fair value.

NOTE 2 - INCOME TAXES

            As  of  June  30,  2000,  the  Company  had  a  net  operating  loss
carryforward for income tax reporting purposes of approximately  $2,800,000 that
may be offset against future taxable income through 2014. Current tax laws limit
the amount of loss  available to be offset  against future taxable income when a
substantial  change in  ownership  occurs.  Therefore,  the amount  available to
offset  future  taxable  income may be limited.  Accordingly,  the potential tax
benefits of the loss  carryforwards  are offset by a valuation  allowance of the
same amount.





                                     F - 11

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE 30, 2000 AND
             FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
            --------------------------------------------------------
                                   (Continued)


NOTE 3 - DEVELOPMENT STAGE COMPANY / GOING CONCERN

            The Company has not begun principal operations and as is common with
a development  stage  company,  the Company has had recurring  losses during its
development  stage.  Continuation of the Company as a going concern is dependent
upon obtaining the additional  working capital necessary to be successful in its
planned  activity,  and the  management of the Company has developed a strategy,
which it believes will  accomplish  this  objective  through  additional  equity
funding  and long term  financing,  which will enable the Company to operate for
the coming year.


NOTE 4 - RENT EXPENSE

            The Company has entered into lease  agreements  for various  office,
storage and warehouse facilities.  The rental agreements are on a month to month
basis with total rent of $6,750 per month.  For the year ended June 30, 2000 and
the period May 5, 1999  (inception)  to June 30, 1999 the rental  payments  were
$58,500  and $3,630  respectively.  On October  1, 2000 the  Company  occupied a
production  and office  facility  on a month to month  basis for $1,700 plus 800
common shares per month.  The Company has negotiated a six month lease beginning
November 1, 2000 for a furnished  office space at 130 El Camino  Drive,  Beverly
Hill, CA for $1,736.78 per month.


NOTE 5 - LOANS FROM SHAREHOLDERS AND OTHER RELATED PARTY TRANSACTIONS

            The loans are payable to various  shareholders,  are unsecured  with
interest at rates of between  6.1% to15% and have no fixed  terms of  repayment.
Approximately  $238,000 of the loans are  convertible  into  common  shares at a
conversion  price of $.50 per share. At the time of the issuance of the notes to
shareholders there were no beneficial conversion features. To the best knowledge
of management  the stock was not trading at that time,  and the note was not "in
the money" at that time

            The company is restructuring its agreement with an affiliate company
of Mr.  Williams (the  Secretary-Treasurer  and Director of the Company)  called
Wilfield  Entertainment.  It is anticipated  that the Company will issue 200,000
shares of common stock for its  participation  in the joint  venture.  The joint
venture  with  Wilfield is for the  production  of thirteen  music  albums.  The
Company will supply the necessary  funding for the production of said albums and
after  capital  repayment  has  occurred,  the Company  will  receive 51% of the
profits from the projects. The estimated production costs per album is projected
to be $80,000.


     Management at present anticipates the need to raise approximately  $500,000
in additional

                                     F - 12

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE 30, 2000 AND
             FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
            --------------------------------------------------------
                                   (Continued)


NOTE 5 - LOANS FROM SHAREHOLDERS AND OTHER RELATED PARTY
--------------------------------------------------------
TRANSACTIONS (continued)
------------


operating  capital.  Such funding may be accomplished  through public  financial
markets,  private offerings of equity or debt, and joint venture  opportunities.
The  Company's  stockholders,   officers  and/or  directors  have  committed  to
advancing the operating costs of the Company at 6.1% interest.

NOTE 6 - SHORT-TERM NOTES PAYABLE

            Short-Term Notes on June 30, 2000 and 1999 in the Amounts of $38,000
and $6,000 respectively,  are due on demand with interest rates between 6.1% and
10%.

NOTE 7 - COMMON STOCK TRANSACTIONS

            The Company was initially  incorporated to allow for the issuance of
up to 25,000 shares of no par value common stock. As a result of the merger with
Kestrel Equity Corporation the authorized number of shares is 100,000,000 with a
par value of $.001.

            At inception, the Company issued 1,530,000 shares of common stock to
its  officers and  directors  for services  performed  and payments  made on the
Company's   behalf  during  its  formation.   This  transaction  was  valued  at
approximately $0.003 per share or an aggregate approximate $5,000.


            On December 2, 1999 the Company  issued  1,470,000  shares of common
stock in exchange for $350,000  investment in 3-D projects,  $255,000  licensing
and  distribution   rights,   $3,306,900  3-D  film  production  and  exhibition
equipment, and $100,000 patent pending. In addition to the asset acquisition, on
December 3, 1999 the Company  entered into an acquisition  agreement and plan of
reverse merger with Kestrel Equity Corporation whereby the Company acquired $332
cash, $153,001trading  investments,  $100,686 reduction in accounts payable, and
$366,084  notes  payable in exchange for 1,200,000  shares of common  stock.  By
virtue of the merger and the asset  acquisition,  the Company  issued  2,670,000
shares of common stock of the surviving  corporation  and acquired assets valued
at $4,013,100 or approximately $1.50 per share.


            On December 31, 1999 the Company  issued  350,000  shares to various
employees and consultants for services rendered valued at $2.00 per share.


            On February  14, 2000 the Company  issued  100,000  shares of common
stock as payment for services  rendered by Mr. Herky  Williams  valued at $2 per
share. The services rendered were for


                                     F - 13

<PAGE>

                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE 30, 2000 AND
             FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
            --------------------------------------------------------
                                   (Continued)

NOTE 7 - COMMON STOCK TRANSACTIONS (continued)
----------------------------------

the development of the Company's music division.

From April to June 2000, the Company issued 200,000  restricted common shares to
various  consultants  for  services  and  90,500  restricted  common  shares  to
individuals for cash all at $1.00 per share.


NOTE 8 - COMMITMENTS AND SUBSEQUENT EVENTS


            On August 10, 2000, the Company  purchased a motion picture entitled
"ROUTE 66" including all rights and materials, the rights as the creator and the
writer  of the  original  screenplay,  all  copyright  rights,  trade  names and
trademarks  and  all  other  forms  of  exploitation  of the  Property,  and all
ancillary, merchandise, music and book-publishing rights in exchange for 265,000
restricted  common  shares,  $96,492.73  (payable  $25,000  August 14,  2000 and
$11,915.46 per month from December 14, 2000 to May 14, 2001 and $25,000 plus a 1
1/2% royalty on any merchandise and 2% royalty on sequels).

            On April 25,  2000 the Board of  Directors  approved a stock  option
plan  whereby  2,675,000  common  shares have been set aside for  employees  and
consultants to be  distributed at the discretion of the Board of Directors.  The
option  shares  will be  exercisable  on a cashless  basis at a 15%  discount to
market value. No formal plan has been adopted as of the date of this report.

            On April 26, 2000 the Company  entered into a  consulting  agreement
with Natural Vision Corporation (Daniel Symmes).  Mr. Symmes provided consulting
in 3-D  technologies  in exchange  for 17,000  shares  valued at  $102,000.  The
contract provided for a topping up of the shares in the event that the Company's
common stock was not selling for $6 per share or greater. As of the date of this
report,  no shares have been issued for this contract.  The $102,000 is included
in accounts  payable at June 30,  2000.  In addition  the Company  agreed to pay
Natural Vision Corporation  $1,000 per week for Mr. Symmes' consulting  services
for a 2 year period.  Mr. Symmes has spent  approximately 1/2 time in performing
the consulting services and will provided services on an as needed basis for the
remainder of the  contract.  Natural  Vision will also receive  options based on
gross income of the Company over four six-month intervals. The exercise price of
the options are $6 per share and they expire two years after grant.


     On September 27, 2000 the Company entered into an agreement for advertising
and promotional services in exchange for 100,000 common shares. On September 29,
2000 the shares  were issued at a value of $95,000  which was the quoted  market
price on the date of issue.  The  contract  is for a period of time  covering  3
quarterly financial statements.


                                     F - 14

<PAGE>


                        STEREO VISION ENTERTAINMENT, INC.
                        ---------------------------------
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED JUNE 30, 2000 AND
             FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
            --------------------------------------------------------
                                   (Continued)


NOTE 8 - COMMITMENTS AND SUBSEQUENT EVENTS (continued)
------------------------------------------

            On September 28, 2000 the Company signed a consulting agreement with
Solomon  Broadcasting  International for consulting  services on a non exclusive
basis for the purposes of financing, production, acquisition and distribution of
Stereo Vision  products in various media  throughout the world.  The contract is
for 2 years at  $300,000  per year  plus an option to  purchase  250,000  common
shares at $.01 per share. The option is exercisable after September 28, 2002. On
the date of grant the difference between the fair market value of the option and
the option price has been recorded as an expense.

            On October 27,  2000 The  Company  entered  into an  agreement  with
Jannus  Records Inc. to engage in the  promotion  and  development  of concerts,
records,  and Internet stream. The Company will contribute up to $225,000 in the
form of a  convertible  loan at a rate of 9%  interest,  payable in  twenty-four
months. The loan plus 100,000 common shares of the Company may be converted into
the equivalent of 51% of Jannus's outstanding stock. The 100,000 shares have not
yet been issued. The Company has a twelve month option starting October 27, 2000
to convert the loans to Jannus stock.

Also on October 27, 2000 the Company issued 12,500 shares of common stock valued
at  $1.00  per  share to  National  Financial  Group  for  promotional  services
previously rendered. .



     On  November  13,  2000 the  Company  entered  into a five year  employment
agreement  with  Robert L.  Friedman.  The  agreement  provides  for a salary of
$21,000 per month for the first six months and $25,000 per month there after,  a
bonus  payable on  December  31, 2001 of 50% of the annual  salary,  appropriate
health,  life,  medical,  dental  and  pharmaceutical  plan,  $1,000  per  month
automobile  allowance,  and stock options to purchase  $250,000 shares of common
stock at $.01 per share.

            As of June 30, 2000 some of the  activities of the Company have been
conducted by corporate  officers  from shared  office space with the Law Firm of
Phillips, Haskett & Ingwalson in San Diego, California. The Company does not pay
rent for the use of this space.  Currently,  there are no outstanding debts owed
by the company for the use of these  facilities and there are no commitments for
future use of the facilities.

                                     F - 15