SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2001
-------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____________ to ______________
Commission file number 0-27043
-------
E-VIDEOTV, INC.
--------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 51-0389325
-------- ------------
(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.)
7333 East Doubletree Ranch Road, Suite 205, Scottsdale, AZ 85258
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
480-778-1499
--------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date: 16,757,072
----------
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
Page 1 of 20
E-VIDEOTV, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Management's Discussion and Analysis and Plan of Operation. . . . . . 16
PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 19
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 19
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following financial statements are included as part of this quarterly
report:
Unaudited Consolidated Balance Sheet at June 30, 2001 and December 31, 2000 . . . 3
Unaudited Consolidated Statement of Operations for the period from inception,
March 5, 1999, to June 30, 2001, the six months ended June 30, 2001
and the six months ended June 30, 2000. . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statement of Cash Flows for the period from inception,
March 5, 1999, to June 30, 2001, the six months ended June 30, 2001
and the six months ended June 30, 2000. . . . . . . . . . . . . . . . . . . . . . 5
Unaudited Consolidated Statement of Shareholders' Equity for the
period from inception, March 5, 1999, to June 30, 2001. . . . . . . . . . . . . . 6
Notes to the Unaudited Consolidated Financial Statements. . . . . . . . . . . . . 7
-2-
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
June 30 December 31
2001 2000
=========================================================================================
ASSETS
Current
Cash $ 5,182 $ 2,276
Accounts receivable and prepaids - 9,176
Prepaid royalties (Note 3) 148,283 -
------------ -------------
153,465 11,452
Computer equipment 25,220 19,622
Distribution rights and software development (Note 3) 1,075,740 1,229,418
------------ -------------
$ 1,254,425 $ 1,260,492
============ =============
=========================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 4) $ 463,537 $ 495,149
Loans from related parties (Note 5) 170,677 99,000
------------ -------------
634,214 594,149
------------ -------------
SHAREHOLDERS' EQUITY
Capital stock (Note 6)
Authorized:
100,000,000 shares of common stock, $0.0001 par value
5,000,000 shares of preferred stock, $0.0001 par value
Issued and outstanding:
16,757,072 (2000: 16,757,072) common shares 1,676 1,676
Additional paid-in capital 3,328,136 3,328,136
Share subscriptions 762,000 45,000
------------ -------------
4,091,812 3,374,812
Deficit accumulated during the development stage (3,471,601) (2,708,469)
------------ -------------
620,211 666,343
------------ -------------
$ 1,254,425 $ 1,260,492
============ =============
=========================================================================================
Continuance of operations (Note 1)
Commitments (Note 8)
See accompanying notes to the consolidated financial statements.
-3-
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in U.S. Dollars)
Cumulative Six Months Six Months Quarter Quarter
March 5, 1999 Ended Ended Ended Ended
to June 30 June 30 June 30 June 30 June 30
2001 2001 2000 2001 2000
==========================================================================================================
Revenue $ - - $ - $ - $ -
--------------- ----------- ------------ ----------- -----------
General and administrative expenses
Amortization 463,831 156,229 - 78,343 -
Compensation expense for stock
option (Note 5) 392,583 - - - -
Corporate promotion 191,958 30,753 65,710 7,464 25,289
General corporate expenses 166,718 29,607 48,122 7,629 28,158
Management and consulting fees 1,028,070 288,165 285,837 144,196 152,210
Office expenses 154,151 39,011 30,028 25,600 18,888
Professional fees 308,412 60,041 30,910 44,394 11,564
Rent 109,147 31,558 15,937 14,795 4,964
Royalties 104,167 104,167 - 64,950 -
Travel 138,589 23,601 53,365 17,570 33,887
--------------- ----------- ------------ ----------- -----------
3,057,626 763,132 529,909 404,941 274,960
Write-off software development
costs (Note 3) 424,031 - - - -
Interest income (10,056) - (1,190) - (113)
--------------- ----------- ------------ ----------- -----------
Net loss $ 3,471,601 $ 763,132 $ 528,719 $ 404,941 $ 274,847
=============== =========== ============ =========== ===========
Weighted average number of
common shares outstanding 15,217,179 9,294,601 16,757,072 9,789,056
=========== ============ =========== ===========
Net loss per share, basic and
Diluted $ 0.05 $ 0.06 $ 0.02 $ 0.03
=========== ============ =========== ===========
==========================================================================================================
See accompanying notes to the consolidated financial statements.
-4-
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
Cumulative Six Months Six Months
March 5, 1999 Ended Ended
to June 30 June 30 June 30
2001 2001 2000
=================================================================================================
Cash derived from (applied to)
OPERATING
Net loss $ (3,471,601) $ (763,132) $ (528,719)
Compensation expense for stock options (Note 6) 392,583 - -
Write-off software development costs 424,031 - -
Depreciation and amortization 473,765 156,229 493
Change in non-cash operating working capital
Receivables and prepaids 12,604 9,176 (6,623)
Prepaid royalties (148,283) (148,283) -
Payables and accruals 723,307 260,388 (104,018)
--------------- ------------ ------------
(1,593,594) (485,622) (638,867)
--------------- ------------ ------------
FINANCING
Proceeds from sale of common shares 1,048,601 - 1,048,600
Shares subscribed 470,000 425,000 -
Loans from related parties 170,677 71,677 -
Loans from parent company prior to acquisition 115,000 - -
Cash acquired on acquisition of parent company 1,001,481 - -
--------------- ------------ ------------
2,805,759 496,677 1,048,600
--------------- ------------ ------------
INVESTING
Distribution rights (300,000) - -
License (445,000) - (415,000)
Software development (424,031) - (23,776)
Office equipment (37,952) (8,149) (7,715)
--------------- ------------ ------------
(1,206,983) (8,149) (446,491)
--------------- ------------ ------------
Increase in cash 5,182 2,906 (36,758)
Cash, beginning of period - 2,276 105,002
--------------- ------------ ------------
Cash, end of period $ 5,182 $ 5,182 $ 68,244
=============== ============ ============
NON-CASH ACTIVITIES NOT INCLUDED IN CASH FLOWS
Ascribed value of shares issued to acquire copy
protection license $ 791,773 $ - $ 791,773
Cancellation of loans from parent company on
Acquisition $ 115,000 $ - $ -
Ascribed value of shares issued in excess of cash
acquired on acquisition of parent company $ 95,374 $ - $ -
Shares subscribed to settle trade payables $ 292,000 $ 292,000 $ -
=================================================================================================
See accompanying notes to the consolidated financial statements.
-5-
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Inception, March 5, 1999, to June 30, 2001
====================================================================================================================
Additional TOTAL
Number Par Paid-in Share SHAREHOLDERS'
of Shares VALUE CAPITAL SUBSCRIPTIONS DEFICIT EQUITY
Issuance of shares for cash on
Incorporation 1 $ 1 $ - $ - $ - $ 1
Adjustment for change in share
structure resulting from
acquisition of e-Video U.S.A.,
Inc. 6,623,015 661 (661) - - -
Shares outstanding at date of
acquisition of e-Video U.S.A.,
Inc., previously issued for cash,
net of issue costs 8,965,343 897 1,095,958 - - 1,096,855
Net loss, inception to December 31,
1999 - - - - (478,037) (478,037)
---------- ------ ------------ -------------- ------------ ---------------
Balance, December 31, 1999 15,588,359 1,559 1,095,297 - (478,037) 618,819
Issuance of shares for cash 666,000 67 1,048,533 - - 1,048,600
Issuance of shares to acquire copy
protection license 502,713 50 791,723 - - 791,773
Share subscriptions received - - - 45,000 - 45,000
Compensation expense for stock
Options - - 392,583 - - 392,583
Net loss, year ended December 31,
2000 - - - - (2,230,432) (2,230,432)
---------- ------ ------------ -------------- ------------ ---------------
Balance, December 31, 2000 16,757,072 1,676 3,328,136 45,000 (2,708,469) 666,343
Share subscriptions received - - - 717,000 - 717,000
Net loss, period ending June 30,
2001 - - - - (763,132) (763,132)
---------- ------ ------------ -------------- ------------ ---------------
Balance, June 30, 2001 16,757,072 $1,676 $ 3,328,136 $ 762,000 $(3,471,601) $ 620,211
========== ====== ============ ============== ============ ===============
====================================================================================================================
See accompanying notes to the consolidated financial statements.
-6-
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
June 30, 2001
(Unaudited)
================================================================================
1. BASIS OF PRESENTATION
The company has not yet commenced its planned principal operations and it has
not yet earned any revenue. The company's current operational focus is to
acquire technologies and patent rights related to the electronic delivery of
movies and videos and to sub-license those technologies and rights. The company
has acquired the exclusive rights in the U.S.A. to license the use of
Macrovision Corporation's analog copy protection for digital video transmissions
received in Faster-Than-Real-Time (FTRT). The company also has an agreement
with U.S.A. Video Interactive Corp. to exclusively sub-license their "Store and
Forward Video System" patent in areas related to digital set-top boxes with
hard-drives in the U.S.A.
The company expects the delivery of digital set-top boxes with caching
hard-drives suitable for FTRT operations to grow substantially over the next
several years. The company also intends to activate and acquire licenses in
other territories and will require cash significantly in excess of its current
resources to complete its plan. The ability of the company to execute its
business plan is dependent on the company's ability to obtain additional
financing.
The company is devoting significant efforts to obtaining private financing to
fund the continued development and acquisition of related technologies.
Significant cash will be required.
These financial statements have been prepared on the basis that the company is a
going concern. These financial statements do not include adjustments that would
be necessary should the company be unable to continue as a going concern.
================================================================================
2. RECENT ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. Major provisions of these
Statements and their effective dates for the company are as follows:
-7-
- all business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before July
1, 2001.
- intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability.
- goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective January 1, 2002,
all previously recognized goodwill and intangible assets with
indefinite lives will no longer be subject to amortization.
- effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator.
- all acquired goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting.
Although it is still reviewing the provisions of these Statements, management's
preliminary assessment is that these Statements will not have a material impact
on the company's financial position or results of operations.
-8-
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
June 30, 2001
(Unaudited)
================================================================================
3. DISTRIBUTION RIGHTS AND SOFTWARE DEVELOPMENT
Includes the net cost to date of an exclusive license to use certain technology
for the analog copy protection of digital video transmissions received in
Faster-Than-Real-Time (FTRT) and stored in home devices on set-top boxes for
later viewing. This five year license ends January 31, 2005. There is an
extension provision to January 31, 2010. Usage royalties of 1% of gross
transaction fees are payable to the licensor. Minimum annual royalties of
$250,000 are payable in advance each January 31 from 2000 until 2004. Should
the license be extended, royalties of $350,000 are payable each January 31.
The company paid the January 31, 2002 annual royalty prepayment during the
quarter ended June 30, 2001. This prepaid royalty will be expensed over the
period February 1, 2001 to January 31, 2002.
The company wrote off software costs of approximately $424,000 in 2000 as these
software development costs were no longer applicable in the company's current
business model of licensing.
================================================================================
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES June 30 December 31
2001 2000
--------- ------------
Accrued management fees $ 225,000 $ 223,000
Trade payables 238,537 272,149
--------- ------------
$ 463,537 $ 495,149
========= ============
-9-
================================================================================
5. LOANS FROM RELATED PARTIES June 30 December 31
2001 2000
--------- ------------
Loans from directors with no specific terms of repayment $ 76,294 $ 51,500
Demand loan from a shareholder. Interest free until
August 16, 2001 and bears interest at U.S. prime
plus 2% thereafter 47,500 47,500
Loans from shareholders bearing no interest, unsecured
and due on demand 46,883
--------- ------------
$170,677 $ 99,000
========= ============
================================================================================
6. CAPITAL STOCK
AUTHORIZED CAPITAL
During 2000 the company increased its authorized capital from 30,000,000 common
shares with a par value of $0.0001, to 100,000,000 shares of common stock, par
value $0.0001 per share and 5,000,000 shares of preferred stock, par value
$0.0001 per share.
-10-
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
June 30, 2001
(Unaudited)
================================================================================
6. CAPITAL STOCK (Continued)
STOCK OPTIONS
Subject to shareholder approval, the company's directors resolved to create an
employee and director stock option plan that sets aside 5,000,000 shares of the
company's common stock for issuance upon the exercise of stock options.
The company accounts for its stock option plan in accordance with the provisions
of APB Opinion No. 25, Accounting for Stock Issued to Employees. Had
compensation cost for the stock option plan been determined based on the fair
value at the grant date consistent with the method of SFAS No. 123, Accounting
for Stock-Based Compensation, the company's net loss and net loss per share
would have been the pro forma amounts indicated below:
Period from Six Months Six Months
Inception to Ended Ended
June 30 June 30 June 30
2001 2001 2000
-------------- ------------ ------------
Actual net loss $ (3,471,601) $ (763,132) $ (528,719)
Actual net loss per share $ (0.05) $ (0.03)
Pro forma net loss $ (4,355,041) $(1,646,572) $ (528,719)
Pro forma net loss per share $ (0.10) $ (0.03)
The fair value of each option grant was estimated at the grant date using the
Black-Scholes option-pricing model for the period from inception to December 31,
2000, assuming a risk-free interest rate of 4.88%, a volatility factor of 2.06%,
zero dividend yield, and an expected life of five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and warrants which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions, including the expected stock price volatility.
Because the company's employee stock options and warrants have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
-11-
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
June 30, 2001
(Unaudited)
================================================================================
6. CAPITAL STOCK (Continued)
STOCK OPTIONS (Continued)
A summary of the status of the company's options as of December 31, 2000 and
changes during the period from inception (March 5, 1999) to June 30, 2001 is
presented below:
Weighted
Exercise Price Average
PER SHARE EXERCISE PRICE SHARES
--------------- --------------- ----------
Granted at FMV during 2000 $ 0.50 $ 0.50 1,070,000
==========
Granted at FMV during 2001 0.25 0.25 3,600,000
==========
Options outstanding at June 30, 2001 0.40 4,670,000
==========
Options exercisable at June 30, 2001 0.40 4,670,000
==========
Weighted-average fair value of options
granted during the six months ended
June 30, 2001 $ 0.25
==========
The following table summarizes information outstanding and exercisable share
options at June 30, 2001:
Options Outstanding Options Exercisable
------------------------------------------------------------- -----------------------
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Number Price Life Price Number Price
Outstanding Grant Date Per Share (In Years) Per Share Exercisable Per Share
----------- ---------- ---------- ------------ ---------- ----------- ----------
1,070,000 11/30/00 $ 0.50 4.42 $ 0.50 1,070,000 $ 0.50
3,600,000 01/12/01 0.25 4.54 0.25 3,600,000 0.25
----------- -----------
4,670,000 4,670,000
=========== ===========
The company granted options to purchase 3,600,000 shares of the company's common
stock to directors during the six months ended June 30, 2001. No expense has
been recorded related to these options.
-12-
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
June 30, 2001
(Unaudited)
================================================================================
6. CAPITAL STOCK (Continued)
SHARE SUBSCRIPTIONS
June 30, 2001 December 31, 2000
------------------- ---------------
Number Amount Number Amount
--------- -------- ------ -------
Shares subscribed for $1 per share 45,000 $ 45,000 45,000 $45,000
Units subscribed for $0.80 per unit.
Each unit consists of one common
share and one common share
purchase warrant exercisable for two
years into one common share at $0.30
per share in the first year and $0.50 in
the second year 531,250 425,000 - -
Shares to be issued in settlement of
trade payables 180,000 54,000 - -
Shares to be issued in settlement of
trade payables 680,000 238,000 - -
--------- -------- ------ -------
1,436,250 $762,000 45,000 $45,000
========= ======== ====== =======
ESCROWED SHARES
During 1999, a former director of the company placed 345,000 shares of common
stock into escrow. These shares were released to the former director on
February 9, 2001.
-13-
In addition, all of the 6,623,016 common shares issued for the acquisition of
e-VideoTV, Inc. were held in escrow at December 31, 2000. These shares were
released from escrow on February 9, 2001.
7. INCOME TAXES
At June 30, 2001, the company had net operating losses carried forward of
approximately $2,900,000 (December 31, 2000: $2,100,000) that may offset
against future taxable income until 2020. The potential tax benefits of the
losses carried forward are offset by a valuation allowance of the same amount as
there is substantial uncertainty that the losses carried forward will not expire
unused.
-14-
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
June 30, 2001
(Unaudited)
================================================================================
8. COMMITMENTS
ADVISORY SERVICES AGREEMENT
On January 30, 2001, the company entered into a 12 month exclusive agreement
with a financial advisory company, which will provide advisory services to the
company in the areas of corporate finance and capital placement transactions.
Compensation varies depending on the type of service rendered and will be paid
out of the proceeds of any financing obtained by this financial advisory
company. The agreement specifies a minimum fee of $250,000 to be paid only if
financing is secured.
PATENT LICENSING AGREEMENT
On June 27, 2001, the company entered into a short form sub-licensing agreement
for certain digital video delivery technology with an international designer and
supplier of high-tech internet streaming video and video-on-demand systems,
services and innovative end-to-end solutions.
In consideration of this sub-license, the company has agreed to issue $300,000
of its common shares on the date a long form agreement is signed. The parties
have yet to finalize this long form agreement.
Under the short form agreement, the company has committed to certain performance
milestones in regard to royalties to be generated from the exploitation of this
sub-license. Specifically, the company has agreed to generate a minimum of
$250,000 of gross royalty fees in year 1, $500,000 in year 2, $1,000,000 in year
3 and in years 4 and thereafter the company agrees to grow these royalties at a
rate of 15% per annum. The company will be entitled to retain 50% of all
royalties generated in the event these minimum royalty targets are met.
================================================================================
9. SUBSEQUENT EVENT
On July 13, 2001, the company received $1,000,000 from the sale of 8%
convertible debentures, due June 6, 2003, to a New York based financial
institution. Interest only payments on the debentures are due quarterly
commencing September 30, 2001, and the principal amount of the debenture is due
-15-
in one lump sum on June 6, 2003. The number of shares of common stock issuable
upon conversion of the convertible debentures is based on the current
calculation of a floating conversion price and could amount to as much as
4,761,905. In addition, 666,666 warrants to purchase shares of our common stock
were issued to the firm in connection with this financing. These warrants have
an exercise price of approximately $0.40 per share.
The floating conversion price for the convertible debentures is the lesser of
(i) 80% of the average of the three lowest closing bid prices of the common
stock for the twenty (20) trading days prior to the closing date, or (ii) 80% of
the average of the three lowest closing bid prices of the common stock for the
sixty (60) trading days prior to the conversion date, as defined in the
convertible debenture. The maximum number of shares of common stock that the
subscriber or group of affiliated subscribers may own after conversion at any
given time is 4.99%.
In connection with the financing, the company entered into certain
covenants including, but not limited to, the following: (i) the
company may not redeem the convertible debentures without the consent
of the holder; (ii) the company will pay to certain finders a cash fee
of ten percent (10%) of the principal amount of the convertible
debentures for location of the financings; (iii) the company has
agreed to incur certain penalties for untimely delivery of the shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company continues to formulate its plan of operation to market
technologies related to the video-on-demand industry. This includes exclusive
rights in the USA to license the use of Macrovision Corporation's analog copy
protection on digital video transmissions received in Faster Than Real Time
(FTRT) and stored in home devices such as set-top boxes for later viewing. The
Company has also recently signed an agreement (June 27, 2001) with USA Video
Interactive Corp to license exclusively, the rights to sublicense their "Store
and Forward Video System" patent for broadband applications in the USA. The
Company intends to use this patent to increase its position in the satellite,
cable and broadband industries.
The Company further intends to pursue several US operators licensed to use
these devices by the end of 2002.
The Company is continuing to contact set top box manufacturers world-wide
to advise them of our exclusive licensing rights and related technologies and
determine their roll-out plans for set top boxes with hard disk drives in the
US. The Company has signed NDAs with several manufacturers and continues to
contact key cable, satellite, and broadband operators throughout the US to
discuss its exclusive Macrovision license, the "Store and Forward Video System"
license, and the technical and economic benefits of FTRT caching versus
streaming for Video-On-Demand systems. The agreement with USA Video Interactive
Corp was executed June 27, 2001 and the Company also intends to license this
technology to set-top-box manufacturers and cable, satellite, and broadband
operators.
For the six months ended June 30, 2001, the Company incurred a loss of
$763,132. During this period, loans and private placements amounted to $466,000.
Subsequent to the quarter ending June 30, 2001, the company completed the
placement of an 8% convertible debenture of $1,000,000. This financing has
-16-
provided the Company with necessary liquidity but the Company will continue to
seek additional financing in order to fulfill its business model.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ending June 30, 2001, the Company received loans of
$41,500, which combined with subscription agreements for $425,000 received in
the quarter ending March 31, 2001, brought combined funds received for the first
six months to $466,000. During the quarter ending June 30, 2001, the Company
also received loans from shareholders of $37,883. There are no specific terms of
repayment on these loans. On July 6, 2001, the Company also completed the
placement of an 8% convertible debenture for $1,000,000 with the Laurus Funds
Group.
In February 2001, the Company prepaid its royalties to Macrovision for the
year 2001 in accordance with the terms of its agreement. While the Company
currently does have sufficient funds to continue operations, it does not have
sufficient funds to carry it through the next 12 months without additional
funding. It will therefore continue to pursue private placements, loans, and any
other appropriate terms of financing.
The Company is continuing with the following program regarding VOD:
1. Licensing operators such as cable, satellite, wireless, DSL and other
broadband distributors for FTRT VOD service.
2. Licensing set-top box manufacturers and strategic partners.
3. Developing technologies and acquiring patents and technologies to
expand its licensing model with VOD operators and STB manufacturers.
According to Wall Street's Schroeder & Com., the home movie market had
approximately $14 billion in sales and rental revenues last year. Of this, it is
estimated that 85% is represented by new release movies. VOD content can be
started at anytime thus there is no discernable need for recording of the
program. It is expected that the movie industry will require new VOD
new-release-content be copy protected similar to video store rentals.
Macrovision is the accepted copy-protection standard.
The license rights from Macrovision Corp are for a five year period with an
option to renew for an additional five years. The Company has complied with all
requirements of its agreement with Macrovision Corp to date, and is cognizant of
its obligations both now and in the future regarding its commitment to
Macrovision.
In the next 12 months, the Company estimates it will require funding for:
international licenses, operating licenses in various countries, patent
purchases, and general working capital. Depending on the rollout of these items,
and development in other countries, funding requirements could range from $5 -
$10 million. The Company has financed its development stage to date by private
placements of common stock. It also recognizes that it currently does not have
sufficient funds to finance its operation over the next 12 months. The Company
plans to complete additional financings to provide the necessary funds. The
inability of the Company to arrange necessary financing will have a material
adverse effect on proposed operations.
-17-
In the year 2001, the company intends to undertake additional R&D related
to the head-end software, head-end servers, and set top box software to further
support the download model for VOD content. The company intends to work closely
with equipment manufacturers and vendors as appropriate in each of these areas.
In addition, the company intends to explore the acquisition of patents and
technologies related to its VOD licensing activities. Currently the company does
have the resources to complete these initial R&D efforts but will continue to
seek additional financing to achieve its long-term goals.
The Company further recognizes that its development schedule will be
delayed unless additional capital required is available when needed.
Inflation has not been a factor during the quarter ending June 30, 2001.
-18-
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no reportable legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
There are no changes in the Company's securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the six months
ended June 30, 2001.
ITEM 5. OTHER INFORMATION.
The Company has no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter ended March
31, 2001.
-19-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
E-VIDEOTV, INC.
Date August 9, 2001 By /s/ Charles Weber
--------------- -----------------------------------
Charles Weber
President (Chief Executive Officer)
Date August 9, 2001 By /s/ Robert G. Dinning
--------------- -----------------------------------
Robert G. Dinning
Chief Financial Officer
-20-