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 Sept 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
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E-VIDEOTV, INC.
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(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
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(Address of Principal Executive Offices)
480-778-1499
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(Issuer's Telephone Number, Including Area Code)
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(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: 16,817,934
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
E-VIDEOTV, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPT 30, 2001
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 2
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 2
Item 2. Management's Discussion and Analysis and Plan of
Operation. . . . . . . . . . . . . . . . . . . . . . . . 1
PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 3
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . 3
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 3
Item 4. Submission of Matters to a Vote of Security Holders. . . 3
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 3
Item 6. Exhibits and Reports on Form 8-K.. . . . . . . . . . . . 3
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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 Sept 30, 2001 and December 31, 2000. . .
Unaudited Consolidated Statement of Operations for the period from inception,
March 5, 1999, to Sept 30, 2001, and the nine months ended Sept 30, 2001
Unaudited Consolidated Statement of Cash Flows for the period from inception,
March 5, 1999, to Sept 30, 2001, and the nine months ended Sept 30, 2001. . . .
Unaudited Consolidated Statement of Shareholders' Equity for the period from
inception, March 5, 1999, to Sept 30, 2001 . . . . . . . . . . . . . . . . . . .
Notes to the Unaudited Consolidated Financial Statements . . . . . . . . . . . .
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
September 30 December 31
2001 2000
ASSETS
Current
Cash $ 227,546 $ 2,276
Accounts receivable and prepaids 26,000 9,176
Prepaid royalties (Note 3) 85,783 -
-------------- -------------
339,329 11,452
Computer equipment 31,299 19,622
Distribution rights and software development (Note 3) 998,899 1,229,418
Advances to Ziracom Digital Communications Inc. (Note 4) 106,050 -
Debt issue costs (Note 7) 140,948 -
-------------- -------------
$ 1,616,525 $ 1,260,492
============== =============
==============================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 5) $ 286,858 $ 495,149
Loans from related parties (Note 6) 111,177 99,000
Convertible debentures (Note 7) 120,930 -
-------------- -------------
518,965 594,149
-------------- -------------
SHAREHOLDERS' EQUITY
Capital stock (Note 8)
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:
18,367,318 (2000: 16,757,072) common shares 1,837 1,676
Additional paid-in capital 5,071,380 3,328,136
Share subscriptions 113,500 45,000
-------------- -------------
5,186,717 3,374,812
Deficit accumulated during the development stage (4,089,157) (2,708,469)
-------------- -------------
1,097,560 666,343
-------------- -------------
$ 1,616,525 $ 1,260,492
============== =============
==============================================================================================
Continuance of operations (Note 1)
Commitments (Note 10)
See accompanying notes to the consolidated financial statements
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in U.S. Dollars)
Cumulative Three Months Three Months Nine Months Nine Months
March 5, 1999 Ended Ended Ended Ended
to September 30 September 30 September 30 September 30 September 30
2001 2001 2000 2001 2000
Revenue $ - - $ - $ - $ -
----------------- -------------- -------------- -------------- --------------
General and administrative expenses
Amortization 546,363 82,532 - 238,761 -
Compensation expense for stock
option 392,583 - - - -
Corporate promotion 224,398 32,440 22,809 63,193 88,519
General corporate expenses 189,920 23,202 21,644 52,809 69,766
Interest expense 177,948 177,948 - 177,948 -
Management and consulting fees 1,184,539 156,469 65,156 444,634 350,993
Office expenses 170,856 16,705 19,787 55,716 49,815
Professional fees 336,971 28,559 34,112 88,600 65,022
Rent 117,469 8,322 5,601 39,880 21,538
Royalties 166,667 62,500 - 166,667 -
Travel 168,787 30,198 18,063 53,799 71,428
----------------- -------------- -------------- -------------- --------------
3,676,501 618,875 187,172 1,382,007 717,081
Write-off software development
costs (Note 3) 424,031 - - - -
Interest income (11,375) (1,319) (5) (1,319) (1,195)
----------------- -------------- -------------- -------------- --------------
Net loss $ 4,089,157 $ 617,556 $ 187,167 $ 1,380,688 $ 715,886
================= ============== ============== ============== ==============
Weighted average number of
common shares outstanding 18,308,959 9,789,056 16,657,738 9,460,622
============== ============== ============== ==============
Net loss per share, basic and
diluted $ 0.03 $ 0.02 $ 0.08 $ 0.08
============== ============== ============== ==============
=======================================================================================================================
See accompanying notes to the consolidated financial statements
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
Cumulative Nine Months Nine Months
March 5, 1999 Ended Ended
to September 30 September 30 September 30
2001 2001 2000
CASH DERIVED FROM (APPLIED TO)
OPERATING
Net loss $ (4,089,157) $ (1,380,688) $ (715,886)
Compensation expense for stock options 392,583 - -
Write-off software development costs 424,031 - -
Depreciation and amortization 556,297 238,761 741
Debenture discount and issue cost amortization 158,913 158,913 -
Interest paid in shares 224 224 -
Change in non-cash operating working capital
Receivables and prepaids (13,396) (16,824) (6,622)
Prepaid royalties (85,783) (85,783) -
Payables and accruals 546,628 83,709 (50,658)
---------------- --------------- --------------
(2,109,660) (1,001,688) (772,425)
---------------- --------------- --------------
FINANCING
Proceeds from issuance of common shares 1,538,101 444,500 1,048,600
Convertible debentures issued 1,000,000 1,000,000 -
Convertible debenture issue costs (163,250) (163,250) -
Loans from related parties 170,677 71,677 92,500
Loans from parent company prior to acquisition 115,000 - -
Cash acquired on acquisition of parent company 1,001,481 - -
---------------- --------------- --------------
3,662,009 1,352,927 1,141,100
---------------- --------------- --------------
INVESTING
Advances to Ziracom Digital Communications Inc. (106,050) (106,050) -
Distribution rights (300,000) - -
License (445,000) - (415,000)
Software development (424,031) - (23,776)
Office equipment (49,722) (19,919) (19,514)
---------------- --------------- --------------
(1,324,803) (125,969) (458,290)
---------------- --------------- --------------
Increase (decrease) in cash 227,546 225,270 (89,615)
Cash, beginning of period - 2,276 105,002
---------------- --------------- --------------
Cash, end of period $ 227,546 $ 227,546 $ 15,387
================ =============== ==============
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 issued to pay management fees $ 238,000 $ 238,000 $ -
Shares issued on conversion of debentures $ 15,681 $ 15,681 $ -
Shares issued to pay debenture interest $ 224 $ 224 $ -
Shares subscribed to settle trade payables $ 54,000 $ 54,000 $ -
Shares subscribed to settle loan from related party $ 59,500 $ 59,500 $ -
=========================================================================================================
See accompanying notes to the consolidated financial statements.
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Inception, March 5, 1999, to September 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
Issuance of shares for cash 633,000 63 488,937 (45,000) - 444,000
Issuance of shares to pay
management fees 915,384 92 237,908 - - 238,000
Issuance of shares on exercise of
stock options 1,000 - 500 - - 500
Share subscriptions received - - - 113,500 - 113,500
Beneficial conversion feature of
debentures - - 513,400 - - 513,400
Value of warrants issued as part of
debentures - - 486,600 - - 486,600
Issuance of shares on conversion
of debentures and interest
60,862 6 15,899 - - 15,905
Net loss, period ending
September 30, 2001 - - - - (1,380,688) (1,380,688)
---------- ------ ----------- --------------- --------------- ------------
Balance, September 30, 2001 18,367,318 $1,837 $5,071,380 $ 113,500 $ (4,089,157) $ 1,097,560
========== ====== =========== =============== =============== ============
====================================================================================================================
See accompanying notes to the consolidated financial statements.
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2001
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheets as of September 30, 2001 and December
31, 2000, the condensed consolidated statements of earnings for the three and
nine month periods ended September 30, 2001 and 2000 and the condensed
consolidated statements of cash flows for the nine months ended September 30,
2001 and 2000, have been prepared by the Company without audit. In the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows at September 30, 2001 and 2000 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 2000 Form 10-K filed with the Securities and Exchange Commission,
Washington, D.C. 20549. The results of operations for the three and nine month
periods ended September 30, 2001 and 2000 are not necessarily indicative of the
operating results for the full year.
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.
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:
- 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.
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 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 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 on January 31 each year from 2000 until 2004. Should the license be
extended, royalties of $350,000 are payable each January 31.
The company wrote off software costs of approximately $424,000 in December 2000
as these software development costs were no longer applicable in the company's
current business model of licensing.
================================================================================
4. ADVANCES TO ZIRACOM DIGITAL COMMUNICATIONS, INC.
Subsequent to September 30, 2001, the company acquired all of the issued and
outstanding shares of Ziracom Digital Communications, Inc. ("Ziracom") (Note
11). The advances to Ziracom are non-interest bearing until October 31, 2001 at
which time they are due. If the advances are not repaid by October 31, 2001, a
debenture is to be issued to the company covering all of the assets of Ziracom.
The debenture is to be due October 31, 2002 and pay interest at 9% per annum.
================================================================================
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
September 30 December 31
2001 2000
------------- ------------
Accrued management fees $ 156,000 $ 223,000
Trade payables 130,858 272,149
------------- ------------
$ 286,858 $ 495,149
============= ============
6. LOANS FROM RELATED PARTIES
September 30 December 31
2001 2000
------------- ------------
Loans from directors with no specific terms of repayment $ 84,177 $ 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
Loans from shareholders bearing no interest, unsecured
and repayable at $3,000 per month 27,000 -
------------- ------------
$ 111,177 $ 99,000
============= ============
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2001
(Unaudited)
7. CONVERTIBLE DEBENTURES
On July 6, 2001, the company received $1,000,000 from the sale of convertible
debentures and warrants to purchase up to 666,666 shares of the company's common
stock (Note 8). The principal on the debentures is due June 6, 2003. Interest
at 8% per annum on the debenture principal outstanding is due quarterly
commencing September 30, 2001. The debentures and any unpaid and accrued
interest may be converted at the option of the holder into common shares of the
company. The conversion price per share is the lesser of $0.4747 and 80% of the
average of the three lowest closing prices of the common shares on the principal
market where the shares trade for the sixty trading days prior to conversion.
The company may redeem the convertible debentures on five days notice by paying
the holders 145% of the principal outstanding plus accrued interest, if the
repayment is made by January 2, 2002; otherwise, 190% of the principal
outstanding plus accrued interest. Upon receiving the repayment notice, the
debenture holders have the option of converting the debentures to common shares
within five days.
The company has determined the fair value of the warrants to be $486,600, using
the Black Scholes option-pricing model. This warrant value is reflected as an
addition to paid-in capital and a discount to the debenture principal.
The debentures contain a "beneficial conversion" feature as the fair value of
the underlying stock was greater than the fair value of the debenture at the
date of issuance. The value of the beneficial conversion feature has been
calculated as $513,400, which has been recognized as an addition to paid-in
capital and a discount to the debenture principal.
The discounts to the debenture principal are amortized over the life of the
debentures as interest expense. Any unamortized discounts related to debentures
converted to common stock are written off as interest expense at the conversion
date.
The company incurred $163,750 in cash commissions and expenses related to the
issuance of the debentures, which has been recognized as a deferred cost to be
amortized by the interest method over the term of the debt. Any unamortized
issue costs related to debentures converted to common stock are written off as
interest expense at the conversion date.
The following table summarizes the activity in the debentures during the nine
months ended September 30, 2001.
Convertible Debentures
------------------------------- Deferred
Principal Discounts Net Book Issue
Value Costs
Debentures issued on July 6, 2001 1,000,000 1,000,000 - 163,250
Debentures converted to common stock (15,681) (15,681) - (2,560)
Amortization of discounts - (120,930) 120,930 (19,742)
-----------------------------------------
Balance, September 30, 2001 984,319 863,389 120,930 140,948
=========================================
The company has not made its September 30, 2001 interest payment of $18,811 as
required under the terms of the convertible debenture agreements.
Notwithstanding this technical default, the creditor has agreed not to demand
repayment of the loan.
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2001
(Unaudited)
8. 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.
WARRANTS
The following warrants to purchase shares of common stock were issued during the
nine months ended September 30, 2001 and are outstanding at September 30, 2001:
Number of
shares issuable
on exercise exercise price per share expiry date particulars of issuance
-----------------------------------------------------------------------------------------------
588,000 0.30 until March 15, 2002 March 15, 2003 issued in connection with the
and $0.50 after then issuance of shares for cash
666,666 the lesser of $0.73 and July 6, 2006 issued in connection with the
120% of the average of the issuance of the convertible
three lowest closing prices of debenture (Note 7)
the common shares on the
principal market where the
shares trade for the ten
trading days prior to exercise
STOCK OPTIONS
The following table summarizes outstanding and exercisable share options at
September 30, 2001:
Options Outstanding and Exercisable
-------------------------------------------------
Average Weighted
Remaining Average
Contractual Exercise
Number Life Price
Outstanding Grant Date (In Years) Per Share
----------- ----------- ----------- ----------
1,069,000 11/30/00 4.17 $ 0.50
3,600,000 01/12/01 4.29 0.25
----------- ----------- ----------
4,669,000 4.26 $ 0.31
=========== =========== ==========
The company granted options to purchase 3,600,000 shares of the company's common
stock to directors during the nine months ended September 30, 2001. No expense
has been recorded related to these options.
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2001
(Unaudited)
8. CAPITAL STOCK (Continued)
SHARE SUBSCRIPTIONS
September 30, 2001 December 31, 2000
--------------------- ---------------------
Number Amount Number Amount
--------- ---------- --------- ----------
Share subscriptions received 45,000 45,000
Shares to be issued in settlement of
trade payables 180,000 54,000 - -
Shares to be issued in settlement of
loan from related party 119,000 59,500 - -
--------- ---------- --------- ----------
299,000 $ 113,500 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.
In addition, all of the 6,623,016 common shares issued on the acquisition of
e-VideoTV, Inc. were held in escrow at December 31, 2000. These shares were
released from escrow on February 9, 2001.
================================================================================
9. INCOME TAXES
At September 30, 2001, the company had net operating losses carried forward of
approximately $3,500,000 (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.
================================================================================
10. 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.
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
September 30, 2001
(Unaudited)
10. COMMITMENTS (Continued)
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.
================================================================================
11. SUBSEQUENT EVENT
On August 24, 2001, the company agreed to purchase all of the outstanding shares
of Ziracom Digital Communications, Inc., a Delaware corporation with its
principal offices located in Vancouver, British Columbia, Canada, in exchange
for 8,655,138 shares of common stock in the company.
The agreement was approved by a majority of the shareholders of both the company
and Ziracom on October 23, 2001.
Of the 8,655,138 shares to be issued, 4,327,569 shares will be held in escrow.
The escrowed shares will be released over a twelve month period, contigent upon
Ziracom's performance, as follows:
1. 1,081,892 shares will be released if Ziracom achieves sales of $382,000 for
the period August 1, 2001 to January 31, 2002;
2. 1,081,892 shares will be released if Ziracom completes version 4.0 of its
product Alpha Omega. The version must be ready for market and must achieve
a file size of 70% of original file size (based on Alpha Omega Version
3.2), have Digital Rights Management (DRM) ability, and be compatible with
Media Player versions 7 and 8 and Windows CE for hand-held devices.
3. 2,163,785 shares will be released if Ziracom achieves pre-tax earnings of
$1,406,460 by July 31, 2002.
If the market price of the company's common shares at the release date is less
than $0.50 per share, additional shares will be issued to effect the same value
as if the market price was at $0.50 per share.
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 video delivery, video compression, and video-on-demand.
The Company has 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 and USA Video are preparing the long form agreement which is not as yet
finalized. The Company intends to sublicense this technology to set-top-box
manufacturers and cable, satellite, and broadband operators. The Company also
has 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.
On August 24, 2001 the Company signed an agreement to acquire all of the
issued and outstanding shares of Ziracom Digital Communications Inc., a Nevada
corporation with principal offices located in Vancouver, British Columbia,
Canada, carrying out the business of development and sale of video compression
technologies. Ziracom's proprietary video compression technologies offer several
advantages for video transmission in the entertainment, Internet and wireless
industries. The agreement calls for the issuance of a total of 8,655,138
restricted common shares of the Company. This transaction closed on October 23,
2001 after a majority of the shareholders of Ziracom approved the transaction.
The agreement called for the issuance on closing of 4,327,569 restricted common
shares with the remaining 4,327,569 common shares to be held in escrow. These
escrowed shares will be released over a 12-month period, contingent upon
Ziracom's performance:
1. 1,081,892 restricted shares issued if Ziracom achieves a sales
objective of $382,000 for the period August 1, 2001 to January
31, 2002
2. 1,081,892 restricted shares issued if Ziracom completes version 4.0 of
its compression technology. This version must be ready for market
and must achieve a file size of 70% of the file size in version
3.2. (i.e. a 30% improvement) and it must also be compatible with
Media Player version 7 and version 8 and Windows CE for hand-held
devices.
3. 2,163,785 restricted shares issues if Ziracom achieves its target of
pre-tax earnings of $1,406,060 by July 31, 2002.
A floor price of $0.50 per share will be established for all releases of
escrow stock. In the event the market price at the release date is below $0.50
per share then additional shares will be issued to effect the same value as if
the market price was at $0.50 per share.
The Company intends to market these various technologies and sub-licenses
to companies involved in broadband video delivery, entertainment video, Internet
video streaming, wireless video applications, and video-on-demand.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no revenues to date, but anticipates revenue in the first
quarter of 2002. During the quarter ending September 30, 2001, the Company
incurred losses of $617,556 bringing losses for the nine months ending September
30, 2001 to $1,380,688. The accompanying financial statements have been prepared
on the basis that the Company is a going concern. The financial statements do
not include adjustments that would be necessary should the Company be unable to
continue as a going concern.
During the quarter ending September 30, 2001, the Company received
$1,000,000 from the sale of 8% convertible debentures, due June 6, 2003. There
are quarterly interest payments commencing September 30, 2001, and the principal
amount of the debenture is due in one lump sum on June 6, 2003. The number of
shares of common stock to be issued 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.
In February 2001, the Company prepaid its royalties to Macrovision for
the year 2001 in accordance with the terms of its agreement. 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. The Company currently 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.
In the next 12 months, the Company estimates it will require funding for:
marketing, acquiring additional patents and licenses, further research and
development, and general working capital. Depending on the rollout of these
items, and development of markets, funding requirements could range from
$1,000,000 - $5,000,000. In addition to the convertible debenture described
above, 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.
In the coming year, the company intends to undertake additional R&D related
to advancing its video compression technology and adapting it for a variety of
emerging video applications. The Company intends to work closely with various
manufacturers and vendors as appropriate to create licensing and/or joint
venture relationships.
As well, 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 September 30,
2001.
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 filed a Form 8-K in October 2001 re the acquisition of Ziracom
Digital Communications Inc.
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 November 16, 2001 By /s/ Robert G. Dinning
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Robert G. Dinning
President (Chief Executive Officer)
Date November 16, 2001 By /s/ Robert G. Dinning
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Robert G. Dinning
Chief Financial Officer