SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 2002
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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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
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(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.)
2111 Wilson Blvd, Ste#700 Arlington VA 22201
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(Address of Principal Executive Offices)
703-351-5011
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
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Securities registered under Section 12(g) of the Exchange Act:
Common stock, par value $0.0001 per share
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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
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Check if there is no disclosure of delinquent filers in response 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. $80,000
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State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold or the average bid and asked prices of such common equity, as of
a specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
$325,539 As of March 4, 2002
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ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the issuer has 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 n/a
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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: 32,553,881 As of March 11,
2003
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB 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. The listed documents should be clearly
described for identification purposes.
Transitional Small Business Disclosure Format (check one):
Yes No X
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TABLE OF CONTENTS
PART I.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . . 4
Item 2. Description of Property. . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 10
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 5. Market for Common Equity and Related Stockholder Matters.. . . . 11
Item 6. Management's Discussion and Analysis and Plan of Operation.. . . 11
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . 30
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act. . . . . . . . 31
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 33
Item 11. Security Ownership of Certain Beneficial Owners and Management . 34
Item 12. Certain Relationships and Related Transactions . . . . . . . . . 35
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 36
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF THE BUSINESS
The Company was incorporated in Delaware on July 25, 1997 under the name Oro
Rico Mining Corporation. On August 25, 1997, ORM, Inc., an inactive company
incorporated in Colorado on July 25, 1997, was merged into the Company. The name
of the Company was changed to Asia Pacific Enterprises, Inc. on October 16,
1997. On June 23, 1999, the Company acquired EVideo U.S.A., Inc. by issuing
6,623,016 of its common shares to EVIDEO International,Inc. On August 6, 1999
the Company changed its name to e-VideoTV,Inc.
Unless otherwise indicated, all references to the Company include the operations
of the Company and its wholly owned subsidiary, EVideo U.S.A., Inc.
The current business objective is to develop, deploy, acquire and license
technologies related to Video Compression and the electronic delivery of videos.
The Company intends to pursue opportunities where customers want high quality
video while maintaining low data rate consumption.
The Company believes that a growth opportunity exists for the delivery of video
content over wireless connectivity. This includes video cell phones, wireless
PDA's (Personal Digital Assistants), other wireless hand held devices, wireless
computer networks, and remote video surveillance. Bandwidth limitations, on a
per user basis, in these wireless networks typically require efficient digital
video compression technologies.
In February 2002, the Company completed the acquisition of Ziracom Digital
Communications Inc. Ziracom developed a video compression technology known as
"Alpha-Omega" vs 3.3 that was marketable but was lacking some features demanded
by the market. Thus the Company committed to further development funds for
additional features such as multiple video conferencing. These additional
features were not completed at December 31, 2002 but have been completed in the
first quarter of 2003. This video compression technology offers several
advantages for video transmission in the entertainment, Internet and wireless
industries. Ziracom had been developing video compression technologies targeted
at bandwidth-restrained applications. This video compression technology is
currently being expanded to incorporate features applicable to low and medium
bandwidth wired and wireless connectivity.
The Alpha-Omega software has numerous proprietary techniques for performing
video compression, which include using an automated intelligent algorithm that
selects in real time the most efficient combinations of its internal compression
methods for each scene and frame. The Alpha-Omega also incorporates additional
proprietary methods to reduce image macro blocking in low bandwidth
applications. The Alpha-Omega supports file formats of type ASF (streaming) and
AVI (video files).
The Company initially marketed its Alpha-Omega version 3.3 and completed a sale
for $400,000 for a 5-year license. After the acquisition, the Company focused on
development of its version 4.0 which incorporated multiple video conferencing.
The balance of the year was devoted to completion of this next generation of
Alpha-Omega and beta testing commenced in the first quarter of 2003.
The Company intends to market its Alpha-Omega technology through non-exclusive
Marketing Agreements. In September, 2002, the Company entered into its first
non-exclusive Marketing Agreement with a company in Western Canada. This company
has clientele interested in video compression and its related features.
The Company intends to enter into additional marketing arrangements.
During the fiscal year, the Company moved its corporate offices from Scottsdale
to Arlington Virginia. During 2003, it intends to consolidate its marketing and
development functions into this office entity.
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At the present time, the Company is in the development stage, and has sold only
one license to date. This license sale was for $400,000 for a 5-year
license. To date, this is the only sale of the Alpha-Omega compression
technology. The Company has no employees other than officers of the Company
and contracts for services such as technology development and marketing. The
Company intends to expand its work force in 2003 as it endeavors to market its
4.3 version of the Alpha-Omega.
All of the shares issued and to be issued to EVIDEO International, Inc. for the
acquisition of EVideo U.S.A., Inc. have been released from escrow. As the
business model has changed significantly from what was contemplated at the time
of the transaction, both the Board of Directors and other significant
shareholders deemed it both applicable and appropriate to cancel the escrow
agreement and release the shares.
COMPETITION
Other companies that provide certain forms of video compression software
technology includes Microsoft, Real Networks, Apple Computer, Sorenson, etc. The
majority of these have been designed to provide video solutions over the
Internet and require the use of a powerful Personal Computer platform to receive
and play the video content.
Since these compression products available from the major competitors tend to
require large computer resources most are not readily adaptable to applications
like wireless cell phones. Also, some of these products are not adaptable to
other hand-held devices for similar reasons.
Although the Company also utilizes the Internet and PC platforms for testing and
demonstration, and has products available for this environment, the Company is
working to also target its technology for deployment in smaller platforms such
as wireless PDA's, video cell phones, etc. The Company believes this will give
it the technological edge to enter these markets more quickly than larger
competitors. The Company also plans to maintain a market edge by offering to
create customized versions as needed by large commercial customers.
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THE INDUSTRY
The Company has identified several market areas that are potential users of the
Company's technologies. These include electronic delivery to the home of VOD
movies, video cell phones, wireless PDA's, and remote video surveillance.
The Company believes that the next growth area for the cell phone market will be
video cell phones. Each phone would contain a tiny camera and require both
internal video compression encoding for the camera and decoding for the display.
The Company believes that a growth opportunity exists for delivering video
signals to other handheld wireless devices such as PDA's and other hand-held
computers. The screen displays tend to be larger than those on video cell phones
and users may be more apt to watch video content such as news, instructional
videos, or corporate communications videos.
The Company also believes that a market opportunity exists for remote video
camera surveillance. Video compression will allow these remote cameras to send
their signals over lower cost digital networks, including wireless networks
allowing surveillance in transportation vehicles. This market will require a
cost-effective, low-power, compact-size video compression encoding module.
OTHER TECHNOLOGIES & PATENT PENDING
The Company has also developed a technical methodology related to the
pre-caching of video programs and movies in set top boxes prior to the viewer
ordering the movie content. This innovation offers industry advantages in
delivery efficiencies and consumer satisfaction. The Company has an outstanding
patent application with the US Patent Office. The Company has subsequently
learned that an existing patent by others has some similar claims. The Company
has not yet received any further advice or requests from the US Patent Office on
this patent application.
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The Company plans to explore patent opportunities. While the company wishes to
also acquire rights to existing patents, it should be noted that it currently
does not have the cash resources to make such patent acquisitions. Nonetheless,
the Company will continue to pursue opportunities in video compression
technology and will continue to seek out financial assistance either by loans or
equity.
RISK FACTORS
An investment in stock of the Company is highly speculative, involves a high
degree of risk, and should not be made by any person who cannot afford the loss
of the entire investment. The following factors should be considered carefully
in evaluating the Company and its business.
Lack of Prior Operations and Experience
The Company is a development stage company, has no revenues from operations and,
except for the services of its officers and directors and the cash on hand, has
no other significant tangible assets. Accordingly, there can be no assurance
that the Company will operate at a profitable level. The Company's proposed
business involves selling software and licensing technology related to video
compression and to the electronic delivery of videos. Future development and
operating results will depend on many factors, including the initial sales, sign
up of customers and licensees, the demand for the Company's technology, price
sensitivity, and the Company's ability to develop markets and control costs. In
addition, the Company's future prospects must be considered in light of the
risks, expenses and difficulties frequently encountered in establishing a new
business in the video communications industry, which is characterized by intense
competition, rapid technological change, significant regulation and significant
consolidation of ownership.
Acceptance of Company's Technology;
There can be no assurance that the Company's technologies will be purchased or
licensed in large quantities. Although the Company believes that there will be a
large market for its video compression technology, there can be no assurance
that a profitable market will develop, or how quickly such development may
occur. If potential customers do not perceive that the Company's technologies
offers them technical benefits or image quality improvements that they are
willing to pay for then the Company will be unable to continue as a going
concern.
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Additional Financing Required - Dilution to Present Shareholders
The Company does not currently have sufficient funds to reach full market
penetration of its technology and generate significant sales income and be
competitive in the industry. The Company's capital requirements will depend on a
variety of factors, including the signing up of customers, the time involved to
achieve significant sign ups, the development of additional product features,
the acquisition of further licenses, patents, and other technologies and market
acceptance of and demand for its technologies. The timing and amount of such
capital requirements cannot be accurately predicted. There is no assurance that
additional funds will be available from any source when needed by the Company.
If additional funds are not available, the Company may not be able to continue
in business.
In order to raise additional capital, the Company may issue additional shares of
common stock at prices that will be determined by the Company's Board of
Directors. The issuance of any such shares may result in a reduction of the Net
book value per share or market price of the outstanding shares of the Company's
common stock, and will reduce proportionate ownership and voting power of all
other shareholders. Further, any such issuance may result in a change in control
of the Company.
The Company is currently negotiating with several parties regarding additional
funding. The outcome of these negotiations will not be known for at least 60
days.
Stock Options
The Company has approved a stock option plan that sets aside 7,500,000 of the
company's common stock for issuance upon the exercise of stock options. During
the year, the following stock options were granted:
Date of Issue Effective Date Expiry Date
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Jan 23, 2002 Robert Dinning 1,000,000 Mar 15, 2002 Mar 15, 2007
Jan 23, 2002 Harvey Nickerson 1,000,000 Mar 15, 2002 Mar 15, 2007
Jan 23, 2002 Gianfranco Fiorio 750,000 Mar 15, 2002 Mar 15, 2007
Jan 23, 2002 Peter Wilson 600,000 Mar 15, 2002 Mar 15, 2007
Mar 15, 2002 Rod Gunn 750,000 Mar 15, 2002 Mar 15, 2007
Jan 7, 2002 Andrew Saska 400,000 Jan 7, 2002 Jan 31, 2003
Jan 7, 2002 Matt Lincoln 200,000 Jan 7, 2002 Jan 31, 2003
Jan 7, 2002 Thom McPhadden 200,000 Jan 7, 2002 Jan 31, 2003
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Sub-total 4,900,000
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The options issued to Rod Gunn have been cancelled. Mr. Gunn resigned July 25,
2002 and did not exercise his options within the prescribed time period. The
options issued to Saska, Lincoln, and McPhadden expired Oct 31, 2002 per their
agreement.
The directors approved a resolution terminating all remaining options
outstanding as listed above.-. This included an option to a former consultant,
Mr. Wilson, for 600,000 as well as the options for 2,750,000 granted to the
three directors during the year.
Options in the amount of 669,000 had been approved in the previous year for
consulting services rendered. These options were subject to cancellation 90 days
after termination of services, if not exercised. None were exercised and said
options totaling 669,000 have been cancelled.
As at December 31, 2002, there were no options outstanding, and none have been
granted to date in 2003.
The issuance of options under the stock option plan could adversely affect the
market price of the Company's common stock and could impair the Company's
ability to raise additional capital through the sale of its equity securities or
debt financing. Exercise of any such options will result in dilution to the
proportional interests of shareholders of the Company at the time of exercise
and, to the extent that the exercise price is less than the book value of the
common stock at that time, to the book value per share of the common stock.
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No Dividends
The Company never has paid and does not anticipate paying dividends on its
common stock in the foreseeable future. Retained earnings, if any, will be
utilized for the operation and expansion of the Company's business.
Limited Public Market for Common Stock
The Company's common stock is traded in the over-the-counter market. An
investment in the Company's common stock should be considered highly illiquid,
and there can be no assurance that a market for the Company's common stock will
continue.
Penny Stock Regulation
The Securities and Exchange Commission (the "SEC") has adopted rules that
regulate broker-dealer practices in connection with transactions in "penny
stocks". Penny stocks generally are equity securities with a price of less than
$5.00 per share (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ National Market System, provided that current
price and volume information with respect to transactions in such securities is
provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prepared by the
SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer also must provide the
customer with bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules, the broker-dealer must
make a special written determination that a penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure requirements often have the effect of reducing the
level of trading activity in any secondary market for a stock that becomes
subject to the penny stock rules. The Company's common stock is subject to the
penny stock rules, and accordingly, owners of the Company's common stock may
find it difficult or impossible to sell their shares.
Need for Experienced Management and Key Employees
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The Company is dependent upon the services of a few key management and technical
personnel. The loss of any one of their services, or an inability to recruit and
retain additional qualified personnel, could have a material adverse effect on
the Company.
Corporate Size Disadvantage & New Technologies
The video compression industry is characterized by a large percentage of the
industry controlled by a small number of large companies. The Company will be
at a disadvantage in negotiating licenses with other companies having larger
technical and legal staffs, established market positions and greater financial
and operational resources than the Company. There can be no assurance that the
Company will be able to conclude licenses or sales in a timely manner. There
can be no assurance that other companies will not succeed in developing
products, or new competing technologies that are more effective or more
effectively marketed than technologies marketed by the Company or that render
the Company's technology obsolete.
Dependence on Third Parties
The Company intends to sell licenses and technologies to other companies that
will, in turn, provide and sell the end products. The Company expects its
success will be dependent upon the deployment of products and services by
others.
Control by Principal Shareholders.
The Company's officers, directors and principal shareholders own approximately
40% of the Company's outstanding common stock. The Company's officers and
directors will therefore be able to influence the election of the Company's
Directors and thereby direct the Company's policies and affairs.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not currently own any material amount of property or equipment.
ITEM 3. LEGAL PROCEEDINGS.
The Company was named in a lawsuit pertaining to Ziracom and three of its former
Directors in January 2002. This lawsuit was without merit and was vigorously
defended. e-VideoTV, Inc was named even though it was not even a shareholder at
the time of the allegations.
A trial was completed in late summer of 2002 on a complaint with defendants who
are also defendants in the litigation that the Company has been named in. While
the Company was not a party to this litigation, this case was somewhat similar
and the jury in this case awarded damages of $3,000,000 to the defendants. The
plaintiffs are the same people regarding the Ziracom, e-Video lawsuit. The
plaintiffs on Feb 20, 2003 filed a motion of dismissal against e-VideoTV Inc and
all other defendants in their action. As a result, there is no further action
and the matter is closed.
A claim has been made against the company regarding a sublease agreement for
office space in Scottsdale, Arizona. The total amount claimed is $39,505, of
which $31,614 has been accrued by the company. Management intends to reach a
settlement with the other company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock has been quoted on the National Association of
Securities Dealers' Over-the-Counter market since May 11, 1999. There is no
other public trading market for the Company's equity securities.
The following table summarizes trading in the Company's common stock, as
provided by quotations published on the OTC Bulletin Board for the period
indicated. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
Quarter ended High Bid Low Bid High Bid Low Bid
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March 31, 2002 $ 0.026 $ 0.023 March 31,2001 $ 0.65 $0.69
June 30, 2002 $ 0.0001 $ 0.0001 June 30, 2001 $ 0.84 $0.61
September 30, 2002 $ 0.0001 $ 0.0001 Sept 30, 2001 $ 0.40 $0.33
December 31, 2002 $ 0.01 $ 0.01 Dec 31, 2001 $ 0.06 $0.05
As of March 11, 2003, there were approximately 425 holders of record of the
Company's common stock.
The Company has not paid, and, in the foreseeable future, the Company does not
intend to pay, any dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
The primary business of the Company is to develop, design, deploy, and acquire
license technologies related to video compression over wired and wireless
networks. The Company has developed its "Alpha-Omega" Video Compression CODEC
which focuses on video compression, technologies to electronically deliver video
signals for remote video surveillance, education and entertainment, wireless
hand-held computers and video cell phones.
The Company moved in this direction after determining in the summer of 2001 that
the analog copy protection used in home movie devices and set-top boxes for
video received in Faster Than Real Time (FTRT) was faced with delays that made
it difficult to justify the annual cost of the license with Macrovision Corp and
its ongoing related costs. To this end, it negotiated a return of the license to
Macrovision who in turn returned for cancellation the 502,713 shares issued in
2000.
The Alpha-Omega software possesses several proprietary techniques allowing for
video compression using an automated intelligent algorithm that selects in real
time the most efficient combinations of its internal compression methods for
each scene and frame. It also incorporates additional proprietary methods to
reduce image macro blocking in low bandwidth applications. The Alpha-Omega CODEC
supports file formats of type ASF (streaming) and AVI (video files).
In February 2002, the Company completed the acquisition of Ziracom Digital
Communications Inc when it issued 8,655,138 restricted common shares for 100% of
the outstanding shares of Ziracom.
The Company intends to market its CODEC through its own marketing personnel as
well as with independent Marketing Companies on a non-exclusive basis.
The entire fiscal year was devoted to continued development of its CODEC. This
CODEC includes multiple video conferencing. As a result of this, the Company had
no revenues on its current version of the CODEC. The Company did have revenue
during the year as a result of the sale of a previous version of the CODEC. This
was sold for total consideration of $400,000 and included a five- year
license. Accordingly, the Company recognized $80,000 in revenue for the year
even though the entire $400,000 was received.
During the fiscal year ending December 31, 2002, the Company also raised funds
by way of loans from officers and directors, and loans from other parties.
During the year, two directors loaned the Company $52,500 and $19,500
respectively. One director is also owed approximately $45,000 re expenses
incurred on behalf of the Company. There are no terms of repayment on these
loans nor is there any interest being paid for the loans from Directors.
Also during the year, in addition to the director advances, the Company
negotiated loans in the amount of $56,600 from five separate parties. $49,000 of
these loans are for a one-year period, bear interest at the rate of 8% per annum
and are convertible into common shares at the rate of $0.05 per share. The
balance of the $56,600 in loans ($7,600) was received from shareholders. These
loans bear no interest and have no set terms of repayment. These funds were
used to continue the development of the Alpha-Omega Video Compression CODEC.
The Company is committed to continuing development of video compression CODEC
technology in the next 12 months as it feels video content for wireless and
wired applications is the market direction. These wireless applications include
video cell phones, wireless computer networks, remote video surveillance, and
wireless PDA's. Bandwidth limitations require efficient video compression
technologies and Ziracom technology is applicable for both high and low
bandwidth applications.
In the year ending December 31, 2003, the Company estimates it will require
funding for: Continued development of its alpha omega video compression as well
as marketing costs to market its technology. The majority of these funds should
be generated internally as marketing efforts accelerate re the CODEC version
4.3. The Company also intends to strengthen its technical and marketing
personnel.
The Company further recognizes that its development schedule will be delayed
unless additional capital required is available when needed. The Company
acknowledges that it currently does not have sufficient capital to continue its
operation. The Company will continue to raise capital by way of loans and
private placements as required.
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As a result of the convertible debenture outstanding, conversions during the
year resulted in the issuance of 5,501,000 common shares, all issued under an
SB2 filed in August 2001. This issuance, plus the issuance of 8,655,138 re the
acquisition of Ziracom Digital Communications Inc. increased the issued common
shares to 32,553,881. The Convertible debenture outstanding at December 31, 2002
amounted to $871,910. In addition to this, accrued interest amounted to
$120,067. This debenture is repayable in full in July, 2003.
The Company realigned its management team with the appointment of Gianfranco
Fiorio as President and CEO effective February 1, 2002. Mr. Fiorio resides in
Arlington Virginia, and brings a wealth of marketing and management skills to
the Company.
Mr. Robert Dinning was appointed interim CEO after the resignation of Mr.
Charles Weber in September 2001 and retained that position until Mr. Fiorio was
appointed February 1, 2002. Mr. Dinning will continue in his other roles as
Chairman and CFO. Mr. Harvey Nickerson has resigned as Chief Technology Officer
in August, 2002 but continues as a member of the Board of Directors. Any
technical and other services required are done so through consulting agreements.
There are no employees of the Company other than the officers.
Inflation has not been a factor during the year ending December 31, 2002.
Controls and procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chairman and Chief Financial Officer, and
Chief Executive Officer of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chairman and Chief Financial Officer and the Chief Executive Officer
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
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ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included in this Annual Report on Form
10-KSB:
PAGE #
Report of the Independent Auditors 14
Consolidated Balance Sheets as at December 31, 2002 and
2001 15
Consolidated Statements of Operations for the
cumulative period from inception, March 5, 1999, to
December 31, 2002 and the years ended December 31, 2002 and 2001 16
Consolidated Statements of Cash Flows for the
cumulative period from inception, March 5, 1999, to
December 31, 2002 and the years ended December 31, 2002 and
2001 17
Consolidated Statement of Shareholders' Equity from
inception, March 5, 1999, to December 31, 2002 18
Notes to the Consolidated Financial Statements 19-30
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disagreements.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company are:
Name Age Position Director Since
----------------- --- -------------------- ----------------
Robert Dinning 63 Chairman and Chief
Financial Officer June 22, 1999
Gianfranco Fiorio 52 CEO, President
and Director February 1, 2002
Harvey Nickerson 45 Director April 1, 2000
ROBERT DINNING has been a director of the Company since June 1999 and an officer
of the Company since January 2000. On August 30, 2001, Mr. Dinning was appointed
Chairman, President and CEO of the Company, following the resignation of Mr.
Charles Weber. Mr. Dinning held all these positions until Feb 1, 2002, when
Gianfranco Fiorio was appointed a director, President and CEO. Mr. Dinning is a
Chartered Accountant, who has been a Business and Financial Management
Consultant since 1977. He has provided management and financial advice to
clients (both public and private companies) in the software technology,
resource, hospitality and retail industries since 1977. In the past five years,
positions held include; Chief Financial Officer and Director of First American
Scientific Corp. from October 1995 to June 1999. He is currently a Director of
Apolo Gold Inc. Prior to 1977 Mr. Dinning was CFO and Secretary of a large
national public broadcasting company in Canada.
GIANFRANCO FIORIO was appointed a director, President and CEO on February 1,
2002. Mr. Fiorio is a self-employed financial consultant, who specializes in
management of trusts, and is a financial consultant to high net worth clients.
In addition to this area, he has consulted for numerous companies in sales and
general management matters. Mr. Fiorio resides in Arlington Virginia, and
assists the Company in marketing of the technology primarily in Eastern USA. Mr.
Fiorio is a lifelong resident of the Washington D.C. Area.
HARVEY NICKERSON has been a director of the Company since April 2000. Mr.
Nickerson was formerly chief technology officer of the Company and now consults
when required in areas of architecture, technical direction and development of
the Company's products. Prior to becoming a director of e-Video, Mr. Nickerson
had an 18-year career in the technology, semiconductor and cable TV industry.
After success as a design engineer, his career has expanded to include executive
management, business planning, international product marketing, and technology
licensing. Mr. Nickerson has two degrees in Electrical Engineering and currently
resides in San Diego, Cal.
-31-
During the past five years, none of the Company's directors, executive officers,
promoters or control persons:
(1) have been involved in any bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to that time;
(2) have been convicted in a criminal proceeding or are subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
(3) have been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting such person's involvement in any type of business, securities or
banking activities; or
(4) have been found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated.
All directors are appointed until next annual meeting of shareholders. There is
no compensation for attending meetings but travel expenses are reimbursed.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 furnished to the registrant under
Rule 16a-3(e) during the year ended December 31, 1999 and Forms 5 furnished to
the registrant, or written representations from reporting persons that no Form 5
is required to be filed, with respect to the year ended December 31, 1999, -All
required filings re form 3, 4 and 5 have been carried out by the directors and
officers of the Company at Dec 31, 2002.
-32-
ITEM 10. EXECUTIVE COMPENSATION.
The following table on discloses all compensation received by the Company's
Officers and Directors.
Compensation Annual Compensation Long-Term
--------------------- ------------------------------------ -------------------
Name and Other Securities
All Other Annual Restricted Underlying
Principal Compen- Stock Options/
LTIP- Year Payment Bonus sation Awards SAR's
Position
Payouts
Robert G. Dinning 2002 $ Nil (1) 0 0 0 0
Director - June 21, 0 0 0 0
1999. CFO/Sec since Jan
31,2000Chairman & CEO
Aug 31,2001 to Feb 1,
2002.Currently Chairman
and CFO.
Gianfranco Fiorio 2002 Nil (2) 0 0 0 0
Director - Feb 1, 2002
CEO - Feb 1, 2002 0 0 0 0
Harvey Nickerson 2002 $ 10,000 (3) 0 0 0 0
CTO since Jan31, 2000 0 0 0 0
Secretary Sept 1, 2001
Director April 1,
2000.
(1) Compensation of $120,000 has been accrued for the year but has not been
paid.
(2) Compensation of $120,000 has been accrued for the year but has not been
paid.
(3) The sum of $10,000 has been paid and the amount of $20,000 has been accrued
but not paid.
The Company has employment agreements with Dinning and Fiorio.
-33-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows the ownership of the Company's common stock by the
Company's officers and directors and by those persons known by the Company to be
the beneficial owner of more than 5% of the Company's common stock. Unless
otherwise indicated all shares are owned of record.
Amount Owned
and nature of Percent of
Name and Address of Beneficial Owner ownership Class
--------------------------------------- -------- ------------- -----------
Robert G. Dinning, Director, 3,745,344 11.50%
Chairman, and Chief Financial Officer. Indirect 309,615 0.95%
#1458- 409 Granville St Vancouver, BC,
Canada V6C 1T2
Gianfranco Fiorio, Director 0 0.0%
CEO, Feb 1, 2002
2600 North Nelson St
Arlington Virginia 22207
Harvey Nickerson, Director, 2,777,672 9.43%
11326 Village Ridge Rd Indirect 246,154 0.84%
San Diego CA. 92131
Directors and Executive Officers as a
group (3 persons) 7,078,785 21.74%
There are no arrangements known to the Company, which may result in a change in
control of the Company.
-34-
Options have been granted to the following officers and directors:
Date Granted
Name and Exercisable No. of Shares/ Price Expiration Date
----------------- --------------- -------------- ----------- ---------------
There are no options outstanding at December 31, 2002. None have been issued to
date in 2003.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no related transactions.
-35-
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K PAGE
Exhibit 2 Articles of Incorporation, as amended, and Bylaws
Exhibit 2.1 Articles of Incorporation, as amended on
August 5, 1999
Exhibit 3 Instruments Defining the Rights of Security Holders
Exhibit 3.1 Warrant Agreement
Exhibit 4 Subscription Agreement None
Exhibit 5 Voting Trust Agreement None
Exhibit 6 Material Contracts
Exhibit 6.1 Agreement dated June 8, 1999 between the
Registrant, EVIDEO U.S.A., Inc., EVIDEO
International, Inc., Roy B. Bennett & Associates
Ltd. and Roy B. Bennett with respect to the
acquisition of EVIDEO U.S.A., Inc. by the
Registrant
Exhibit 6.2 Management agreement effective June 21, 1999
between EVIDEO U.S.A., Inc. Roy B. Bennett &
Associates Ltd. pursuant to which Roy B. Bennett
and Associates Ltd. agrees to provide the services
of Roy Bennett and a project manager
Exhibit 7 Material Foreign Patents None
Exhibit 8 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, etc. None
Exhibit 10 Amendment dated September 1, 1999 to the Agreement
dated June 8, 1999 between the Company, EVIDEO
U.S.A., Inc., EVIDEO International Inc., Roy B.
Bennett & Associates Ltd. and Roy B. Bennett
Exhibit 10 Amendment dated January 31, 2000 to the Agreement
dated June 8, 1999 between the Company, EVIDEO
U.S.A., Inc., EVIDEO International Inc., Roy B.
Bennett & Associates Ltd. and Roy B. Bennett
-36-
SIGNATURES
In accordance with Section 13 or 15(d) of Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
E-VIDEOTV, INC.
Date: March 27, 2002 By:
--------------------------- ---------------------------
Robert G. Dinning
Director, Chairman and Chief Financial
Officer
In accordance with Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated
Date: March 27, 2002
--------------------------- ---------------------------
Gianfranco Fiorio
Director and CEO
Date: March 27, 2002
--------------------------- ---------------------------
Harvey Nickerson
Director
-37-
E-VIDEOTV, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
DECEMBER 31, 2002 AND 2001
CONTENTS
PAGE
----
Independent Auditors' Report on the Consolidated Financial Statements 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Consolidated Statement of Stockholders' Equity 5-6
Notes to the Consolidated Financial Statements 7-17
INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders of
e-VideoTV, Inc.
(A Development Stage Company)
We have audited the consolidated balance sheets of e-VideoTV, Inc. (A
Development Stage Company) as at December 31, 2002 and 2001 and the statements
of operations, cash flows and stockholders' equity for the years then ended and
for the period from March 5, 1999 (inception) to December 31, 2002. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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 audit provides a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for the years then
ended and for the period from March 5, 1999 (inception) to December 31, 2002 in
accordance with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
the company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the company has no established source of
revenue, has a significant working capital deficiency, and is dependent on its
ability to raise substantial amounts of equity funds. This raises substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/GRANT THORNTON LLP
Vancouver, Canada
March 14, 2003 Chartered Accountants
1
===========================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
December 31 December 31
2002 2001
===========================================================================================
ASSETS
Current
Cash $ 20,189 $ -
Prepaid expenses - 4,225
------------ ------------
20,189 4,225
Non-current receivables (Note 4) - 32,500
Computer equipment (net of accumulated depreciation of $45,789
(2001: $22,398)) 25,861 21,097
Software development costs (Note 5) - -
Advances to Ziracom Digital Communications, Inc. (Note 6) - 269,744
Debt issue costs (Note 9) 34,364 113,782
------------ ------------
$ 80,414 $ 441,348
============ ============
===========================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 7) $ 792,849 $ 233,341
Loans payable (Note 8) 199,076 202,852
Convertible debentures (Note 9) 681,993 237,667
------------ ------------
1,673,918 673,860
Deferred revenue 320,000 -
------------ ------------
1,993,918 673,860
------------ ------------
SHAREHOLDERS' DEFICIENCY
Capital stock (Note 10)
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:
32,553,881 (2001: 18,397,743) common shares 3,255 1,840
Additional paid-in capital 5,503,730 5,151,439
Share subscriptions 79,200 79,200
------------ ------------
5,586,185 5,232,479
Deficit accumulated during the development stage (7,499,689) (5,464,991)
------------ ------------
(1,913,504) (232,512)
------------ ------------
$ 80,414 $ 441,348
============ ============
===========================================================================================
Continuance of operations (Note 1)
Contingency (Note 14)
See accompanying notes to the consolidated financial statements.
2
==========================================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
Cumulative Year Year
March 5, 1999 Ended Ended
to December 31 December 31 December 31
2002 2002 2001
==========================================================================================================
Revenue $ 80,000 $ 80,000 $ -
---------------- ------------- -------------
General and administrative expenses
Bad debts 80,500 80,500 -
Compensation expense for stock options 420,583 28,000 -
Corporate promotion 283,607 23,488 98,914
Depreciation and amortization 796,723 170,553 318,568
General corporate expenses 198,496 23,097 38,288
Interest expense 1,064,645 673,628 391,017
Management and consulting fees 1,460,728 268,990 451,833
Office expenses 239,481 50,820 73,521
Professional fees 442,714 95,517 98,826
Rent 175,549 40,817 57,143
Royalties 250,000 - 250,000
Software development 117,275 95,275 22,000
Travel 219,402 39,588 64,826
---------------- ------------- -------------
5,749,703 1,590,273 1,864,936
---------------- ------------- -------------
Loss before undernoted (5,669,703) (1,510,273) (1,864,936)
Write-off of distribution rights and software development
costs (Note 5) (1,841,360) (524,425) (892,904)
Interest income 11,374 - 1,318
---------------- ------------- -------------
Net loss $ (7,499,689) $ (2,034,698) $ (2,756,522)
================ ============= =============
Weighted average number of common shares
Outstanding 29,640,891 17,180,666
============= =============
Net loss per share, basic and diluted $ (0.07) $ (0.16)
============= =============
==========================================================================================================
See accompanying notes to the consolidated financial statements.
3
====================================================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
Cumulative Year Year
March 5, 1999 Ended Ended
to December 31 December 31 December 31
2002 2002 2001
====================================================================================================================
CASH DERIVED FROM (APPLIED TO)
OPERATING
Net loss for period $ (7,499,689) $ (2,034,698) $ (2,756,522)
Deferred revenue (80,000) (80,000) -
Bad debts 80,500 80,500 -
Compensation expense for stock options 420,583 28,000 -
Write-off of distribution rights and software development costs 1,841,360 524,425 892,904
Depreciation and amortization 806,657 170,553 318,568
Amortization of debenture discount 937,841 585,351 352,490
Debenture interest paid in shares 5,720 4,445 1,275
Management fee paid in shares 238,000 - 238,000
Subscription of shares for services 25,200 - 25,200
Change in non-cash operating capital
Receivables and prepaids 19,036 10,657 4,951
Payables and accruals 695,188 440,077 (207,808)
---------------- ------------- -------------
(2,509,604) (270,690) (1,130,942)
---------------- ------------- -------------
FINANCING
Proceeds from issuance and subscription of common shares 1,538,101 - 444,500
Convertible debentures issued 1,000,000 - 1,000,000
Convertible debenture issue costs (163,250) - (163,250)
Advances on loans payable 391,050 128,698 163,352
Repayments of loans payable (132,474) (132,474) -
Cash acquired on acquisition of parent company 1,001,481 - -
Loans from parent company prior to acquisition 115,000 - -
---------------- ------------- -------------
3,749,908 (3,776) 1,444,602
---------------- ------------- -------------
INVESTING
Advances to Ziracom Digital Communications, Inc. 76,843 346,587 (269,744)
Non-current receivables (80,500) (48,000) (32,500)
Computer equipment (47,427) (3,932) (13,692)
Distribution rights (300,000) - -
License (445,000) - -
Software development (424,031) - -
---------------- ------------- -------------
(1,220,115) 294,655 (315,936)
---------------- ------------- -------------
Net increase (decrease) in cash 20,189 20,189 (2,276)
Cash, beginning of period - - 2,276
---------------- ------------- -------------
Cash, end of period $ 20,189 $ 20,189 $ -
================ ============= =============
NON-CASH ACTIVITIES NOT INCLUDED IN CASH FLOWS
Shares issued on conversion of debentures $ 126,962 $ 61,607 $ 65,355
Debenture interest paid in shares $ 5,720 $ 4,445 $ 1,275
Shares issued to pay management fees $ 238,000 $ - $ 238,000
Shares issued to settle loan from related party $ 59,500 $ - $ 59,500
Shares subscribed for services and to settle trade payables $ 79,200 $ - $ 79,200
Shares cancelled on termination of license $ 30,163 $ - $ 30,163
Shares issued to acquire license $ 791,773 $ - $ -
Compensation expense for stock options $ 420,583 $ 28,000 $ -
Cancellation of loans from parent company on acquisition $ 115,000 $ - $ -
Value of shares issued in excess of cash acquired on $
acquisition of parent company $ 95,374 $ - -
====================================================================================================================
See accompanying notes to the consolidated financial statements.
4
=====================================================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Inception, March 5, 1999 to December 31, 2002
=====================================================================================================================
Additional Total
Number Par Paid-in Share Stockholders'
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 - - - 54,000 - 54,000
Issuance of shares for
subscriptions 45,000 4 44,996 (45,000) - -
Units issued for cash 588,000 59 443,941 - - 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
Issuance of shares in
settlement of loan from
related party 119,000 12 59,488 - - 59,500
Subscription of shares for
services - - - 25,200 - 25,200
Value of warrants issued as
part of debentures (Note 9) - - 486,600 - - 486,600
Beneficial conversion feature
of debentures (Note 9) - - 513,400 - - 513,400
Issuance of shares on
conversion of debentures
and interest 475,000 47 66,583 - - 66,630
Shares cancelled on
termination of copy
protection license (Note 5) (502,713) (50) (30,113) - - (30,163)
Net loss, year ended
December 31, 2001 - - - - (2,756,522) (2,756,522)
------------ ------- ------------ --------------- ------------ ---------------
Balance, December 31, 2001 $18,397,743 $1,840 $ 5,151,439 $ 79,200 $(5,464,991) $ (232,512)
=====================================================================================================================
See accompanying notes to the consolidated financial statements.
5
==============================================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Inception, March 5, 1999 to December 31, 2002
==============================================================================================================
Additional Total
Number Par Paid-in Share Stockholders'
of Shares Value Capital Subscriptions Deficit Equity
---------- ------ ----------- -------------- ------------ ---------------
Balance carried forward 18,397,743 $1,840 5,151,439 $ 79,200 $(5,464,991) $ (232,512)
Shares issued to acquire
Ziracom Digital
Communications Inc.
(Note 3) 8,655,138 865 258,789 - - 259,654
Compensation expense for
stock options - - 28,000 - - 28,000
Issuance of shares on
conversion of debenture and
interest 5,501,000 550 65,502 - - 66,052
Net loss, year ended
December 31, 2002 - - - - (2,034,698) (2,034,698)
---------- ------ ----------- -------------- ------------ ---------------
Balance, December 31, 2002 32,553,881 $3,255 $ 5,503,730 $ 79,200 $(7,499,689) $ (1,913,504)
========== ====== =========== ============== ============ ===============
==============================================================================================================
See accompanying notes to the consolidated financial statements.
6
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
1. BASIS OF PRESENTATION
The company was incorporated in the state of Delaware, U.S.A. on July 25, 1997
under the name Oro Rico Mining Corporation. On August 25, 1997, ORM, Inc., an
inactive company incorporated in Colorado on July 25, 1997, was merged into the
company. The name of the company was changed to Asia Pacific Enterprises, Inc.
on October 16, 1997 and to e-VideoTV, Inc. on August 6, 1999.
On June 23, 1999 the company acquired all of the outstanding shares of e-Video
U.S.A., Inc. This business combination has been accounted for as an acquisition
of the company by e-Video U.S.A., Inc.
The company had previously commenced its planned principal operations although
it had not yet earned any revenue. The company's previous operational focus was
to secure licensing operators for its Faster-Than-Real-Time ("FTRT") video on
demand service. To that end, management devoted substantially all of the
company's resources to the identification and qualification of such potential
licenses.
In November 2001, the company changed its operational focus from the licensing
of FTRT video on demand service to focus on the acquisition of technologies,
especially in the field of video compression, and sell these technologies to
interested parties and/or enter into reseller agreements. The company has sold
its exclusive license rights in the U.S.A. for analog copy protection for video
transmissions received in FTRT back to Macrovision Corporation (Note 5).
In 2002, the company acquired (through its acquisition of Ziracom Digital
Communications, Inc. ("Ziracom") (Note 3)), the Alpha-Omega video compression
technology.
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern which assumes that the company will
continue to operate for the foreseeable future and will be able to realize its
assets and discharge its liabilities in the normal course of operations. The
company's continued existence is dependent upon its ability to raise additional
capital and to ultimately achieve profitable operations. It is management's
intention to obtain financing to fund the continued development of the
Alpha-Omega compression technology as well as the acquisition of related
technologies.
If the going concern assumptions were not appropriate for these financial
statements, then adjustments would be necessary in the carrying values of assets
and liabilities, the reported expenses and the balance sheet classifications
used.
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements are presented in U.S. dollars in
accordance with accounting principles generally accepted in the United States of
America and include the accounts of the company and its wholly-owned subsidiary,
e-Video U.S.A., Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
7
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
TRANSLATION OF FOREIGN CURRENCIES
The company considers the U.S. dollar its functional currency. Monetary assets
and liabilities are translated at the exchange rate in effect at the balance
sheet date and non-monetary assets and liabilities at the exchange rates in
effect at the time of acquisition or issue. Revenues and expenses are
translated at the rates in effect at the time of the transaction. Exchange
gains or losses arising on translation are included in net income or loss for
the period.
FINANCIAL INSTRUMENTS
The company has various financial instruments, including cash, receivables,
accounts payable and accrued liabilities, loans from related and unrelated
parties and convertible debentures. It was not practicable to determine the
fair value of the loans from a related party or the convertible debenture. The
carrying values of all other financial instruments approximates their fair
values.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards (FAS) 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, the company has capitalized certain computer software development
costs upon the establishment of technological feasibility. Technological
feasibility is considered to have occurred upon completion of a detailed program
design which has been confirmed by documenting and tracing the detail program
design to product specifications and has been reviewed for high-risk development
issues, or to the extent a detailed program design is not pursued, upon
completion of a working model that has been confirmed by testing to be
consistent with the product design. Amortization is provided based on the
greater of the ratios that current gross revenues for a product bear to the
total of current and anticipated future gross revenues for that product, or the
straight line method over the estimated useful life of the product commencing
upon technological feasibility. The estimated useful life for the straight-line
method is determined to be five years.
Management regularly reviews the carrying value of its software development
costs to assess whether or not there has been an impairment in its carrying
value. When the carrying values of these assets exceed their estimated net
recoverable amounts, an impairment provision is recorded (see Note 5).
DEFERRED INCOME TAXES
Deferred income taxes are provided for significant carry forwards and temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets or liabilities are determined by
applying the presently enacted tax rates and laws. A valuation allowance is
required when it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
LOSS PER SHARE
The company follows Statement of Financial Accounting Standard No. 128, to
calculate earnings per share. Basic loss per share is computed using the
weighted effect of all common shares issued and outstanding. During 2001, the
6,623,016 contingently issuable shares were excluded from the calculation of
weighted average common shares outstanding until they were released from escrow.
Diluted loss per common share is computed giving effect to all potential
dilutive options and warrants that were outstanding during the year. For all
periods presented, all outstanding options and warrants were anti-dilutive.
8
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACCOUNTING FOR STOCK OPTIONS
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"), which requires
entities to calculate the fair value of stock awards granted to employees. This
statement provides entities with the option of either electing to expense the
fair value of employee stock-based compensation or to continue to recognize
compensation expense under previously existing accounting pronouncements and to
provide pro forma disclosures of net earnings (loss) and, if presented, earnings
(loss) per share, as if the above-referenced fair value method of accounting was
used in determining compensation expense.
The company accounts for the options issued to directors and employees in
accordance with the provisions of APB Opinion No. 25, Accounting for Stock
Options 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:
December 31 December 31
2002 2001
------------- -------------
NET LOSS:
Actual net loss $ (2,034,698) $ (2,756,522)
Pro forma stock based compensation (70,000) (543,840)
------------- -------------
Pro forma net loss $ (2,104,698) $ (3,300,362)
============= =============
LOSS PER SHARE:
Actual net loss per share $ (0.07) $ (0.16)
Pro forma net loss per share $ (0.07) $ (0.19)
The fair value of each option grant was estimated at the grant date using the
Black-Scholes option-pricing model for the year ended December 31, 2002,
assuming a risk-free interest rate of 4.88%, volatility of 2.05%, zero dividend
yield, and an expected life of 5.89 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 traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
measure of the fair value of its employee stock options.
Stock options issued to non-employees are recorded at the fair value of the
services received or the fair value of the options issued, whichever is more
reliably measurable. Compensation is charged to expense over the shorter of the
service or vesting period. Unearned amounts are shown as deferred compensation
in stockholders' equity.
STOCK ISSUED FOR NON-CASH CONSIDERATION
Stock issued for non-cash consideration is recorded at the fair value of the
stock issued.
9
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement applies to all
entities. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and/or the normal operation of a long-lived asset, except for certain
obligations of lessees. This Statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting guidance,
principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146 requires
that the liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred, SFAS No. 146 also establishes that
the liability should initially be measured and recorded at fair value.
Accordingly, SFAS No. 146 may affect the timing of recognizing future
restructuring costs as well as the amount recognized. SFAS No. 146 is effective
for exit or disposal activities that are initiated after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure - an amendment of FASB Statement No. 123"
(FAS 148). The statement amends SFAS 123 "Accounting for Stock-Based
Compensation:" (FAS 123) to provide alternative methods of voluntarily
transition to the fair value based method of accounting for stock-based employee
compensation. FAS 148 also amends the disclosure requirement of FAS 123 to
require disclosure of the method used to account for stock-based employee
compensation and the effect of the method on reported results in both annual and
interim financial statements. The disclosure provisions will be effective for
the company beginning with the company's quarter ended March 31, 2003. The
company has no current intention to change its policy of accounting for stock
-based compensation.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a
liability be recorded in the guarantor's balance sheet upon issuance of certain
guarantees. FIN 45 also requires disclosure about certain guarantees that an
entity has issued. The disclosure requirements of FIN 45 were effective for
fiscal years ending after December 15, 2002.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003.
Management's preliminary assessment of these recent pronouncements is that they
will not have a material impact on the company's financial position or results
of operations.
10
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
3. ACQUISITION
Pursuant to a Share Purchase Agreement entered into between the company, Ziracom
Digital Communications Inc., and its shareholders, the company agreed to
purchase all of Ziracom's outstanding common shares for 8,655,138 of the
company's common shares. Ziracom shareholders were to receive additional shares
if earnings before interest, taxes, depreciation and amortization exceeded
$500,000 for the period August 1, 2001 to August 31, 2002. As Ziracom did not
exceed the required milestone during the period from August 1, 2001 to August
31, 2002, no such additional shares are issuable.
As a result of this transaction, Ziracom became a subsidiary of e-VideoTV, Inc.
The transaction has been accounted for by the purchase method with the company
as the acquirer. The results of Ziracom's operations are included subsequent to
its acquisition date on February 14, 2002.
NET IDENTIFIABLE ASSETS ACQUIRED
Receivables $ 83,275
Capital assets 25,724
Software development costs 635,667
Payables and accruals (85,012)
Deferred revenue (400,000)
----------
$ 259,654
==========
CONSIDERATION
8,655,138 common shares $ 259,654
==========
If the acquisition of Ziracom had occurred at the beginning of the fiscal year
2002, the company's net loss would have increased by $5,521. If the acquisition
had occurred at the beginning of the previous fiscal year, the company's net
loss would have increased by approximately $1,100,000.
================================================================================
4. NON-CURRENT RECEIVABLES
During 2001, the company advanced $32,500 to companies that it was considering
either acquiring or entering into a business relationship with. During 2002,
the company advanced a further $48,000 to other such companies.
As it became unlikely that the company would proceed with these business
relationships, these loans were written off as a bad debt. These loans bore no
interest and had no set terms of repayment.
================================================================================
5. SOFTWARE DEVELOPMENT COSTS
Through its acquisition of Ziracom, the company acquired the Alpha-Omega video
compression technology. The company is currently developing this technology and
marketing the product in the U.S. and internationally. The net capitalized
costs related to the company's Alpha-Omega technology have been written off in
consideration of the continuing losses experienced by the company and the
uncertainty as to future generation of revenues from the technology.
11
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
5. SOFTWARE DEVELOPMENT COSTS (Continued)
OTHER INTANGIBLE ASSETS
In 1999, the company paid $300,000 to a company controlled by an officer and
director for the right to distribute video movies electronically in the United
States in accordance with a system developed by that officer and director. At
the time, that company had an option to acquire an exclusive license from an
unrelated corporation (Macrovision Corporation) to use certain technology which
prevents a video from being copied on to a video cassette tape or other
unauthorized device. The rights to the technology are limited to the electronic
distribution of videos in the United States by means that transmit the video in
FTRT for subsequent playback and viewing at normal speed.
During 2000, the company paid the optionor $415,000 to maintain and exercise the
option and to acquire the license. In addition to the cash consideration, the
company issued 502,713 shares valued at $791,773 to the licensor, which
represents 3% of the company's outstanding common shares, and agreed to issue
the licensor 3 additional shares for each 97 shares the company subsequently
issues to third parties.
As of November 30, 2001, the company terminated its license agreement with
Macrovision. In exchange for the company and Macrovision terminating all rights
and obligations under their licensing agreement, Macrovision returned the
502,713 shares in the company issued under the agreement. The return of these
shares has been recorded at their fair value on the date that they were
returned.
The net capitalized costs related to the company's distribution rights and the
foregoing license agreement were written off in the year ended December 31,
2001.
================================================================================
6. ADVANCES TO ZIRACOM DIGITAL COMMUNICATIONS, INC.
The advances to Ziracom were unsecured and non-interest bearing until October
31, 2001 at which time they became due. In 2002, the company acquired all of
the issued and outstanding shares of Ziracom Digital Communications, Inc.
("Ziracom") (Note 3).
================================================================================
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES December 31 December 31
2002 2001
------------ ------------
Trade payables $ 320,281 $ 110,259
Accrued liabilities 33,501 16,551
Accrued management fees (Note 12) 319,000 70,000
Interest payable 120,067 36,531
------------ ------------
$ 792,849 $ 233,341
============ ============
12
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
8. LOANS PAYABLE December 31 December 31
2002 2001
------------ ------------
Loans from directors and former directors bearing no interest
with no specific terms of repayment $ 118,476 $ 78,713
Loan from a shareholder bearing no interest, unsecured and
repayable at $3,000 per month. At December 31, 2002
the company's payments under this loan are sixteen months
in arrears 24,000 24,000
Loan from shareholders bearing no interest and with no
specific terms of repayment 7,600 -
Other loans received from unrelated individuals. These loans
bear interest at 8% and are due for repayment on
November 22, 2003. Should the loans not be repaid by
November 22, 2003, the holders have the option of converting
into the company's common shares at the rate of $0.05 per share.
The aggregate number of shares that could be issued
upon the conversion of these loans is 980,000 shares 49,000 -
Bridge loan facility provided by an unrelated party.
The loan bore interest at 12% per annum, was unsecured
and was repaid January 7, 2002 - 100,139
------------ ------------
$ 199,076 $ 202,852
============ ============
================================================================================
9. 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 10). The principal on the debentures is due June 6, 2003 and
interest at 8% per annum on the debenture principal outstanding is payable
quarterly. 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 sixty trading days prior to conversion.
The company may redeem the convertible debentures on five days notice by paying
the holders 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
additional paid-in capital and as 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 additional paid-in capital
and a discount to the debenture principal.
13
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
9. CONVERTIBLE DEBENTURES (Continued)
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 $163,250 in 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 two
year period ended December 31, 2002.
Convertible Debentures
--------------------------------------
Deferred
Original Unamortized Net Book Issue
Principal Discounts Value Costs
----------- ------------- ---------- ---------
Debentures issued on July 6, 2001 $1,000,000 $ 1,000,000 $ - $163,250
Debentures converted to common stock (65,354) (59,251) (6,103) (9,673)
Amortization of discounts - (243,770) 243,770 (39,795)
----------- ------------- ---------- ---------
Balance, December 31, 2001 934,646 696,979 237,667 113,782
Debentures converted to common stock (62,736) (46,782) (15,954) (7,637)
Amortization of discounts - (460,280) 460,280 (71,781)
----------- ------------- ---------- ---------
Balance, December 31, 2002 $ 871,910 $ 189,917 $ 681,993 $ 34,364
=========== ============= ========== =========
The company has not made interest payments as required under the terms of the
convertible debenture agreements. At December 31, 2002, $120,067 (2001:
$36,531) of interest on these convertible debentures has been accrued but is
unpaid. Notwithstanding this technical default, the creditor has agreed not to
demand repayment of the loan.
================================================================================
10. CAPITAL STOCK
STOCK OPTIONS
The company's directors resolved to create a stock option plan that sets aside
7,500,000 shares of the company's common stock for issuance upon the exercise of
stock options that may be granted to directors, employees and consultants.
The company granted options to purchase 3,500,000 shares of the company's common
stock to directors during the year ended December 31, 2002.
During 2002, the company granted 1,400,000 options to purchase shares to
non-employees and recognized expense related to these options of $28,000. The
expense amount was determined by the fair value of the options issued calculated
using the Black-Scholes model.
On December 30, 2002, the company cancelled all outstanding options.
14
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
10. CAPITAL STOCK (Continued)
A summary of the status of the company's options as at December 31, 2002 and
changes during the year ended December 31, 2002 is presented below:
Options granted
Weighted
Exercise Average
Price Exercise
Per Share Price Shares
------------ ------------- ------------
Granted at fair market value $ 0.10 $ 0.10 4,900,000
============
Options outstanding at December 31, 2002 -
============
Options exercisable at December 31, 2002 -
============
Weighted average fair value of options granted
during the year $ 0.02
============
Changes during the year ended
December 31 December 31
2002 2001
----------- ------------
Balance, beginning of year 3,269,000 1,070,000
Granted 4,900,000 3,600,000
Expired (800,000) -
Cancelled (7,369,000) (1,400,000)
Exercised - (1,000)
----------- ------------
Balance, end of year - 3,269,000
=========== =============
15
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
10. CAPITAL STOCK (Continued)
WARRANTS
The following warrants to purchase shares of common stock were issued during the
year ended December 31, 2001 and are outstanding:
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 $0.4747 and July 6, 2006 issued in connection with the
80% of the average of the issuance of the convertible
three lowest closing prices of debentures (Note 9)
the common shares on the
principal market where the
shares trade for the sixty
trading days prior to exercise
SHARE SUBSCRIPTIONS
December 31, 2002 December 31, 2001
----------------- -----------------
Number Amount Number Amount
------- ------- ------- -------
Shares to be issued in settlement of
trade payables to be issued 180,000 $54,000 180,000 $54,000
Subscription of shares to be issued for services rendered 84,000 25,200 84,000 25,200
------- ------- ------- -------
264,000 $79,200 264,000 $79,200
======= ======= ======= =======
16
================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 2002 and 2001
================================================================================
10. CAPITAL STOCK (Continued)
SHARES ISSUABLE UNDER CONVERTIBLE DEBENTURES
Based on an estimate of the company's share price at December 31, 2002, the
terms of the company's convertible debenture (Note 9) would enable the debenture
holder to exercise its conversion rights to acquire approximately 23,400,000
common shares. During 2001, the company registered 10,190,476 common shares for
conversion under this convertible debenture.
================================================================================
11. INCOME TAXES
At December 31, 2002, the company had net operating losses carried forward of
approximately $7,160,000 (December 31, 2001: $5,140,000) that may offset
against future taxable income until 2021. 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 will be used before they
expire.
================================================================================
12. RELATED PARTY TRANSACTIONS
Consulting and management fees of $257,000 (2001: $264,300) have been paid to
companies that employ current and former directors and officers of the company.
Software development costs include $20,000 (2001: $22,000) paid to directors or
former directors. Accrued liabilities at December 31, 2002 include $319,000
(2001: $70,000) of amounts due to related parties under management or
consulting agreements. Accounts payable at December 31, 2002 include $45,093
(2001: $Nil) advanced to the company by directors.
================================================================================
13. SUBSEQUENT EVENT
In the period from February 26, 2003 to March 7, 2003 the company obtained
$36,900 in loans from unrelated parties. These loans bear interest at 8% and
are repayable within one year or can be converted into common shares of the
company at the rate of $0.05 per share.
================================================================================
14. CONTINGENCY
A claim has been made against the company regarding a sublease agreement for
commercial office space in Scottsdale, Arizona. The total amount claimed is
$39,505. Included in accounts payable is $31,614 relating to this rent due.
Management intends to reach a settlement with the other company.
17