AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 2001
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
E-VIDEOTV, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 7829 51-0389325
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL IDENTIFICATION NO.)
ORGANIZATION) CLASSIFICATION
CODE NUMBER)
-------------------------------------------
7333 East Doubletree Ranch Road
Suite 205
Scottsdale, Arizona 85258
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------------------------
Robert G. Dinning, Secretary
7333 East Doubletree Ranch Road, Suite 205
Scottsdale, Arizona 85258
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------------------------
COPIES TO:
Gregory Sichenzia, Esq.
Sichenzia, Ross, Friedman & Ference LLP
135 West 50th Street, 20th Floor
New York, New York 10020
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this registration statement becomes effective.
------------------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------------
CALCULATION OF REGISTRATION FEE
==========================================================================================
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Amount to be Price per Offering Registration
Title of Securities to be Registered Registered Share (1) Price (1) Fee
-------------------------------------------------------------------------------------------
Common Stock, $0.0001 par value (2) 9,523,810 0.50 4,761,905 1,190.48
Common Stock, $0.0001 par value (3) 666,666 0.50 333,333 83.33
Total 10,190,476 1,273.81
==========================================================================================
(1) Estimated solely for the purpose of computing the amount of the registration fee
pursuant to Rule 457(c).
(2) Issuable upon the conversion of convertible notes. This is not intended to
constitute a prediction as to the number of shares of Common Stock into which the notes
will be converted. The number of shares currently issuable upon conversion of the
outstanding notes is one half of this amount; the actual number of shares to be issued on
conversion is dependent, in part, on the price of the common stock at the time of
conversion. Also registered are an indeterminate amount of additional shares of Common
Stock that may become issuable by virtue of anti-dilution provisions in the warrants.
(3) Issuable upon the exercise of warrants issued in connection with the sale of the
convertible notes. Also registered are an indeterminate amount of additional shares of
Common Stock that may become issuable by virtue of anti-dilution provisions in the
warrants.
--------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
PROSPECTUS
_____, 2001
E-VIDEOTV, INC.
10,190,476 SHARES OF COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up to
10,190,476 shares of our common stock. The selling stockholders may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions. The selling
stockholders are deemed underwriters of the shares of common stock which they
are offering.
We will not receive any proceeds from the sale of shares by the selling
stockholders. However, we will receive proceeds upon the exercise of any
warrants that may be exercised by the selling stockholders.
Our common stock is quoted on the Over-the-Counter Bulletin board under the
symbol "EVTV." On ___, 2001, the closing price of our common stock was $__ per
share.
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THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE THE "RISK FACTORS"
BEGINNING ON PAGE__.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION PAGE NUMBER
------- ------------
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 6
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Market for the Company's Common Stock. . . . . . . . . . . . . . . . . . . 14
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussion and
Analysis of Financial Condition and Results of Operation. . . . 16
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . 25
Security Ownership of Management and Certain Beneficial Owners. . . 26
Description of Capital Stock. . . . . . . . . . . . . . . . . . . . . . 28
Selling Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . 30
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . 34
2
PROSPECTUS SUMMARY
Our primary business is to develop, deploy, acquire and license
technologies related to the video-on-demand and video transmission industries.
We believe that the video-on-demand industry is moving towards a download model,
where movies will be downloaded as compressed digital files to a hard drive
located in the set top box. In support of this strategy, we have acquired the
exclusive rights from Macrovision Corporation ("Macrovision") to use their copy
protection technology for Pay-Per-View and video-on-demand movies downloaded to
set top boxes in "faster than real time" ("FTRT") in cable, satellite and
broadband applications in the USA. Macrovision copy protection allows consumers
to view on TV, but not record on VHS tape, programs that are copy protected. An
example of FTRT would be a 2-hour movie stored in a compressed file and
downloaded to a set top box in less than 15 minutes. We also have first rights
with Macrovision to expand its exclusive license to other countries.
We intend to license FTRT copy protection to all US cable, satellite and
DSL broadband operators that download movies in FTRT and collect a license
sign-up fee plus royalty fees based on a percentage of revenue for each movie
viewed. We also intend to license all set top box manufacturers that make units
capable of receiving movie downloads in FTRT and sold in the US and collect a
license sign-up fee plus royalty fees for each set top box shipped.
We have entered into an agreement with USA Video Interactive Corp for the
exclusive rights to sublicense their "Store and Forward Video System" Patent for
broadband applications in the USA. The Company intends to use this patent to
strengthen its position in the industry for the downloading of movies into set
top boxes. The Company intends to license operators and set top box
manufacturers and collect royalty fees for each set top box shipped and each
movie viewed.
3
THE OFFERING
Common stock outstanding
before this offering. . . We have 16,757,072 shares of common stock
outstanding prior to this offering.
Common stock offered by the
selling stockholders. . . Up to 10,190,476 shares of common stock
Common stock outstanding
after this offering . . . Up to 26,947,548 shares, assuming the issuance of
all securities registered hereunder.
Use of proceeds . . . . . . We will not receive any proceeds from the sale of
securities by the selling stockholders.
Risk factors. . . . . . . . . Investing in these securities involves a high
degree of risk and immediate and substantial
dilution of your investment. As an investor, you
should be able to bear a complete loss of your
investment. See "Risk Factors" and "Dilution" for
a more detailed discussion.
Forward-looking statements. . This prospectus contains forward-looking
statements that address, among other things, our
expansion and acquisition strategy, business
development, use of proceeds, projected capital
expenditures, liquidity, and our development of
additional revenue sources. The forward-looking
statements are based on our current expectations
and are subject to risks, uncertainties and
assumptions. We base these forward-looking
statements on information currently available to
us, and we assume no obligation to update them.
Our actual results may differ materially from the
results anticipated in these forward-looking
statements, due to various factors.
4
SUMMARY FINANCIAL DATA
The information set forth below for the years ended December 31, 2000, and
December 31, 1999, and the fiscal quarter ended March 31, 2001, are derived from
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements, including the notes thereto and other financial information,
appearing elsewhere in this registration statement.
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
STATEMENT OF OPERATIONS DATA: 2000 1999
---------------- ----------------
Amortization 307,355 247
Compensation expense for stock options 392,583 0
Corporate Promotion 119,068 42,137
General Corporate expense 81,499 55,612
Management and consulting fees 583,265 156,640
Office expense 101,108 14,032
Professional fees 82,450 165,921
Rent 53,761 23,828
Travel 86,510 28,478
Write off of software development expense 424,031 0
Net Loss 2,230,432 478,037
Loss per share $ (0.23) $ (0.09)
QUARTER ENDED QUARTER ENDED
MARCH 31, 2001 MARCH 31, 2000
---------------- ----------------
Amortization 77,886 -
Compensation expense for stock options - -
Corporate Promotion 23,289 28,421
General Corporate expense 21,978 19,964
Management and consulting fees 143,969 93,352
Office expense 13,411 8,229
Professional fees 15,647 74,532
Rent 16,763 10,973
Royalties 39,217 -
Travel 6,031 19,478
Write off of software development expense - -
Interest Income - 1,077
Net Loss 358,191 253,872
Loss per share $ (0.03) $ (0.03)
5
MARCH 31, DECEMBER 31, DECEMBER 31,
BALANCE SHEET DATA: 2001 2000 1999
---------- ------------- -------------
Total current assets $ 228,214 $ 11,452 $ 107,906
Total current liabilities $ 613,572 $ 594,149 $ 248,899
Total stockholders equity $ 787,152 $ 666,343 $ 618,819
6
RISK FACTORS
Investing in our securities will provide you with an equity ownership
interest in E-VIDEOTV. As one of our shareholders, your investment will be
subject to risks inherent in our business. If any of the following risks
actually occur, our business could be harmed. In that event, the trading price
of our shares might decline, and you could lose all or part of your investment.
You should carefully consider the following factors as well as other information
contained in this prospectus before deciding to invest in shares of our
securities.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES WHICH WILL COMPEL
US TO SEEK ADDITIONAL CAPITAL.
For the fiscal year ended December 31, 2000, and the three months ended
March 31, 2001, we sustained losses before other income (expense) of
approximately $2,230,000 and $358,191, respectively. We anticipate that future
losses will occur. We continue to have insufficient cash flow to grow operations
and we cannot assure you that we will be successful in reaching or maintaining
profitable operations.
Since December 31, 2000, we have raised $425,000 through the sale of shares
of our common stock and warrants to purchase shares of our common stock to
various investors. We also received loans from directors and shareholders of
$71,677 and in early July, 2001, completed an 8% convertible debenture financing
of $1,000,000 to Laurus Funds Group. If we are unable to raise additional funds
when necessary, we may have to reduce planned expenditures, scale back our
product development, sales or other operations, lay-off employees and enter into
financing arrangements on terms that we would not otherwise accept or be forced
into insolvency.
OUR COMMITMENTS TO ISSUE ADDITIONAL COMMON STOCK MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK AND MAY IMPAIR OUR ABILITY TO RAISE CAPITAL.
We currently have outstanding commitments in various forms such as
warrants, options, and convertible securities to issue a substantial number of
new shares of our common stock. The shares subject to these issuance
commitments, to some degree, will be issued in transactions registered with the
Securities and Exchange Commission and thus will be freely tradable. In many
other instances, these shares are subject to grants of registration rights that,
if and when exercised, would result in those shares becoming freely tradable.
Furthermore, the number of shares issuable upon conversion or exercise of these
securities is subject to adjustment, depending on the market price of our common
stock. To the extent that the price of our common stock decreases, we will be
required to issue additional shares upon conversion or exercise. There is
essentially no limit to the number of shares that we may be required to issue.
An increase in the number of shares of our common stock that will become
available for sale in the public market may adversely affect the market price of
our common stock and, as a result, could impair our ability to raise additional
capital through the sale of our equity securities or convertible securities.
7
WE HAVE LIMITED PRIOR OPERATIONS AND EXPERIENCE IN OUR INDUSTRY.
We are a development stage company, have no revenues from operations and,
except for the services of our officers and directors and the cash on hand, have
no other significant tangible assets. Accordingly, there can be no assurance
that we will operate at a profitable level. Our proposed business involves
licensing technology related to the electronic delivery of videos. Future
development and operating results will depend on many factors, including the
initial sign up of the licensees, the demand for our technology, price
sensitivity, and our ability to develop territories and control costs. In
addition, our future prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in establishing a new business
in the video entertainment industry, which is characterized by intense
competition, rapid technological change, significant regulation and significant
consolidation of ownership.
OUR TECHNOLOGY IS NEW TO THE MARKET AND MAY NOT BE ACCEPTED BY MARKET
PARTICIPANTS.
There can be no assurance that our acquired licensing technologies will be
activated by cable, satellite television, and other broadband operators. In
fact, there has not yet been widespread acceptance of the FTRT caching
technology to date. Although we believe that there will be a large market for
its copy protection technology and caching technology there can be no assurance
that such a market will develop, or how quickly such development may occur. The
cable and digital broadcast industries have not yet determined whether they will
ultimately utilize caching technologies, or streaming delivery that would not
require a license from us. If the cable and digital broadcast companies choose
to use streaming technology as their primary video-on-demand delivery model then
we may be unable to continue as a going concern.
A critical factor in our ability to market our technologies will be any
decisions by the movie industry and other content providers to abandon or
reduce copy protection requirements. Should this happen then we may be unable to
continue as a going concern. A digital set-top box capable of receiving and
storing the videos in FTRT is currently estimated to cost approximately $400.
This price could be a barrier to acceptance of our technologies. It is also
undetermined whether this box cost would be borne by the subscriber or the
operator. The inability of operators to raise the necessary capital to purchase
such boxes could hinder our ability to develop and expand our market presence.
WE ARE DEPENDENT UPON THE CONTINUED LICENSING OF THIRD PARTY TECHNOLOGY.
Our success is dependent upon exploiting our license with Macrovision and
USA Video. If we are unable to continue to make payments to Macrovision and USA
Video to keep our exclusive license or if the Company forfeits such license for
any other reason, we may be unable to continue as a going concern. We may also
rely on Macrovision's and USA Video's ability to enforce their respective
intellectual property rights licensed to the Company. Any change in
8
Macrovision's and USA Video's ability to do this could have a material adverse
effect on our operations.
OUR CONTINUED OPERATIONS REQUIRE ADDITIONAL FINANCING THAT MAY DILUTE
PRESENT SHAREHOLDINGS.
We do not currently have sufficient funds to reach full market penetration
of our licenses and generate royalty income and be competitive in the industry.
Our capital requirements will depend on a variety of factors, including the
signing up of licensees, the time involved to achieve significant sign ups, the
acquisition of further licenses, patents, and other technologies and market
acceptance of and demand for our 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. If additional
funds are not available, we may not be able to continue our operations.
In order to raise additional capital, we may issue additional shares of
common stock at prices that will be determined by our 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 our 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 GRANT OF STOCK OPTIONS MAY DILUTE PRESENT SHAREHOLDINGS.
We have approved a stock option plan that sets aside 7,500,000 of our
common stock for issuance upon the exercise of stock options. During the year,
the following stock options were granted:
Date Granted Optionee No. of Shares Effective Date Expiration Date
------------ -------------------- ------------- -------------- ---------------
Nov 30, 2000 Glen Williamson 155,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Karen Blandini 155,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Dan Cravens 120,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Phil Dion 120,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Jennifer Schrier 20,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Peter Wilson 400,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Peter Van der Gracht 50,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Lisa Payne 50,000 Nov 30, 2000 Nov 30, 2005
-------------
1,070,000
9
On Jan 12, 2001, the following options were granted:
Date Granted Optionee No. of Shares Effective Date Expiration Date
------------ ---------------- ------------- -------------- ---------------
Jan 12, 2001 Roy Bennett 1,100,000 Jan 12, 2001 Jan 12, 2006
Jan 12, 2001 Robert Dinning 1,100,000 Jan 12, 2001 Jan 12, 2006
Jan 12, 2001 Harvey Nickerson 1,100,000 Jan 12, 2001 Jan 12, 2006
Jan 12, 2001 Charles Weber 300,000 Jan 12, 2001 Jan 12, 2006
-------------
3,600,000
-------------
Total Options 4,670,000
=============
The issuance of options under the stock option plan could adversely affect
the market price of our common stock and could impair our ability to raise
additional capital through the sale of our equity securities or debt financing.
Exercise of any such options will result in dilution to the proportional
interests of our shareholders 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.
THE COMPANY HAS PAID NO DIVIDENDS TO ITS SHAREHOLDERS.
We have never paid and do not anticipate paying dividends on our common
stock in the foreseeable future. Retained earnings, if any, will be utilized
for the operation and expansion of our business.
THERE IS A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK.
Our common stock is traded in the over-the-counter market. An investment
in our common stock should be considered highly illiquid, and there can be no
assurance that a market for the our common stock will continue.
"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY
OF STOCK, WHICH MAY AFFECT THE ABILITY OF HOLDERS OF OUR COMMON STOCK TO SELL
THEIR SHARES.
The Securities and Exchange Commission has adopted regulations that
generally define a "penny stock" to be any equity security that has a market
price of less than $5.00 per share. Our common stock is currently subject to
these rules that impose additional sales practice requirements. For transactions
10
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of the common shares and must have received the
purchaser's written consent to the transaction prior to the purchase. The "penny
stock" rules also require the delivery, prior to the transaction, of a risk
disclosure document mandated by the SEC relating to the penny stock market. The
broker-dealer must also disclose:
- the commission payable to both the broker-dealer and the registered
representative,
- current quotations for the securities, and
- if the broker-dealer is the sole market maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the
market.
Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
These rules apply to sales by broker-dealers to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse), unless our common shares trade above $5.00 per share.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our common shares, and may affect the ability to sell the common shares
in the secondary market as well as the price at which such sales can be made.
Also, some brokerage firms will decide not to effect transactions in "penny
stocks" and it is unlikely that any bank or financial institution will accept
"penny stock" as collateral.
WE ARE DEPENDENT UPON OUR MANAGEMENT AND KEY EMPLOYEES.
We are 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 our operations.
WE FACE COMPETITION FROM SOURCES WITH SIGNIFICANTLY GREATER RESOURCES THAN
WE HAVE.
The cable, satellite and set top box industries are characterized by a
large percentage of the industry controlled by a small number of large
companies. We 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 we will be able to conclude licenses 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 our technologies or that render our technology
obsolete.
11
WE ARE SUBJECT TO THE CONTROL OF OUR PRINCIPAL SHAREHOLDERS.
Our officers, directors and principal shareholders own approximately 47.7%
of our outstanding common stock. Our officers and directors will therefore be
able to influence the election of the board of directors and thereby direct the
Company's policies and affairs.
12
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders of our company. We will
receive no proceeds from the sale of shares of common stock in this offering,
except upon the exercise of warrants.
13
MARKET FOR THE COMPANY'S COMMON STOCK
The Company's common stock trades on the Over-The-Counter Bulletin Board
under the symbol "EVTV". The following table sets forth the range of high and
low bid quotations for its common stock for each quarter of the last two fiscal
years, as reported on the Over-The-Counter Bulletin Board. The quotations
represent inter-dealer prices without retail markup, markdown or commission, and
may not necessarily represent actual transactions.
PERIOD HIGH LOW
------ ---- ----
YEAR ENDED DECEMBER 31, 1999:
Third Quarter *. . . . . . . . . . 2.50 0.63
Fourth Quarter . . . . . . . . . . 3.25 1.06
* The Company's common stock commenced trading on May 11, 1999.
YEAR ENDED DECEMBER 31, 2000:
First Quarter. . . . . . . . . . . 5.19 4.81
Second Quarter . . . . . . . . . . 2.69 2.53
Third Quarter. . . . . . . . . . . 0.81 0.68
Fourth Quarter . . . . . . . . . . 0.30 0.22
QUARTERS ENDED MARCH 31, AND JUNE 30, 2001:
First Quarter. . . . . . . . . . . 1.19 0.24
Second Quarter . . . . . . . . . . 0.86 0.26
There were approximate 660 holders of record of our common stock as of
August 1, 2001.
DIVIDEND POLICY
Holders of our common stock are entitled to receive such dividends as may
be declared by the board of directors. No dividends on our common stock have
ever been paid, and it is not anticipated that dividends will be paid on our
common stock in the next fiscal year.
14
ADDITIONAL INFORMATION ABOUT FINANCIAL PRESENTATION
Options and Warrants. Unless this prospectus indicates otherwise, all
information presented in this prospectus assumes no exercise of warrants or
options outstanding.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the financial statements and
notes thereto included elsewhere in this prospectus. This document contains
certain forward-looking statements including, among others, anticipated trends
in its financial condition and results of operations and its business strategy.
These forward-looking statements are based largely on the current expectations
and are subject to a number of risks and uncertainties. Actual results could
differ materially from these forward-looking statements. Important factors to
consider in evaluating such forward-looking statements include (i) changes in
external competitive market factors or in the Company's internal budgeting
process which might impact trends in its results of operations; (ii)
unanticipated working capital or other cash requirements; (iii) changes in its
business strategy or an inability to execute its strategy due to unanticipated
changes in the industries in which it operates; and (iv) various competitive
factors that may prevent the Company from competing successfully in the
marketplace.
RESULTS OF OPERATIONS
The Company continues to formulate its plan of operation to market
technologies related to the video-on-demand industry. This includes exclusive
rights in the USA to license the use of Macrovision Corporation's analog copy
protection on digital video transmissions received in Faster Than Real Time
(FTRT) and stored in home devices such as set-top boxes for later viewing. The
Company has also recently signed an agreement (June 27, 2001) with USA Video
Interactive Corp to license exclusively, the rights to sublicense their "Store
and Forward Video System" patent for broadband applications in the USA. The
Company intends to use this patent to increase its position in the satellite,
cable and broadband industries.
The Company further intends to pursue several US operators licensed to use
these devices by the end of 2002.
The Company is continuing to contact set top box manufacturers world-wide
to advise them of our exclusive licensing rights and determine their roll-out
plans for set top boxes with hard disk drives in the US. The Company intends to
license these set top box manufacturers for FTRT capability compatible with FTRT
transmissions by US operators also licensed by the Company. The Company has
signed NDAs with several manufacturers and continues to contact key cable,
satellite, and broadband operators throughout the US to discuss its exclusive
Macrovision license, the "Store and Forward Video System" license, and the
technical and economic benefits of FTRT caching versus streaming for
Video-On-Demand systems. The agreement with USA Video Interactive Corp was
executed June 27, 2001 and the Company intends to license this technology to
set-top-box manufacturers and cable, satellite, and broadband operators.
For the six months ended June 30, 2001, the Company incurred a loss of
$763,132. During this period, loans and private placements amounted to $496,677.
Subsequent to the quarter ending June 30, 2001, the company completed the
placement of a 8% convertible debenture of $1,000,000. This financing has
provided the Company with necessary liquidity but the Company will continue to
seek additional financing in order to fulfill its business model.
16
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ending June 30, 2001, the Company received loans for
$71,177 which combined with subscription agreements for $425,000 received in the
quarter ending March 31, 2001, brought combined funds received for the first six
months to $496,677. During the quarter ending June 30, 2001, the Company also
received loans from directors of $47,883. There are no specific terms of
repayment on these loans. On July 6, 2001, the Company also completed the
placement of an 8% convertible debenture for $1,000,000 with the Laurus Funds
Group.
In February, 2001, the Company prepaid its royalties to Macrovision for the
year 2001 in accordance with the terms of its agreement. While the Company
currently does have sufficient funds to continue operations, it does not have
sufficient funds to carry it through the next 12 months without additional
funding. It will therefore continue to pursue private placements, loans, and any
other appropriate terms of financing.
The Company is continuing with the following program regarding VOD:
1. Licensing operators such as cable, satellite, wireless, DSL and other
broadband distributors for FTRT VOD service.
2. Licensing set-top box manufacturers and strategic partners.
3. Developing technologies and acquiring patents and technologies to
expand its licensing model with VOD operators and STB manufacturers.
According to Wall Street's Schroeder & Com., the home movie market in the
USA had approximately $14 billion in sales and rental revenues last year. Of
this, it is estimated that 85% is represented by new release movies. VOD content
can be started at anytime thus there is no discernable need for recording of the
program. It is expected that the movie industry will require new VOD
new-release-content be copy protected similar to video store rentals.
Macrovision is the accepted copy-protection standard.
The license rights from Macrovision Corp are for a five year period with an
option to renew for an additional five years. The Company has complied with all
requirements of its agreement with Macrovision Corp to date, and is cognizant of
its obligations both now and in the future regarding its commitment to
Macrovision.
In the next 12 months, the Company estimates it will require funding for:
international licenses, operating licenses in various countries, patent
purchases, and general working capital. Depending on the rollout of these items,
funding requirements could range from $5 - $10 million. The Company has financed
its development stage to date by private placements of common stock. It also
recognizes that it currently does not have sufficient funds to finance its
operation over the next 12 months. The Company plans to complete additional
financings to provide the necessary funds. The inability of the Company to
arrange necessary financing will have a material adverse effect on proposed
operations.
17
In the year 2001, the company intends to undertake additional R&D related
to the head-end software, head-end servers, and set top box software to further
support the download model for VOD content. The company intends to work closely
with equipment manufacturers and vendors as appropriate in each of these areas.
In addition, the company intends to explore the acquisition of patents and
technologies related to its VOD licensing activities. Currently the company does
have the resources to complete these initial R&D efforts but will continue to
seek additional financing to achieve its long term goals.
The Company further recognizes that its development schedule will be
delayed unless additional capital required is available when needed.
Inflation has not been a factor during the quarter ending June 30, 2001.
18
BUSINESS
GENERAL
We were incorporated in Delaware on July 25, 1997, under the name Oro Rico
Mining Corporation (the "Company"). On August 25, 1997, ORM, Inc., an inactive
company incorporated in Colorado on July 25, 1997, was merged into the Company.
We changed the name of the Company to Asia Pacific Enterprises, Inc. on October
16, 1997. On June 23, 1999, we acquired EVideo U.S.A., Inc. by issuing
6,623,016 of our common shares to eVideo International, Inc. On August 6, 1999,
we changed our name to e-VideoTV, Inc.
Unless otherwise indicated, all references to our operations include the
operations of the Company and its wholly owned subsidiary, EVideo U.S.A., Inc.
Our primary business is to develop, deploy, acquire and license
technologies related to the video-on-demand and video transmission industries.
We believe that the video-on-demand industry is moving towards a download model,
where movies will be downloaded as compressed digital files to a hard drive
located in the set top box. The cost of hard drive storage has dropped in the
last year and we believe that this is enabling such new product and service
opportunities for the Company. We also believe that the movie industry will be
more aggressive in its copyright protection efforts once electronic delivery to
the home of digital quality movies becomes more prevalent. The movie industry
is defined as the major motion picture studios, including MGM, Paramount,
Disney, Dreamworks, Universal/Sony, and Warner Bros. The movie industry's
current position is that all set top box makers and all distributors have the
ability to provide analog copy protect on request for their properties. The
industry takes this position because they own the intellectual property and can
dictate copy-protection and thus deter unauthorized copying of videos.
In support of this strategy, we have acquired the exclusive rights from
Macrovision Corporation ("Macrovision") to use their copy protection technology
for Pay-Per-View and video-on-demand movies downloaded to set top boxes in
"faster than real time" ("FTRT") in cable, satellite and broadband applications
in the USA. "Faster than real time" is also known as less-than-real-time. An
example of FTRT would be a 2-hour movie stored in a file and downloaded to a set
top box in less than 15 minutes. We also have first rights with Macrovision to
expand its exclusive license to other countries.
Macrovision is the worldwide industry standard in analog copy protection
technology for movies. Macrovision copy protection allows consumers to view on
TV, but not record on VHS tape, programs that are copy protected. The purpose
of the technology is to deter unauthorized home taping of digitally delivered
programs. Thus, the Macrovision protection device is installed in virtually all
digital home movie devices such as DVD players, cable set top boxes, and
satellite receivers. The Macrovision technology protects the analog output
connection to the television set. It is estimated that currently there are
approximately 250 million analog TV sets in the USA.
19
We intend to license FTRT copy protection to all US cable, satellite and
DSL broadband operators that download movies in FTRT. We intend to collect a
license sign-up fee plus royalty fees based on a percentage of revenue for each
movie viewed.
We also intend to license all set top box manufacturers that make units
capable of receiving movie downloads in FTRT and sold in the US. We intend to
collect a license sign-up fee plus royalty fees for each set top box shipped.
We estimate there are in excess of 50 set top box manufacturers and all these
companies will be contacted regarding licensing.
In March 2000, we executed a Less-Than-Real Time Master License Agreement
with Macrovision, pursuant to which we paid an initial license fee of $400,000,
issued 502,713 shares of our common stock to Macrovision, representing 3% of our
outstanding common shares, and agreed to issue the licensor three additional
shares for each 97 shares the Company subsequently issues to third parties. The
502,713 shares were issued at a value of $1.575 per share for a total
consideration of $791,773. The anti-dilution provisions within the agreement
shall remain in effect as long as the agreement is in force.
The license is for a five year term ending January 31, 2005, and may be
extended until January 31, 2010. A usage royalty based on pay-per-view
transaction fees charged to viewers is collected from the operator and a portion
is payable to Macrovision. Minimum annual royalties of $250,000 are due each
January 31 from 2001 until 2004, and as the license is extended, of $350,000
each January 31 from 2005 until 2009.
Each minimum royalty paid may be applied against usage royalties incurred
during the following twelve months. The minimum royalty of $250,000 for the
year 2001 has been paid to Macrovision. Annual pre-payment royalty fees are due
by January 31st each year.
The license will become non-exclusive if we do not generate a one-month
usage royalty of $1,000 by January 31, 2002, or if FTRT broadcasts do not
generate in excess of $250,000,000 in gross video-on-demand/pay-per-view
revenues in the United States in the fourth full year of operation following the
month the Company first generates a usage royalty of $1,000.
We have the option of extending the exclusive license to other countries,
subject to certain restrictions and payments.
At the present time, we are in the development stage, do not have any
customers, and have not earned any revenues from our proposed operations. We
currently have five employees, who are employed through consulting contracts.
Our head office is located in Scottsdale, Arizona. We expect to expand our
workforce in the next 12 months.
COMPETITION
We are not aware of any direct competitors in this FTRT copy-protection
field. Since the Macrovision technology is a de-facto industry standard, and we
20
have exclusive rights to that technology, we believe that we have no apparent
competitors for licensing FTRT analog copy-protection.
THE INDUSTRY
Electronically delivered video-on-demand movies will compete directly with
video store businesses, that represents $15 billion in revenue per year. Cable
operators, satellite operators, and broadband DSL operators are eager to enter
the video-on-demand market and capture a share of this revenue. These operators
will offer video-on-demand by electronically delivering movies to the home.
However, unlike Pay-Per-View, full video-on-demand allows the viewer to have
full VCR-like control over the movie. This allows them the capability to pause,
stop, rewind, or fast-forward the movie just like the video rental experience.
We believe that without this rich control capability, viewers tend to prefer the
video store rental, making this a requirement for any video-on-demand success.
Providing this individual control capability using streaming methods has
required that the operators allocate a unique dedicated channel to each viewer
while their movie is playing.
Some cable operators have attempted to offer a video-on-demand solution by
streaming video to the home set top box. With streaming, to provide the full
VCR like control, they must allocate a unique individual channel to each viewer
for the duration of the movie including "pause" and "re-play" time. Although
these systems have worked well in small trials, operators are now finding that
scaling the solution to meet full subscriber demand is costly. They must deploy
large amounts of fiber and other expensive equipment to create the channel
capacities required. In addition, satellite broadcasters do not have the
wireless bandwidth capacity to allocate sufficient channels to effectively
provide such video-on-demand services to their large subscriber base.
We feel that an elegant video-on-demand solution exists by downloading the
movie to a set top box containing a hard drive. Multi-cast techniques can be
used to transmit the movie file simultaneously to large numbers of set top boxes
for recording on a local hard drive. When the viewer actually watches the
movie, functions such as pause, rewind, etc. are local functions and do not
require any network activity or consume precious network bandwidth. This allows
for independent video-on-demand viewing by up to 100% of the subscribers
simultaneously yet requiring only a small number of transport channels.
We believe that the next major growth in the home entertainment industry is
focused on "Personal Television", powered by set-top boxes with hard drives that
can store programs, video-on-demand movies, provide time shifting and Personal
TV channels. Most of the major set top manufacturers are now introducing units
with hard drives of up to 40 GBytes. This is sufficient capacity to store 10-15
movies. Set top box manufacturers are also providing time-shift and live-pause
functionality similar to TIVO and ReplayTV as consumers find these conveniences
attractive.
21
INTELLECTUAL PROPERTY
We have also developed a technical methodology related to the pre-caching
of movies in set top boxes prior to the viewer ordering the movie regardless of
the download speed. This innovation offers industry advantages in delivery
efficiencies and consumer satisfaction. We have filed for a patent with the US
Patent Office. We have subsequently learned that an existing patent by others
has some similar claims. Further investigation by our patent legal counsel on
this matter is required to determine the extent of overlap and/or uniqueness of
our patent claims.
In addition, we have identified a number of issued patents that we may wish
to acquire to compliment our work in the areas of video-on-demand and caching
and could create an expanded license model beyond the Macrovision technology.
We plan to explore these opportunities. While we wish to acquire existing
patents, it should be noted that we currently do not have the resources to make
such patent acquisitions.
PROPERTY
We currently lease approximately 3,000 square feet of office space located
at 7333 East Doubletree Ranch Road, Suite 205, Scottsdale, Arizona, at a monthly
rate of approximately $5,600, from Ansoft Corporation. This lease arrangement
will expire in August 2002. We sublease a portion of this office space to a
non-affiliate third party at a monthly rental of approximately $2,500.
EMPLOYEES
We currently have six employees, who are employed through consulting or
employment contracts. We expect to expand our workforce in the next 12 months.
LEGAL PROCEEDINGS
We are not party to any pending legal proceeding nor is any of our property
the subject of any pending legal proceeding. We are not aware of any proceeding
that a governmental authority is contemplating.
22
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, DIRECTOR NOMINEES AND KEY EMPLOYEES
Our executive officers, directors and key employees and their ages and
positions as of July 31, 2001, are as follows:
NAME AGE POSITION
---------------- --- -------------------------------------
Charles Weber 57 President and CEO, and Director
Roy Bennett 54 Founder and Director
Robert Dinning 61 Chief Financial Officer, Secretary
Harvey Nickerson 43 Chief Technology Officer and Director
CHARLES WEBER has been President and a Director of the Company since July
10, 2000. Mr. Weber has extensive experience in senior management positions,
having previously been President and CEO of Lucasfilm Ltd. from 1984 to 1988.
Lucasfilm Ltd. is a well-known studio where he was responsible for all aspects
of the Company's operations including the making of blockbuster movies such as
Raiders of the Lost Ark, and More American Graffiti. He has also been president
and CEO/COO of Embassy Communications, Entertainment Company of America and
CanWest International Group.
Mr. Weber is a member of The Academy of Motion Pictures Arts and Sciences
and The Academy of Television Arts and Sciences. Mr. Weber is a graduate of
Manhattan College, where he received a Bachelor of Business Administration
degree and went on to earn a Master's degree in Business Administration from
Hofstra University.
ROY B. BENNETT has been an officer and director of the Company since June
1999. Mr. Bennett has also been the President of Roy B. Bennett and Associates
Ltd., a private venture capital and management company specializing in new
technology start-ups, corporate structuring and private funding since 1994. Mr.
Bennett has a B.Sc. (1969) degree in Biology and a M.Sc. (1970) in Applied
Sciences, both from Simon Fraser University in Burnaby B.C. Mr. Bennett also
has a M.Sc. (1971) in Entomology at the University of London, London England and
a Diploma of Imperial College (D.I.C.) in Applied Science - Imperial College,
London, England.
ROBERT DINNING has been a director of the Company since June 1999 and an
officer of the Company since January 2000. The Company retains Mr. Dinning's
services through a consulting arrangement with Castle Creek Capital Corp., a
British Columbia corporation of which Mr. Dinning is the President. Mr. Dinning
is a Chartered Accountant, who has been a Business and Financial Management
Consultant since 1977. He has been President of Castle Creek Capital Corp since
1999 and 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, Mr. Dinning served as
23
Chief Financial Officer and Director of First American Scientific Corp. from
October 1995 to June 1999, and has been a Director of Visionary Solutions Ltd.
He is currently a Director of Reward Enterprises Inc. and Apolo Gold Inc. Prior
to 1977 Mr. Dinning was CFO and Secretary of a large national public
broadcasting company in Canada. Mr. Dinning attended the University of Alberta
in Edmonton Alberta and qualified as a Chartered Accountant in 1963.
HARVEY NICKERSON has been an officer of the Company since January 2000 and
a director since April 2000. Mr. Nickerson is responsible for the architecture,
technical direction and development of the Company's products. Prior to joining
e-Video, Mr. Nickerson had an 18-year career in the technology, semiconductor
and cable TV industry. In 1985, he joined Process Technology Ltd. as an
Engineering Manager tasked with starting up a new product R&D division. In
1987, he formed a joint venture with Fundy Cable Ltd. in Canada to create a
consulting and design services company. He also served as an executive for
Fundy Cable during that period. By 1998, he had acquired the joint venture
company and evolved its focus toward global technology licensing operations.
His career has grown to also include executive management, business planning,
international product marketing, and technology licensing. Mr. Nickerson holds
a Bachelor of Science and Master of Science degree in Electrical Engineering
from the University of New Brunswick.
BOARD COMMITTEES AND COMPENSATION
All directors are appointed until next annual meeting of shareholders.
There is no compensation for attending meetings but travel expenses are
reimbursed.
EMPLOYMENT AGREEMENTS
We have employment agreements with Messrs. Bennett and Nickerson, as well
as a consulting agreement with Mr. Weber. We have also entered into a two-year
non-cancellable management agreement with Roy B. Bennett and Associates Ltd
("RBA Ltd."), a company wholly owned by Roy B. Bennett, the Company's president,
effective June 21, 1999. Pursuant to these agreements Messrs. Bennett and
Nickerson are entitled to annual salary of $144,000 and participation in our
stock option plan until January 31, 2002. Pursuant to a consulting agreement
with Mr. Weber, he is entitled to monthly salary of $10,000 until December 31,
2000, and $7,500 from December 31, 2000, to June 30, 2001.
In addition to these written agreements, we retain Mr. Dinning's services
through oral agreement with his consulting agency, Castle Creek Capital Corp.,
upon terms substantially similar to those applicable to Messrs. Bennet and
Nickerson, as described above.
24
EXECUTIVE COMPENSATION
Payouts Annual Compensation Long Term Compensation Awards
------------------- ----------------------------------------- --------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
------------------- ----- ----------- ------ ------------- ----------- ------------ -------- -------------
Name and Principal Year Salary Bonus Other Annual Restricted Securities LTIP All Other
Position ($) Compensation Stock Underlying Payouts Compensation
($) Awards Options/SAR ($) ($)
($) (#)
------------------- ----- ----------- ------ ------------- ----------- ------------ -------- -------------
Charles J. Weber 2000 77,500 (1) -- -- -- -- -- --
President/CEO
Roy B. Bennett 2000 153,000 (1) -- -- -- -- -- --
President 1999 76,000 (1) -- -- -- -- -- --
Robert G. Dinning 2000 126,000 (1) -- -- -- -- -- --
CFO/Secretary
Harvey Nickerson 2000 111,000 (1) -- -- -- -- -- --
CTO Director
Adrian Rollke 1999 20,538 (1) -- -- -- -- -- --
President
(1) Paid or due to a corporation wholly owned by the named executive officer for the services of the named
executive officer.
TRANSACTIONS INVOLVING OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
Prior to this offering, we entered into transactions and business
relationships with certain of our officers, directors and principal stockholders
or their affiliates. We believe that all of the transactions were on terms no
less favorable than we could have obtained from independent third parties.
From February 1999 to March 31, 2000 Cebu Holdings Inc. ("Cebu") has
provided office space, furniture, equipment and management services to the
Company. Cebu is wholly owned by Karl Rollke, the father of Adrian Rollke, a
former director and former officer of the Company. Adrian Rollke is also an
officer of Cebu.
Cebu did not charge the Company for any costs or expenses during 1997 or
1998. During the year ended December 31, 2000, Cebu charged $14,618 to the
Company for rent, office supplies and services. This arrangement terminated
March 31, 2000 by mutual consent.
25
From time to time the Company has entered into loans with Roy Bennet and
Associates, Inc., a company beneficially owned by the Company's President, Roy
Bennet, and Castle Creek Capital Corp., a corporation beneficially owned by the
Company's CFO and Secretary, Robert Dinning. As of June 30, 2001, the Company
had loans outstanding of approximately $46,300 to Roy Bennet and Associates and
approximately $30,000 to Castle Creek Capital Corp. No interest is accruable on
these loans and they have no specific terms of repayment.
On June 23, 1999, we acquired EVideo U.S.A., Inc. by issuing 6,623,016 of
our common shares to eVideo International, Inc. At the time of the transaction,
Roy Bennett was the sole owner of EVideo USA, Inc. and also an officer and
director of the Company. Subsequent to year-end, an escrow agreement regarding
6,623,016 shares of our common stock issued pursuant to the transaction was
cancelled after discussion with our board of directors and other parties
involved at the time of the escrow agreement. The business model has changed
significantly since the escrow agreement was executed and all parties felt it
was appropriate to cancel such agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSHIP AND MANAGEMENT
The following table sets forth information as of the date of this
prospectus regarding certain ownership of our outstanding common stock by all
officers and directors individually, all officers and directors as a group, and
all beneficial owners of more than five percent of the common stock.
NAME AND ADDRESS SHARES BENEFICIALLY PERCENT OF CLASS
OWNED (1)
-------------------- -----------------
Roy B. Bennett 6,623,016 39.5%
Director and Founder 680,000 (1) 4.1%
8266 East del Cadena Drive 350,000 (2) 2.1%
Scottsdale, AZ 85258 340,000 (3) 2.0%
340,000 (4) 2.0%
Charles J. Weber 0 0.0%
Director, President and
Chief Executive Officer
11471 Sunset Blvd
Los Angeles CA. 90049
Robert G. Dinning 0 0.0%
Director, Chief Financial Officer,
and Secretary
#12-1900 Indian River Cr. North
Vancouver, BC, Canada V7G 2R1
26
Harvey Nickerson 0 0.0%
Director and Chief Technology Officer
8631 E. San Jacinto Drive
Scottsdale, AZ 85258
Officers and directors as a group 7,993,016 47.7%
(5 persons)
(1) Shares are owned by Moti Holdings Ltd. a Bahamian company of which
Mr. Bennett is a beneficial owner.
(2) Shares are owned by Albany International Holdings Ltd. a Bahamian
company of which Mr. Bennett is a beneficial owner.
(3) Shares are owned by Reef International Holdings Ltd. a Bahamian
company of which Mr. Bennett is a beneficial owner.
(4) Shares are owned by Bellcrest Holdings Ltd, a Bahamian company of which
Mr. Bennett is a beneficial owner.
There are no arrangements known to the Company, which may result in a
change in control of the Company.
Options have been granted to the following officers and directors:
Name Dated Granted and Number of Shares Exercise Price Expiration Date
Exercisable
-------------- ----------------- ---------------- --------------- ----------------
Charles Weber Jan 12, 2001 300,000 $ 0.25 January 12, 2006
Roy Bennett Jan 12, 2001 1,100,000 $ 0.25 January 12, 2006
Robert Dinning Jan 12, 2001 1,100,000 $ 0.25 January 12, 2006
Harvey Jan 12, 2001 1,100,000 $ 0.25 January 12, 2006
Nickerson
27
DESCRIPTION OF SECURITIES
GENERAL
As of the date of this prospectus, our authorized capital stock consists of
100,000,000 shares of common stock, of which 16,757,072 shares are issued and
outstanding, and 5,000,000 shares of preferred stock, which may be issued in one
or more series at the discretion of the Board of Directors. There are
approximately 664 shareholders that are not in street name. The following is a
summary description of our securities and is qualified in its entirety by the
provisions of our articles of incorporation and by-laws as currently in effect.
COMMON STOCK
Holders of shares of common stock are entitled to one vote per share on
each matter submitted to vote at any meeting of stockholders. Shares of common
stock do not carry cumulative voting rights and, therefore, holders of a
majority of the outstanding shares of shares of common stock will be able to
elect the entire Board of Directors, and, if they do so, minority stockholders
would not be able to elect any members to the Board of Directors. Our Board of
Directors has authority, without the action by the our shareholders, to issue
all or any portion of the authorized but unissued shares of common stock, which
would reduce the percentage ownership of our present stockholders and which may
dilute the book value of the shares of common stock.
Our stockholders have no pre-emptive rights to acquire additional shares of
common stock. The shares are not subject to redemption and carry no subscription
or conversion rights. In the event of liquidation, the shares of common stock
are entitled to share equally in corporate assets after satisfaction of all
liabilities. All of the shares of common stock currently issued and outstanding
are fully paid and non-assessable.
Holders of shares of common stock are entitled to receive such dividends as
the Board of Directors may from time to time declare out of funds legally
available for the payment of dividends. We have not paid dividends on our shares
of common stock and there can be no assurance that it will pay dividends in the
foreseeable future.
PREFERRED STOCK
Shares of preferred stock may be issued from time to time in one or more
series as may from time to time be determined by our Board of Directors. Our
Board of Directors has authority, without action by the stockholders, to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights and any other rights of such series. There are currently no
shares of preferred stock issued or outstanding.
28
CERTAIN ANTI-TAKEOVER DEVICES
We are subject to Section 203 of the Delaware General Corporation Law,
which restricts certain transactions and business combinations between a
corporation and an Interested Stockholder owning 15% or more of the
corporation's outstanding voting stock for a period of three years from the date
the stockholder becomes an interested stockholder. Subject to certain
exceptions, unless the transaction is approved by the Board of Directors and the
holders of at least 66-2/3% of the outstanding voting stock of the corporation,
excluding shares held by the interested stockholder, Section 203 prohibits
significant business transactions such as a merger with, disposition of assets
to, or receipt of disproportionate financial benefits by the interested
stockholder, or any other transaction that would increase the interested
stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the
corporation, excluding shares held by persons who are both directors and
officers or by certain stock plans.
RECENT FINANCING
In this prospectus, we are registering 10,190,476 shares of Common Stock
underlying $1,000,000 of 8% convertible debentures, due June 6, 2003, issued to
an investor pursuant to a Subscription Agreement dated June 6, 2001. Interest
only payments are due quarterly commencing September 30, 2001, and the principal
is due in one lump sum on June 6, 2003. The number of shares of common stock
issuable upon conversion of the convertible debentures is 4,761,905, based on a
conversion price of $0.21 per share. We are required to register 200% of this
amount, for a total of 9,523,810 shares. In addition, 666,666 shares underlying
warrants are being registered. These warrants have an exercise price of
approximately $0.40 per share.
The 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 any subscriber or
group of affiliated subscribers may own after conversion at any given time is
4.99%.
The parties have made mutually agreeable standard representations and
warranties. We have also entered into certain covenants including, but not
limited to, the following: (i) we may not redeem the convertible debentures
without the consent of the holder; (ii) we 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) we have agreed to incur certain penalties
for untimely delivery of the shares.
29
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares
of common stock by the selling stockholders. We will not receive any proceeds
from the resale of the common stock by the selling stockholders. We will
receive proceeds from the exercise of the warrants. Assuming all the shares
registered below are sold by the selling stockholders, none of the selling
stockholders will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is offering
the resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING
------------------------ -----------------
TOTAL
SHARES
NAME NUMBER (2) (3) PERCENT OFFERED NUMBER PERCENT
---------------------------- -------------- -------- ---------- ------ -------
Laurus Master Fund, Ltd. (4) 10,190,476 4.99 (2) 10,190,476 - -
(1) The number and percentage of shares beneficially owned is determined
in accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rule, beneficial ownership
includes any shares as to which the selling stockholder has sole or
shared voting power or investment power and also any shares which the
selling stockholder has the right to acquire within 60 days. The
actual number of shares of common stock issuable upon the conversion
of the debentures and exercise of the debenture warrants is subject to
adjustment depending on, among other factors, the future market price
of the common stock, and could be materially less or more than the
number estimated in the table.
(2) Represents shares of common stock issuable upon conversion of
debentures or exercise of warrants of the selling shareholder, at an
assumed conversion price of $0.21 per share and at an exercise price
of approximately $0.40 per warrant. Because the number of shares of
common stock issuable upon conversion of the debentures is dependent
in part upon the market price of the common stock prior to a
conversion, the actual number of shares of common stock that will be
issued upon conversion will fluctuate daily and cannot be determined
at this time. However, the selling shareholder has contractually
agreed to restrict its ability to convert its debentures or exercise
its warrants and receive shares of our common stock such that the
number of shares of common stock held by it and its affiliates after
such conversion or exercise exceed 4.99% of the then issued and
outstanding shares of common stock following such conversion or
exercise.
(3) Includes 200% of the shares issuable on conversion of the debentures,
based on the market price of our common stock on June 6, 2001, as
required by our agreement with the selling shareholders. The number of
shares of common stock issuable upon conversion of the debentures is
dependent in part upon the market price of the common stock prior to a
conversion, the actual number of shares of common stock that will be
30
issued in respect of such conversions and, consequently, offered for
sale under this registration statement, cannot be determined at this
time. As a result of the contractual agreement not to exceed 4.99%
beneficial ownership, the selling shareholder does not believe it is a
control person as defined in the Securities Exchange Act of 1934 or is
required to file a Schedule 13D.
(4) In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, Laurus Capital Management, Inc., a corporation beneficially
owned by David Grin and Eugene Grin, may be deemed a control person of
the shares owned by such entity. The selling shareholder is deemed an
"underwriter" within the meaning of Section 2(11) of the Securities
Act of 1933.
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market, or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. There is no assurance that the selling stockholders
will sell any or all of the common stock in this offering. The selling
stockholders may use any one or more of the following methods when selling
shares:
- Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers.
- Block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction.
- An exchange distribution following the rules of the applicable
exchange
- Privately negotiated transactions
- Short sales or sales of shares not previously owned by the seller
- A combination of any such methods of sale any other lawful method
The selling stockholders may also engage in:
- Short selling against the box, which is making a short sale when
the seller already owns the shares.
- Other transactions in our securities or in derivatives of our
securities and the subsequent sale or delivery of shares by the
stockholder.
- Pledging shares to their brokers under the margin provisions of
customer agreements. If a selling stockholder defaults on a
margin loan, the broker may, from time to time, offer to sell the
pledged shares.
31
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from selling stockholders in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are involved
in selling the shares may be considered to be "underwriters" within the meaning
of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities Act.
Because Laurus Master Fund, Ltd., the selling shareholders, is deemed an
"underwriter" within the meaning of Section 2(11) of the Securities Act, it will
be subject to the prospectus delivery requirements.
We are required to pay all fees and expenses incident to the registration
of the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.
We have agreed to indemnify the selling shareholders and their officers,
directors, employees and agents, and each person who controls any selling
shareholder, in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act. Each selling shareholder has
agreed to indemnify us and our directors and officers in certain circumstances
against certain liabilities, including liabilities arising under the Securities
Act.
If the selling stockholder notifies us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholder and the broker-dealer.
EXPERTS
The financial statements in this prospectus have been audited by Grant
Thornton LLP, chartered accountants, as disclosed in their report appearing
elsewhere in this prospectus.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for us by Sichenzia, Ross, Friedman & Ference LLP.
32
OTHER AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities and Exchange
Commission. We file periodic reports, proxy statements and other information
with the commission under the Securities Exchange Act of 1934. We will provide
without charge to each person who receives a copy of this prospectus, upon
written or oral request, a copy of any information that is incorporated by
reference in this prospectus (not including exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference).
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933 Act with the Commission in connection with the securities offered by
this prospectus. This prospectus does not contain all of the information that
is the registration statement, you may inspect without charge, and copy our
filings, at the public reference room maintained by the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549. Copies of this material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549, at prescribe rates. Information about the
public reference room is available from the commission by calling
1-800-SEC-0330.
The commission maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the commission. The address of the site is
www.sec.gov.
Visitors to the site may access such information by searching the EDGAR
archives
on this web site.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with any information that is
different.
The selling security holders are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where such offers and sales
are permitted.
The information contained in this prospectus is accurate only as of the
date of this prospectus.
33
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE #
Report of the Independent Auditors F-1
Consolidated Balance Sheets as at December 31,
2000 and 1999 F-2
Consolidated Statements of Operations for the
cumulative period from inception, March 5, 1999,
to December 31, 2000, the year ended December 31,
2000 and the period from inception, March 5, 1999,
to December 31, 1999 F-3
Consolidated Statements of Cash Flows for the
cumulative period from inception, March 5, 1999,
to December 31, 2000, the year ended December 31,
2000 and the period from inception, March 5, 1999
to December 31, 1999 F-4
Consolidated Statement of Shareholders' Equity
From inception, March 5, 1999, to December 31, 2000 F-5
Notes to the Consolidated Financial Statements F-6
Unaudited Consolidated Balance Sheet at March 31,
2001 and December 31, 2000 F-15
Unaudited Consolidated Statement of Operations for
the period from inception, March 5, 1999, to March
31, 2001, the quarter ended March 31, 2001 and the
quarter ended March 31, 2000 F-16
Unaudited Consolidated Statement of Cash Flows for
the period from inception, March 5, 1999, to March
31, 2001, the quarter ended March 31, 2001 and the
quarter ended March 31, 2000 F-17
Unaudited Consolidated Statement of Shareholders'
Equity for the period from inception, March 5,
1999, to March 31, 2001 F-18
Notes to the Unaudited Consolidated Financial
Statements F-19
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS
To the Shareholders of e-VideoTV, Inc.
We have audited the consolidated balance sheet of e-VideoTV, Inc. (A Development
Stage Company) as at December 31, 2000 and statements of operations, cash flows
and shareholders' equity for the year then ended. 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
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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, 2000
and the results of its operations and its cash flows for the year then ended in
accordance with accounting principles generally accepted in the United States.
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 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.
Vancouver, Canada GRANT THORNTON LLP
March 13, 2001 Chartered Accountants
F-1
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN U.S. DOLLARS)
DECEMBER 31,
------------------------
2000 1999
$ $
------------ ----------
ASSETS
CURRENT
Cash 2,276 105,002
Receivables and prepaids 9,176 2,904
------------ ----------
TOTAL CURRENT ASSETS 11,452 107,906
COMPUTER EQUIPMENT
(net of accumulated depreciation of $10,181 (1999: $247) 19,622 29,556
DISTRIBUTION RIGHTS AND SOFTWARE DEVELOPMENT (note 3) 1,229,418 730,256
------------ ----------
1,260,492 867,718
============ ==========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (note 4) 495,149 248,899
Loans from related parties (note 5) 99,000 -
------------ ----------
594,149 248,899
------------ ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 6)
Authorized - 100,000,000 (1999 - 30,000,000) shares of
common stock, $0.0001 par value and 5,000,000 shares
of preferred stock, $0.0001 par value
Issued and outstanding - 16,757,072 (1999 - 15,588,359) common shares 1,676 1,559
Additional paid in capital 3,328,136 1,095,297
Share subscriptions 45,000 -
------------ ----------
TOTAL SHARE CAPITAL 3,374,812 1,096,856
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (2,708,469) (478,037)
------------ ----------
666,343 618,819
------------ ----------
1,260,492 867,718
============ ==========
The accompanying notes are an integral part of these consolidated financial statements.
F-2
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
CUMULATIVE, INCEPTION,
INCEPTION TO YEAR ENDED MARCH 5, 1999
DECEMBER DECEMBER TO DECEMBER
31, 2000 31, 2000 31, 1999
$ $ $
============ =============== ==========
Revenue - - -
------------ --------------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Amortization 307,602 307,355 247
Compensation expense for stock options (Note 6) 392,583 392,583 -
Corporate promotion 161,205 119,068 42,137
General corporate expenses 137,111 81,499 55,612
Management and consulting fees (Note 9) 739,905 583,265 156,640
Office expenses 115,140 101,108 14,032
Professional fees 248,371 82,450 165,921
Rent 77,589 53,761 23,828
Travel 114,988 86,510 28,478
------------ --------------- ----------
2,294,494 1,807,599 486,895
WRITE-OFF OF SOFTWARE DEVELOPMENT COSTS (Note 3) 424,031 424,031 -
INTEREST INCOME (10,056) (1,198) (8,858)
------------ --------------- ----------
NET LOSS FOR THE PERIOD 2,708,469 2,230,432 478,037
============ =============== ==========
Weighted Average Number of Shares
Outstanding 9,543,179 5,470,052
--------------- ----------
NET LOSS PER SHARE (basic and diluted) 0.23 0.09
=============== ==========
The accompanying notes are an integral part of these consolidated financial statements.
F-3
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
CUMULATIVE, INCEPTION,
INCEPTION TO YEAR ENDED MARCH 5, 1999
DECEMBER DECEMBER TO DECEMBER
31, 2000 31, 2000 31, 1999
$ $ $
============ =============== ==========
OPERATING ACTIVITIES
Net loss for the period (2,708,469) (2,230,432) (478,037)
- compensation expense for stock options (Note 6) 392,583 392,583 -
- write-off of software developments costs 424,031 424,031 -
- depreciation and amortization 317,536 317,289 247
CHANGE IN NON-CASH OPERATING WORKING CAPITAL
- receivables and prepaids 3,428 (6,272) 9,700
- payables and accruals 462,919 246,250 216,669
------------ --------------- ----------
(1,107,972) (856,551) (251,421)
------------ --------------- ----------
FINANCING ACTIVITIES
Proceeds from sale of common shares 1,048,601 1,048,600 1
Shares subscribed 45,000 45,000 -
Loans from related parties 99,000 99,000 -
Loans from parent company prior to acquisition 115,000 - 115,000
Cash acquired on acquisition of parent company 1,001,481 - 1,001,481
------------ --------------- ----------
2,309,082 1,192,600 1,116,482
------------ --------------- ----------
INVESTING ACTIVITIES
Distribution rights (300,000) - (300,000)
License (445,000) (415,000) (30,000)
Software development (424,031) (23,775) (400,256)
Office equipment (29,803) - (29,803)
------------ --------------- ----------
(1,198,834) (438,775) (760,059)
------------ --------------- ----------
INCREASE (DECREASE) IN CASH DURING THE PERIOD 2,276 (102,726) 105,002
CASH AT THE BEGINNING OF THE PERIOD - 105,002 -
------------ --------------- ----------
CASH AT THE END OF THE PERIOD 2,276 2,276 105,002
============ =============== ==========
NON-CASH ACTIVITIES NOT INCLUDED IN CASH FLOWS
Issuance of shares to acquire license (Note 3) 791,773 791,773 -
Cancellation of loans from parent company
on acquisition 115,000 - 115,000
Ascribed value of shares issued in excess of cash
acquired on acquisition of parent company 95,374 - 95,374
Compensation expense for stock options (Note 6) 392,583 392,583
The accompanying notes are an integral part of these consolidated financial statements.
F-4
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
INCEPTION, MARCH 5, 1999, TO DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
ADDITIONAL TOTAL
PAR PAID IN SHARE SHAREHOLDERS'
NUMBER VALUE CAPITAL SUBSCRIPTIONS DEFICIT EQUITY
OF SHARES $ $ $ $ $
Issuance of shares for cash on
incorporation 1 1 - - - 1
Adjustment for change in share
structure resulting from
acquisition of eVideo U.S.A., Inc. 6,623,015 661 (661) - - -
Shares outstanding at date of
acquisition of eVideo U.S.A., Inc.
previously issued for cash, net of
ssue costs (note 3) 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 on
March 17, 2000 666,000 67 1,048,533 - - 1,048,600
Issuance of shares for license on
March 17, 2000 (Note 3) 502,713 50 791,723 - - 791,773
Share subscriptions received - - - 45,000 45,000 - 45,000
Compensation expense for stock
options (Note 6) - - 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
========== ====== ============ ============== ============ ===============
The accompanying notes are an integral part of these consolidated financial statements.
F-5
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
1. OPERATIONS AND GOING CONCERN
The Company was incorporated in the state of Delaware, USA 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
eVideo U.S.A., Inc. (note 7). This business combination has been accounted
for as an acquisition of the Company by eVideo U.S.A., Inc.
The Company has commenced its planned principal operations although it has
not yet earned any revenue. The Company's current operational focus is to
secure licensing operators for its faster than real time (FTRT) video on
demand service. To that end, management is devoting substantially all of
the Company's resources to the identification and qualification of such
potential licenses. The ability of the Company to market and exploit its
FTRT video on demand technology is dependent on the company's ability to
obtain adequate additional financing and to achieve profitable operations.
The Company raised financing of $1,192,600 during 2000 through share
issuances, share subscriptions and loans from related parties. Subsequent
to year end, additional financing of $425,000 was obtained through the
issuance of common shares (note 10). The company continues to devote
significant efforts to obtaining private financing to fund the marketing of
its technology.
2. SIGNIFICANT ACCOUNTING POLICIES
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.
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 and
loans from related parties. It was not practicable to determine the fair
value of the loan from a related parties. The carrying values of all other
financial instruments approximates their fair values.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
DISTRIBUTION RIGHTS AND SOFTWARE DEVELOPMENT - The costs incurred to
acquire the Company's distribution rights and develop its software were
previously capitalized based on AICPA Statement of Position 98-1. During
2000, as a result of a change in business focus from licensing and
distribution to concentrate solely on licensing, management determined that
the capitalized software development costs should be written off (Note 3).
The costs associated with the acquisition of distribution rights and
required payments under license agreements have been capitalized and will
be amortized over the term of the underlying license.
Management regularly reviews the carrying value of its distribution rights
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.
DEFERRED INCOME TAXES - Deferred income taxes are provided for significant
carryforwards 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 weighed effect of all common shares issued and
outstanding.
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 stock-based employee or director compensation
arrangements in accordance with Accounting Principles Board Opinion No. 25
- Accounting for Stock Issued to Employees ("APB No. 25").
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
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 shareholders' equity.
RECENT ACCOUNT PRONOUNCEMENTS
SFAS Nos. 133 and 138
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No. 138,
"Accounting for Certain Derivative Instruments and certain Hedging
Activities, an amendment of FASB Statement No. 133", effective for fiscal
years beginning after June 15, 2000. These Statements establish accounting
and reporting standards for derivative instruments and hedging activities,
including certain derivative instruments embedded in other contracts, and
requires that an entity recognize all derivatives as assets or liabilities
in the balance sheet and measure them at fair value. If certain conditions
are met, an entity may elect to designate a derivative as follows: (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure
to variable cash flows of a forecasted transaction, or (c) a hedge of the
foreign currency exposure of an unrecognized firm commitment, an
available-for-sale security, a foreign currency denominated forecasted
transaction, or a net investment in a foreign operation. The Statements
generally provide for matching the timing of the recognition of the gain or
loss on derivatives designated as hedging instruments with the recognition
of the changes in the fair value of the item being hedged. Depending on the
type of hedge, such recognition will be in either net income or other
comprehensive income. For a derivative not designated as a hedging
instrument, changes in fair value will be recognized in income in the
period of change. Management is currently evaluating the impact of adopting
SFAS Nos. 133 and 138 on the financial statements, but does not anticipate
that they will have a material impact.
SFAS No. 140
The Financial Accounting Standards Board issued SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which replaces SFAS 125. The new Statement revises some of
the standards for accounting for collateral and for securitizations and
other transfers of financial assets. It is based on the
financial-components approach used in SFAS 125 and carries over most of
that Statement's accounting provisions without change. The revised
accounting provision apply to transfers of financial assets occurring after
March 31, 2001. SFAS 140 also requires expanded disclosures about
securitized and pledged financial assets, which are effective for fiscal
years ending after December 15, 2000. Management is evaluating the impact
of adopting SFAS No. 140 on the financial statements, but does not
anticipate that it will have a material impact.
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
COMPUTER EQUIPMENT - Computer equipment is recorded at cost less
accumulated depreciation. The company records depreciation on computer
equipment on a straight line basis over 36 months.
3. DISTRIBUTION RIGHTS AND SOFTWARE DEVELOPMENT
December 31,
2000
Accumulated Net book December 31,
Cost Amortization value 1999
$ $ $ $
---------- ------------- ---------- -------------
Distribution rights 300,000 60,000 240,000 300,000
Payments under license agreement 1,236,773 247,355 989,418 30,000
Software development costs - - 400,256
---------- ------------- ---------- -------------
1,536,773 307,355 1,229,418 730,256
========== ============= ========== =============
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 to use certain technology which
prevents a video from being copied onto 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 an additional $415,000 to
maintain and exercise the option and acquire the license. In addition to
the cash consideration, the Company issued 502,713 shares of its common
stock 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.
The copy-protection license is for a five year term ending January 31, 2005
and may be extended until January 31, 2010. A usage royalty of 1% of the
gross pay-per-view transaction fees charged to viewers is payable to the
licensor. Minimum annual royalties of $250,000 are due each January 31 from
2001 until 2004, and, if the license is extended, of $350,000 each January
31 from 2005 until 2009. The January, 2001 option payment was made in
February, 2001.
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
The license may be extended if the Company has materially complied with all
of the terms and conditions of the license agreement if the Company
provides the optionor with written notice on or before September 14, 2004.
Each minimum royalty paid may be applied against usage royalties incurred
during the following twelve months.
The license will become non-exclusive if the Company does not generate a
one-month usage royalty of at least $1,000 by January 31, 2002, or if the
Company's transmission business does not generate in excess of $250,000,000
in gross revenues in the United States in the fourth full year of operation
following the month it first generates a usage royalty of at least $1,000.
The Company incurred costs of $400,256 in 1999 and $23,775 in 2000 on the
design and operational testing of an electronic video delivery system
software and the evaluation of hardware installation options and methods
for internal use. During 2000, management determined that this development
work would likely not provide substantive service potential and the
$424,031 in development costs incurred were written off.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, 2000 December 31, 1999
$ $
------------------ ------------------
272,149 144,023
Accounts payable 223,000 104,876
------------------ ------------------
Accrued liabilities 495,149 248,899
================== ==================
5. LOANS FROM RELATED PARTIES
December 31, 2000 December 31, 1999
Loan from a company controlled by shareholders of the $ $
------------------ ------------------
Company. The loan is interest free up to August 16,
2001 after which it shall bear interest at the U.S.
Federal Reserve Board prime rate plus 2% and shall
become payable on demand 47,500 -
Loans from directors of the Company. These loans
bear no interest, have no set terms of repayment and are
unsecured. 51,500 -
------------------ ------------------
99,000 -
================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
6. SHARE CAPITAL
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.
STOCK OPTIONS
Subject to shareholder approval, the Company's directors resolved to create
an employee and director stock option plan that sets aside 5,000,000 shares
of the Company's common stock for issuance upon the exercise of stock
options.
The company accounts for its stock option plan in accordance with the
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees.
Had compensation cost for the stock option plan been determined based on
the fair value at the grant date consistent with the method of SFAS No.
123, Accounting for Stock-Based Compensation, the company's pro-forma net
loss and pro-forma net loss per share would not have been different than
its actual net loss and net loss per share reported in these financial
statements.
The fair value of each option grant was estimated at the grant date using
the Black-Scholes option-pricing model for the period from inception to
December 31, 2000, assuming a risk-free interest rate of 4.88%, a
volatility factor of 2.06%, zero dividend yield, and an expected life of
six years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options and warrants which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the company's
employee stock options and warrants have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
A summary of the status of the company's options as at December 31, 2000
and changes during the year ended December 31, 2000 is presented below:
EXERCISE WEIGHTED
PRICE AVERAGE
PER SHARE EXERCISE PRICE SHARES
========== =============== =========
Granted at FMV $ 0.50 $ 0.50 1,070,000
=========
Options outstanding at
December 31, 2000 - 1,070,000
=========
Options exercisable at
December 31, 2000 - 1,070,000
=========
Weighted-average fair value of
options granted during the $ 0.37
year =========
The following table summarizes information concerning options outstanding
at December 31, 2000:
TOTAL OUTSTANDING EXERCISABLE
------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OF SHARES LIFE PRICE OF SHARES PRICE
--------- --------- --------- --------- --------- ---------
0.50 1,070,000 4.91 $ 0.50 1,070,000 $ 0.50
========= =========
The company granted options to purchase 1,070,000 shares of the company's
common stock to non-employees during the year ended December 31, 2000 and
recognized expense related to these options of $392,583. The expense amount
was determined by the fair value of the options issued calculated using the
Black-Scholes model.
WARRANTS
Warrants that entitled the holder to purchase up to 307,693 shares of
common stock at $3.25 per share expired on May 25, 2000 without being
exercised.
ESCROWED SHARES
During 1999, a 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 for the acquisition
of eVideo U.S.A., Inc. (note 7) were held in escrow at December 31, 2000.
These shares were released from escrow on February 9, 2001.
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
7. BUSINESS COMBINATION
On June 23, 1999, the Company acquired all of the outstanding shares of
eVideo U.S.A., Inc. in exchange for the issuance of 6,623,016 shares of its
common stock. This business combination has been accounted for as an
acquisition of the Company by eVideo U.S.A., Inc. Accordingly, these
consolidated financial statements combine the operations of eVideo U.S.A.,
Inc. since its incorporation on March 5, 1999 and the operations of
e-VideoTV, Inc. since the date of acquisition, June 23, 1999. All
intercompany transactions and balances have been eliminated.
At the date of acquisition, the net tangible assets of e-VideoTV, Inc.
acquired were:
Cash $ 1,001,481
Other current assets 12,604
Advances to eVideo U.S.A., Inc. 115,000
Current liabilities (32,230)
--------------
Value assigned to 8,965,343 shares outstanding
at date of acquisition $ 1,096,855
==============
8. INCOME TAXES
At December 31, 2000 the Company has net operating losses carried forward
of approximately $2,100,000 (1999: $570,000) that may be offset against
future taxable income from 2019 to 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.
9. RELATED PARTY TRANSACTIONS
Pursuant to a management agreement effective for two years commencing June
21, 1999, the Company has committed to pay $12,000 per month to a company
controlled by an officer and director of the Company for the services of
that officer. $144,000 was paid during the year ended December 31, 2000 and
$95,000 was paid for the period from inception to December 31, 1999.
Consulting fees of $467,500 have been paid to other companies that employ
other directors and officers of the Company. (1999: $58,649). Accrued
liabilities at December 31, 2000 include $233,000 (1999: $Nil) of amounts
due to related parties under consulting agreements.
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
10. SUBSEQUENT EVENTS
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 development, corporate
finance, and capital placement transactions. Compensation to the advisory
company will range from 1% to 6.0% of the 'aggregate consideration'. The
agreement specifies a minimum fee of $250,000 should a financing as
specified in the agreement be completed with this financial advisory
company.
ISSUANCES OF CAPITAL STOCK
Subsequent to December 31, 2000 the Company completed a private placement
of $425,000 through the issue of 531,250 shares of its common stock. Each
share has a warrant attached exercisable for two years for the purchase of
one additional share at $0.30 per share in the first year and $0.50 per
share in the second year.
F-14
VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED BALANCE SHEET
(Expressed in U.S. Dollars)
March 31 December 31
2001 2000
ASSETS
Current
Cash $ 2,533 $ 2,276
Accounts receivable and prepaids 14,898 9,176
Prepaid royalties (Note 2) 210,783 -
------------ -------------
228,214 11,452
Computer equipment 19,930 19,622
Distribution rights and software development (Note 2) 1,152,580 1,229,418
------------ -------------
$ 1,400,724 $ 1,260,492
============ =============
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 3) $ 509,778 $ 495,149
Loans from related parties (Note 4) 103,794 99,000
------------ -------------
613,572 594,149
------------ -------------
SHAREHOLDERS' EQUITY
Capital stock (Note 5)
Authorized:
100,000,000 shares of common stock, $0.0001 par value
5,000,000 shares of preferred stock, $0.0001 par value
Issued and outstanding:
16,757,072 (2000: 16,757,072) common shares 1,676 1,676
Additional paid-in capital 3,328,136 3,328,136
Share subscriptions 524,000 45,000
------------ -------------
3,853,812 3,374,812
Deficit accumulated during the development stage (3,066,660) (2,708,469)
------------ -------------
787,152 666,343
------------ -------------
$ 1,400,724 $ 1,260,492
============ =============
Continuance of operations (Note 1)
See accompanying notes to the consolidated financial statements.
F-15
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in U.S. Dollars)
Cumulative Quarter Quarter
March 5, 1999 Ended Ended
to March 31 March 31 March 31
2001 2001 2000
Revenue $ - $ - $ -
--------------- ---------- -----------
General and administrative expenses
Amortization 384,441 77,886 -
Compensation expense for stock option (Note 5) 392,583 - -
Corporate promotion 184,494 23,289 28,421
General corporate expenses 159,089 21,978 19,964
Management and consulting fees 883,874 143,969 93,352
Office expenses 129,600 13,411 8,229
Professional fees 264,018 15,647 74,532
Rent 94,352 16,763 10,973
Royalties 39,217 39,217 -
Travel 121,019 6,031 19,478
--------------- ---------- -----------
2,652,687 358,191 254,949
Write-off software development costs (Note 2) 424,031 - -
Interest income (10,058) - (1,077)
--------------- ---------- -----------
Net loss $ 3,066,660 $ 358,191 $ 253,872
=============== ========== ===========
Weighted average number of common shares
outstanding 13,660,176 8,800,145
========== ===========
Net loss per share, basic and diluted $ 0.03 $ 0.03
========== ===========
See accompanying notes to the consolidated financial statements.
F-16
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
Cumulative Quarter Quarter
March 5, 1999 Ended Ended
to March 31 March 31 March 31
2001 2001 2000
Cash derived from (applied to)
OPERATING
Net loss $ (3,066,660) $(358,191) $ (253,872)
Compensation expense for stock options (Note 5) 392,583 - -
Write-off software development costs 424,031 - -
Depreciation and amortization 395,422 77,886 246
Change in non-cash operating working capital
Receivables and prepaids (2,294) (5,722) -
Prepaid royalties (210,783) (210,783) -
Payables and accruals 531,548 68,629 (125,911)
--------------- ---------- -----------
(1,536,153) (428,181) (379,537)
--------------- ---------- -----------
FINANCING
Proceeds from sale of common shares 1,048,601 - 1,048,600
Shares subscribed 470,000 425,000 -
Loans from related parties 103,794 4,794 -
Loans from parent company prior to acquisition 115,000 - -
Cash acquired on acquisition of parent company 1,001,481 - -
--------------- ---------- -----------
2,738,876 429,794 1,048,600
--------------- ---------- -----------
INVESTING
Distribution rights (300,000) - (438,776)
License (445,000) - -
Software development (424,031) - -
Office equipment (31,159) (1,356) -
--------------- ---------- -----------
(1,200,190) (1,356) (438,776)
--------------- ---------- -----------
Increase in cash 2,533 257 230,287
Cash, beginning of period - 2,276 105,002
--------------- ---------- -----------
Cash, end of period $ 2,533 $ 2,533 $ 335,289
=============== ========== ===========
NON-CASH ACTIVITIES NOT INCLUDED IN CASH FLOWS
Ascribed value of shares issued to acquire copy
protection license $ 791,773 $ - $ 791,773
Cancellation of loans from parent company on
acquisition $ 115,000 $ - $ -
Ascribed value of shares issued in excess of cash
acquired on acquisition of parent company $ 95,374 $ - $ -
Shares subscribed to settle trade payables $ 54,000 $ 54,000 $ -
See accompanying notes to the consolidated financial statements.
F-17
E-VIDEOTV, INC.
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Expressed in U.S. Dollars)
Inception, March 5, 1999, to March 31, 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 of 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 exp 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 - - - 479,000 - 479,000
Net loss, period ending March 31,
2001 - - - - (358,191) (358,191)
---------- ------ ----------- -------------- --------------- ------------
Balance, March 31, 2001 16,757,072 $1,676 $3,328,136 $ 524,000 $ (3,066,660) $ 787,152
========== ====== =========== ============== =============== ============
See accompanying notes to the consolidated financial statements.
F-18
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2001
(Unaudited)
1. BASIS OF PRESENTATION
While the information presented in these interim consolidated financial
statements is unaudited, it includes all adjustments that are, in the opinion of
management, necessary to the fair presentation of the interim periods reported.
As certain information has been condensed or omitted from the notes to the
financial statements, these financial statements should only be read in
conjunction with the audited consolidated financial statements for the period
from inception, March 5, 1999, to December 31, 2000, contained in the company's
annual report on Form 10-KSB.
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
market 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). To that end, management is devoting substantially
all of the company's resources to this process. The company expects deployment
of over 1 million set-top boxes with caching hard drives suitable for FTRT
operations by the end of the year. The company also intends to activate
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
adequate additional financing, to open new territories.
The company is devoting significant efforts to obtaining private financing to
fund the continued development of its technology and software. Significant
additional cash will be required.
2. DISTRIBUTION RIGHTS AND SOFTWARE DEVELOPMENT
Includes the net cost to date of an exclusive license to use certain technology
for the analog copy protection of digital video transmissions received in Faster
Than Real Time (FTRT) and stored in home devices on set-top boxes for later
viewing. This five year license ends January 31, 2005. There is an extension
provision to January 31, 2010. Usage royalties of 1% of gross transaction fees
are payable to the licensor. Minimum annual royalties of $250,000 are payable
in advance each January 31 from 2000 until 2004. Should the license be
extended, royalties of $350,000 are payable each January 31.
The company paid the January 31, 2002 annual royalty prepayment during the
quarter ended March 31, 2001. This prepaid royalty will be expensed over the
period February 1, 2001 to January 31, 2002.
The company wrote off software costs of approximately $424,000 in 2000 as these
software development costs were no longer applicable in the company's current
business model of licensing.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
March 31 December 31
2001 2000
--------- ------------
Accrued management fees $ 326,000 $ 223,000
Trade payables 183,778 272,149
--------- ------------
$ 509,778 $ 495,149
========= ============
F-19
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2001
(Unaudited)
4. LOANS FROM RELATED PARTIES
Includes loans from directors of $56,294 which have no specific terms of
repayment and $47,500 from a company controlled by shareholders of the company
which is interest free until August 16, 2001, and bears interest of U.S. prime
plus 2% thereafter and is payable on demand.
5. 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.
STOCK OPTIONS
Subject to shareholder approval, the company's directors resolved to create an
employee and director stock option plan that sets aside 5,000,000 shares of the
company's common stock for issuance upon the exercise of stock options.
The company accounts for its stock option plan in accordance with the provisions
of APB Opinion No. 25, Accounting for Stock Issued to Employees. Had
compensation cost for the stock option plan been determined based on the fair
value at the grant date consistent with the method of SFAS No. 123, Accounting
for Stock-Based Compensation, the company's net loss and net loss per share
would have been the pro forma amounts indicated below:
Period from Quarter Quarter
Inception to Ended Ended
March 31 March 31 March 31
2001 2001 2000
-------------- ------------ ----------
Actual net loss $ (3,066,660) $ (358,191) $(253,872)
Actual net loss per share $ (0.02) $ (0.03)
Pro forma net loss $ (3,950,100) $(1,241,631) $(253,872)
Pro forma net loss per share $ (0.07) $ (0.03)
The fair value of each option grant was estimated at the grant date using the
Black-Scholes option-pricing model for the period from inception to December 31,
2000, assuming a risk-free interest rate of 4.88%, a volatility factor of 2.06%,
zero dividend yield, and an expected life of five years.
F-20
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2001
(Unaudited)
================================================================================
5. CAPITAL STOCK (Continued)
STOCK OPTIONS (Continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and warrants which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions, including the expected stock price volatility.
Because the company's employee stock options and warrants have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
A summary of the status of the company's options as of December 31, 2000 and
changes during the period from inception (January 20, 2000) to December 31, 2000
is presented below:
Weighted
Exercise Price Average
Per Share Exercise Price Shares
--------------- --------------- ---------
Granted at FMV during 2000 $ 0.50 $ 0.50 1,070,000
=========
Granted at FMV during 2001 0.25 0.25 3,600,000
=========
Options outstanding at March 31, 2001 0.40 4,670,000
=========
Options exercisable at March 31, 2001 0.40 4,670,000
=========
Weighted-average fair value of options
granted during the period $ 0.25
=========
The following table summarizes information outstanding and exercisable share
options at December 31, 2000:
Options Outstanding Options Exercisable
-------------------------------------------------------------- -----------------------
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Number Price Life Price Number Price
Outstanding Grant Date Per Share (In Years) Per Share Exercisable Per Share
----------- ----------- ------------ --------- ----------- --------- ------------
1,070,000 11/30/00 $ 0.50 4.67 $ 0.50 1,070,000 $ 0.50
3,600,000 01/12/01 0.25 4.79 0.25 3,600,000 0.25
----------- ---------
4,670,000 4,670,000
=========== =========
The company granted options to purchase 3,600,000 shares of the company's common
stock to directors during the three months ended March 31, 2001. No expense has
been recorded related to these options.
F-21
E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2001
(Unaudited)
5. CAPITAL STOCK (Continued)
SHARE SUBSCRIPTIONS
March 31, 2001 December 31, 2000
----------------- ----------------
Number Amount Number Amount
------- -------- ------ -------
Shares subscribed for $1 per share 45,000 $ 45,000 45,000 $45,000
Units subscribed for $0.80 per unit.
Each unit consists of one common
share and one common share
purchase warrant exercisable for two
years into one common share at $0.30
per share in the first year and $0.50 in
the second year 531,250 425,000 - -
Shares to be issued in settlement of
trade payables 180,000 54,000 - -
------- -------- ------ -------
756,250 $524,000 45,000 $45,000
======= ======== ====== =======
ESCROWED SHARES
During 1999, a former director of the company placed 345,000 shares of common
stock into escrow. These shares were released to the former director on
February 9, 2001.
In addition, all of the 6,623,016 common shares issued for the acquisition of
e-VideoTV, Inc. were held in escrow at December 31, 2000. These shares were
released from escrow on February 9, 2001.
6. INCOME TAXES
At March 31, 2001, the company had net operating losses carried forward of
approximately $2,500,000 (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.
7. 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. The agreement
specifies a minimum fee of $250,000 should financing as specified in the
agreement be completed with this company.
F-22
================================================================================
10,190,476 SHARES OF
COMMON STOCK
E-VIDEOTV, INC.
-----------------
PROSPECTUS
-----------------
THE DATE OF THIS PROSPECTUS IS [ ]
================================================================================
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of the Company provide that the Company shall indemnify
directors and officers of the Company. The pertinent section of Delaware
Corporation Law regarding indemnification of officers and directors is set forth
below. In addition, upon effectiveness of this registration statement,
management intends to obtain officers and directors liability insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission (the
"Commission") with respect to the effect of any indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchase or redemption, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Company's Certificate of Incorporation contains such a provision.
The Company's Certificate of Incorporation provides, pursuant to the
authority granted by Section 145 of the Delaware General Corporation Law, that
the Company indemnify directors and officers against expenses (including
attorneys' fees) judgments, fines and suits or proceedings, whther civil,
criminal, administrative or investigative, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. While the statue
provides that it is not exclusive of other indemnification that may be granted
by a corporation's charter, by-laws, disinterested director vote, shareholder
vote, agreement or otherwise, neither the Company's Certificate of Incorporation
nor Bylaws nor any other agreement contains additional indemnification
provisions.
(1) INDEMNIFICATION OF DIRECTORS--A corporation may indemnify a director or
officer of the corporation, a former director or officer of the corporation or a
person who acts or acted at the corporation's request as a director or officer
of a body corporate of which the corporation is or was a shareholder or
creditor, and his or her heirs and legal representatives, against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her in respect of any civil, criminal or
administrative action or proceeding to which he or she is a party by reason of
being or having been a director or officer of such corporation or body
corporate, if,
(a) he or she acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he or she has reasonable grounds for
believing that his or her conduct was lawful.
II-2
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities offered hereby.
SEC registration fee . . . . . . . . . . . . . . . . . $ 1,273.81
Accountants' fees and expenses . . . . . . . . . . . . 5,000.00
Legal fees . . . . . . . . . . . . . . . . . . . . . . 25,000.00
Transfer agent's and warrant agent's fees and expenses 5,000.00
-----------
Total . . . . . . . . . . . . . . . . . . . . . . $36,273.81
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Company's acquisition of Evideo U.S.A., on June 23,
1999, the Company issued 6,623,016 shares of its common stock to eVideo
International, Inc. At the time of the transaction, Roy Bennett was the sole
owner of EVideo USA, Inc. and also an officer and director of the Company. As
part of that acquisition, the Company also issued 1,710,000 shares of its common
stock to four accredited investors as final settlement of debt accrued for
services rendered to the Company prior to the acquisition.
In March 2000, the Company issued 666,000 shares of its common stock to 10
accredited investors at a purchase price of $1.57 per share for total proceeds
of approximately $1,048,600. The shares were issued in reliance of an exemption
to registration requirements pursuant Section 4(2) of the Securities Exchange
Act of 1933.
In March 2001, the Company issued 502,713 shares of its common stock to
Macrovision Corporation at a purchase price of $1.57 per share for total
proceeds of approximately $789,260. The shares were issued in reliance of an
exemption to registration requirements pursuant Section 4(2) of the Securities
Exchange Act of 1933.
II-3
ITEM 27. EXHIBITS
EXHIBIT NO. EXHIBIT
-----------
3.1 Articles of Incorporation of the Company **
3.2 Bylaws of the Company *
4.1 Form of 8% Secured Convertible Debenture
4.2 Specimen Stock Certificate of the Company ***
5.1 Opinion of Sichenzia, Ross & Friedman, LLP
10.1 Letter Agreement between Roy B. Bennett and Associates and Macrovision Corporation,
dated September 14, 1998, regarding a license for the use of Macrovision's analog copy
protection technology by eVideoTV, Inc., in the United States *
10.2 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 eVideoTV, Inc. *
10.3 Management agreement effective June 21, 1999, between eVideo U.S.A., Inc. and Roy B.
Bennett & Associates Ltd. *
10.4 Amendment dated September 1, 1999, to the Agreement dated June 8, 1999, between
eVideoTV, Inc., eVideo U.S.A., Inc., eVideo International Inc., Roy B. Bennett &
Associates Ltd. and Roy B. Bennett **
10.5 Amendment dated January 31, 2000, to the Agreement dated June 8, 1999, between
eVideoTV, Inc., the Company, eVideo U.S.A., Inc., eVideo International Inc., Roy B.
Bennett & Associates Ltd. and Roy B. Bennett **
10.6 Less-Than-Real-Time Master License Agreement dated January 31, 2000, by and
between Macrovision Corporation, eVideo U.S.A., Inc. and eVideoTV, Inc.**
10.7 Form of Employment Agreement with Roy B. Bennett ***
10.8 Form of Employment Agreement with Harvey Nickerson ***
10.9 Form of Consulting Services Agreement with Charles Weber ***
10.10 Form of Subscription Agreement for Purchase of 8% Secured Convertible Debentures
10.11 Form of Security Agreement
10.12 Form of Common Stock Purchase Warrant
10.13 Lease of Company's Facility at 7333 East Doubletree Ranch Road, Suite 205, Scottsdale,
Arizona ***
10.14 Sublease of Company's Facility at 7333 East Doubletree Ranch Road, Suite 205,
Scottsdale, Arizona ***
23.1 Consent of Grant Thornton LLP
23.2 Consent of Sichenzia, Ross & Friedman, LLP (included in Exhibit 5.1)
* Incorporated by reference to the Registrant's Registration Statement, as amended, on Form 10-SB,
originally filed on August 13, 1999.
** Incorporated by reference from the Registrant's Form 10-KSB, filed on March 30, 2000.
*** To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file a post-effective amendment to this Registration Statement during
any period in which offers or sales are being made:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) ((S)230.424(b) of this Chapter) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement of
any material change to such information in the Registration Statement.
(2) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(4) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and this offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) That, insofar as indemnification for liabilities arising from the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
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SIGNATURES
In accordance the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirement for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Scottsdale, in the state of Arizona, on August 13,
2001.
E-VIDEOTV, INC.
By: /s/ Robert Dinning
------------------------------
Robert Dinning, Secretary
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Charles Weber
-----------------------
Charles Weber President, Chief Executive Officer, August 13, 2001
Director
/s/ Roy Bennett
-----------------------
Roy Bennett Director August 13, 2001
/s/ Harvey Nickerson
-----------------------
Harvey Nickerson Director August 13, 2001
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