UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 2004
Commission file number: 0-14200
CompuSonics Video Corporation
Colorado 84-1001336
(State of incorporation) (I.R.S. Employer Identification No.)
32751 Middlebelt Road, Suite B
Farmington Hills, MI 48334
(Address of principal executive offices)
Company's telephone number, including area code:
(248) 851-5651
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 Par Value
---------------------------------------
(Title of Class)
Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and, (2) has been subject to such filing requirements for the past 90 days: Yes X No ___
As of November 12, 2004 a total of 160,006,250 shares of common stock, $.001 par value, were outstanding.
Table of Contents
- 1. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
- CONSOLIDATED BALANCE SHEETS
- 2. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- 3. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
- CONSOLODATED STATEMENTS OF CASH FLOWS
- 4. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- 4.1. NOTE 1: INTERIM FINANCIAL STATEMENTS.
- 4.2. NOTE 2: NOTES PAYABLE TO RELATED –PARTY.
- 4.3. NOTE 3: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - RELATED PARTY.
- 4.4. NOTE 4: RELATED PARTY CONSULTING FEES AND INTEREST EXPENSE
- 4.5. NOTE 5: STOCKHOLDERS' EQUITY
- 4.6. NOTE 6: SUBSEQUENT EVENTS.
- 4.7. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- CONDITION AND RESULTS OF OPERATIONS.
- 4.8. ITEM 3: CONTROLS AND PROCEDURES.
- 4.1. NOTE 1: INTERIM FINANCIAL STATEMENTS.
- 5. PART II. OTHER INFORMATION
- 6. COMPUSONICS VIDEO CORPORATION SIGNATURE PAGE
- 7. CERTIFICATION PURSUANT TO 18 USC, SECTION 1350, AS REQUIRED BY
- SECTIONS 302 AND 906 OF THE SARBANES-OXLEY ACT OF 2002
1. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In US dollars)
ASSETS | Unaudited | ||
01/31/04 | 07/31/03 | ||
Current Assets | |||
Cash | $11,178 | $21,392 | |
Total Current Assets | 11,178 | 21,392 | |
Total Assets | $11,178 | $21,392 | |
| |||
LIABILITIES AND CAPITAL | |||
Current Liabilities | |||
Accounts Payable and Accrued Liabilities | $45,752 | $34,772 | |
Accounts Payable-Related Party | 41,913 | 43,233 | |
Notes Payable - Related Party | 171,300 | 77,050 | |
Total Liabilities | 258,965 | 155,055 | |
Capital | |||
Preferred Stock-Series B Convertible, 20,000,000 Shares Authorized, 4,000,000 Shares Issued and Outstanding. | 400,000 | 400,000 | |
Common Stock. $0.01 Par Value, 300,000,000 Shares Authorized, 160,006,250 Shares Issued and Outstanding. | 160,006 | 160,006 | |
Additional Paid-in Capital | 692,997 | 692,997 | |
Additional Paid-in Capital Public Warrants | 411,000 | ||
Accumulated Deficit | (1,911,790) | (1,386,667) | |
Total Capital | (247,787) | (133,664) | |
Total Liabilities & Capital | $11,178 | $21,391 |
The accompanying notes are an integral part of this financial statement
2. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In US dollars) Unaudited
| Three Months Ended | Six Months Ended | |||||
January 31, 2004 | January 31, 2003 | January 31, 2004 | January 31, 2003 | ||||
Revenues | $0 | $0 | $0 | $0 | |||
Total Revenues | 0 | 0 | 0 | 0 | |||
Cost of Sales | 0 | 0 | 0 | 0 | |||
Total Cost of Sales | 0 | 0 | 0 | 0 | |||
Gross Profit | 0 | 0 | 0 | 0 | |||
General and Administrative Expenses | |||||||
Consulting Fees Related Party | 39,144 | 0 | 69,142 | 0 | |||
Professional fees | 23,917 | 11,916 | 32,248 | 15,034 | |||
Travel and Entertainment | 3,664 | 0 | 4,275 | 0 | |||
Other General & Administrative Expenses | 511 | 66 | 3,835 | 106 | |||
Total Expenses | 67,237 | 11,982 | 109,500 | 15,140 | |||
Gain (Loss) from operations | (67,237) | (11,982) | (109,500) | (15,140) | |||
Gain on the extinguishment of debt | 0 | 0 | 0 | 3,552 | |||
Warrant expense | 0 | 0 | (411,000) | 0 | |||
Interest Expense Related Party | (2,727) | (430) | (4,624) | (767) | |||
Interest Income | 0 | 0 | 0 | 0 | |||
Total other income (Expense) | (2,727) | (430) | (415,624) | 2,785 | |||
Net Income (Loss) before income taxes | (69,964) | (12,412) | (525,124) | (12,355) | |||
Income tax benefit | 0 | 0 | 0 | 0 | |||
Net Income (Loss) | (69,964) | (12,412) | (525,124) | (12,355) | |||
Weighted average Number of Common Shares | 160,006,250 | 160,006,250 | 160,006,250 | 160,006,250 | |||
Net Income (Loss) Per Common Share | $(0.00) | $(0.00) | $(0.00) | $(0.00) |
The accompanying notes are an integral part of this financial statement
3. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLODATED STATEMENTS OF CASH FLOWS
(In US dollars)Unaudited
For six months ended January 31 January 31 | ||||
| 2004 |
| 2003 | |
Cash Flows From Operating Activities | ||||
Net Loss | $(525,124) | $(12,354) | ||
Adjustments to Reconcile Net Loss to Net | ||||
Cash Used by Operating Activities | ||||
Unrealized (Gain) Loss on investments. | 0 | (3,552) | ||
Warrant Expense | 411,000 | |||
(Increase) Decrease In: | ||||
Accounts Receivable and Accrued Assets | 0 | (450) | ||
Increase (Decrease) In: | ||||
Accounts Payable and Accrued Liabilities | 2,519 | 2,822 | ||
Accounts Payable-Related Party | 7,141 | 767 | ||
Total Adjustments | 420,660 | (413) | ||
Net Cash (Used For) Operations | (104,464) | (12,767) | ||
Cash Provided by Investing Activities | ||||
Purchase (Disposed )of Equipment | 0 | 0 | ||
Proceeds used for Investments | 0 | 0 | ||
Investments | 0 | 0 | ||
Net Cash (Used For) Investing Activities | 0 | 0 | ||
Cash Provided by Financing Activities | ||||
Proceeds for Notes Payable | 0 | 0 | ||
Proceeds from Notes Payable - Related Party | 94,250 | 13,050 | ||
Net Cash Provided by Financing Activities | 94,250 | 13,050 | ||
Increase (Decrease) in Cash | (10,214) | 283 | ||
Balance at July 31, 2003 | 21,392 | 25 | ||
Balance at January 31, 2004 | $11,178 | $307 | ||
The accompanying notes are an integral part of this financial statement
4. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
4.1. NOTE 1: INTERIM FINANCIAL STATEMENTS.
The accompanying consolidated financial statements of CompuSonics Video Corporation and Subsidiaries (“ the Company”), have been prepared by the Company without audit. In the opinion of the Company's management, the financial statements reflect all adjustments necessary to present fairly the results of operations for the three-month and the six-month period ended January 31, 2004 and 2003; the Company's financial position at January 31, 2004 and July 31, 2003; and the cash flows for the six-month period ended January 31, 2004 and 2003. Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-QSB. Therefore, these financial statements should be read in conjunction with the Company's July 31, 2003 Form 10-KSB.
The results for the three-month and the six-month period ended January 31, 2004 are not necessarily indicative of future financial results.
4.2. NOTE 2: NOTES PAYABLE TO RELATED –PARTY.
Balance of notes payable to related party increased from 77,050 at July 31, 2003 to 171,300 at January 31, 2004. Since the inception of the Company, related companies have provided loans to meet the operating cash flow needs. These notes are renewed as the loan amount increases. Balance of “Notes payable to Related Party” is composed of the following notes payable at January 31, 2004 and July 31, 2003:
January 31, 2004
July 31, 2003
Note payable Dearborn Wheels, Inc
$65,000
$60,000
Note payable TICO
-0-
3,000
Note payable First Equity Corporation
6,300
6,300
Note payable Acrodyne Corporation
-0-
7,750
Note payable TICO, Inc
100,000
-0-
Total
$171,300
$77,050
The Company borrowed $5000 during the six-month period ended January 31, 2004 from Dearborn Wheels Inc. at 7% per annum interest rate. The underlying note was renewed on December 12, 2003. The Note is due on June 12, 2004. The President of Dearborn Wheels, Inc is the daughter of the Chairman of the Company.
The Company borrowed $3,000 from TICO, a partnership in which the managing partner is the Chairman of the Company. The note bears 7% interest rate and was due on June 23, 2003. The note was paid off in September 2003.
The Company paid off the Note owed to Acrodyne Corporation, in the amount of $7,750, in September 2003. Chairman of the Company is the President of Acrodyne Corporation.
As of January 31, 2004 the Company had an outstanding balance of $6,300 owed to First Equity Corporation. The Note bears a 10.50% interest rate and is due on June 14, 2004. The President of First Equity Corporation is the spouse of the Company’s Chairman.
The Company borrowed $100,000 from TICO, Inc, a related party, during the six-month period ended January 31, 2004. The Note bears 7% interest and is due on July 13, 2004. Chairman of the Company is the President of TICO, Inc.
4.3. NOTE 3: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - RELATED PARTY.
Balance of Accounts payable and Accrued Liabilities- Related Party is comprised of the following:
January 31, 2004
July 31, 2003
Accrued Consulting Fees First Equity Corp.
$16,665
$13,332
Accrued Consulting Fees Dearborn Wheels, Inc
16,665
13,332
Accrued Consulting Fees TreeCAD Engineering, Ltd
0
10,000
Interest payable to TICO, Inc
2,010
0
Interest payable to Dearborn Wheels, Inc
3,033
1,232
Interest payable to First Equity Corp.
500
1,142
Interest payable to TICO
120
196
Interest payable to Acrodyne Corp.
320
1,399
Accrued Management Fees to Acrodyne Corp.
2,600
2,600
Total
$41,913
$43,233
4.4. NOTE 4: RELATED PARTY CONSULTING FEES AND INTEREST EXPENSE
The Company incurred $69,142 of consulting fees owed to the related parties, including First Equity Corporation, Dearborn Wheels, Inc, and TreeCAD Engineering, Ltd, for the period ending January 31, 2004 compared to $0 of consulting fees incurred in the previous same period. The Company is engaged in separate consulting agreements, with the above parties.
The $69,142 of consulting fees expense includes:
Consulting fees –TreeCAD Engineering, Ltd
$29,146
Consulting fees – First Equity Corporation
19,998
Consulting fees – Dearborn Wheels, Inc
19,998
Total
$69,142
Interest expense to the related parties totaled $4,624 this period compared to $767 of interest expense incurred in the previous same period. The change is due to the increase in the balance of notes payable to related parties.
4.5. NOTE 5: STOCKHOLDERS' EQUITY
4.5.1. Preferred Convertible Stock
Under the Company's Certificate of Incorporation, up to 75,000,000 shares of preferred stock, with classes and terms as designated by the Company, may be issued and outstanding at any point in time. The Company had 300,000 authorized shares of Series A Convertible Preferred Stock ($.001 par value) issued and outstanding at July 31, 1988. In September 1988, all the outstanding shares of Preferred Stock were converted at $.001 per share, at the holder's option, into 30,000,000 shares of common stock.
4.5.2. Series B Preferred Convertible stock.
In April 2001 the Company issued four (4) million shares of Series B preferred convertible stock, convertible at 10 to 1 into forty (40) million shares of common stock, to Dearborn Wheels, Inc. and First Equity Corporation, in exchange for the extinguishments of the indebtedness to these related parties totaling $412,117.
Rights, preferences, privileges and restrictions of the Series B Convertible Preferred stock.
No Dividends. Holders of the Series B preferred stock are not entitled to dividends on their shares of series B preferred stock.
Liquidation preference. Upon the liquidation of the Company the holders of the series B preferred stock are entitled to receive out of the assets of the Company a distribution of respectively $0.02 and $.10 for each share of Series B preferred stock held.
Conversion. Each share of series B Preferred stock is convertible respectively into (10) ten shares of common stock.
Voting rights. The holders of the Series B Preferred stock have voting rights as if the conversion to Common stock had taken place, and votes together with the Common stock as a single voting group except and to the extent the Colorado Business Corporation Act provides for voting rights as a separate class under section 7-110-104 or any successor statutory provision or as provided below.
An affirmative vote of at least 60 percent of the holders of the series B preferred stock is required for a) change in the rights, preferences or privileges of the series B Preferred stock, b) an authorization, or issuance of additional shares of the same series, c) any change in the percent of series B preferred stock required to approve the forgoing.
No preemptive rights. The series B preferred stock should have no preemptive rights as to any series of preferred stock issued subsequent to it.
Registration rights. On one occasion, at the request of the holders of at least 60% of the series B preferred stock, the Company shall register the shares of Common stock issued or issuable upon conversion of the series B preferred stock with the Securities and Exchange Commission (“SEC”). In addition, if the company proposes to file a registration statement with the SEC under the securities act with respect to an offering of securities of the Company, then the Company shall give the holders of the series B Preferred Stock notice of its intention and an opportunity to include all or a portion of the shares of Common Stock issuable upon conversion of the series B preferred stock in the proposed registration statement.
Notices. Any notice, request, demand, consent, approval or any other communication required or permitted hereunder shall be in writing and shall be delivered by personal service or agent, by registered or certified mail, return receipt requested, with postage thereon fully prepaid.
4.5.3. Series D Preferred Convertible Stock
As of the January 31, 2004, the Company was holding in escrow the consideration for the purchase of 100% equity interest in TreeSoft USA, Inc, pending the completion of certain actions by TreeCAD Engineering , Ltd. The consideration is four million (4,000,000) class D, restricted preferred shares of the Company, convertible at a rate 1-for-22.7 into 90,800,000 shares of common stock of the Company. One million restricted shares of this consideration were held in esrow pending completion of a valid license agreement among and between TreeSoft USA, Inc and CompuSonics Video Corporation. Another one million of the same class shares were held in escrow pending development by TreeCAD of a transalation from German to English language internet home page of TreeSoft USA, Inc. The other escrowed two (2,000,000) million shares will be released from ecrow to TreeCAD as of the time the valid license agreement has been consummated and when TreeSoft USA has the translated product accurately identified fully from the German into the English language, and the product is in hand and ready to take to market. The restriction period one year starts upon issuing the shares directly.
As of October 25, 2004, only two million shares of the consideration have been issued to TreeCAD. The rest of the two million shares are still being held in escrow.
Based on March 25, 2003 Purchase Agreement, TreeCAD Engineering, Ltd will be entitled to the right of receiving the shares held in escrow, only when TreeCAD fulfills the terms and conditions as stated in this agreement, which satisfy the release of the shares. If TreeCAD fails to fulfillall the duties and responsibilities as stated in the Purchase Agreement, which satisfy the release of each trance of shares held in escrow, TreeCAD would not be entitled to the right of receiving those shares.
Escrow agreement the Company has with the escrow agent is attached as an Exhibit of the amended 10-KSB for July 31, 2003 .
TreeCAD is able to vote the shares while they are held in escrow. This provision is not included in the Purchase Agreement of March 25, 2003, but it was approved unanimously by all the directors of the Company in May 19, 2004 Board of Directors Meeting. There will be an addendum to the Purchase Agreement to reflect this resolution.
Rights, preferences, privileges and restrictions of the Series D Convertible Preferred stock.
No Dividends. Holders of the Series D preferred stock are not entitled to dividends on their shares of series D preferred stock.
Liquidation preference. Upon the liquidation of the Company the holders of the series D preferred stock are entitled to receive out of the assets of the Company a distribution of $.10 for each share of Series D preferred stock held.
Conversion. Each share of series D Preferred stock is convertible respectively into 22.7 shares of common stock.
Voting rights. The holders of the Series D Preferred stock have voting rights as if the conversion to Common stock had taken place, and votes together with the Common stock as a single voting group except and to the extent the Colorado Business Corporation Act provides for voting rights as a separate class under section 7-110-104 or any successor statutory provision or as provided below.
An affirmative vote of at least 60 percent of the holders of the series D preferred stock is required for a) change in the rights, preferences or privileges of the series D Preferred stock, b) an authorization, or issuance of additional shares of the same series, c) any change in the percent of series D preferred stock required to approve the forgoing.
No preemptive rights. The series D preferred stock should have no preemptive rights as to any series of preferred stock issued subsequent to it.
Registration rights. On one occasion, at the request of the holders of at least 60% of the series D preferred stock, the Company shall register the shares of Common stock issued or issuable upon conversion of the series D preferred stock with the Securities and Exchange Commission (“SEC”). In addition, if the company proposes to file a registration statement with the SEC under the securities act with respect to an offering of securities of the Company, then the Company shall give the holders of the series D Preferred Stock notice of its intention and an opportunity to include all or a portion of the shares of Common Stock issuable upon conversion of the series D preferred stock in the proposed registration statement.
Notices. Any notice, request, demand, consent, approval or any other communication required or permitted hereunder shall be in writing and shall be delivered by personal service or agent, by registered or certified mail, return receipt requested, with postage thereon fully prepaid.
4.5.3.1.Public Offering of Common Stock
In December 1985, the Company completed a public offering of 30,000,000 units, each consisting of one share of the Company's common stock, $.001 par value, and one Class A purchase warrant. One Class A warrant entitles the holder to purchase one share of common stock plus a Class B warrant for $.05 during the twelve month period originally ending November 27, 1986 and currently extended to December 31, 2003. The Company may redeem the Class A warrants at $.001 per warrant if certain conditions are met.
One Class B warrant entitles the holder to purchase one share of the Company's Common Stock for $.08 per share for a twelve-month period originally ended November 27, 1987 and currently extended to December 31, 2003. The offering was made pursuant to an underwriting agreement whereby the units were sold by the Underwriter on a "best efforts, all or none" basis at a price of $.03 per unit. The Underwriter received a commission of $.003 per unit and a non-accountable expense allowance of $27,000.
The public offering was successfully completed on December 13, 1985 and the Company received $727,971 as the net offering proceeds for the 30,000,000 units sold. As of October 31, 2003, 6,250 Class A warrants have been exercised for total proceeds of $313.
4.5.3.2.Incentive Stock Option Plan
On October 4, 1985, the Company's Board of Directors authorized an Incentive Stock Option Plan covering up to 7,000,000 shares of the Company's common stock for key employees. The Board of Directors is authorized to determine the exercise price, the time period, the number of shares subject to the option and the identity of those receiving the options.
4.6. NOTE 6: SUBSEQUENT EVENTS.
4.6.1. Issuance of new securities
On March 31, 2004, the Company released the first two million shares of preferred convertible stock, class “D” held in escrow, to TreeCAD Engineering, Ltd (“TreeCAD”). TreeCAD has fulfilled the requirements of the purchase agreement dated March 25, 2003, related to the release of those shares, which fulfillment entitle TreeCAD to the right of receiving the undersigned shares of preferred convertible stock.
During October 2004, $400,000 was invested in the Company from various accredited investors through the sale of another new class of preferred convertible stock. The proceeds from this sale were used to pay off a significant portion of the outstanding liabilities of the Company, and provide sufficient working capital for the next three months following December 2004.
4.6.2. Settlement of the lawsuit
ScanLine Technologies, Inc. (“ScanLine”) in July 2002 sued the Company for an alleged breach of asset purchase agreement in which ScanLine sold the so-called “Delta Assets” to the Company in exchange for the issuance of Company’s preferred stock. ScanLine had included additional claims against the Company, as well as against individual directors, for an alleged breach of contract, fraud, misrepresentation, violation of SEC Rule 10b-5 of the Federal Securities Law and violation of Utah Securities Law. A Third Party Complaint was subsequently filed individually by David Scull (“Scull”), a principal in ScanLine, against the Company alleging breach of contract, unjust enrichment and breach of the covenant of good faith and fair dealing for an alleged failure by the Company to compensate him for the time he served as President and CEO of the Company. Scul l had also filed a defamation claim for allegedly defamatory statements made by the Company in its public filings. Management had responded by denying these allegations, filing counterclaims against both ScanLine and Scull seeking recovery for damage done to the Company, and to recover the costs defending the case.
The lawsuit was settled in early August 2004. The Company paid $87,500 settlement fee to Plaintiff.
4.7. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
4.7.1. Results of Operations.
Three months ended January 31, 2004 compared to three months ended January 31, 2003.
The Company did not incur revenues for this quarter.
The Company incurred $39,144 of consulting fees owed to the related parties, including First Equity Corporation, Dearborn Wheels, Inc, and TreeCAD Engineering, Ltd, for the quarter ending January 31, 2004 compared to $0 of consulting fees incurred in the previous same quarter. The Company is engaged in separate consulting agreements, with the above parties.
The $39,144 of consulting fees expense, includes:
Consulting fees – TreeCAD Engineering, Ltd
$19,146
Consulting fees – First Equity Corporation
9,999
Consulting fees – Dearborn Wheels, Inc
9,999
Total
$39,144
The Company incurred $23,917 of professional fees during the current quarter, including legal and accounting fees, compared to $11,916 of professional fees incurred in the previous same quarter. The change is manly due to increase in the legal fees due to the Company’s involvement in the legal proceedings. (See 6.1)
The Company paid $3,664 in travel expenses for the current quarter compared to $0 of travel expenses for the previous quarter. This increase in the above expenses is mainly due to increase in business trips of the officers of the Company, as a result of involvement in the legal proceedings.
Interest expense to the related parties totaled $2,727 this quarter compared to $430 of interest expense incurred in the previous quarter. The change is due to the increase in the balance of notes payable to related parties.
4.7.2. Results of Operations.
Six months ended January 31, 2004 compared to Six-months ended January 31, 2003.
The Company did not incur revenues for both six-month periods ending respectively January 31, 2004 and 2003.
The Company incurred $69,142 of consulting fees owed to the related parties, including First Equity Corporation, Dearborn Wheels, Inc, and TreeCAD Engineering, Ltd, for the period ending January 31, 2004 compared to $0 of consulting fees incurred in the previous same period. The Company is engaged in separate consulting agreements, with the above parties.
The $69,142 of consulting fees expense includes:
Consulting fees –TreeCAD Engineering, Ltd
$29,146
Consulting fees-First Equity Corporation
19,998
Consulting fees-Dearborn Wheels, Inc
19,998
Total
$69,142
The Company incurred $32,248 of professional fees during the current period, including legal and accounting fees, compared to $15,034 of professional fees incurred in the previous same period. The change is manly due to increase in the legal fees due to the Company’s involvement in the legal proceedings. (See 6.1)
The Company paid $4,275 in travel expenses for the current period compared to $0 of travel expenses for the previous period. This increase in the above expenses is mainly due to increase in business trips of the officers of the Company, mainly as a result of involvement in the legal proceedings, and in the new agreements with international parties.
The Company incurred $3,835 in other general and administrative expenses for this current period including; advertising, dues and subscriptions, business meals, bank charges etc. Other general and administrative expenses for the previous same period were $106. The change is mainly due to increase in advertising and subscription expenses, incurred in relation to the introduction of the prospective German CAD software.
Interest expense to the related parties totaled $4,624 this period compared to $767 of interest expense incurred in the previous same period. The change is due to the increase in the balance of notes payable to related parties.
No extinguishments of debts occurred during this six month-period ending January 31, 2004, compared to $3,552 of gain from the extinguishments of debts in the previous same period ending January 31, 2003.
The Company incurred additional compensation expense in public warrants outstanding, as a result of the increase of the company’s common stock price above the exercise price of the public warrants, on September 30, 2003, the day of the extension of their expiry. Thus, in accordance with the provisions of SFAS 123, the Company has determined the fair value of its public warrants being $411,000, as of September 30, 2003, the day of the extension of the expiry of the public warrants. The modification of terms of this award that makes it more valuable shall be treated as an exchange of an original award for a new award, resulting in additional compensation expense for the incremental difference in value. The original award was fair valued at $0, as of June 30, 2003, the day when these warrants were last extended. Thus, the incremental value of $411,000 was recognized as a warrant expense for the peri od ended October 31, 2003. No incremental value is recognized on December 31, 2003, the day they were last extended, because the FMV of these warrants is lower than $411,000 on December 31, 2003.
4.7.3. Liquidity and Capital Resources.
The Company is anticipating the first revenues from the sale of TreeSoft USA products in early 2005. . The major source for revenues for the first five years should be the licensing business (software sales business). With an increasing saturation of the software market the revenues from the Software Maintenance contracts will become more and more important. We expect, that the revenues from services will measure up with the licensing business in ten years. The ERP software represents the most attractive licensing business. Through a network of specialized resellers the ERP product will be easily distributable. Management is working hard to accomplish this new enterprise successfully.
The Company will generate sufficient cash to support its operations during the twelve month period following the date of the financial statements being reported upon, by relying on the related parties loans, and on the capital investments through the sale of additional securities. Company’s management expects that the related parties will continue to support the Company’s operations for the following 12-month period, and that the new capital infusions will provide sufficient funds to pay off the outstanding Company’s liabilities, and support the future operations costs.
CompuSonics Video Corporation (“CPVD”) has completed a definitive agreement with a group of investors for purchase of US $400,000 of convertible preferred stock of CPVD, restricted under Rule 144, which was issued in October 2004 . The private placement is intended basically to insure the launch of TreeSoft’s electrical engineering CAD (“E-CAD”) and enterprise resource management (“ERP/CRM”) software products for the NAFTA market in USA, Canada and Mexico. These software products involving ERP/CRM and E-CAD are based on the successful German software products, ELEKTRO-OFFICE and TreeCAD. From July 31, 2003 to November 3, 2004, $400,000 was invested in the Company from various accredited investors through the sale of preferred convertible stock. The proceeds from this sale were used to pay off a significant portion of the outstanding liabilities of the Company, and provide sufficient working capital for the next three months following December 2004.
From July 31, 2003 to November 3, 2004, $90,000 was loaned to the Company from Dearborn Wheels, Inc, a related party. This Note was subsequently paid off, in late October 2004.
4.8. ITEM 3: CONTROLS AND PROCEDURES.
4.8.1. Evaluation of Disclosure Controls and Procedures.
Company’s Chief Excecutive Officer and Chief Financial officer have performed an evaluation of the Company’s disclosure controls and procedures, as that term is defined inRules 13a-15(e) and 15d-15(e)of the Securities and Exchange Act of 1934, as amended (the “ Exchange Act”), as ofthe end of the period covered by the report and each has concluded that such disclosure controls and procedures are effective to ensure that the information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and regulations.
4.8.2. Changes in Internal Controls
There have been no changes in the Company’s internal control over financial reporting (as such term defined inRules 13a-15(f) and 15d-15(f)under the Exchange Act) during the quarter ended January 31, 2004 to which this report relates that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.
5. PART II. OTHER INFORMATION
5.1. ITEM 1: LEGAL PROCEEDINGS.
ScanLine Technologies, Inc. (“ScanLine”) in July 2002 sued the Company for an alleged breach of an asset purchase agreement in which ScanLine sold the so-called “Delta Assets” to the Company in exchange for the issuance of the Company’s preferred stock. ScanLine included additional claims against the Company, as well as against individual directors, for an alleged breach of contract, fraud, misrepresentation, violation of SEC Rule 10b-5 of the Federal Securities Law and violation of Utah Securities Law. A Third Party Complaint was subsequently filed individually by David Scull (“Scull”), a principal in ScanLine, against the Company alleging breach of contract, unjust enrichment and breach of the covenant of good faith and fair dealing for an alleged failure by the Company to compensate him for the time he served as President and CEO of the Company. Scull also filed a defamation claim for allegedly defamatory statements made by the Company in its public filings. Management responded by denying these allegations, filing counterclaims against both ScanLine and Scull seeking recovery for damage done to the Company, and to recover the costs defending the case.
CPVD had relied on financial statements submitted by Dave Scull, Carla Scull and Scanline. The value of the assets being acquired was overstated by at least twice.
Misrepresented were the volume of sales being currently made as well as value of equipment and parts inventory. Also, financial statements were presented as having been prepared under GAAP. The consideration offered was thus a misrepresentation for which presently CPVD seeked relief and filed a counterclaim for damages.
These facts constituted a fraudulent inducement for the consideration offered by CPVD. Scanline and the Sculls have insisted that the consideration to be provided by CPVD be as originally offered by CPVD. CPVD refused to provide that consideration but has offered to rescind the contract at no cost to Scull. Scull rejected the offer.
Discovery was ongoing in this matter, including the depositions, which have been taken of both ScanLine and Scull, as well as the deposition of CompuSonics Video Corporation. Neither ScanLine nor Scull could articulate a damage amount in these depositions. The potential loss is therefore difficult to ascertain. However, ScanLine had in the past represented the value of the Company’s preferred stock, which it was not paid in exchange for the Delta Assets, which still remain in possession of ScanLine, to be worth $1.5 million. Scull has previously claimed a right to a salary of approximately $225,000.00.
The trial date was scheduled for August 9, 2004.
.
The lawsuit was settled in early August 2004. The Company paid a settlement fee of $87,500 to Plaintiff.
5.2. .ITEM 3: EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K filed on December 24, 2003 – Extending Exercise of Warrants to
March 31, 2004.
6. COMPUSONICS VIDEO CORPORATION SIGNATURE PAGE
Form 10-QSB/A
For the quarter ended January 31, 2004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
COMPUSONICS VIDEO CORPORATION & SUBSIDIAIRES
(Company)
November 12, 2004 /s/ Thomas W. Itin Chairman of the Board of Directors, President, CEO
Thomas W. Itin
.
7. CERTIFICATION PURSUANT TO 18 USC, SECTION 1350, AS REQUIRED BY
SECTIONS 302 AND 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CompuSonics Video Corporation (the "Company") on Form 10-QSB/A for the quarter ended January 31, 2004 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, I, Thomas W. Itin, Chief Executive Officer and Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 USC 1350, as adopted pursuant to Sec.302 and promulgated as 18 USC 1350 pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002, that:
The Report referenced above has been read and reviewed by the undersigned.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Based upon my knowledge, the Report referenced above does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to makes the statements made, in light of the circumstances under which such statements were made, not misleading.
Based upon my knowledge, the financial statements, and other such financial information included in the Report, fairly present in all material respects the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.
I acknowledge that the Chief Executive Officer and Chief Financial Officer:
are responsible for establishing and maintaining "disclosure controls and procedures" for the Company;
1.
have designed such disclosure controls and procedures to ensure that material information is made known to us, particularly during the period in which the Report was being prepared;
2.
have evaluated the effectiveness of the Company's disclosure controls and procedures within 90 days of the date of the Report; and
3.
have presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation.
4.
have disclosed to the issuer's auditors and to the audit committee of the Board of Directors of the Company (or persons fulfilling the equivalent function):
5.
all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize, and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and any fraud, whether or not material, that involves Management or other employees who have a significant role in the issuer's internal controls; and have indicated in the Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
November 12, 2004 /s/ Thomas W. Itin Chief Executive Officer and Chief Financial Officer
Thomas W. Itin
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