UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended October 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 December 20, 2004 a total of 160,006,250 shares of common stock, $.001 par value, were issued and outstanding, 4,000,000 shares of Class B Preferred Convertible Stock, 2,000,000 shares of Class D Preferred Convertible Stock, and 24,000,000 shares of Class E Preferred Convertible Stock were issued and outstanding and the aggregate market value of the voting stock including the preferred voting shares, held by non-affiliates of the Company was approximately $8,890,406 based on the average of the bid and asked prices as of, November 03, 2004 of $0.033 as reported by the Over-The-Counter Bulletin Board (OTCBB).
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: EQUIPMENT
- 4.3. NOTE 3: PURCHASE OF ASSETS
- 4.4. NOTE 4: INTANGIBLE ASSETS
- 1.1. NOTE 5: NOTES PAYABLE TO RELATED PARTIES.
- 1.2. NOTE 6: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - RELATED PARTY.
- 1.3. NOTE 7: STOCKHOLDERS' EQUITY
- 1.4. NOTE 8: NON CASH TRANSACTIONS
- 1.5. NOTE 9: RELATED PARTY CONSULTING FEES AND INTEREST.
- 1.6. NOTE 10. COMPUTATION OF EARNINGS PER SHARE
- 4.1. NOTE 1: INTERIM FINANCIAL STATEMENTS.
- 2. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- CONDITION AND RESULTS OF OPERATIONS.
- 3. PART II. OTHER INFORMATION
- 4. COMPUSONICS VIDEO CORPORATION SIGNATURE PAGE
- 5. 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 | ||
10/31/04 | 07/31/04 | ||
Current Assets | |||
Cash | $ 55,921 | $ 5,228 | |
Total Current Assets | 55,921 | 5,228 | |
Property and Equipment | |||
Equipment | 4,976 | 4,976 | |
Accumulated Depreciation Equipment | (723) | (474) | |
Total Property and Equipment | 4,253 | 4,502 | |
Other Assets | |||
Licenses and Agreements | 1,395,000 | 1,395,000 | |
Accumulated Amortization | (54,250) | (31,000) | |
Total Other Assets | 1,340,750 | 1,364,000 | |
Total Assets | $ 1,400,924 | $ 1,373,730 | |
LIABILITIES AND CAPITAL | |||
Current Liabilities | |||
Accounts Payable and Accrued Liabilities | $ 30,953 | $ 103,685 | |
Accounts Payable-Related Party | 105,586 | 134,107 | |
Notes Payable - Related Party | 0 | 206,300 | |
Total Liabilities | 136,539 | 444,092 | |
Capital | |||
Preferred Stock-Series B Convertible, 20,000,000 Shares Authorized, 4,000,000 Shares Issued and Outstanding. | 400,000 | 400,000 | |
Preferred Stock-Series D Convertible, 20,000,000 Shares Authorized, 2,000,000 Shares Issued and Outstanding. | 2,000 | 2,000 | |
Preferred Stock-Series E Convertible, 24,000,000 Shares Authorized, 24,000,000 Shares Issued and Outstanding. | 240,000 | 0 | |
Common Stock. $0.01 Par Value, 300,000,000 Shares Authorized, 160,006,250 Shares Issued and Outstanding. | 160,006 | 160,006 | |
Paid-in Capital | 2,245,997 | 2,085,997 | |
Paid -in-Capital Public Warrants | 411,000 | 411,000 | |
Accumulated Deficit | (2,194,618) | (2,129,365) | |
Total Capital | 1,264,385 | 929,638 | |
Total Liabilities & Capital | $ 1,400,924 | $ 1,373,730 | |
|
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
10/31/2004 | 10/31/2003 | |||
Revenues | $ 0 | $ 0 | ||
Total Revenues | 0 | 0 | ||
Cost of Sales | 0 | 0 | ||
Total Cost of Sales | 0 | 0 | ||
Gross Profit | 0 | 0 | ||
General and Administrative Expenses | ||||
Consulting Fees Related Party | 22,998 | 29,998 | ||
Professional fees | 3,823 | 3,583 | ||
Research and Development Costs-Related Party | 27,000 | 0 | ||
Travel and Entertainment | 169 | 0 | ||
Depreciation | 249 | 0 | ||
Amortization | 23,250 | 0 | ||
Other General & Administrative Expenses | 355 | 3,682 | ||
Total Expenses | 77,844 | 37,263 | ||
Gain (Loss) from operations | (77,844) | (37,263) | ||
Other Income |
|
| ||
Gain on Extinguishment of Accrued Interest Expense-Related Party | 12,591 | 0 | ||
Interest Expense Related Party | 0 | 1,897 | ||
Interest Income | 0 | 0 | ||
Warrant Expense | 0 | 411,000 | ||
Total other income (Expense) | 12,591 | (412,897) | ||
Net Income ( Loss) before income taxes | (65,253) | (450,160) | ||
Income tax benefit | 0 | 0 | ||
Net Income (Loss) | (65,253) | (450,160) | ||
Weighted average Number of Common Shares | 160,006,250 | 160,006,250 | ||
Basic Earnings per Share | $ (0.000) | $ (0.003) | ||
Adjusted Weighted Average Shares | 228,489,583 | 200,006,250 | ||
Diluted Earnings per Share | $ (0.000) | $ (0.002) | ||
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
Three months ended
10/31/2004 | 10/31/2003 | ||
Cash Flows From Operating Activities | |||
Net Loss | $ (65,253) | $ (450,160) | |
Adjustments to Reconcile Net Loss to Net | |||
Cash Used by Operating Activities | |||
Warrant Expense | 0 | 411,000 | |
Depreciation | 249 | 0 | |
Amortization | 23,250 | 0 | |
( Increase) Decrease in Inventories | 0 | 0 | |
(Increase) Decrease In: | |||
Accounts Receivable and Accrued Assets | 0 | (5,000) | |
Increase (Decrease) In: | |||
Accounts Payable and Accrued Liabilities | (72,732) | (1,062) | |
Accounts Payable-Related Party | (28,521) | (24,045) | |
Total Adjustments | (77,754) | 380,893 | |
Net Cash (Used For) Operations | (143,007) | (69,267) | |
Cash Provided by Investing Activities | |||
Purchase (Dispose) of Software Equipment | 0 | 0 | |
Net Cash (Used For) Investing Activities | 0 | 0 | |
Cash Provided by Financing Activities | |||
Payments on Notes Payable Related Party | (206,300) | (10,750) | |
Proceeds from Notes Payable Related Party | 0 | 70,000 | |
Issuance of stock | 400,000 | 0 | |
Net Cash Provided by Financing Activities | 193,700 | 59,250 | |
Increase (Decrease) in Cash | 50,693 | (10,017) | |
Balance at July 31, 2004 | 5,228 | 21,392 | |
Balance at October 31, 2004 | $ 55,921 | $ 11,375 | |
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 period ended October 31, 2004 and 2003; the Company's financial position at October 31, 2004 and July 31, 2004; and the cash flows for the three-month period ended October 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, 2004 Form 10-KSB.
The results for the three-month period ended October 31, 2004 are not necessarily indicative of future financial results.
4.2. NOTE 2: EQUIPMENT
Equipment is stated at cost. Depreciation is computed for financial reporting purposes on a straight-line basis over an estimated life. At October 31, 2004, equipment includes software for the total cost of $4,976. Accumulated depreciation on this software equipment at October 31, 2004 was $ 723.
4.3. NOTE 3: PURCHASE OF ASSETS
As of March 31, 2004, the Company added to its consolidated books the new subsidiary called TreeSoft USA, Inc.
On March 31, 2004, the Company delivered to TreeCAD Engineering, Ltd, a company domiciled in Cyprus, two million shares of Class D Restricted Convertible Preferred Stock. The shares of the above stock were held in escrow contingent upon the completion of a valid license agreement between TreeCAD Engineering, Ltd and TreeSoft USA, Inc, and pending development by TreeCAD of the translation from German to English internet home page of TreeSoft USA, Inc. The other two million shares of the same type of stock are being held in escrow, contingent upon fulfillment of certain other requirements, as being stated in the purchase agreement dated March 25, 2003.
In exchange for the above consideration delivered to TreeCAD Engineering, Ltd and the consideration currently held in escrow, the Company fully acquired TreeSoft USA, Inc initially owned by TreeCAD Engineering, Ltd. TreeSoft USA Inc, currently possesses only one valuable intangible asset, called “License Agreement”. This asset represents the rights to distribute Electrical –CAD (E-CAD) software products, the rights to use the trademarks, product names, logos, artwork and sales promotion material, patents and product documentation, and all other rights specified in the License Agreement dated March 25, 2003.
Because TreeSoft USA operations were in the development stages and they had not commenced planned principal operations prior to the acquisition by CPVD, and the only asset that TreeSoft USA had was the exclusive distribution license for the TreeCAD products, this acquisition of TreeSoft USA by CPVD is treated as a purchase of assets under FASB rules. As of December 20, 2004, the Company has recorded the license value of $1,395,000 equal to the FMV of the two million shares of preferred convertible stock issued to TreeCAD in March 2004.
4.4. NOTE 4: INTANGIBLE ASSETS
TreeSoft USA, Inc owns only one valuable intangible asset, called “License Agreement”. This asset represents the rights to distribute Electrical –CAD (E-CAD) software products, the rights to use the trademarks, product names, logos, artwork and sales promotion material, patents and product documentation, and all other rights specified in the License Agreement dated March 25, 2003.
Currently the value of the above asset is $1,340,750. The acquisition cost of TreeSoft USA, Inc and therefore the value of this intangible asset are subject to adjustment pending the other release of the consideration held in escrow to TreeCAD Engineering, Ltd.
The Company believes that the estimated useful life of this license agreement should be 15 years. The Company is using the straight-line method of amortization. In estimating the useful life of this asset, management considered the following factors:
1.
Legal, regulatory and contractual provisions.
2.
Provisions for renewal or extension.
3.
Effects of demand, competition, and other economic factors.
4.
Service life expectancies of individual or groups of employees.
5.
Expected actions of competitors and others.
Accumulated amortization at October 31, 2004 was $54,250.
1.1. NOTE 5: NOTES PAYABLE TO RELATED PARTIES.
Balance of notes payable to related party at July 31, 2004 was $206,300, and it was comprised of $90,000 note owed to Dearborn Wheels, Inc; $16,300 note owed to First Equity Corporation; and $100,000 note owed to Tico, Inc. These notes payable were paid off in October 2004, reducing to zero balance of notes payable at October 31, 2004.
Thomas W. Itin, Chairman has a direct or indirect minority interest in the above companies representing related parties.
1.2. NOTE 6: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - RELATED PARTY.
Balance of Accounts payable and Accrued Liabilities- Related Party is comprised of the following:
October 31, 2004
July 31, 2004
Accrued Consulting Fees First Equity Corp.
$19,998
$36,663
Accrued Consulting Fees Dearborn Wheels, Inc
19,998
36,663
Accrued Consulting Fees TreeCAD Engineering, Ltd
65,590
45,590
Interest payable on the notes
0
15,191
Total
$105,586
$134,107
Harald Engels, Director of CPVD is managing partner of TreeCAD.
1.3. NOTE 7: STOCKHOLDERS' EQUITY
1.3.1. Preferred Convertible Stock
Under the Company's Certificate of Incorporation, up to 75,000,000 shares of preferred stock, with classes and terms as designated by the Company, may be issued and outstanding at any point in time. The Company had 300,000 authorized shares of Series A Convertible Preferred Stock ($.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.
1.3.2. 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.
1.3.2.1.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 $.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.
1.3.3. Series D Preferred Convertible Stock.
On March 31, 2004 the Company delivered to TreeCAD Engineering, Ltd two million shares of series D preferred convertible stock, Par value $0.001 per share, convertible at 1 for 22.7 rate into forty-five million four hundred thousand (45,400,000) restricted or legended shares of common stock, within five years of the closing date, at the holder’s discretion. These shares are represented on the face of the statement of assets and liabilities. There are two other million shares of the same type of stock held in escrow, pending fulfillment of certain requirements by TreeCAD Engineering, Ltd.
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 in 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 is an addendum to the Purchase Agreement reflecting this resolution.
1.3.3.1.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.
1.3.4. Issuance of Series E Preferred Convertible Stock.
During October 2004, $400,000 was invested in the Company from various accredited investors through the sale of 24million shares of class E preferred stock, convertible to 24 million shares of common stock (rate of 1 to 1). 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.
1.3.5. 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 June 30, 2004. 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 June 30, 2004. 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 April 30, 2004 6,250 Class A warrants have been exercised for total proceeds of $313.
1.3.6. 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.
1.3.7. Additional Paid in Capital-Public Warrants
CPVD incurred additional compensation expense in public warrants outstanding for the year ended July 31, 2004, 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 expiration, 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 expiration of these 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 period ended October 31, 2003. No incremental value is recognized on December 31, 2003, March 31, 2004, June 30, 2004, and September 30, 2004, the dates they continued to be extended, because the FMV of these warrants was lower than the initial value of $411,000 recorded on September 30, 2003. These warrants are represented on the face of the Company’s balance sheet at July 31, 2004 and October 31, 2004 as Additional Paid in Capital-Public Warrants valued at $411,000.
1.4. NOTE 8: NON CASH TRANSACTIONS
The Company recorded $1,395,000 for the purchase of the License agreement in March 2004 in exchange for the issuance of class D preferred stock issued to TreeCAD.
1.5. NOTE 9: RELATED PARTY CONSULTING FEES AND INTEREST.
The Company incurred $22,998 of consulting fees owed to the related parties, including First Equity Corporation, Dearborn Wheels, Inc, and TreeCAD Engineering, Ltd, for the period ending October 31, 2004 compared to $29,998 of consulting fees incurred for the last year. The Company is engaged in separate consulting agreements, with the above parties.
Consulting fees expense includes:
October 31, 2004
October 31, 2003
Consulting fees –TreeCAD Engineering, Ltd
$3,000
$10,000
Consulting fees – First Equity Corporation
9,999
9,999
Consulting fees – Dearborn Wheels, Inc
9,999
9,999
Total
$22,998
$29,998
The Company also wrote off $12,591 of accrued interest expense to several related parties, after the outstanding notes payable to these parties were paid off.
1.6. NOTE 10. COMPUTATION OF EARNINGS PER SHARE
The following table represents the computation of Basic and Diluted Earnings per Share
at July 31 and October 31, 2004.
October 31, 2004 | July 31,2004 | |||
Comprehensive Income | $ (65,252.75) | $(742,699.00) | ||
Weighted average Number of Common Shares | 160,006,250 | 160,006,250 | ||
Basic Earnings Per Share | (0.000) | (0.005) | ||
Adjusted Weighted Average Shares | ||||
Common shares issued and outstanding | 160,006,250 | 160,006,250 | ||
Common shares equivalent to Preferred Class B shares issued and outstanding | 40,000,000 | 40,000,000 | ||
Common shares equivalent to Preffered Class D shares issued and outstanding | 26,483,333 | 15,133,333 | ||
Common shares equivalent to Preffered Class E shares issued and outstanding | 2,000,000 | 0 | ||
Total Adjusted Weighted Average Shares | 228,489,583 | 215,139,583 | ||
Diluted Earnings Per Share (A divided by B) | $ (0.000) | $ (0.003) |
2. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
2.1.1. Results of Operations.
Three months ended October 31, 2004 compared to three months ended October 31, 2003.
The Company did not earn revenues for this quarter.
The Company incurred $22,998 of consulting fees owed to the related parties, including First Equity Corporation, Dearborn Wheels, Inc, and TreeCAD Engineering, Ltd, for the quarter ending October 31, 2004 compared to $29,998 of consulting fees incurred for the quarter ended October 31, 2003. The Company is engaged in separate consulting agreements, with the above parties. Total billings from TreeCAD were $30,000 for this quarter, and $10,000 for the last quarter ended October 31, 2003. Only $3,000 was recorded as consulting expense for this quarter. The difference of $27,000 was qualified as research and development cost, starting at July 31, 2004, which explains the decrease in consulting fees for this quarter ended October 31, 2004.
Consulting fees expense includes:
October 31, 2004
October 31, 2003
Consulting fees –TreeCAD Engineering, Ltd
$3,000
$10,000
Consulting fees – First Equity Corporation
9,999
9,999
Consulting fees – Dearborn Wheels, Inc
9,999
9,999
Total
$22,998
$29,998
Research and development costs were $27,000 for this quarter. These costs are calculated as 90% of total billings from TreeCAD.
The Company incurred $3,823 of professional fees during the quarter ended October 31, 2004, including legal and accounting fees, compared to $3,583 of professional fees incurred for the quarter ended October 31, 2003.
The Company did not incur interest expense for this quarter. Interest expense incurred for the quarter ended October 31, 2003 was $1,897. The Company wrote off the interest accrued on the notes payable to related parties, and paid off the remaining balances on these notes in October 2004.
The Company recorded $249 in depreciation expense for this quarter as a result of the new assets purchased in January and March 2004.
The Company recorded $23,250 in license agreement amortization expense for this quarter, which was purchased on March 31, 2004.
Other general and administrative expenses were $ 355 for the quarter ended October 31,2004, compared to $3,682 for the quarter ended October 31, 2003. The change is due to an advertising expense incurred during 2003 quarter, which announced for the first time the involvement of CPVD in the software business.
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 extended. Thus, the incremental value of $411,000 was recognized as a warrant expense for the period en ded October 31, 2003. No incremental value is recognized on September 30, 2004, the day they were last extended, because the FMV of these warrants on September 30, 2004 was lower than $411,000.
2.1.2. Liquidity and Capital Resources.
CompuSonics Video Corporation (“CPVD”) has completed a definitive agreement with a group of investors for purchase of US $400,000 of class E convertible preferred stock of CPVD, restricted under Rule 144, which was issued during October 2004. The private placement is intended basically to insure the launch of TreeSoft’s enterprise resource management (“ERP/CRM”) software products for the NAFTA market in USA, Canada and Mexico.
The Company is anticipating the first revenues from the sale of TreeSoft USA products in late summer of 2005. The major source for revenues for the first five years will 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. The Company’s management expects, that the revenues from services will equal the revenues from the licensing business in about ten years. The ERP/CRM software represents the most attractive licensing business. Through a network of specialized resellers the ERP/CRM product will successfully be distributed to the customers. Management is working diligently to accomplish this new ambitious project.
Management expects that borrowings from the related parties will continue in the future, if needed.
The Company should 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 support the future operations costs. During October 31, 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.
ITEM 3: CONTROLS AND PROCEDURES.
2.1.3. 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.
2.1.4. 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 April 30, 2004 to which this report relates that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.
3. PART II. OTHER INFORMATION
3.1. ITEM 1: LEGAL PROCEEDINGS.
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 $90,000 settlement fee to Plaintiff.
3.2. .ITEM 3: EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K filed on September 30, 2004.
4. COMPUSONICS VIDEO CORPORATION SIGNATURE PAGE
Form 10-QSB
For the quarter ended
October .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)
December 20, 2004 /s/ Thomas W. Itin Chairman of the Board of Directors, President, CEO
Thomas W. Itin
.
5. 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 for the quarter ended October 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 as of the date of the period covered by 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.
December 20, 2004 /s/ Thomas W. Itin Chief Executive Officer and Chief Financial Officer
Thomas W. Itin
#