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 January 31, 2005
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 March 17, 2005 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 $4,300,000 based on the average of the bid and asked prices as of, March 07, 2005 of $0.016 as reported by the Over-The-Counter Bulletin Board (OTCBB).
Table of Contents
1. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In US dollars)
| | Unaudited | | |
ASSETS | 01/31/05 | | 07/31/04 |
Current Assets | | | |
Cash | $ 43,632 | | $ 5,228 |
Total Current Assets | 43,632 | | 5,228 |
Property and Equipment | | | |
Equipment | 4,976 | | 4,976 |
Accumulated Depreciation Equipment | (972) | | (474) |
Total Property and Equipment | 4,004 | | 4,502 |
Other Assets | | | |
Licenses and Agreements | 1,395,000 | | 1,395,000 |
Accumulated Amortization | (77,500) | | (31,000) |
Total Other Assets | 1,317,500 | | 1,364,000 |
Total Assets | $ 1,365,136 | | $ 1,373,730 |
LIABILITIES AND CAPITAL | | | |
Current Liabilities | | | |
Accounts Payable and Accrued Liabilities | $ 39,415 | | $ 103,685 |
Accounts Payable-Related Party | 130,879 | | 134,107 |
Notes Payable - Related Party | 0 | | 206,300 |
Total Liabilities | 170,294 | | 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. | 400,000 | | 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 | 2,085,997 | | 2,085,997 |
Paid -in-Capital Public Warrants | 411,000 | | 411,000 |
Accumulated Deficit | (2,264,161) | | (2,129,365) |
Total Capital | 1,194,842 | | 929,638 |
Total Liabilities & Capital | $ 1,365,136 | | $ 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 January 31 3131 | | Six Months Ended January 31 |
| | 2005 | | 2004 | | 2005 | | 2004 |
Revenues | | | | | | | |
Income | $ 0 | | $ 0 | | $ 0 | | $ 0 |
Total Revenues | 0 | | 0 | | 0 | | 0 |
General and Administrative Expenses | | | | | | | |
Consulting Fees Related Party | 21,437 | | 21,913 | | 44,435 | | 42,910 |
Professional fees | 11,437 | | 23,917 | | 15,260 | | 32,248 |
Travel and Entertainment | 189 | | 3,664 | | 358 | | 4,275 |
Depreciation | 249 | | 0 | | 498 | | 0 |
Amortization | 23,250 | | 0 | | 46,500 | | 0 |
Research and Development | 12,946 | | 17,231 | | 39,946 | | 26,232 |
Other General & Administrative Expenses | 35 | | 511 | | 390 | | 3,835 |
Total Expenses | 69,543 | | 67,236 | | 147,387 | | 109,500 |
Gain (Loss) from operations | (69,543) | | (67,236) | | (147,387) | | (109,500) |
Other Income | 0 | | 0 | | 12,591 | | 0 |
Interest Expense Related Party | 0 | | (2,727) | | 0 | | (4,624) |
Interest Income | 0 | | 0 | | 0 | | 0 |
Warrant Expense | 0 | | 0 | | 0 | | (411,000) |
Total other income (Expense) | 0 | | (2,727) | | 12,591 | | (415,624) |
Net Income (Loss) before income taxes | (69,543) | | (69,963) | | (134,796) | | (525,124) |
Income tax benefit | 0 | | 0 | | 0 | | 0 |
Net Income (Loss) | (69,543) | | (69,963) | | (134,796) | | (525,124) |
Weighted average Number of Common Shares | 160,006,250 | | 160,006,250 | | 160,006,250 | | 160,006,250 |
Basic Earnings per Share | $ (0.000) | | $ (0.000) | | $ (0.000) | | $ (0.003) |
Adjusted Weighted Average Shares | 253,406,250 | | 200,006,250 | | 253,406,250 | | 200,006,250 |
Diluted Earnings per Share | $ (0.000) | | $ (0.000) | | $ (0.000) | | $ (0.003) |
| | | | | | | | |
The accompanying notes are an integral part of this financial statement
3. COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In US dollars)
| | Unaudited 1/31/2005 | | 7/31/2004 |
Cash Flows From Operating Activities | | | |
Net Loss | $ (134,796) | | $ (742,699) |
Adjustments to Reconcile Net Loss to Net | | | |
Cash Used by Operating Activities | | | |
Warrant Expense | 0 | | 411,000 |
Depreciation | 498 | | 474 |
Amortization | 46,500 | | 31,000 |
Increase (Decrease) In: | | | |
Accounts Payable and Accrued Liabilities | (64,270) | | 68,913 |
Accounts Payable-Related Parties | (3,228) | | 90,874 |
Total Adjustments | (20,501) | | 602,261 |
Net Cash (Used For) Operations | (155,296) | | (140,438) |
Cash Provided by Investing Activities | | | |
Purchase (Disposed )of Equipment | 0 | | (4,976) |
Net Cash (Used For) Investing Activities | 0 | | (4,976) |
Cash Provided by Financing Activities | | | |
Issuance of stock | 400,000 | | 0 |
Proceeds from Notes Payable - Related Party | 0 | | 129,250 |
Payments of notes payable | (206,300) | | 0 |
Net Cash Provided by Financing Activities | 193,700 | | 129,250 |
Increase (Decrease) in Cash | 38,404 | | (16,164) |
Balance at July 31, 2004 | 5,228 | | 21,391 |
Balance at January 31, 2005 | $ 43,632 | | $ 5,227 |
| | | | |
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 six-month periods ended January 31, 2005 and 2004; the Company's financial position at January 31, 2005 and July 31, 2004; and the cash flows for the six-month period ended January 31, 2005 and 2004. 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 and six-month period ended January 31, 2005 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 January 31, 2005, equipment included software for the total cost of $4,976. Accumulated depreciation at January 31, 2005 was $972.
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 initially owned by TreeCAD Engineering, Ltd, (TreeCAD) a company domiciled in Cyprus, in exchange for four (4) million shares of the company’s class D preferred convertible stock. 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 other rights specified in the License Agreement dated March 25, 2003.
The first two million shares of class D preferred convertible stock were delivered to TreeCAD Engineering, Ltd, on March 31, 2004. These shares 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 continue to stay in escrow, contingent upon fulfillment of certain other requirements, as being stated in the purchase 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 January 31, 2005, 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 a 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.
The acquisition cost of TreeSoft USA, Inc and therefore the value of this intangible asset are subject to adjustment pending the other release to TreeCAD of the rest of the consideration held in escrow.
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 January 31, 2005 was $77,500.
1.1. NOTE 5: NOTES PAYABLE TO RELATED PARTIES.
Balance of notes payable to related parties at July 31, 2004 was $206,300, and it was comprised of $90,000 note due to Dearborn Wheels, Inc; $16,300 note due to First Equity Corporation; and $100,000 note due to Tico, Inc. These notes payable were paid off in October 2004, reducing to zero balance of notes payable at January 31, 2005. Thomas W. Itin, Chairman of the Company has a direct or indirect minority interest in these three related parties.
1.2. NOTE 6: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - RELATED PARTIES.
Balance of Accounts payable and Accrued Liabilities- Related Parties is comprised of the following:
Jan 31, 2005
Jul 31, 2004
Accrued Consulting Fees First Equity Corp.
$29,997
$36,663
Accrued Consulting Fees Dearborn Wheels, Inc
29,997
36,663
Accrued Consulting Fees TreeCAD Engineering, Ltd
70,885
45,590
Interest payable on the notes
0
15,191
Total
$130,879
$134,107
Harald Engels, Director of CPVD is managing partner of TreeCAD.
1.3. NOTE 7: STOCKHOLDERS' EQUITY
1.3.1. Preferred Convertible Stock
Under the Company's Certificate of Incorporation, up to 75,000,000 shares of preferred stock, with classes and terms as designated by the Company, may be issued and outstanding at any point in time. The Company had 300,000 authorized shares of Series A Convertible Preferred Stock ($.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.
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 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.
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 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.
In October 2004, $400,000 was invested in the Company from various accredited investors through the sale of 24million shares of class E preferred convertible stock and 24 million shares of warrants, Class E preferred convertible stock is convertible to 24 million shares of common stock
(Rate of 1 to 1). One newly issued warrant entitles the holder to purchase one share of common stock at a price of $0.018 during the five-year period ending October 31, 2009.
Rights, preferences, privileges and restrictions of the Series E Convertible Preferred stock
No Dividends. Holders of the Series E preferred stock are not entitled to dividends on their shares of series E preferred stock.
Liquidation preference. Upon the liquidation of the Company the holders of the series E preferred stock are entitled to receive out of the assets of the Company a distribution of $.10 for each share of Series E preferred stock held.
Conversion. Each share of series E Preferred stock is convertible respectively into (1) one share of common stock.
Voting rights. The holders of the Series E 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 E preferred stock is required for a) change in the rights, preferences or privileges of the series E preferred stock, b) an authorization, or issuance of additional shares of the same series, c) any change in the percent of series E preferred stock required to approve the forgoing.
No preemptive rights. The series E preferred stock 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 E preferred stock, the Company shall register the shares of common stock issued or issuable upon conversion of the series E 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 E 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 E 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.
1.3.5. 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 March 31, 2005. 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 March 31, 2005. 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. 6,250 Class A warrants have been exercised for total proceeds of $313, as of March 16, 2005.
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. Based on SFAS 123, the Company had determined the fair value of its public warrants being $411,000, as of September 30, 2003, the day of the extension of their expiration. The modification of terms of this award that makes it more valuable is 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, September 30, 2004, and December 31, 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 January 31, 2005 as Additional Paid in Capital-Public Warrants of $411,000.
1.4. NOTE 8: RELATED PARTY CONSULTING FEES.
The Company incurred $44,435 and $42,910 of consulting fees for the period ended January 31, 2005 and 2004, respectively. The Company is engaged in separate consulting agreements with the related parties.
Consulting fees expense includes:
Jan 31, 2005
Jan 31, 2004
Consulting fees –TreeCAD Engineering, Ltd
$4,439
$2,914
Consulting fees – First Equity Corporation
19,998
19,998
Consulting fees – Dearborn Wheels, Inc
19,998
19,998
Total
$44,435
$42,910
1.5. NOTE 9. COMPUTATION OF EARNINGS PER SHARE
The following table represents the computation of Basic and Diluted Earnings per Share
at January 31, 2004 and January 31, 2005.
| | | January 31, 2005 | | January 31, 2004 |
A | Net Income | $ (134,796) | | $(525,124) |
| | 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 | 45,400,000 | | 0 |
| | Common shares equivalent to Preffered Class E shares issued and outstanding | 8,000,000 | | 0 |
B | Total Adjusted Weighted Average Shares | 253,406,250 | | 200,006,250 |
| | 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 January 31, 2005 compared to three months ended January 31, 2004.
The Company did not earn revenues for the quarters ended January 31, 2005 and 2004.
The Company incurred $ 21,437 and $21,913 of consulting fees for the quarters ended January 31, 2005 and 2004, respectively. The Company is engaged in separate consulting agreements, with the above parties.
Consulting fees expense includes:
Jan 31, 2005
Jan 31, 2004
Consulting fees –TreeCAD Engineering, Ltd
$1,439
$1,915
Consulting fees – First Equity Corporation
9,999
9,999
Consulting fees – Dearborn Wheels, Inc
9,999
9,999
Total
$21,437
$21,913
Research and development costs were $12,914 and $17,231 for the quarters ended January 31, 2005 and 2004, respectively. These costs are calculated at 90% of total billings from TreeCAD.
The Company incurred $11,437 and $23,917 of professional fees for the quarters ended January 31, 2005 and 2004. The decrease in 2005 is due to the decrease of legal expenses, as a result of the settlement of the lawsuit in Utah.
The Company did not incur interest expense for this quarter. Interest expense incurred for the quarter ended January 31, 2004 was $2,727. Related parties forgave the interest accrued on the notes payable, and the remaining balances on these notes were paid off in October 2004.
The Company recorded $249 in depreciation expense for this quarter related to the new assets purchased in January and March 2004.
The Company recorded $23,250 in license agreement amortization expense for this quarter. License was purchased on March 31, 2004.
Other general and administrative expenses were $ 35 for this quarter compared to $511 for the quarter ended January 31 2004. The change is due to some advertising, and subscriptions expense incurred in 2004.
2.1.2. Results of Operations.
Six months ended January 31, 2005 compared to six months ended January 31, 2004
The Company did not earn revenues for these two periods.
The Company incurred $44,435 and $42,910 of consulting fees owed to the related parties, for the periods ending January 31, 2005 and 2004, respectively.
Consulting fees expense includes:
Jan 31, 2005
Jan 31, 2004
Consulting fees –TreeCAD Engineering, Ltd
$4,439
$2,914
Consulting fees – First Equity Corporation
19,998
19,998
Consulting fees – Dearborn Wheels, Inc
19,998
19,998
Total
$44,435
$42,910
Research and development costs were $39,946 and $26,232 for the periods ended January 31, 2005 and 2004, respectively. These costs are calculated at 90% of total billings from TreeCAD.
The Company incurred $15,260 and $32,248 of professional fees during the periods ended January 31, 2005 and 2004, respectively. The decrease in such fees is due to the decrease in legal fees incurred in defending the lawsuit in Utah in 2004.
The Company did not incur interest expense for this period. Interest expense incurred for the period ended January 31, 2004 was $4,624. Related parties forgave the interest accrued on the notes payable, and the remaining balances on these notes were paid off in October 2004.
The Company recorded $498 of depreciation expense for this period related to the new assets purchased in January and March 2004.
The Company recorded $46,500 in license agreement amortization expense for this period, related to the license purchased on March 31, 2004.
Other general and administrative expenses were $ 390 and $3,835 for the periods ended January 31, 2005 and 2004, respectively. The change is due to an advertising expense incurred in late 2003, which announced for the first time the involvement of CPVD in the software business.
The Company incurred additional compensation expense in public warrants outstanding for the period ended January 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 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 ended October 31, 2003. No incremental value was recognized on December 31, 2004, the day they were last extended, because the FMV of these warrants on that day was lower than $411,000.
2.1.3. Liquidity and Capital Resources.
The Company postponed the release of TreeCAD because the unexpected market entry of Autodesk in the Electrical-CAD market would require significant higher market entry inventions than previously expected and calculated. As a major shareholder of CPVD, TreeCAD Engineering agreed to provide its CRM software without any additional costs or other expenditures, widening the scope of the March 25, 2003 contract between TreeCAD Engineering and CPVD. The CRM software is currently under the last development stage and will be ready to enter the USA market in April 2005. Marketing of this CRM software has a higher priority now than the originally planned marketing of the Electrical-CAD software. The Company believes that the successful negotiation and agreement with TreeCAD Engineering to extend the product offerings without additional costs for CPVD represents a significant amendment for all CPVD shareholders. Management is convinced that the disadvantage of later product marketing will be compensated by higher market opportunities of this software.
The Company expects to realize first revenues from the sale of CRM software in April 2005. First prospects are currently in acquisition. The CRM software licensing business (software sales) and business software implementation services (software services) are expected to be the major source for revenues for the first five years. With an increasing saturation of the software market the revenues from Software Maintenance contracts should 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 company’s ERP/CRM software currently represents the most attractive licensing business. Through a network of specialized resellers the ERP/CRM product is expected to successfully be distributed to the customers. Management is working diligently to accomplish this ambitious project in the y ear 2006.
Management plans to finalize the project for providing Open Source Software services as an add-on to its CRM/ERP software licensing business, in April 2005. The integration of its commercial CRM/ERP software, innovative Open Source Software and networking hardware provides business customers with attractive opportunities to increase efficiency, stability, security and cost-effectiveness of their IT infrastructure. Revenues form this source are expected during spring 2005.
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 primarily on the CRM software and service sales, 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 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.
2.1.4. Evaluation of Disclosure Controls and Procedures.
The 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 of the 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.
2.1.5. 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, 2005 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.
First Equity Corporation, CompuSonics Video Corporation, and Enercorp, Inc vs. Target Holding B. V.i.o., a no longer existing partnership (“Target A”), Target Holding B.V, a consummated Netherlands business entity (“Target B”), Senol Halfar, Dietgard Adrian, George Burmann, Dana Burmann, H.J Güllüg, Halfar Consulting, and Gunn Allen Financial, Inc.
The Company is a Plaintiff party in the above lawsuit filed on January 31, 2005 in the United States District Court, Eastern District of Michigan, Southern Division. The Complaint alleges Fraud, Conspiracy, Breach of Contract, Defamation and Breach of Settlement Agreement and Mutual Release, and Violations of Securities Law actively, or aiding and abetting.
Defendant, Target A, initially established, in 2001, a securities account with Defendant, Gunn Allen Financial, which account was managed by Defendant George Burmann, manager of the Gunn Allen Finacial branch in Orlando. The purpose of this account was to receive shares of CPVD common stock from Plaintiff, First Equity Corporation and other CPVD shareholders, so Target A could receive approximately 32 million of such shares, pay Plaintiff, First Equity, and others, if any, for shares at prices ranging from one cent to two cents per share, so that those shares of CPVD could then be sold by Defendants Halfar, Burmann, and Gunallen for higher prices in the market for the purpose of realizing profits on behalf of Target A and raising equity capital for CPVD.
Defendants used a second entity in the Netherlands, Target B, with different owner, from Target A without informing Plaintiffs First Equity, CPVD, and Enercorp and without paying fully for stock delivered to George Burmann and Gunallen for the account of Target A. Burmann, Halfar, and Gunn Allen failed to provide requested information to First Equity, CPVD, Harald Engels, providing false pretexts and accuses. To the best of the Plaintiffs knowledge and belief, Defendants were able to sell over one million U.S dollars worth of CPVD stock, which Plaintiffs had tendered to the said GunnAllen account in absolute good faith.
Plaintiffs believe that the Defendants diverted and converted the profits of sale of CPVD stock to Target B, Halfar, George Burmann, and/or others in order to defraud First Equity, and CPVD and their former partner in Target A, Engels. Upon information and belief, defendants utilized the wrongfully diverted profits to launch and to help finance a scheme to take over Enercorp, and to help finance litigation that they brought in the name of George Burmann against Enercorp in Denver, Colorado for purposes of attempting to take over Enercorp to the detriment of First Equity, CPVD, and the Enercorp shareholders. Enercorp is a major shareholder of CPVD.
Plaintiffs have requested in whatever amount the Court deems appropriate, together with exemplary and/or punitive damages, costs, interest, and actual reasonable attorney fees, as permitted by law for their wrongful acts, and their willful, wanton misconduct.
3.2. .ITEM 3: EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
None
COMPUSONICS VIDEO CORPORATION SIGNATURE PAGE
Form 10-QSB
For the quarter ended January 31, 2005
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)
March 17, 2005 /s/ Thomas W. Itin Chairman of the Board of Directors, President, CEO
Thomas W. Itin
.
4. 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 January 31, 2005 (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.
March 17, 2005 /s/ Thomas W. Itin Chief Executive Officer and Chief Financial Officer
Thomas W. Itin
#
