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 quarter ended: Commission file number:
- ----------------------------- -------------------------
October 31, 2003 0-14200
CompuSonics Video Corporation
--------------------------------------
(Exact name of Registrant as specified in its charter)
Colorado 84-1001336
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
32751 Middlebelt Road, Suite B
Farmington Hills, MI 48334
- ---------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant'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 Registrant (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 12, 2003, a total of 160,006,250 shares of common stock, $.001
par value, were outstanding.
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
Form 10-QSB Filing for the Quarter Ended October 31, 2003
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets October 31, 2003 (Unaudited)
and July 31, 2003 3
Consolidated Statements of Operations (Unaudited) for
three months ended October 31, 2003 and 2002 4
Consolidated Statements of Cash Flows (Unaudited) for
three months ended October 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
Item 3. Controls and Procedures. 10
PART II. OTHER INFORMATION
Item 1. Legal proceedings. 10-11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
Certification pursuant to 18 USC, section 1350, as adopted pursuant to
Sections 302 and 906 of the Sarbanes-Oxley act of 2002. 13 -14
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COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
10/31/03(Unaudited) 07/31/03
------------------ ----------
Current Assets
Cash $ 11,375 $ 21,392
Prepaid Expense 5,000 0
----------- ----------
Total Current Assets 11,375 21,392
Total Assets $16,375 $ 21,392
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes Payable to Related Entities $136,300 $77,050
Accounts Payable and Accrued Liabilities 33,710 34,772
Accounts Payable - Related Entities 19,188 43,233
---------- ----------
Total Liabilities 189,198 155,055
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Stockholders' Deficit
Preferred Stock - Series B Convert.
Stock 20,000,000 shares Authorized
4,000,000 Shares Issued and Outstanding 400,000 400,000
Common Stock $.001 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
Accumulated Deficit (1,425,827) (1,386,667)
----------- ----------
Total Stockholder's Deficit (172,823) (133,664)
----------- ----------
Total Liabilities and Stockholder's deficit $16,375 $ 21,391
======== ========
The accompanying notes are an integral part of this financial statement
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COMPUSONICS VIDEO CORPORATION AND SUBSIDIARIES
CONSENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For three months ended October 31,
2003 2002
------------ ------------
Miscellaneous Income 0 0
--------- ----------
Total Income 0 0
--------- ----------
Cost of Goods Sold 0 0
--------- ----------
Gross Profit 0 0
--------- ----------
General and Administrative Expenses
Consulting fees 10,000 0
Professional Fees 3,583 3,118
Consulting Fees - Related Party 19,998 0
Travel and Entertainment 0 0
All Other General and Administrative Expenses 3,682 40
-------- ---------
Total General & Administrative Expenses 37,263 3,158
Gain (Loss) from Operations (37,263) (3,158)
Gain on Exchange of Investment to
Extinguish Debt from related party 0 3,552
Interest Income 0 0
Interest Expense 1,897 338
-------- --------
Total Other Income (Expense) (1,897) 3,215
-------- --------
Net Income (Loss) Before Income Taxes (39,160) 57
Income Tax Benefit 0 0
------- --------
Net Income (Loss) $ (39,160) $ (57)
========= =========
Weighted Average Number of Common Shares 160,006,250 160,006,250
=========== ===========
Net Income Per Common Share $ (0.000) $ (0.000)
=========== ===========
The accompanying notes are an integral part of this financial statement
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COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended October 31,
2003 2002
----------- -----------
Cash Flows From Operating Activities:
Net Loss $ (39,160) $ 57
Adjustments to Reconcile Net Loss
Cash Used by Operating Activities
Gain on Exchange of Investment 0 (3,552)
Accrued Interest Income 0 0
(Increase) Decrease In Inventory 0 0
(Increase) Decrease In:
Accounts Receivable and Accrued Assets (5,000) (450)
Accounts Payable and Accrued Liabilities (1,062) (6,772)
Accounts Payable - Related Entity (24,045) 337
------- ---------
Total Adjustments (30,107) (10,437)
---------- --------
Net Cash (Used For) Operations (69,267) (10,380)
Cash Provided by Investing Activities
Purchase of Equipment 0 0
Purchase of Patents 0 0
Proceeds from Sale of Equipment 0 0
Investments 0 0
------- --------
Net Cash (Used For) Investing Activities 0 0
Cash Provided by Financing Activities
Proceeds from Stock Sold 0 0
Payments For Notes Payable (10,750) 0
Proceeds from Notes Payable - Related 70,000 10,950
-------- -------
Net Cash Provide by Financing Activities 59,250 10,950
-------- -------
Increase (Decrease) in Cash (10,017) 570
Balance at Beginning of Period 21,392 25
-------- -------
Balance at End of Period $ 11,375 $ 594
=========== ========
Supplemental Disclosure of NonCash Investing
and Financing Activities:
Extinguishment of Note and Interest
Payable $ 0 $ 180,540
========== ==========
The accompanying notes are an integral part of this financial statement
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COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, 2003; the
Company's financial position at October 31, 2003 and July 31, 2003; and the
cash flows for the three-month period ended October 31, 2003 and 2002. 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 period ended October 31, 2003 are not
necessarily indicative of future financial results.
Note 2. Notes payable to related -party.
----------------------------
Balance of notes payable to related party increased from 77,050 at July 31,
2003 to 136,300 at October 31, 2003.
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 account "note payable -related party" is composed of the following
notes payable at October 31, 2003 and July 31, 2003.
October 31, 2003 July 31, 2003
----------- -----------
Note payable Dearborn Wheels, Inc 60,000 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 70,000 -0-
--------- ---------
Total $136,300 $77,050
The Registrant borrowed $60,000 from Dearborn Wheels Inc. at 7% per annum
interest rate. The underlying Note was due on June 12, 2003.
The Company borrowed $3,000 from TICO, a partnership in which the partner is
The Chairman of the Registrant. The Note bears 7% interest rate and was due on
June 23, 2003. The Note was paid off in September 2003.
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The Company paid off the Note owed to Acrodyne Corporation, in the amount of
$7,750, in September 2003.
As of October 31, 2003 the Company had an outstanding balance of $6,300 owed to
First Equity Corporation. The Note bears a 10.50% interest rate and was due on
June 14, 2003.
The Company borrowed $70,000 from TICO, Inc, a related party, on September 11,
2003. The Note bears 7% interest and is due after 180 days. TICO, Inc is
controlled by Thomas W. Itin, Chairman of CompuSonics Video Corporation.
Note 3. Accounts payable and Accrued Liabilities- Related Party.
Balance of Accounts payable and Accrued Liabilities- Related Party is comprised
of the following:
1. $13,332 of accrued consulting fees owed to First Equity Corporation (FEC)
and Dearborn Wheels, Inc. (DWI). FEC and DWI are both related parties to
the Company. These consulting fees were recorded based on the consulting
agreements between the Company and the above-related parties.
2. $3,256 of accrued interest payable on the notes payable to the related
parties.
3. $2,600 of accrued management fees owed to Acrodyne Corporation, a related
party.
Note 4. Stockholders' Equity
--------------------
A. Preferred Convertible Stock
Under the Company's Certificate of Incorporation, up to 75,000,000 shares of
preferred stock, with classes and terms as designated by the Company, may be
issued and outstanding at any point in time. The Company had 300,000
authorized shares of Series A Convertible Preferred Stock ($.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.
-7-
Series B Preferred Convertible stock.
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 two shares and 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.
-8-
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.
B. 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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
--------------------------------------------------------------
Results of Operations.
- ---------------------
Three months ended 10/31/03 compared to three months ended 10/31/02.
The Company did not incur revenues for this quarter. Net income for the three-
month period ended October 31, 2003 was $(39,160) compared to $57 for the
three-month period ended October 31, 2002.
In the past, the Company has relied on a related company to provide the working
funds it has required, but there is no assurance that this arrangement will
continue in future years. The Company recorded interest expenses of $1,897 for
this quarter ending October 31,2003 compared to interest expense of $338 for
the quarter ending October 31,2002. This change is due to the increase in the
balance of notes payable for this quarter.
-9-
The Company recorded general and administrative expenses of $37,263 for this
quarter compared to general and administrative expenses of $3,158 for the same
previous quarter. This change is mainly due to the increase in consulting fees-
related parties of $19,998, and consulting fees - TreeCAD Engineering Ltd.
of $10,000.
Liquidity and Capital Resources.
- --------------------------------
In the past the Company has, from time to time, relied on a related company to
provide the working funds it has required but there is no assurance that this
arrangement will continue in future years. The Company is anticipating the
first revenues from the sale of TreeSoft USA products in late spring of 2004.
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 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 inevitably be
distributable. Management is working diligently to accomplish this new
enterprise successfully.
Item 3. Controls and Procedures.
------------------------
a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of this report CompuSonics Video
Corporation carried out an evaluation, under supervision of the Company's
Management of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. The
Management concluded that the internal controls and procedures are effective.
b) Changes in Internal Controls
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these internal controls
subsequent to the date of the most recent evaluation.
PART II. OTHER INFORMATION
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 has 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 has also filed a defamation claim for allegedly
defamatory statements made by the Company in its public filings. Management has
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.
-10-
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 seeks relief and has
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 has refused to
provide that consideration but has offered to rescind the contract at no cost
to Scull. Scull rejected the offer and is now suing and CPVD is countersuing.
The name of the Litigation is ScanLine Technologies, Inc. v CompuSonics
Corporation, et.al. Civil No. 2:02-CV-0612J in the United States District Court
for the District of Utah, Central Division.
Discovery has been 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 has 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.
Discovery cut-off is set for December 31, 2003 with a pre-trial conference set
for January 9, 2004, at which time a trial date may be set.
The Company believes that ScanLine and Scull are not entitled to anything.
Settlement discussions have occurred but have been unsuccessful.
There is a possibility of an unfavorable outcome predicated upon the inherent
uncertainty of litigation. However, Management is confident in its version of
events and that ScanLine and Scull are not entitled to any compensation. In
fact, Management believes that ScanLine and Scull owed the Company for damages
incurred by the Company.
Item 2. Subsequent Event.
-----------------
CompuSonics Video Corporation ("CPVD") has completed a definitive agreement
with a group of investors for purchase of US$400,000 of convertible preferred
"D" stock of CPVD, restricted under Rule 144, which will be issued sometime in
the near future. The private placement is intended basically to insure the
launch of TreeSoft's electrical engineering CAD (" E-CAD") and enterprise
resource management ("ERP") software products for the NAFTA market in USA,
Canada and Mexico. These software products involving ERP and E-CAD are based on
the successful German software products, ELEKTRO-OFFICE and TreeCAD.
Item 3. Exhibits and Reports on Form 8-K:
----------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K filed on September 29, 2003 extending exercise
Of warrants to December 31, 2003
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COMPUSONICS VIDEO CORPORATION
Form 10-QSB
For the quarter ended October 31, 2003
Signature Page
SIGNATURES
-----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUSONICS VIDEO CORPORATION
-----------------------------
(Registrant)
Signature s/s Thomas W. Itin
------------------
Thomas W. Itin
Title: Chairman of the Board of
Directors, President, CEO.
Date Signed: December 18, 2003.
-12-
CERTIFICATION PURSUANT TO 18 USC, SECTION 1350, AS ADOPTED PURSUANT TO
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, 2003 (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:
1. The Report referenced above has been read and reviewed by the
undersigned.
2. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934.
3. The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
4. 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.
5. 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.
6. I acknowledge that the Chief Executive Officer and Chief Financial
Officer:
A. are responsible for establishing and maintaining "disclosure
controls and procedures" for the Company;
B. 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;
C. have evaluated the effectiveness of the Company's disclosure
controls and procedures within 90 days of the date of the
Report; and
D. have presented in the Report our conclusions about the
effectiveness of the disclosure controls and procedures
based on the required evaluation.
E. 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):
(i) 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
(ii) any fraud, whether or not material, that involves
Management or other employees who have a
significant role in the issuer's internal controls; and
-13-
F. 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.
/s/ Thomas W. Itin
- ------------------------------------------
Chief Executive Officer and
Chief Financial Officer
Dated: December 18, 2003
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