SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission file number: 0-29651
USA VIDEO INTERACTIVE CORP.
(Exact name of registrant as specified in its charter)
WYOMING 06-1576391
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
70 Essex Street, Mystic, Connecticut 06355
(Address of principal executive offices) (ZIP code)
(800) 625-2200
(Registrant's Telephone Number, including Area Code)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
At May 14, 2001, there were 84,350,089 shares of the registrant's common stock
outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
===========================================================================================================
March 31, December 31,
2001 2000
- -----------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 566,042 $ 231,197
Marketable securities - related parties 169,714 202,826
Accounts receivable, net of allowance for doubtful accounts of $7,000 33,560 122,813
Inventory 153,011 145,911
Prepaid expenses and other current assets 89,854 99,368
- -----------------------------------------------------------------------------------------------------------
Total current assets 1,012,181 802,115
Property and Equipment - at cost, net of accumulated
depreciation of $273,907 and $194,871, respectively 808,282 873,544
Other Assets, net of accumulated amortization of $23,682
and $22,170, respectively 70,900 68,412
Deferred Tax Assets, net of valuation allowance
of $6,429,000 and $6,168,000, respectively -- --
- -----------------------------------------------------------------------------------------------------------
Total Assets $ 1,891,363 $ 1,744,071
===========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 699,126 $ 1,110,033
Accounts payable and accrued expenses - related parties -- 20,830
Due to related parties 71,623 75,896
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 770,749 1,206,759
- -----------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - no par value; authorized 250,000,000 shares,
none issued
Common stock - no par value; authorized 250,000,000 shares,
issued and outstanding 84,325,088 and 81,700,088 shares, respectively 27,680,553 25,766,071
Accumulated other comprehensive income 40,611 73,723
Accumulated deficit (26,600,550) (25,302,482)
- -----------------------------------------------------------------------------------------------------------
Stockholders' equity 1,120,614 537,312
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,891,363 $ 1,744,071
===========================================================================================================
SEE ACCOMPANYING NOTES
3
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in US Dollars)
===========================================================================================
Three months ended March 31, 2001 2000
- -------------------------------------------------------------------------------------------
(Unaudited)
Revenue $ 1,060 $ 163,600
- -------------------------------------------------------------------------------------------
Expenses:
Cost of sales 723 101,942
Research and development 235,234 65,258
Selling, general and administrative 422,506 465,088
Depreciation and amortization 80,548 53,635
Noncash compensation charges 565,597 --
- -------------------------------------------------------------------------------------------
Total expenses 1,304,608 685,923
- -------------------------------------------------------------------------------------------
Loss from operations (1,303,548) (522,323)
- -------------------------------------------------------------------------------------------
Other income (expense)
Interest income 3,591 4,145
Other 1,889 (4,976)
- -------------------------------------------------------------------------------------------
5,480 (831)
- -------------------------------------------------------------------------------------------
Net loss $ (1,298,068) $ (523,154)
===========================================================================================
Net loss per share - basic and diluted $ (.02) $ (.01)
===========================================================================================
Weighted-average number of common
shares outstanding - basic and diluted 82,277,867 74,098,756
===========================================================================================
SEE ACCOMPANYING NOTES
4
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Stated in US Dollars)
====================================================================================
Three months ended March 31, 2001 2000
- ------------------------------------------------------------------------------------
(Unaudited)
Net loss $(1,298,068) $(523,154)
Other comprehensive income:
Change in unrealized gain on investments (33,112) --
- ------------------------------------------------------------------------------------
Comprehensive loss $(1,331,180) $(523,154)
====================================================================================
SEE ACCOMPANYING NOTES
5
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Stated in US Dollars)
===================================================================================================================================
(Unaudited)
Common Stock Accumulated
Other
Comprehensive Accumulated Stockholders'
Shares Amount Income Deficit Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 81,700,088 $ 25,766,071 $ 73,723 $(25,302,482) $ 537,312
Issuance of common stock and
common stock warrants for cash 2,500,000 1,333,260 -- -- 1,333,260
Issuance of common stock upon
exercise of warrants 125,000 15,625 -- -- 15,625
Noncash compensation charges -- 565,597 -- -- 565,597
Change in unrealized gains
on investments -- -- (33,112) -- (33,112)
Net loss -- -- -- (1,298,068) (1,298,068)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001 84,325,088 $ 27,680,553 $ 40,611 $(26,600,550) $ 1,120,614
===================================================================================================================================
SEE ACCOMPANYING NOTES
6
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars)
=================================================================================================
Three months ended March 31, 2001 2000
- -------------------------------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net loss $(1,298,068) $ (523,154)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 80,548 53,635
Noncash compensation charge 565,597
Write-down of advances - other -- 4,536
Changes in operating assets and liabilities:
Decrease in accounts receivable 89,253 354
Increase in inventories (7,100) (17,500)
Decrease in prepaid expenses and other current assets 9,514 13,708
(Increase) in other assets (4,000)
(Increase) in accounts payable and accrued expenses (410,907) (74,270)
(Increase) in accounts payable and accrued expenses -
related parties (20,830) --
Increase (decrease) in due to related parties (4,273) 52,144
- -------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,000,266) (490,547)
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Advances - related party -- (4,536)
Purchases of property and equipment, net (13,774) (142,467)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,774) (147,003)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from the issuance of common stock 1,333,260 139,690
Proceeds from the issuance of common stock upon exercise of warrants 15,625 --
Common stock subscribed -- 383,617
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,348,885 523,307
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 334,845 (114,243)
Cash and cash equivalents at beginning of period 231,197 417,666
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 566,042 $ 303,423
=================================================================================================
SEE ACCOMPANYING NOTES
7
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
(Stated in US Dollars)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01(a)(5) of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. The results for the interim periods are
not necessarily indicative of the results that may be attained for an entire
year or any future periods. For further information, refer to the Financial
Statements and footnotes thereto in the Company's annual report on Form 10-K for
the fiscal year ended December 31, 2000.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basic loss per common share ("EPS") is computed as net loss divided by the
weighted-average number of common shares outstanding during the period. Diluted
EPS includes the impact of common stock potentially issuable upon the exercise
of options and warrants. Potential common stock has been excluded from the
computation of diluted net loss per share as their inclusion would be
antidilutive.
Inventory, which consists of computer equipment, is stated at the lower of cost
or market using the specific-identification method.
The assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars at current exchange rates, and revenue and expenses are
translated at average rates of exchange prevailing during the period. The
aggregate effect of translation adjustments is immaterial at March 31, 2001 and
2000.
NOTE C - COMMON STOCK
On March 12, 2001, the Company issued 1,585,000 units to investors at $.54 per
unit. Each unit consisted of one share of common stock and one warrant to
purchase an additional share of common stock at $.66 per share.
On March 12, 2001, the Company issued 915,000 units to employees at $.54 per
unit. Each unit consisted of one share of common stock and one warrant to
purchase an additional share of common stock at $.66 per share. The Company
charged operations for approximately $278,000 representing the differential
between the fair value and the purchase price of the common stock and for
approximately $168,000 representing the differential between the fair value of
the underlying common stock and the exercise price of the warrants.
From January 1, 2001 to March 31, 2001, the Company issued 125,000 shares of
common stock upon the exercise of warrants with exercise price of $.125 per
common share.
NOTE D - CONTINGENT LIABILTIY
The Company is party to a default judgement entered against one of the Company's
subsidiaries. During the year ended December 31, 1995, a claim was made to the
Company for the total amount payable under the terms of the lease with the
Company's subsidiaries for office space in Dallas Texas through 2002. The
Company's management is of the opinion that the amount payable under the terms
of this judgement is not estimable or determinable at this time and may be
substantially mitigated by the landlord renting the property to another party.
The range of
8
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
(Stated in US Dollars)
possible loss is from $-0- to approximately $500,000. Any settlement resulting
from the resolution of this contingency will be accounted for in the period of
settlement when such amounts are estimable or determinable.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CAUTIONARY STATEMENT
Certain statements contained in this Quarterly Report on Form 10-Q ("Report"),
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," and words of similar import, constitute
"forward-looking statements." Readers should not place undue reliance on these
forward-looking statements. Actual results of USA Video Interactive Corp. ("USA
Video" or the "Company") could differ materially from those anticipated in these
forward-looking statements for many reasons, including risks and uncertainties
set forth in the Company's Annual Report on Form 10-K, several of which are
summarized below under "Factors That May Affect Future Results of Operations,"
as well as in other documents that USA Video files with the Securities and
Exchange Commission ("SEC").
The following information should be read in conjunction with the unaudited
financial statements and related notes to financial statements included in this
report.
OVERVIEW OF THE COMPANY
USA Video designs and markets to business customers streaming video and
video-on-demand systems, services and source-to-destination digital media
delivery solutions that allow live or recorded digitized and compressed video to
be transmitted through Internet, intranet, satellite or wireless connectivity.
The Company's systems, services and delivery solutions include video content
production, content encoding, media asset management, media and application
hosting, multi-mode content distribution, transaction data capture and
reporting, e-commerce, specialized engineering services, and Internet streaming
hardware.
The Company's products and services are based on its proprietary Store and
Forward Video-on-Demand ("VoD") and advanced Wavelet compression technologies.
USA Video's Store and Forward VoD is a patented technique for transmitting video
over switched (telephone-like) networks and allowing the user to view the video
using videocassette recorder (VCR)-like controls (play, pause, stop, etc.).
Store and Forward VoD is the mechanism by which the delivery of compressed video
is managed and, together with compression technology, facilitates the delivery
of video to an end user in a timely and interactive fashion. Video compression
technology allows large video files to be greatly reduced in size to optimize
use of available bandwidth. In the absence of compression, video files are much
too large to be efficiently streamed or downloaded. The Company has completed
development of a still-image Wavelet compression technology (patent pending) and
is nearing completion of a Wavelet compression technology for full motion
applications for which it intends to file for patent protection.
USA Video has developed a number of specific products and services based on
these technologies. These include a collection of source-to-destination media
delivery services marketed to businesses: EncodeHQ(TM), a service that digitizes
and compresses analog-source video; hardware server and encoder system
applications under the brand names Hurricane Mediacaster(TM) and
WebcasterLive(TM); and Z-Mail(TM), a service that delivers client advertisement
video content to targeted audiences.
10
RESULTS OF OPERATIONS
Revenue
The Company had essentially no sales revenue for the three-month period ended
March 31, 2001, compared to revenue of $163,600 for the three-month period ended
March 31, 2000. The decline in revenue, which began in the fourth quarter and is
continuing, is attributable the continuing decline in demand throughout the
technology sector, as well as the Company's decreased marketing of its hardware
products in connection with the shift in focus of its core business. Starting in
the fourth quarter of 2000 and continuing during the first three months of 2001,
the Company concentrated its managerial and technical efforts on the remaining
critical stages of developing and refining its new streaming rich media
services. The Company expects to bring these services to market during the third
quarter of 2001.
These services are intended to become the Company's core business in place of
its hardware-based systems for video encoding, decoding and streaming, the
market for which has diminished significantly in the last nine to 12 months. The
Company believes the market declined for a number reasons, the most important of
which is that customers no longer can afford to invest in expensive hardware
systems of this type. As a result, profit margins on the Company's hardware
systems have continued to decline, as the Company has lowered prices in the face
of declining demand. A change in focus was necessary to capture the market for
affordable streaming media services.
The change in focus required shifting technical and managerial resources from
sales of the old line of products to service-based offerings. Additionally, the
Company was required to make a significant investment in a centralized computer
hardware and software infrastructure that will be used to provide the new
services, as well as hiring a core sales team on which to build a growing sales
organization for the future.
Cost of Sales
The cost of sales for the three months ended March 31, 2001 was $723, as
compared to $101,942 for the comparable period of 2000. The decrease in cost of
sales is directly attributable to the decline in sales.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses consisted of product marketing
expenses, consulting fees, office, professional fees and other expenses to
execute the business plan and for day-to-day operations of the Company.
Selling, General and Administrative expenses for the three months ended March
31, 2001 decreased $42,582 to $422,506 from $465,088 for the three months ended
March 31, 2000.
Product marketing expenses for the three months ended March 31, 2001, decreased
to $113,922 from $152,838 for the comparable period of 2000, as the Company
reduced its marketing efforts for its old, hardware-based systems. The Company
expects product marketing expenses to increase significantly during the
remainder of 2001 as new products are launched. The Company has hired additional
staff and engaged in marketing activities in an effort to identify and assess
appropriate market segments, develop business arrangements with prospective
partners, create awareness of new products and services, and communicate to the
industry and potential customers. Other components of Selling, General and
Administrative expense did not change significantly.
11
Research and Development Expenses
Research and development expenses consisted primarily of compensation, hardware,
software, licensing fees, and new product applications for the Company's
proprietary Wavelet technology. Research and development expenses increased by
260% to $235,234 for the three months ended March 31, 2001, from $65,258 for the
comparable period in 2000, reflecting development of the Wavelet and other
technologies underlying the shift in the Company's business to a services-based
model.
As the Company expands its business, its product development, product marketing,
and other general and administrative expenses will continue to increase. Product
development expenses, which include research and development expenses, will
increase as the Company adds engineering personnel to its technology and Web
development teams, and as its new technologies are integrated into its product
line. Product marketing expenses will increase as the Company adds business
development, sales, and marketing personnel to build business relationships,
sell advertising time and build brand awareness. Advertising and public
relations expenses also will increase as the Company invests to grow its
business. Other general and administrative expenses will grow as the Company
continues to build its management infrastructure, including additional
personnel, office space and internal information systems.
Non-Cash Compensation Charges
Non-cash compensation charges for the first quarter of 2001 were $565,597. Of
this amount, $462,097 was due to issuance of common shares and common share
warrants to the Company's officers, directors and employees at a price or
exercise price below the market price of the common shares at the time of
issuance. Because the rules of the Canadian Venture Exchange require that the
offering price for privately placed securities of listed companies be set when
the offering is first announced, rather than upon closing, and the market price
of the common shares increased between announcement of the offering and closing,
the sale price of the common shares and the exercise price of the warrants were
below the market price of the common shares on the date of issuance. In
addition, the Company issued options to purchase 150,000 common shares to
consultants, resulting in a $97,500 charge. The Company also incurred a charge
of $6,000 for the issuance of employee stock options.
Net Losses
To date, the Company has not achieved profitability and, in fact, expects to
incur substantial net losses for at least the remainder of 2001. The Company's
net loss for the three months ended March 31, 2001 was $1,298,068 as compared
with a net loss of $523,154 for the three months ended March 31, 2000.
12
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company's had a cash position of $566,042, compared to
$231,197 at December 31, 2000. The Company's principal sources of cash during
the three months ended March 31, 2001, were proceeds of $1,333,259 from the
issuance of stock in a private placement and $15,625 from the exercise of
outstanding warrants. This was substantially offset by $1,000,266 of cash used
in operating activities.
The Company believes that its cash on hand is sufficient to fund current
operations through the second quarter of 2001. The Company has historically
satisfied its capital needs primarily by issuing equity securities. The Company
will require an additional $3.0 million to $3.5 million to finance operations
for the rest of fiscal 2001 and intends to seek such financing through sales of
its equity securities.
Assuming the aforementioned $3.0 million to $3.5 million in financing is
obtained, the Company believes that continuing operations for the longer-term
will be supported through anticipated growth in revenues and through additional
sales of the Company's securities. Although longer-term financing requirements
may vary depending upon the Company's sales performance, management expects that
the Company will require additional financing of $5.0 million to $6.0 million
for fiscal 2002. The Company has no binding commitments or arrangements for
additional financing, and there is no assurance that management will be able to
obtain any additional financing on terms acceptable to the Company, if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Certain risks and uncertainties could cause actual results to differ materially
from the results contemplated by the forward-looking statements contained in
this Report. Risks and uncertainties have been set forth in the Company's Annual
Report on Form 10-K, as well as in other documents USA Video files with the
Securities and Exchange Commission ("SEC"). These risk factors include the
following:
THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE ITS
BUSINESS AND PROSPECTS.
USA Video's business and prospects must be considered in light of the risks
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as streaming media.
IF USA VIDEO IS UNABLE TO OBTAIN SUBSTANTIAL ADDITIONAL FINANCING IN THE NEXT
FEW MONTHS IT MAY NOT BE ABLE TO MAINTAIN OPERATIONS AT CURRENT LEVELS.
The Company requires substantial additional financing to maintain operations at
current levels beyond the second quarter of 2001. Financing may not be available
when needed on terms favorable to the Company, or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may be
unable to further develop or enhance its products and services, take advantage
of future opportunities or respond to competitive pressures, or ultimately, to
continue in business.
CONTINUATION OF THE CURRENT SLUMP IN THE TECHNOLOGY SECTOR WILL ADVERSELY
AFFECT DEMAND FOR USA VIDEO'S PRODUCTS AND SERVICES.
13
The Company's sales have been adversely affected by the ongoing slump in the
technology industry segment and the continuation of these market conditions can
be expected to result in depressed demand for the Company's products and
services.
THE COMPANY'S OPERATING RESULTS IN FUTURE PERIODS ARE EXPECTED TO BE SUBJECT TO
SIGNIFICANT FLUCTUATIONS, WHICH WOULD LIKELY AFFECT THE TRADING PRICE OF ITS
COMMON SHARES.
Factors that could cause such fluctuations include the Company's ability to
attract and retain customers; the introduction of new video transmission
services or products by others; price competition; the continued development of
and changes in the streaming media market; its ability to remain competitive in
its product and service offerings; its ability to attract new personnel; and
potential U.S. and foreign regulation of the Internet.
USA VIDEO IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD RENDER THE
COMPANY'S PRODUCTS AND SERVICES OBSOLETE.
Keeping pace with the technological advances may require substantial
expenditures and lead time, particularly with respect to acquiring updated
hardware and infrastructure components of its systems. The Company may require
additional financing to fund such acquisitions. Any such financing may not be
available on commercially reasonably terms, if at all, when needed.
IF USA VIDEO DOES NOT CONTINUOUSLY IMPROVE ITS TECHNOLOGY IN A TIMELY MANNER,
ITS PRODUCTS COULD BE RENDERED OBSOLETE.
These changes and developments may render the Company's products and
technologies obsolete in the future. As a result, the Company's success depends
on its ability to develop or adapt products and services or to acquire new
products and services that can compete successfully. There can be no assurance
that USA Video will be successful in these efforts.
USA VIDEO INTENDS TO ISSUE ADDITIONAL EQUITY SECURITIES, WHICH MAY DILUTE THE
INTERESTS OF CURRENT SHAREHOLDERS OR CARRY RIGHTS OR PREFERENCES SENIOR TO THE
COMMON SHARES.
Accordingly, existing shareholders may experience additional dilution of their
percentage ownership interest in the Company. In addition, the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of the Company's common shares.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
USA Video believes its exposure to overall foreign currency risk is not
material. USA Video does not manage or maintain market risk sensitive
instruments for trading or other purposes and is not exposed to the effects of
interest rate fluctuations as it does not carry any long-term debt.
USA Video reports its operations in US dollars and its currency exposure,
although considered by USA Video as immaterial, is primarily between the US and
Canadian dollars. Exposure to other currency risks is also not material as
international transactions are settled in US dollars. Any future financing
undertaken by USA Video will be denominated in US dollars. As USA Video
increases its marketing efforts, the related expenses will be primarily in US
dollars. In addition, 90% of USA Video's bank deposits are in US dollars.
PART II. OTHER INFORMATION
14
Item 1. Legal Proceedings
The Company is a party to an action entitled USA Video Interactive Corp. v.
William Meyer in the United States District Court for the District of
Connecticut, the details of which were reported in the Company's Annual Report
on Form 10-K for the year ended December 31, 2000. The status of the action is
unchanged from that described in the Form 10-K.
USA Video is not a party to any other material pending legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended March 31, 2001, 125,000 common shares were issued
pursuant to warrants exercised for total proceeds of $15,625. The issuance of
the shares was exempt from registration under Rules 504 and 506 of Regulation D
under the Securities Act of 1933 ("Securities Act"). The Company has made
publicly available financial and disclosure information with its filings to the
Canadian Venture Exchange, and provided disclosure regarding the offering and
the Company to the investors. The Company limited the manner of the offering.
The purchasers were three non-affiliated investors.
In March 2001, the Company completed an offering, which it commenced in January
2001, of units. Each unit consisted of one share of common stock and one warrant
to acquire an additional share at $0.66 per share ($0.97 CN) by March 2003. On
completion of the offering, a total of 2,500,000 units were issued at $0.54 per
unit ($0.80 CN) for total proceeds of $1,333,259.82 (adjusted for exchange rate
conversions for sales to Canadian purchasers).
The offer and sale of the units were exempt from registration under Rule 506 of
Regulation D of the Securities Act. The Company limited the manner of the
offering and provided disclosure regarding the offering and the Company to the
investors. Four officers and directors of the Company, two employees (one
accredited investor and one nonaccredited investor) of the Company, five (5)
additional unaffiliated nonaccredited investors, and ten (10) additional
unaffiliated accredited investors purchased the securities. The Company believes
that a portion of these sales were also exempt under Regulation S under the
Securities Act, as the sales were made in offshore transactions to non-U.S.
persons.
During the quarter ended March 31, 2001, the Company issued two-year options to
purchase an aggregate of 150,000 common shares at $1.00 per share to two
consultants. The Company also issued two-year options to purchase an aggregate
of 100,000 common shares at $1.00 per share to four employees, including one
executive officer. The Company intends to register the common shares underlying
these options on a registration statement on Form S-8 and will not issue any of
these shares prior to the effectiveness of such registration statement.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders during the
first quarter of 2001.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15
None.
(b) Reports on Form 8-K
During the quarter for which this Report on Form 10-Q is filed,
the registrant filed a report on Form 8-K dated February 2, 2001
(the "8-K"). Under Item 4 of the 8-K, the registrant reported
that it had engaged Goldstein Golub Kessler LLP as its auditors
for fiscal 2000, replacing Amisano Hansen Chartered Accountants.
16
SIGNATURE
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.
USA Video Interactive Corp.
Dated: May 14, 2001 By: /s/ Anton J. Drescher
--------------------------------
Name: Anton J. Drescher
Title: Chief Financial Officer
17