U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE EXCHANGE ACT
For the transition period from _______ to _______
COMMISSION FILE NUMBER: 0-22076
DTVN HOLDINGS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
76-0404904
(I.R.S. Employer Identification No.)
635 WEST CAMPBELL ROAD, SUITE 130
RICHARDSON, TEXAS 75080
(Address of Principal Executive Offices)
(972) 783-0284
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
As of May 9, 2001 there were 56,715,726 shares of DTVN Holdings, Inc.
Common Stock, $.001 par value, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
FORM 10-QSB
TABLE OF CONTENTS
Page
Number
------
PART I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets.......................................................... 3
Consolidated Statements of Operations and Comprehensive Loss......................... 4
Consolidated Statements of Cash Flows................................................ 5
Notes to Consolidated Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
PART II. Other Information
Item 1. Legal Proceedings.................................................................... 15
Item 6. Exhibits and Reports on Form 8-K..................................................... 16
2
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
DTVN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
MARCH 31,
2001 DECEMBER 31,
(UNAUDITED) 2000
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,804,331 $ 2,895,402
Certificates of deposit 32,518 100,000
Accounts receivable 1,093,333 278,059
Vendor deposit 64,000 64,000
Deferred tax asset 894,548 902,339
Other current assets 270,651 121,674
----------- -----------
Total current assets 4,159,381 4,361,474
Property and equipment, net 1,205,537 1,136,806
Goodwill, net 22,231,930 23,562,199
Investments 192,413 182,061
Other assets 499,801 --
Purchased technology 619,215 635,508
----------- -----------
$28,908,277 $29,878,048
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to related party $ 146,177 $ 249,090
Current portion of notes payable 226,760 211,035
Accounts payable 1,258,207 1,314,688
Unearned revenue 707,758 697,758
Accrued liabilities and other 1,454,269 994,609
Current installments of obligations
under capital leases 4,971 11,971
----------- -----------
Total current liabilities 3,798,142 3,479,151
Deferred income taxes 39,101 39,101
Notes payable less current portion 305,278 343,411
Obligations under capital leases,
excluding current installments 5,317 12,139
----------- -----------
Total liabilities $ 4,147,838 $ 3,873,802
Stockholders' equity:
Common stock, $.001 par value,
150,000,000 shares authorized, and
49,965,951 issued and outstanding
at March 31, 2001 and 49,965,951
issued and outstanding at
December 31, 2000 49,966 49,966
Additional paid in capital 30,002,632 29,959,014
Accumulated deficit (5,354,811) (4,057,027)
Accumulated other comprehensive
income 62,652 52,293
----------- ----------
Contingencies (note 5)
Total stockholders' equity 24,760,439 26,004,246
----------- -----------
$28,908,277 $29,878,048
=========== ===========
See accompanying notes to consolidated financial statements.
3
DTVN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2001 2000
------ ------
Revenues:
Net service revenue $ 3,582,444 $2,503,202
Other revenue 87,775 --
----------- ----------
Total revenues 3,670,219 2,503,202
Operating expenses:
Cost of services 2,527,024 1,244,690
Selling and marketing 104,589 7,631
General and administrative (including non-cash
of $43,626 and $366,867 for 2001 and 2000,
respectively) 879,859 711,552
Amortization of goodwill 1,330,269 --
Depreciation, depletion and amortization 97,582 14,360
----------- ----------
Total operating expenses 4,939,323 1,978,233
----------- ----------
Operating income (loss) (1,269,104) 524,969
Interest income 28,431 8,872
Interest expense 23,536 7,802
----------- ----------
Income (loss) before income taxes (1,264,209) 526,039
Income taxes 33,576 23,745
----------- ----------
Net income (loss) (1,297,785) 502,294
Other comprehensive income:
Unrealized gain on investments 62,652 --
----------- ----------
Comprehensive income (loss) $(1,235,133) $ 502,294
=========== ==========
Net income (loss) per common share:
Basic and diluted $(0.03) $0.50
=========== ==========
Weighted average common shares outstanding:
Basic 46,620,901 1,000,000
=========== ==========
Diluted 46,620,901 1,006,245
=========== ==========
Pro forma data (note 1):
Income tax expense 194,525
-----------
Net income 331,514
===========
Net income per common share:
Basic and diluted 0.01
===========
Weighted average common shares outstanding:
Basic 39,813,855
===========
Diluted 40,062,493
==========
See accompanying notes to consolidated financial statements.
4
DTVN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------------
2001 2000
------ -------
Cash flows from operating
activities:
Net income (loss) $(1,297,785) $ 502,294
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation, depletion and amortization 97,582 14,360
Amortization of goodwill 1,330,269 --
Amortization of unearned stock compensation 43,626 366,867
Non-cash cost of services 4,679 --
Deferred tax 7,791 (50,443)
Changes in operating assets and liabilities:
Accounts receivable (980,006) 609,535
Customer deposit -- (321,200)
Accounts payable and accrued liabilities 403,179 166,104
Unearned revenue 10,000 1,621
Vendor deposit -- 147,991
Prepaid expenses -- (143,090)
Other 11,076 14,655
----------- ----------
Net cash provided by (used in) operating
activities (369,589) 1,308,694
----------- ----------
Cash flows from investing activities:
Capital expenditures (150,020) (17,867)
Payment of deposits on leases (499,801) --
Proceeds from sale of certificates of
deposit 67,482 --
----------- ----------
Net cash used in investing activities (582,339) (17,867)
----------- ----------
Cash flows from financing activities:
Payments on notes to related parties (102,913) --
Principal payments on obligations (59,497) (3,571)
Proceeds from notes payable 23,267 --
Payments of dividends -- (447,447)
----------- ----------
Net cash used in financing activities (139,143) (451,018)
----------- ----------
Net increase (decrease) in cash and cash
equivalents (1,091,071) 839,809
Cash and cash equivalents at beginning of period 2,895,402 394,740
----------- ----------
Cash and cash equivalents at end of period $ 1,804,331 $1,234,549
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 17,494 $ 1,205
=========== ==========
Cash paid during the period for income taxes $ 130 $ --
=========== ==========
Supplemental disclosure of noncash investing
and financing activities:
Purchase of equipment in exchange for
note payable $ -- $ 518,918
=========== ==========
5
DTVN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 and 2000
(Unaudited)
(1) Merger and Basis of Financial Reporting
On June 9, 2000, DataVoN, Inc. (DataVoN) merged (the Merger) with DTVN Holdings,
Inc. (DTVN), formerly Zydeco Energy, Inc., and DataVoN became a subsidiary of
DTVN. Shareholders of DataVoN received shares of DTVN equal to a majority of
the shares of DTVN outstanding after the transaction. Accordingly, the business
combination has been accounted for as a reverse acquisition of DTVN by DataVoN
using the purchase method of accounting. Accordingly, the historical financial
statements of DataVoN prior to the Merger have become the financial statements
of the registrant, and the results of operations of DTVN have been combined with
DataVoN beginning on June 9, 2000. References to the "Company" refer to
operations of DataVoN prior to the Merger and the combined operations of DataVoN
and DTVN subsequent to the Merger. The purchase price totals approximately $28
million, which is comprised of the traded market value of DTVN's outstanding
common stock and the fair value of DTVN's outstanding options and warrants at
the date the Merger was agreed and announced, and direct acquisition costs. A
substantial portion of the purchase price was allocated to goodwill that is
being amortized to expense over a five-year period. This goodwill is subject to
an impairment test. As a result, an impairment of goodwill may be required in
the near term, and if so required, could be material to the results of
operations and financial position.
Under the terms of the Merger, DataVoN's shareholders received 32,623,855 shares
of common stock and 7,190 shares of preferred stock of DTVN. The preferred
shares were automatically converted into 7,190,000 common shares when sufficient
additional common shares of DTVN were authorized by its stockholders.
The preferred shares are included in weighted average common shares outstanding
during the periods presented for both basic and diluted earnings per share on an
as if converted basis since the former DataVoN shareholders had the ability to
authorize sufficient additional common shares of DTVN and the authorization was
essentially a formality.
In connection with the Merger, DataVoN converted from an S corporation into a C
corporation. Accordingly, the Company eliminated DataVoN's retained earnings and
established deferred federal income taxes at the date of the Merger. The
unaudited pro forma data presented on the face of the consolidated statements of
operations for the three months ended March 31, 2000 are based upon the
Company's historical consolidated statements of operations and give effect to
pro forma income taxes as if the Company was a C corporation for the entire
duration.
Unaudited pro forma results, as if the Merger had occurred at the beginning of
the period presented and including pro forma income taxes as if DataVoN was a C
corporation for
6
the entire duration is as follows. These unaudited pro forma results do not
purport to be indicative of results which would actually have occurred if the
Merger had been consummated at the beginning of the period presented.
For the three months ended
March 31,
2000
-----------
Pro forma revenues $ 2,524,371
===========
Goodwill amortization $ 1,361,702
===========
Pro forma net loss $(1,085,778)
===========
Pro forma diluted loss per share $ (0.03)
===========
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting solely of normal adjustments)
considered necessary to present fairly the financial position, results of
operations and cash flows of the Company. Interim period results are not
necessarily indicative of the results to be achieved for an entire year. These
interim unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of the Company
for the year ended December 31, 2000 included in the Form 10-KSB filed by DTVN
with the Securities and Exchange Commission on March 26, 2001, as amended.
(2) Stock Compensation
In 2000, the Company adopted two stock option plans. Under the plans, the
Company may grant to officers, directors, consultants and employees options to
purchase shares of the Company's common stock. As of March 31, 2001 and 2000,
options to purchase 2,059,975 and 2,522,459 shares, respectively, of the
Company's common stock were issued and outstanding at exercise prices generally
at the fair market value of the common stock on the date of the grant. These
options have a 10-year life and vest over a three-year period, subject to
certain exceptions. At March 31, 2001 and 2000, stock compensation totaling
approximately $313,750 and $5.2 million, respectively, is being recognized over
the vesting period. During the first quarter of 2001, 10,383 options were
forfeited when employees left the Company and the corresponding compensation
expense previously recognized was reversed.
7
(3) Segment Information
As a result of the Merger, the Company is now organized along two lines of
business, DataVoN and Zydeco Exploration, Inc. (Zydeco). DataVoN provides
Internet protocol bandwidth capacity to a number of major domestic and
international carriers and IP providers desiring to employ the benefits of Voice
over Internet Protocol (VoIP) technology and networking. Zydeco is an
independent energy company that has been engaged in the exploration for oil and
gas utilizing advanced three-dimensional seismic and computer-aided exploration
techniques. Because of market conditions, Zydeco's operations were curtailed
prior to the Merger and it had focused its efforts on (1) conserving cash
resources; (2) concentrating on marketing salable assets; and (3) seeking
alternate sources of capital for possible drilling participation and general
working capital, including potential business combinations outside of the oil
and gas industry. The Company is considering its alternatives with respect to
the operations of Zydeco.
The following is a summary of total assets by reportable segment:
March 31, March 31,
2001 2000
----------- ----------
DataVoN $ 4,315,614 $2,433,623
Zydeco 2,360,733 --
Goodwill from the Merger 22,231,930 --
----------- ----------
Total assets $28,908,277 $2,433,623
=========== ==========
(4) Notes Payable
In March 2000, the Company entered into a note payable arrangement with a vendor
for the purchase of network equipment. In October 2000, the Company refinanced
the equipment with a master revolving note with a bank to include future
purchase of equipment. The interest is payable monthly at an interest rate of
the bank's prime rate plus .5%, with the outstanding principal converting into
an installment loan on May 22, 2001.
On May 1, 2000, the Company entered into a Security Agreement and Note Payable
with a related party for $.3 million. Until the final balance of $.1 million
was paid on April 16, 2001 the note bore interest at 9% per annum. The note was
secured by substantially all of the Company's assets.
On June 21, 2000, the Company entered into a Loan and Security Agreement with a
bank that provides access to a $.5 million revolving credit facility. The line
of credit is secured by a lien on all of the Company's trade receivables.
Interest accrues daily on the unpaid principal of the facility at an annual rate
equal to the prime rate, as defined in the Loan and Security Agreement, plus
.5%.
8
On November 5, 2000, the Company entered into a Variable Rate Installment
Agreement with a bank for $.3 million. The note bears interest at the bank's
prime rate plus 1% per annum. The note is due November 5, 2003.
(5) Contingencies
The Company is currently involved in litigation with a former sales agent with
regard to commissions allegedly owed to the former commissioned agent by the
Company. The Company has counter-sued the former agent for $230,000 owed by the
former agent to the Company. The litigation is set for trial in August 2001.
Extensive discovery has been exchanged by both parties and based on the former
sales agent's last amended petition, which articulated eight causes of action,
including contract and tort claims, the Company presented summary judgment
argument with regard to all claims. The court ruled in favor of the Company on
five causes of action, being all the tort claims, granting summary judgment in
the Company's favor, leaving three causes of action to be tried. The former
agent alleges maximum economic damages for all claims in the amount of $4.6
million. Management of the Company is vigorously defending against the
remaining claims and believes no determination of the outcome is possible at
this time. No reserve for the claim or a receivable for the counterclaim has
been established for this litigation as of March 31, 2001, and none is
anticipated at this time.
(6) Subsequent Event
On April 13, 2001, the Company completed a merger with Video Intelligence, Inc.,
a Pennsylvania corporation ("Video Intelligence"). Pursuant to the merger, the
Company issued 6,749,775 shares of the common stock, par value $0.001 per share,
of the Company (the "Common Stock") and agreed to pay a total of $493,225 in
cash to the holders of all of the issued and outstanding shares of capital stock
of Video Intelligence. As reported on the OTC Bulletin Board, the price at which
the Common Stock last traded on April 12, 2001 was $0.65 per share. Of the
total cash consideration to be paid by the Company in connection with the
merger, $246,613 was paid on April 13, 2001. The balance of $246,612 will become
due and payable on June 12, 2001. An aggregate of 2,530,251 shares of Common
Stock issued in connection with the merger are subject to a certain
Relinquishment Agreement, dated April 12, 2001 (the "Relinquishment Agreement"),
among the Company, Video Intelligence, and certain stockholders of the Company.
Pursuant to the Relinquishment Agreement, in the event that financial or other
performance criteria set forth in the Relinquishment Agreement is not achieved
during the first year after the closing of the merger, all or a portion of the
Common Stock issued by the Company in connection with the merger will be
relinquished and transferred to the Company, without further consideration, as a
refund of consideration previously paid in connection with the merger. Under the
terms of the merger, all of the options to purchase shares of common stock of
Video Intelligence that were issued and outstanding at the time of the merger
were assumed by the Company and converted into options to purchase 1,141,804
shares of the Common Stock at an exercise price of $0.25 per share. The assumed
options are exercisable for a period of ninety days following the closing of the
merger.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis of the financial condition and
results of operations of DTVN Holdings, Inc. (the "Company") for the three
months ended March 31, 2001 should be read in conjunction with the consolidated
financial statements and footnotes for the three months ended March 31, 2001
included herein. The Company believes that all necessary adjustments
(consisting of normal recurring adjustments) have been included in the amounts
stated below to present fairly the following quarterly information. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year-end. The results for interim periods are not necessarily
indicative of results for the year.
OVERVIEW
The Company is a wholesale provider of voice and data services over a next
generation packet switched network. As of May 9, 2001, the Company was
providing services to several domestic carriers and operating in 12 markets
with points of presence ("POP's") in 43 cities. The number of markets decreased
from 14 to 12 due to the elimination of three unprofitable markets and the
addition of one new market.
Through its network, the Company transports a large volume of "toll
quality" voice and data services. The entrance point for communications traffic
over its network is referred to as a POP (point of presence). The Company's
customers interconnect with the Company's network by connecting dedicated voice
circuits from the customers' facilities to gateways located in one of the
Company's POP's.
The Company was incorporated in 1993. The Company engaged in acquiring
leases, drilling, and producing reserves utilizing focused geological concepts
and advanced 3D seismic technology beginning in 1995. On June 9, 2000, the
Company merged with DataVoN, Inc. ("DataVoN"). As a result of this merger, the
former shareholders of DataVoN owned approximately 80% of the voting power of
the Company's common stock. The merger was accounted for as a reverse
acquisition of the Company by DataVoN under the purchase method of accounting.
Accordingly, the historical financial statements of DataVoN prior to the merger
have become the Company's financial statements, and the Company's results of
operations have been combined with those of DataVoN from and after the date of
the merger. As the oil and gas seismic exploration operations are not currently
material to the Company's combined results of operations, the Company does not
discuss them below.
The Company's primary source of revenue is fees received from customers for
transporting and completing calls over its network and for resale of
communications services. Much of this revenue is dependent on the volume of
voice and data traffic carried over the network. The Company charges its
customers fees based upon a per
10
minute or flat rate charge prior to the service being offered and recognizes
this revenue in the period in which the call is completed.
The Company's most significant costs and expenses are data communications
and telecommunications expenses, which are comprised primarily of collocation
facility fees, transport fees, termination fees, and equipment expenses.
Collocation facility fees are paid for lease of rack space, power and associated
services to "host" the equipment. Transport fees are paid to a "backbone
provider" to carry traffic between POP's where the equipment is located.
Termination fees are paid to local service providers to terminate calls.
Equipment costs are capitalized and depreciated over their useful lives and
minor items are expensed directly. Other expenses include charges for
connections between the Company's POP's and its vendors for termination services
and software support and management systems required in maintaining its network.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2000
NET SERVICE REVENUE. The Company's net service revenue increased by $1.1
million to $3.6 million for the three months ended March 31, 2001, from $2.5
million for the three months ended March 31, 2000. The increase in net revenue
resulted from an increase in the amount of traffic carried over the Company's
network to approximately 464.7 million minutes for the three months ended March
31, 2001, from approximately 366.5 million minutes for the three months ended
March 31, 2000 and higher per minute pricing for traffic derived from new
products.
COST OF SERVICES. Cost of services increased by approximately $1.3 million to
$2.5 million for the three months ended March 31, 2001, from $1.2 million for
the three months ended March 31, 2000. The increase in expense was driven by
the increase in traffic described above. Collocation facility fees increased to
$158,900 for the three months ended March 31, 2001, from $14,500 for the three
months ended March 31, 2000. Telecommunications fees increased to $2.3 million
for the three months ended March 31, 2001, from $1.2 million for the three
months ended March 31, 2001. As a percentage of net service revenue, cost of
services expense increased to approximately 69.4% for the three months ended
March 31, 2001, from approximately 48.0% for the three months ended March 31,
2000, due to costs associated with expanding the Company's network, adding
presence in new markets, and introducing a new product with lower gross margins.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses include expenses
relating to the salaries, payroll taxes, benefits and commissions that the
Company pays for sales personnel and the expenses associated with the
development and implementation of its promotion and marketing campaigns,
including expenses relating to its outside public relations firm and industry
analysts. Selling and marketing expenses increased by $96,958 to $104,589 for
the three months ended March 31, 2001, from $7,631 for the three months ended
March 31, 2000. This increase is attributable to the
11
hiring of sales employees and the implementation of promotion and marketing
campaigns.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include salary, payroll tax and benefit expenses and related costs for general
corporate functions, including executive management, administration, office
facilities, information technology and human resources. General and
administrative expenses increased by $.17 million to $.88 million for the three
months ended March 31, 2001, from $.71 million for the three months ended March
31, 2000. General and administrative expenses increased primarily due to an
increase in the number of personnel and an increase in consulting and
professional fees. As a percentage of net revenue, general and administrative
expenses decreased to approximately 24.9% for the three months ended March 31,
2001, from 28.4% for the three months ended March 31, 2000.
DEPRECIATION, DEPLETION, AND AMORTIZATION EXPENSE. Depreciation, depletion, and
amortization expense increased by $1.4 million for the three months ended March
31, 2001, from $14,360 for the three months ended March 31, 2000. This increase
primarily resulted from amortization of goodwill associated with the merger and
depreciation of equipment related to the expansion of the Company's network.
INTEREST INCOME AND INTEREST EXPENSE. Interest expense is primarily comprised of
interest on the Company's notes payable, and various capital leases. Interest
income is primarily composed of income earned on the Company's cash and cash
equivalents and certificates of deposit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital and liquidity needs historically and
currently have related to the development of its network infrastructure, its
sales and marketing activities, and general capital needs. The Company's
capital needs have been met, in large part, from cash flow generated from
operations. Because the Company is placing greater emphasis on expanding its
network infrastructure, the Company plans to meet an increasing portion of its
capital needs through debt or equity investments, operating or capital leases
and/or other forms of equipment financing.
Net cash used by operating activities was $.37 million for the three months
ended March 31, 2001, as compared to net cash provided by operating activities
of $1.3 million for the three months ended March 31, 2000. Cash used by
operating activities was primarily attributable to increased selling, general
and administrative expenses related to the Company's network and its expansion.
Net cash used in investing activities was $.58 million for the three months
ended March 31, 2001, as compared to $17,867 for the three months ended March
31, 2000. The increase was attributable to the payment of deposits on leases
and capital expenditures.
12
Net cash used in financing activities was $.14 million for the three
months ended March 31, 2001, as compared to $.45 million for the three months
ended March 31, 2000. The decrease is attributable to the conversion of one of
the Company's subsidiaries from a Subchapter S corporation to a C corporation,
which eliminated the payments of dividends.
In March 2000, the Company entered into a note payable arrangement with a
vendor for the purchase of network equipment. In October 2000, the Company
refinanced the equipment with a master revolving note with a bank to include
future purchase of equipment. The interest is payable monthly at an interest
rate of the bank's prime rate plus .5%, with the outstanding principal
converting into an installment loan on May 22, 2001. The total amount available
under the arrangement is $.8 million of which $.3 million was borrowed as of May
9, 2001.
On May 1, 2000, the Company entered into a Security Agreement and Note
Payable with a related party for $.3 million. Until the final balance of $.1
million was paid on April 16, 2001 the note bore interest at 9% per annum. The
note was secured by substantially all of the Company's assets.
On June 21, 2000, the Company entered into a Loan and Security Agreement
with a bank that provides access to a $.5 million revolving credit facility.
The line of credit is secured by a lien on all of the Company's trade
receivables. Interest accrues daily on the unpaid principal of the facility at
an annual rate equal to the prime rate, as defined in the Loan and Security
Agreement, plus .5%. As of May 9, 2001, the Company had made no borrowings
under the Loan and Security Agreement.
On November 5, 2000, the Company entered into a Variable Rate Installment
Agreement with a bank for $.3 million. The note bears interest at the bank's
prime rate plus 1% per annum. The note is due November 5, 2003. As of May 9,
2001, the balance was $.2 million.
On April 13, 2001, the Company acquired Video Intelligence, Inc., a
Pennsylvania corporation ("Video Intelligence"), through a merger of Video
Intelligence with and into a wholly-owned subsidiary of the Company. The total
cash consideration to be paid by the Company in connection with the merger was
$493,225, $246,613 of which was paid on April 13, 2001 from cash flows from
operations and $246,612 of which will be due on June 12, 2001 and paid from cash
flows from operations.
Capital expenditures totaled approximately $.15 million for the three
months ended March 31, 2001. The Company expects to continue the expansion of
its network throughout 2001 and intends to increase its capital expenditures
accordingly. The Company has incurred $2.15 million in network expansion costs,
$.85 million of which were capital leases and cash from operations and $1.30
million of which were operating leases, during the first quarter of 2001. The
Company intends to incur approximately $12.0 million in additional capital
expenditures during the remainder of 2001 through a combination of operating and
capital leases, cash from operations, and the issuance of either debt or equity
securities or both. The Company currently does not have sufficient
13
cash on hand, existing borrowing availability or any commitments for the cash to
fund all of the planned capital expenditures. The Company intends to use cash
flows from operations, issuance of obligations under capital and operating
leases, and proceeds from the sale of either debt or equity securities or both
to fund such capital expenditures. There can be no assurance that the Company
will be able to generate sufficient cash flow or obtain such outside financing
to fund the planned capital expenditures. If the Company is unable to generate
sufficient cash flow or obtain such outside financing, the planned expansion of
its network infrastructure will be reduced, delayed or canceled and such
reduction, delay or cancellation could have a material adverse effect on the
business, financial condition or results of operations of the Company.
SUBSEQUENT EVENTS
On April 13, 2001, the Company completed a merger with Video
Intelligence. Pursuant to the merger, the Company issued 6,749,775 shares of
the common stock, par value $0.001 per share, of the Company (the "Common
Stock") and agreed to pay a total of $493,225 in cash to the holders of all of
the issued and outstanding shares of capital stock of Video Intelligence. As
reported on the OTC Bulletin Board, the price at which the Common Stock last
traded on April 12, 2001 was $0.65 per share. Of the total cash consideration to
be paid by the Company in connection with the merger, $246,613 was paid on April
13, 2001. The balance of $246,612 will become due and payable on June 12, 2001.
An aggregate of 2,530,251 shares of Common Stock issued in connection with the
merger are subject to a certain Relinquishment Agreement, dated April 12, 2001
(the "Relinquishment Agreement"), among the Company, Video Intelligence, and
certain stockholders of the Company. Pursuant to the Relinquishment Agreement,
in the event that financial or other performance criteria set forth in the
Relinquishment Agreement is not achieved during the first year after the closing
of the merger, all or a portion of the Common Stock issued by the Company in
connection with the merger will be relinquished and transferred to the Company,
without further consideration, as a refund of consideration previously paid in
connection with the merger. Under the terms of the merger, all of the options to
purchase shares of common stock of Video Intelligence that were issued and
outstanding at the time of the merger were assumed by the Company and converted
into options to purchase 1,141,804 shares of the Common Stock at an exercise
price of $0.25 per share. The assumed options are exercisable for a period of
ninety days following the closing of the merger.
FORWARD-LOOKING STATEMENTS
The information in this Form 10-QSB includes "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, Section 21E of
the Securities Exchange Act of 1934, and the Private Securities Litigation
Reform Act of 1995. The Company includes this statement for the express purpose
of availing itself of the protections of these safe harbor provisions with
respect to all of the forward-looking statements the Company makes. The forward-
looking statements in this Form 10-QSB reflect the Company's current views with
respect to possible future events and financial performance. They are subject to
certain risks and uncertainties, including without limitation the absence of
significant revenues, financial resources, loss of key customers
14
and/or personnel, significant competition, regulatory changes and those other
risks and uncertainties discussed herein that could cause the Company's actual
results to differ materially from the Company's historical results or those that
the Company hopes to achieve. In this Form 10-QSB, the words, "anticipates,"
"plans," "believes," "expects," "intends," "future" and similar expressions
identify certain forward-looking statements. Please do not place undue reliance
on the forward-looking statements contained in this Form 10-QSB. The Company
undertakes no obligation to announce publicly revisions it makes to these
forward-looking statements to reflect the effect of events or circumstances that
may arise after the date of this Form 10-QSB. All written and oral forward-
looking statements made subsequent to the date of this Form 10-QSB and
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by this section.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently involved in litigation with a former sales agent
with regard to commissions allegedly owed to the former commissioned agent by
the Company. The Company has counter-sued the former agent for $230,000 owed by
the former agent to the Company. The litigation is set for trial in August
2001. Extensive discovery has been exchanged by both parties and based on the
former sales agent's last amended petition, which articulated eight causes of
action, including contract and tort claims, the Company presented summary
judgment argument with regard to all claims. The court ruled in favor of the
Company on five causes of action, being all the tort claims, granting summary
judgment in the Company's favor, leaving three causes of action to be tried.
The former agent alleges maximum economic damages for all claims in the amount
of $4.6 million. Management of the Company is vigorously defending against the
remaining claims and believes no determination of the outcome is possible at
this time. No reserve for the claim or a receivable for the counterclaim has
been established for this litigation as of May 9, 2001, and none is anticipated
at this time.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Incorporation and Certificates of Amendment thereto
(incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and to Form 8-K (File No. 0-22076)
filed with the SEC on December 21, 2000).
3.2 Amended and Restated Bylaws (incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 2000).
10.1 Agreement and Plan of Merger among DTVN Holdings, Inc. (formerly Zydeco
Energy, Inc.), DVN Acquisition Corporation and DataVoN Inc. dated as of
May 23, 2000 (incorporated by reference to Form 8-K (File No. 0-22076)
filed with the SEC on May 24, 2000).
10.2 2000 Stock Option Plan (formerly known as the DataVoN Inc. 2000 Stock
Option Plan) (incorporated by reference to Registration Statement on
Form S-8 (Reg. No. 333-41492) filed with the SEC on July 14, 2000).
10.3 2000 Stock Option and Restricted Stock Plan (incorporated by reference
to Registration Statement on Form S-8 (Reg. No. 333-53348) filed with
the SEC on January 8, 2001).
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the quarter ended
March 31, 2001.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DTVN HOLDINGS, INC.
Dated: May 17, 2001 /s/ Philip N. O'Reilly
------------ ----------------------
Philip N. O'Reilly
Chief Financial Officer
17
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Incorporation and Certificates of Amendment thereto
(incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and to Form 8-K (File
No. 0-22076) filed with the SEC on December 21, 2000).
3.2 Amended and Restated Bylaws (incorporated by reference to the
Company's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 2000).
10.1 Agreement and Plan of Merger among DTVN Holdings, Inc. (formerly
Zydeco Energy, Inc.), DVN Acquisition Corporation and DataVoN Inc.
dated as of May 23, 2000 (incorporated by reference to Form 8-K
(File No. 0-22076) filed with the SEC on May 24, 2000).
10.2 2000 Stock Option Plan (formerly known as the DataVoN Inc. 2000
Stock Option Plan) (incorporated by reference to Registration
Statement on Form S-8 (Reg. No. 333-41492) filed with the SEC on
July 14, 2000).
10.3 2000 Stock Option and Restricted Stock Plan (incorporated by
reference to Registration Statement on Form S-8 (Reg. No. 333-
53348) filed with the SEC on January 8, 2001).
18