U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[_] 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.)
1801 Gateway Blvd, Suite 101
Richardson, Texas 75080
(Address of Principal Executive Offices)
(972) 792-3700
(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 No X
--- ---
As of August 15, 2002 there were 136,739,609 shares of DTVN Holdings, Inc.
Common Stock, $.001 par value, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
1
FORM 10-QSB
TABLE OF CONTENTS
Page
Number
------
PART I Financial Information
Item 1. Consolidated Financial Statements ............................. 3
Condensed Consolidated Balance Sheets (Unaudited) ............. 3
Condensed Consolidated Statements of Operations (Unaudited).... 4
Condensed Consolidated Statements of Cash Flows (Unaudited).... 5
Notes to Condensed Consolidated Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 9
PART II Other Information
Item 1. Legal Proceedings ............................................. 16
Item 2. Changes in Securities and Use of Proceeds ..................... 16
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
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
Assets 2002 2001
-------------- -------------
Current assets:
Cash and cash equivalents $ 256,011 $ 369,943
Certificates of deposit -- 101,785
Accounts receivable, net 808,896 1,594,577
Other current assets 1,966,674 1,101,160
-------------- -------------
Total current assets 3,031,581 3,167,465
-------------- -------------
Property and equipment, net 5,448,812 5,421,458
Goodwill, net -- 3,901,494
Investments -- 50,000
Other assets 230,982 303,805
-------------- -------------
$ 8,711,375 $ 12,844,222
============== =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Note payable to related parties $ 122,000 $ 122,000
Current portion of notes payable 3,983,612 2,075,024
Accounts payable 5,408,849 3,670,746
Unearned revenue -- 98,823
Accrued liabilities and other 2,822,670 3,278,047
Current installments of obligations under capital leases 340,612 1,099,380
-------------- -------------
Total current liabilities 12,677,743 10,344,020
-------------- -------------
Notes payable less current portion 205,131 300,348
Obligations under capital leases, excluding current installments 66,094 1,788,217
-------------- -------------
Total liabilities 12,948,968 12,432,585
-------------- -------------
Stockholders' equity:
Preferred Stock: 1,000,000 authorized, none issued and outstanding
Common stock, $.001 par value, 150,000,000 authorized, and 60,239,609 60,239 59,414
issued and outstanding
Additional paid in capital 35,820,809 37,160,319
Accumulated Deficit (40,118,641) (36,808,096)
-------------- -------------
Total stockholders' equity (deficit) (4,237,593) 411,637
-------------- -------------
$ 8,711,375 $ 12,844,222
============== =============
See accompanying notes to condensed consolidated financial statements.
3
DTVN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Net service revenue $ 5,214,268 5,408,529 $ 9,184,382 8,990,973
Other revenue -- 53,504 2,381 141,279
------------ ------------ ------------ ------------
Total revenues 5,214,268 5,462,033 9,186,763 9,132,252
Operating expenses:
Cost of services 5,035,867 4,264,247 8,017,889 6,791,271
Selling and marketing 71,524 105,801 141,557 210,390
General and administrative 1,564,405 1,255,012 2,923,206 2,134,871
Litigation judgment 52,425 -- 133,045 --
Amortization of goodwill -- 1,521,876 -- 2,852,145
Depreciation, depletion and amortization 462,101 130,801 853,720 228,383
------------ ------------ ------------ ------------
Total operating expenses 7,186,322 7,277,737 12,069,417 12,217,060
------------ ------------ ------------ ------------
Operating loss (1,972,054) (1,815,704) (2,882,654) (3,084,808)
Interest income 1,391 14,481 3,000 42,912
Other income -- -- 2,000,000 --
Impairment of goodwill (2,098,005) -- (2,098,005) --
Gain on sale of investments -- 59,232 -- 59,232
Other expense (174,000) -- (174,000) --
Interest expense (80,918) (9,463) (158,877) (32,999)
------------ ------------ ------------ ------------
Loss before income taxes (4,323,586) (1,751,454) (3,310,536) (3,015,663)
Income tax (expense) benefit -- 83,498 -- 49,922
------------ ------------ ------------ ------------
Net loss $ (4,323,586) (1,667,956) $ (3,310,536) (2,965,741)
============ ============ ============ ============
Net loss per common share:
Basic and diluted $ (0.07) (0.03) $ (0.06) (0.06)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 59,614,609 55,825,645 59,515,162 51,248,700
============ ============ ============ ============
Diluted 59,614,609 66,079,527 59,515,162 56,403,968
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
DTVN HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income (loss) $ (3,310,536) $ (2,965,741)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation, depletion and amortization 853,720 3,080,528
Impairment of goodwill 2,098,005 --
Non-cash general & administrative expenses 535,413 344,815
Deferred tax benefit -- (99,969)
Gain on disposal of asset -- (59,232)
Changes in assets and liabilities:
Accounts receivable 785,681 (1,217,534)
Accounts payable and accrued liabilities 1,798,414 104,207
Unearned revenue (98,823) (471,585)
Unbilled revenue (854,723) --
Other current assets 7,214 (52,826)
------------ ------------
Net cash provided by (used in) operating activities 1,814,365 (1,337,337)
------------ ------------
Cash flows from investing activities:
Capital expenditures (881,074) (451,836)
Payment of deposits on leases 52,376 (368,055)
Purchase of certificates of deposit -- (98,910)
Proceeds from maturity of certificates of deposit 101,785 100,000
Sale of investments 50,000 138,721
Payment of cash for acquisitions, net of cash acquired -- (377,718)
------------ ------------
Net cash used in investing activities (676,913) (1,057,798)
------------ ------------
Cash flows from financing activities:
Proceeds from notes to related parties -- 100,000
Principal payments on notes to related parties -- (249,090)
Principal payments on obligations (1,253,384) (141,494)
Proceeds from notes payable -- 23,267
Exercise stock warrants 2,000 --
------------ ------------
Net cash used in financing activities (1,251,384) (267,317)
------------ ------------
Net decrease in cash and cash equivalents (113,932) (2,662,452)
Cash and cash equivalents at beginning of period 369,943 2,895,402
------------ ------------
Cash and cash equivalents at end of period $ 256,011 $ 232,950
============ ============
See accompanying notes to condensed consolidated financial statements.
5
DTVN HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2002 and 2001
(Unaudited)
(1) Basis of Financial Reporting and Unaudited Information
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the audited
consolidated financial statements of the Company for the years ended December
31, 2001 and 2000, the Company incurred losses of $32,751,069 and $2,985,117,
respectively. The Company also had a working capital deficit of $7,176,555 at
December 31, 2001. These factors among others may indicate that the Company will
be unable to continue as going concern for a reasonable period of time.
The accompanying unaudited consolidated financial statements have been prepared
on a going concern basis 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, 2001 included in the Form 10-KSB filed
by the Company with the Securities and Exchange Commission on April 16, 2002.
(2) Acquisitions
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 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. 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 among the Company, Video Intelligence and certain
stockholders. Pursuant to the Relinquishment Agreement, in the event that
financial or other performance criteria set forth in the Relinquishment
Agreement are not achieved during the first year after the closing of the
merger, all or a portion of the Common Stock 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 Common Stock at $0.25 per share. The assumed options were exercisable for a
period of ninety (90) days following the closing of the merger. As of the final
exercise date, 948,948 of the options had been exercised and 192,856 were
abandoned. The total exercise price paid for these options was $153,830 and
333,629 shares exchanged in cashless option exercises. A portion of the option
shares issued is subject to the Relinquishment Agreement discussed above. The
financial and other performance criteria were not met during the first year
after the closing of the merger, and under the terms of the Relinquishment
Agreement, 2,908,853 shares of the Company's Common Stock, including Common
Stock issued in connection with exercised options and subject to the
Relinquishment Agreement, will be returned to the Company. The effect of the
Relinquishment Agreement is a reduction of the purchase price and the carrying
value of the goodwill by $1,803,489 from $3,901,494 to $2,098,005. In the second
quarter of 2002, the Company decided not to pursue further marketing of its
Video Intelligence product line. As such, the Company performed an evaluation of
its goodwill relating to this acquisition, and recorded an impairment of
$2,098,005 to reduce the carrying value of the goodwill to zero.
6
(3) Goodwill and Implementation of New Accounting Standard
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("FAS 141"), and No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS
141 requires all business combinations initiated after June 30, 2001 to be
accounted for under the purchase method. For all business combinations for which
the date of acquisition is after June 30, 2001, FAS 141 also establishes
specific criteria for the recognition of intangible assets separately from
goodwill and requires unallocated negative goodwill to be written off
immediately as an extraordinary gain, rather than deferred and amortized. FAS
142 changes the accounting for goodwill and other intangible assets after an
acquisition. The most significant changes made by FAS 142 are: 1) goodwill and
intangible assets with indefinite lives will no longer be amortized; 2) goodwill
and intangible assets with indefinite lives must be tested for impairment at
least annually; and 3) the amortization period for intangible assets with finite
lives will no longer be limited to forty years. The Company does not believe
that the adoption of FAS 141 will have a material effect on its financial
position, results of operations, or cash flows.
The Company adopted FAS 142 on January 1, 2002, at which time it ceased the
amortization of goodwill. The application of the non-amortization provisions of
FAS 142 for goodwill resulted in a $1,521,876 reduction of amortization for the
three months ended June 30, 2002, and a $2,852,145 reduction of amortization for
the six months ended June 30, 2002. If these provisions had been applied to the
three months ended June 30, 2001, the net loss for the period, which was
reported as $1,667,956, would have changed to net loss of $146,080 and basic and
diluted income per share would have been $0.0, and if these provisions had been
applied to the six months ended June 30, 2001, the net loss for the period,
which was reported as $2,965,741, would have changed to net loss of $113,596. At
June 30, 2002, the Company's goodwill had a carrying value of zero, resulting
from an impairment charge in June 2002 (see Note 2). As such, no further initial
impairment test is necessary.
(4) 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. In March of 2000, under the
DataVoN, Inc. Stock Option Plan, effective as of March 17, 2000 (the "March 2000
Plan"), the Company granted options to purchase 2,522,459 shares of its Common
Stock at an exercise price of $0.49 per share. As of June 30, 2002, a total of
1,267,678 of the options granted under the March 2000 Plan have been forfeited.
An adjusted compensation charge related to those options in the approximate
amount of $2.9 million is being recognized over the vesting period. Through June
30, 2002, the Company had granted options to purchase a total of 6,479,124
shares of its Common Stock under the DTVN Holdings, Inc. 2000 Stock Option and
Restricted Stock Plan effective as of December 21, 2000 (the "December 2000
Plan"), at exercise prices generally equal to the Common Stock's fair market
value as of the date of such grants, including options to purchase 100,000
shares at an exercise price of $0.16 per share granted to a director during the
quarter. As of June 30, 2002, a total of 1,340,811 of the options granted under
the December 2000 Plan have been forfeited. As of June 30, 2002, with respect to
the December 2000 Plan, $313,750 is being recognized as a stock compensation
charge over the vesting period. All option grants occurring after March 2000
have been made under the December 2000 Plan. With some exceptions, options have
a 10-year life and a 3-year vesting period.
(5) Segment Information
The Company is now organized along two lines of business, enhanced information
services and ownership of immaterial oil and gas assets. The enhanced
information services segment provides Internet protocol services including
voice, video and data communications. The oil and gas segment is operated
through Zydeco Exploration, Inc. and the Company liquidated most of its oil and
gas assets in 2001.
(6) Notes Payable
On September 18, 2001, the Company entered into a Promissory Note with an
individual for up to $2,000,000. This note evidences a line of credit under
which the Company can request a maximum of two advances. Interest accrues on the
unpaid balance of the principal at 10% per annum and is secured by the Company's
accounts receivable. The advances are due 180 days after drawn. As of June 30,
2002, $2,000,000 had been advanced on the note. The original draw was on
September 24, 2001, and the second draw was on November 17, 2001. The first draw
and accrued interest was
7
paid on April 16, 2002 and the maturity date of the second installment was
May 15, 2002. The individual lender agreed to forebear from collection through
July 1, 2002, in exchange for (i) an increase in the interest rate to 18%
beginning on May 16, 2002, (ii) a grant of 600,000 shares of the Common Stock
and (iii) immediate payment of lenders attorneys fees. In connection with the
stock grant the lender relinquished warrants covering 250,000 shares of Common
Stock with an exercise price of $0.60. The Company has not paid the second
installment and is currently in default of this agreement.
In June 2002, the Company entered into an agreement with a vendor whereby the
vendor financed the Company's use of up to $400,000 in services through July 10,
2002, in exchange for a grant of 200,000 shares of Common Stock and a grant of a
second lien security interest in the Company's accounts receivable.
(7) Litigation Judgment
DataVoN, Inc., a Texas corporation and primary operating subsidiary of the
Company ("DataVon"), is currently involved in litigation with a former sales
agent related to commissions allegedly owed to the former sales agent. In
September 2001, a judgment was rendered against DataVoN in the approximate
amount of $2.1 million, which included attorneys' fees, court costs and
interest. The judgment accrues interest at 10% per annum and the related
interest is being accrued. DataVoN and the plaintiff in that litigation entered
into a suspension agreement in February 2002 suspending execution of the
judgment for at least six months. Under the terms of that agreement DataVoN paid
the plaintiff $100,000 and agreed to pay $20,000 per month, and the Company
issued to the plaintiff warrants covering 250,000 shares of the Company's Common
Stock with an exercise price of $0.32 per share. The cash consideration will be
applied against the final judgment, if any, upheld on appeal. Additional
warrants may be required to be issued under the suspension agreement. As of
August 12, 2002, DataVoN was current on all payments required under the
suspension agreement.
(8) Contingencies
The Company is party from time to time to ordinary litigation incidental to its
business, none of which is expected to have a material adverse effect on the
results of operations, financial position or liquidity of the Company.
A vendor has indicated to the Company that, in its opinion, the amount due to
the vendor is materially more than the amount accrued by the Company as due to
such vendor. The Company disagrees with the vendor's assertion. The Company is
engaged in discussions with such vendor regarding this matter; however, the
matter has not been resolved at this time. There can be no assurances that the
outcome of this matter will or will not have a material impact on the financial
condition of the Company.
(9) Vendor Settlement
On March 21, 2002, the Company entered into an agreement with a vendor resolving
disputes and providing for financing and equipment for joint development of
network products. Under the terms of the agreement the Company received a cash
payment of $2,000,000. Additionally, the Company received relief from some of
the Company's current equipment lease obligations and favorable treatment
related to certain future equipment acquisitions.
(10) Subsequent Events
On July 17, 2002, the Company and DataVoN executed a Stock Purchase Agreement
(the "Stock Purchase Agreement") with Transcom Communications, Inc., a Texas
corporation ("Transcom"), pursuant to which Transcom purchased 76,500,000 shares
(the "Shares") of Common Stock representing fifty-one percent (51%) of the
authorized Common Stock of the Company in a private placement (the
"Acquisition"). The description contained herein of the transactions
contemplated by the Stock Purchase Agreement are qualified by reference in their
entirety to the Stock Purchase Agreement, a copy of which was filed as Exhibit
2.1 to a Form 8-K filed by the Company with the Securities and Exchange
Commission on July 26, 2002.
Pursuant to the Stock Purchase Agreement, it was the intent of the parties that,
through the issuance of the Shares, Transcom would own 51% of all outstanding
voting power of the Company as of July 17, 2002, after giving effect to the full
exercise or conversion of all outstanding options, warrants, rights to purchase
capital stock, or securities convertible into shares of capital stock,
regardless of whether such options, rights, warrants or convertible securities
were exercisable or convertible as of July 17, 2002 (but excluding unissued
stock options under the Company's stock option plans). Prior to delivery to
Transcom of the stock certificate
8
representing the Shares, the Company will confirm such calculation. In the event
that the Company determines that, for any reason (such as, for example,
identification of relinquished stock or identification of unissued stock
options) Transcom was issued shares of Common Stock that result in Transcom
having more than such 51% voting power, then Transcom is required to relinquish
(without compensation) such number of the Shares as is necessary to reduce
Transcom's holdings to exactly 51% of such voting power. Subject to the
possibility of such reduction, immediately after giving effect to the
Acquisition, Transcom beneficially held approximately 56% of the issued and
outstanding Common Stock of the Company (on a non-dilutive basis).
In consideration of the issuance of the Shares, Transcom forgave $100,000 of its
secured debt to DataVoN. In addition, Transcom provided DataVoN a 180-day grace
period (measured from July 17, 2002) during which (i) Transcom will continue to
provide networking services to DataVoN and (ii) Transcom will not make any
demands on the overdue secured debt owed by DataVoN. In addition, during such
180-day period, Transcom has agreed to use commercially reasonable efforts to
resolve all secured debt of Lee Barton (another significant creditor of DataVoN)
either by the conversion of such debt into equity or by refinancing such debt on
commercially reasonable terms (or by other means in the best interests of the
Company). Transcom has also committed to resolving the Company's inability to
pay certain payables due in July 2002, including through, among other things, a
cash infusion or negotiated vendor terms. In order to address DataVoN's cash
needs in August 2002, Transcom has also agreed to use commercially reasonable
efforts to provide credit assistance with vendors, including, but not limited
to, conversion of weekly pay accounts to monthly pay where possible and to use
commercially reasonable efforts to provide assistance to the Company and/or
DataVoN in their efforts to obtain a line of credit for working capital.
In further consideration for the issuance of the Shares, Transcom also agreed
to, as soon as reasonably practicable after the consummation of the Acquisition,
enter into a Service Agreement with the Company pursuant to which, for a period
of one year, Transcom would grant the Company a right of first refusal to
provide to Transcom the use of the Company's network for domestic VOIP network
termination services for the Company's enterprise termination product. Transcom
and the Company agreed that such Service Agreement would provide that such right
of first refusal may be exercised by the Company only if the pricing and quality
of the services offered by the Company are at least equal to the services
otherwise available to Transcom. As a result of the Acquisition, Hugh D. Simpson
was removed as President and Chief Executive Officer of the Company and resigned
as Chairman of the Board of Directors of the Company; Philip N. O'Reilly
resigned from the Board of Directors of the Company; Scott Birdwell was
appointed as Chief Executive Officer and Chairman of the Board of Directors of
the Company; Britt Birdwell was appointed President of the Company; and Jeff
Becker was appointed Vice President and Chief Financial Officer of the Company.
Prior to the Acquisition, Philip N. O'Reilly resigned as Chief Financial Officer
the Company. In order to fill vacancies in the Board of Directors (including the
vacancy created by the resignation of Philip N. O'Reilly as a director), the
Board of Directors appointed Scott Birdwell, Britt Birdwell and Jeff Becker to
the Board of Directors. After such appointments, the size of the Company's Board
of Directors is seven (7) members, consisting of the following persons: Scott
Birdwell (Chairman), Britt Birdwell, Jeff Becker, Michael McInerney, Hugh D.
Simpson, Jay Nickell, and Steve Holden.
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 and six
months ended June 30, 2002 should be read in conjunction with the accompanying
consolidated financial statements and footnotes for the three months and six
months ended June 30, 2002 included herein and in conjunction with the
consolidated audited financial statements and related notes thereto contained in
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2001. 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.
Quarterly operating results have varied significantly in the past and can be
expected to vary in the future. The results for interim periods are not
necessarily indicative of results for the year. Unless the context otherwise
requires, references in this report on Form 10-QSB to the "Company," "we," "us,"
or "our" refer to DTVN Holdings, Inc. and its direct and indirect subsidiaries.
9
FORWARD-LOOKING INFORMATION
All statements other than statements of historical fact contained in this
report, including without limitation statements containing the words "believes,"
"may," "will," "estimate," "continue," "anticipates," "intends," "expects"
"project," "potential, " and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, events or developments to be materially different from any future
results, events or developments expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions, both nationally and in the regions in which the Company
operates; technology changes; competition; changes in business strategy or
development plans; the ability to attract and retain qualified personnel;
liability and other claims asserted against the Company; and other factors
referenced in the Company's filings with the Securities and Exchange Commission.
Given these uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements. The Company disclaims any obligation to update
any such factors or to publicly announce the result of any revisions to any of
the forward-looking statements contained herein to reflect future results,
events or developments. All forward-looking statements included herein are
expressly qualified in their entirety by the cautionary statements in this
paragraph.
OVERVIEW
The Company, through its primary operating subsidiary, DataVoN, is a provider of
converged, IP communication services. The Company provides toll quality voice
and data communications services over private IP networks (VoIP) targeting
carrier and enterprise customers. Carriers who deploy soft switch equipment on
an IP network can provide high quality video, voice, and data services while
retaining the flexibility, scalability, and cost efficiencies. The Video
Intelligence Division of DataVoN delivers business-critical video applications
and services, specializing in enterprise IP video services, including store and
forward services and video conferencing. During the second quarter of 2002, the
Company decided not to pursue further marketing of its video intelligence
product line.
Examples of services available in the Company's current product line include:
voice origination and termination, "follow me" services, pre-paid calling card
services, and 8xx origination and termination. In an effort to maximize the
Company's staff and network advantages, the Company has focused on acquiring
high volume, carrier customers, offering the carriers reduced costs for the same
quality of service available in legacy works. Building relationships with
carrier customers allows the Company to establish a revenue stream for operation
and expansion. The Company has a qualified management team with communications
experience in companies such as MCI Worldcom, GTE, and CapRock.
The following objectives summarize the Company's strategy: (i) generating
positive cash flow from sales of existing products while building a low
overhead, next generation IP network with new technology at its core, (ii)
managing growth conservatively by utilizing positive cash flow or other
financing resources as necessary, (iii) leveraging IP technology to provide the
lowest cost, carrier-grade, wholesale communications solutions to a growing
domestic and international communications marketplace, and (iv) taking advantage
of technologies that allow the Company to deliver a comprehensive set of
converged voice and data services to customers. 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
markets. 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 and its vendors for termination services and
software support and management systems required in maintaining its network.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE
MONTHS ENDED JUNE 30, 2001
Net Service Revenue. The Company's net service revenue decreased by
approximately $.20 million to approximately $5.21 million for the three months
ended June 30, 2002, from approximately $5.41 million for the three months ended
June 30, 2001. The decrease in net revenue resulted from changes in the
competitive environment relating to a high margin product sold in Q2 2001 and a
shift from primarily flat-rated circuit revenue to primarily minutes of use
revenue.
10
Cost of Services. Cost of services increased by approximately $.77 million to
approximately $5.04 million for the three months ended June 30, 2002, from
approximately $4.27 million for the three months ended June 30, 2001. The
increase in expense was driven by the increase in traffic and the expenses
resulting from the network expansion. As a result of this network expansion,
collocation facility fees increased to approximately $234,000 for the three
months ended June 30, 2002, from approximately $200,000 for the three months
ended June 30, 2001 and telecommunications fees increased to approximately $4.60
million for the three months ended June 30, 2002, from approximately $3.91
million for the three months ended June 30, 2001.
Selling and Marketing Expenses. Selling and marketing expenses decreased by
$34,277 to $71,524 for the three months ended June 30, 2002, from $105,801 for
the three months ended June 30, 2001. 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. This
decrease is attributable to the reductions in sales force, promotions and
marketing campaigns.
General and Administrative Expenses. General and administrative expenses
increased by approximately $.31 million to approximately $1.56 million for the
three months ended June 30, 2002, from approximately $1.25 million for the three
months ended June 30, 2001. 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, uncollectible accounts receivable, and human resources.
General and administrative expenses increased primarily due bad debt expense
related to a customer entering into bankruptcy, the increase in the number of
personnel and an increase in consulting and professional fees.
Litigation Judgment. Litigation judgment expenses increased by $52,425 to
$52,425 for the three months ended June 30, 2002, as compared to $0 for the
three months ended June 30, 2001. Litigation judgment expenses increased as a
result of interest being charged on the judgment against DataVoN.
Depreciation, Depletion, and Amortization Expense. Depreciation, depletion, and
amortization expense increased by approximately $.33 million to approximately
$.46 million for the three months ended June 30, 2002, from approximately $.13
million for the three months ended June 30, 2001. This increase primarily
resulted from the 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. Interest expense increased by $71,455
to $80,918 for the three months ended June 30, 2002, from $9,463 for the three
months ended June 30, 2001. This increase was due to the interest charged on
debt and lease obligations.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS
ENDED JUNE 30, 2001
Net Service Revenue. The Company's net service revenue increased by
approximately $.19 million to approximately $9.18 million for the six months
ended June 30, 2002, from approximately $8.99 million for the six months ended
June 30, 2001. The increase in net revenue resulted from new products, the
planned introduction of the new, packet-switched infrastructure and the
concomitant increase in rates charged as the result of a shift from primarily
flat-rated circuit revenue to primarily minutes of use revenue.
Cost of Services. Cost of services increased by approximately $1.23 million to
approximately $8.02 million for the six months ended June 30, 2002, from
approximately $6.79 million for the six months ended June 30, 2001. The increase
in expense was driven by the increase in traffic and the expenses resulting from
the network expansion. As a result of this network expansion, collocation
facility fees increased to approximately $481,000 for the six months ended
June 30, 2002, from approximately $359,000 for the six months ended June 30,
2001 and telecommunications fees increased to approximately $7.34 million for
the six months ended June 30, 2002, from approximately $6.43 million for the six
months ended June 30, 2001.
Selling and Marketing Expenses. Selling and marketing expenses decreased by
$68,833 to $141,557 for the six months ended June 30, 2002, from $210,390 for
the six months ended June 30, 2001. Selling and marketing expenses include
expenses relating to the salaries, payroll taxes,
11
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. This decrease is attributable to the reductions in sales
force, promotions and marketing campaigns.
General and Administrative Expenses. General and administrative expenses
increased by approximately $.79 million to approximately $2.92 million for the
six months ended June 30, 2002, from approximately $2.13 million for the six
months ended June 30, 2001. 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, uncollectible accounts receivable, and human resources.
General and administrative expenses increased primarily due to bad debt expense
related to a customer entering into bankruptcy, the increase in the number of
personnel and an increase in consulting and professional fees.
Litigation Judgment. Litigation judgment expenses increased by $133,045 to
$133,045 for the six months ended June 30, 2002, as compared to $0 for the six
months ended June 30, 2001. Litigation judgment expenses increased as a result
of interest being charged on the judgment against DataVoN and the charge related
to the issuance of warrants to the plaintiff.
Depreciation, Depletion, and Amortization Expense. Depreciation, depletion, and
amortization expense increased by approximately $.62 million to approximately
$.85 million for the six months ended June 30, 2002, from approximately $.23
million for the six months ended June 30, 2001. This increase primarily resulted
from the depreciation of equipment related to the expansion of the Company's
network.
Other Income. Other income increased by $2 million to $2 million for the six
months ended June 30, 2002, as compared to $0 for the six months ended June 30,
2001. This increase primarily resulted from an agreement resolving disputes and
providing for financing and equipment for joint development of network products.
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. Interest expense increased by $125,878
to $158,877 for the six months ended June 30, 2002, from $32,999 for the six
months ended June 30, 2001. This increase was due to the interest charged on
debt and lease obligations.
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 part, from cash flow generated from operations. However,
during the years ended December 31, 2001 and 2000, the Company incurred losses
of $32,751,069 and $2,985,117, respectively. The Company had a working capital
deficit of $7,166,555 as of December 31, 2001, and $9,446,162 as of June 30,
2002. As a consequence, an increasing portion of the Company's capital needs
have been met by, and will require future, capital loans or equity investments.
These factors among others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms of its financing agreements, to obtain additional
financing as may be required, and ultimately to attain profitability.
Net cash provided by operating activities was approximately $1.81 million for
the six months ended June 30, 2002, as compared to net cash used by operating
activities of approximately $1.34 million for the six months ended June 30,
2001. Cash provided by operating activities was primarily attributable to the
increase in traffic generated on the Company's expanded network.
Net cash used in investing activities was approximately $.68 million for the six
months ended June 30, 2002, as compared to net cash used by investing activities
of approximately $1.06 million for the six months ended June 30, 2001. This
decrease is attributable to a lack of deposits paid on financing arrangements
and no cash outlay for acquisitions.
Net cash used by financing activities was approximately $1.25 million for the
six months ended June 30, 2002, as compared to net cash used in financing
activities of approximately $.27 million for the six months ended June 30, 2001.
The increase was a result of payments on obligations.
12
On September 18, 2001, the Company entered into a Promissory Note with an
individual for up to $2,000,000. This note evidences a line of credit under
which the Company can request a maximum of two $1,000,000 advances. Interest
accrues on the unpaid balance of the principal at 10% per annum and is secured
by the Company's accounts receivable. The advances are due 180 days after drawn.
As of June 30, 2002, $2,000,000 had been advanced on the note. The original draw
was on September 24, 2001, and the second draw was on November 17, 2001. The
first draw and accrued interest was paid on April 16, 2002 and the maturity date
of the second installment was May 15, 2002. The individual lender agreed to
forebear from collection through July 1, 2002, in exchange for (i) an increase
in the interest rate to 18% beginning on May 16, 2002, (ii) a grant of 600,000
shares of the Common Stock and (iii) immediate payment of lenders attorneys
fees. In connection with the stock grant the lender relinquished warrants in
covering 250,000 shares of Common Stock with an exercise price of $0.60. The
Company has not paid the second installment.
In March of 2002, the Company entered into a financing agreement with a vendor
that replaced approximately $2.4 million of capital lease obligations previously
recorded on equipment currently in use. Payments under the financing agreement
and, if the equipment is returned during the designated time period, the entire
obligation will be waived, but if the Company elects to keep the equipment it
will have to pay the full amount of the obligation under the agreement. The
Company also receives favorable treatment related to certain future equipment
acquisitions.
In June 2002, the Company entered into an agreement with Transcom whereby
Transcom financed the Company's use of up to $400,000 in services through July
10, 2002, in exchange for a grant of 200,000 shares of Common Stock and a grant
of a second lien security interest in the Company's accounts receivable. The
payment obligations under this arrangement have been superseded by the stock
purchase by Transcom Communications, Inc. described in note (10) to Item 1,
"Consolidated Financial Statements."
VIDEO INTELLIGENCE MERGER
On April 13, 2001, the Company acquired, through a merger, Video Intelligence,
Inc., a Pennsylvania corporation ("Video Intelligence"). Pursuant to the Video
Intelligence merger, the Company issued 6,749,775 shares of the Common Stock of
the Company 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 Video Intelligence merger,
$246,613 was paid on April 13, 2001. The balance of $246,612 was paid on June
12, 2001.
An aggregate of 2,530,251 shares of Common Stock issued in connection with the
Video Intelligence 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 are not achieved during the
first year after the closing of the Video Intelligence merger, all or a portion
of the Common Stock issued by the Company in connection with the Video
Intelligence merger will be relinquished and transferred to the Company, without
further consideration, as a refund of consideration previously paid in
connection with the Video Intelligence merger.
Under the terms of the Video Intelligence merger, all of the options to purchase
shares of common stock of Video Intelligence that were issued and outstanding at
the time of the Video Intelligence 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 were exercisable for a
period of ninety days following the closing of the Video Intelligence merger. As
of the final exercise date, 948,948 of the options had been exercised and
192,856 had been abandoned. The total exercise price paid for these options was
$153,830 and 333,629 shares exchanged in cashless options exercises. A portion
of the option shares issued is subject to the same Relinquishment Agreement
discussed above.
The financial and other performance criteria were not met during the first year
after the closing of the merger, and under the terms of the Relinquishment
Agreement, 2,908,853 shares of the Company's Common Stock will be returned to
the Company. The effect of the Relinquishment Agreement is a reduction of the
purchase price and the carrying value of the goodwill by $1,803,489 from
$3,901,494 to $2,098,005. In the second quarter of 2002, the Company decided not
to pursue further marketing of it Video Intelligence business line. As such, the
Company performed an evaluation of its goodwill relating to this acquisition,
and recorded an impairment of $2,098,005 to reduce the carrying value of the
goodwill to zero.
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CAPITAL EXPENDITURES
Capital expenditures totaled approximately $.88 million for the six months ended
June 30, 2002, of which $.88 million was from cash from operations and
approximately $0 in capital and operating leases. The Company expects to
continue the expansion of its network throughout 2002 and intends to increase
its capital expenditures accordingly. The Company intends to incur approximately
$2.5 million in additional capital expenditures during the remainder of 2002,
which the Company expects will be funded 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 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 flow 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.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
The company has experienced losses from operations and resulting dependence on
access to additional external financing to cover operating expenses and debt
payments and there can be no assurances that these losses will not continue.
Cash flows from operations are insufficient to meet the financial obligations of
the Company at this time. However, the Company anticipates that its cash on
hand, cash flows from operations, deferred infrastructure costs to be received
pursuant to existing agreements, and cash from additional equity or debt
financing may be sufficient to satisfy operating expenses, existing commitments,
including debt payments, and planned capital expenditures. Note that there can
be no assurance that the Company will receive payments due under existing
agreements, that its business will generate sufficient cash flows from
operations, that sufficient equity capital can be raised, or that future
borrowings will be available in an amount sufficient to enable the Company to
pay operating expense, make debt payments, or make necessary capital or other
expenditures, including the planned capital expenditures. Our ability to operate
as a going concern is dependent on our ability to obtain sufficient cash from
the sources identified herein. The consolidated financial statements do not
include any adjustments relating to this recoverability and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
CRITICAL ACCOUNTING POLICIES
The methods, estimates and judgments that we use in applying our most critical
accounting policies have a significant impact on the results that we report in
our consolidated financial statements. We evaluate our estimates and judgments
on an on-going basis. We base our estimates on historical experience and on
assumptions that we believe to be reasonable under the circumstances. Our
experience and assumptions for the basis for our judgments about carrying value
of assets and liabilities are not readily apparent from other sources. We
believe the following accounting policies are the most critical to the
preparation of our consolidated financial statements:
Revenue Recognition. We derive revenues primarily from the sale of the
information services that we provide to customers through our network. We record
revenue in the same period in which the information services are provided.
Allowance for Doubtful Accounts. We do not currently maintain allowances for
doubtful accounts for estimated losses from our customers' inability to make the
payments that they owe us. However, we monitor this situation on an on-going
basis. In reviewing whether or not to make such an allowance we analyze
historical bad debts, customer concentrations, current customer
credit-worthiness, current economic trends and changes in our customer payment
patterns. If the financial condition of our customers were to deteriorate and to
impair their ability to make payments to us allowances might be required in
future periods.
Asset Retirement Obligations. In June 2001, the FASB issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." SFAS 143 is not expected to have
a material impact on the Company's consolidated financial statements and related
disclosure as the Company does not have material assets that are affected by
this policy.
14
Impairment for Long-Lived Assets. In July 2001, the FASB issued SFAS No. 144,
"Accounting for Impairment or Disposal of Long-Lived Assets (SFAS 144)." SFAS
144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of." SFAS 144 applies to all long-lived assets
including discontinued operations, and amends Accounting Principle Board of
Opinion No. 30, "Reporting the Effect of Disposal of a segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
SFAS 144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book or fair value less cost to sell. SFAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and its provisions are generally expected to be applied
prospectively. The application of this statement is not expected to have a
material impact on our financial statements.
Goodwill. In July 2001, the Financial Accounting Standards Board issued the
accounting rules governing business combinations, goodwill and intangible
assets. These rules are Statement of Financial Accounting Standards No. 141,
"Business Combinations," and No. 142, "Goodwill and Other Intangible Assets."
With the adoption of Statement 142, goodwill is no longer subject to
amortization over its useful life. Rather, goodwill will be subject to at least
an annual assessment for impairment by applying a fair-value-based test at the
reporting units level. Impairment loss would be recognized to the extent the
carrying amount of goodwill exceeds the implied fair value. Under the new rules,
an acquired intangible asset should be separately recognized if the benefit of
the intangible asset is obtained through contractual or other legal rights, or
if the intangible asset can be sold, transferred, licensed, rented, or
exchanged, regardless of the acquirer's intent to do so. Determining the useful
lives of intangible assets will require considerable judgment and fact-based
analysis. The Company has adopted the provisions of this standard as of January
1, 2002, and we have conformed our accounting policy to the requirements in this
standard. As a result, goodwill and certain intangible assets will not be
amortized, but instead, will be reviewed for impairment at least annually, in
accordance with the provisions of this statement.
Management believes SFAS No. 142 will have a material non-cash impact on the
corporation's financial statements related to the April 2001 acquisition of
Video Intelligence, Inc., as it will not allow for amortization of goodwill,
which approximates $550,000 annually after the enforcement of the Relinquishment
Agreement. In the second quarter of 2002, the Company decided not to pursue
further marketing of its Video Intelligence product line. As such, the Company
performed an evaluation of its goodwill relating to this acquisition, and
recorded an impairment of $2,098,005 to reduce the carrying value of the
goodwill to zero.
As a result of the third quarter 2001 sale of substantially all of the assets
acquired in the merger with Zydeco Energy, Inc. in June 2000, management
determined that the future cash flow to be derived from the remaining assets
acquired in the merger could not support the goodwill that resulted from such
merger as it was accounted for under the purchase method. As a consequence of
that determination, the remaining unamortized goodwill was deemed impaired and
written off in full in the third quarter of 2001.
CONTINGENCIES
A vendor has indicated to the Company that, in its opinion, the amount due to
the vendor is materially more than the amount accrued by the Company as due to
such vendor. The Company disagrees with the vendor's assertion. The Company is
engaged in discussions with such vendor regarding this matter; however, the
matter has not been resolved at this time. There can be no assurances that the
outcome of this matter will or will not have a material impact on the financial
condition of the Company.
In addition, the Company is party from time to time to ordinary litigation
incidental to its business, none of which is expected to have a material adverse
effect on the results of operations, financial position or liquidity of the
Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No.'s 141 and 142, "Business Combinations"
and "Goodwill and Other Intangibles." SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. SFAS 142 requires that ratable amortization of goodwill be
replaced with period fair-value based tests of the goodwill's impairment and
that intangible assets other than goodwill be amortized over their useful lives.
Additionally, under the provision of the new accounting standard, an acquired
intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. SFAS 141 is effective for all
business combinations initiated after June 30, 2001 and for all business
combinations accounted for by
15
the purchase method for which the date of acquisition is after June 30, 2001.
The provisions of SFAS 142 were adopted by the Company on January 1, 2002.
Adoption of SFAS No. 141 and 142 is not expected to have a material cash impact
on the Company's consolidated financial statements and related disclosures.
In the second quarter of 2002, the Company decided not to pursue further
marketing of its Video Intelligence product line. As such, the Company performed
an evaluation of its goodwill relating to this acquisition, and recorded an
impairment of $2,098,005 to reduce the carrying value of the goodwill to zero.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS 143 is not expected to have a material impact on the
Company's consolidated financial statements and related disclosure.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Information pertaining to this item is incorporated herein from Part I.
Financial Information, Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Contingencies.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 4, 2002, the Company agreed to issue 600,000 shares of the Company's
Common Stock as partial consideration for an agreement with a secured lender
regarding forbearance from exercise of collection rights. On June 14, 2002, the
Company agreed to issue 200,000 shares of the Company's Common Stock as partial
consideration for an agreement with a vendor for short term vendor financing for
services provided. In May 2002, the Company issued 25,000 shares to a warrant
holder who partially exercised rights prior to the expiration of the warrants.
The Company received $2,000 in the transaction and used the proceeds for working
capital. The Company believes that issuance of such securities was exempt under
Section 4(2) of the Securities Act of 1933 as a transaction not involving a
public offering. Such issuances were made without general solicitation or
advertising.
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).
4.1 Registration Rights Agreement, dated April 12, 2001,
among DTVN Holdings, Inc. and each security holder
named therein that becomes a party to the agreement
by the execution and delivery of a counterpart
signature page thereto (incorporated by reference
from Exhibit 4.1 to the Company's Current Report on
Form 8-K (File No. 0-22076) filed with the SEC on
April 27, 2001).
10.1 Agreement and Plan of Merger, dated April 12, 2001,
among DTVN Holdings, Inc., Video Intelligence, Inc.,
Video Intelligence, Inc., Philip O'Reilly, Roger
16
Vergin, Bruce Hawkins, and Bryan Morriss
(incorporated by reference from Exhibit 2.1 to the
Company's Current Report on Form 8-K (File No. 0-
22076) filed with the SEC on April 27, 2001).
10.2 Relinquishment Agreement, dated April 12, 2001, among
DTVN Holdings, Inc., Video Intelligence, Inc.,
Philip O'Reilly as the Holder Representative, Philip
O'Reilly, Bruce Hawkins, Joy Thompson, Bryan Morriss,
Scott Winterstein, Joe Yapsuga, Roger Vergin, Michal
West, and Robert Harris (incorporated by reference
from Exhibit 2.2 to the Company's Current Report on
Form 8-K (File No. 0-22076) filed with the SEC on
April 27, 2001).
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter ended
June 30, 2002:
Current Report on Form 8-K dated April 18, 2002 and filed April 25, 2002,
reporting on Item 4, changes in certifying accountant. The Company announced
that it had received notice that KPMG LLP had resigned as the Company's
independent public accounts.
Current Report on Form 8-K dated and filed April 25, 2002, reporting, on Item 4,
changes in certifying accountant. The Company announced the engagement of Hein &
Associates LLP as the Company's independent public accountants.
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: August 19, 2002 /s/ Scott Birdwell
-------------------------------
Scott Birdwell
Chief Executive Officer (Duly Authorized
Officer)
17