As Filed with the Securities and Exchange Commission on Ocober 17 ,2002
Registration No. 333-92042
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
AMENDMENT NO.1
to
FORM SB-2
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VIDEOLOCITY INTERNATIONAL, INC.
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(Name of small business issuer in its charter)
Nevada 4899 87-0429154
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(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classifi- Identification Number)
cation Code Number)
1762-A Prospector Avenue, Park City, Utah 84060
(435) 615-8338
(Address and telephone number of principal executive offices)
1762-A Prospector Avenue, Park City, Utah 84060
(Address of principal place of business or intended principal place of business)
Larry R. McNeill
Videolocity International, Inc.
1762-A Prospector Avenue
Park City, Utah 84060
(435) 615-8338
(Name, address and telephone number of agent for service)
Copy to:
Leonard E. Neilson, Esq.
Leonard E. Neilson, P.C.
8160 South Highland Drive, Suite 209
Sandy, Utah 84093
Approximate date of proposed sale to the public: As promptly as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check he following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Amount of
Title each class of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share Offering Price Fee(1)
Common stock issuable under equity 70,200,000 $ .35 $ 24,570,00 $ 2,260.44
line of credit shares(2) per share(3)
========================================= ================== ================== ==================== =================
Additional common stock offered by 290,000 $ .35 $ 101,500 $ 9.34
Cornell Capital Partners L.P. shares per share(3)
========================================= ================== ================== ==================== =================
Common stock offered by Westrock 10,000 $ .35 $ 3,500 $ 0.33
Advisors, Inc. shares per share(3)
========================================= ================== ================== ==================== =================
TOTAL FEE $ 2,270,11 (4)
(1) The fee with respect to these shares and as required by Section 6(b) of
the Securities Act of 1933, as amended, (the "Securities Act"), has
been calculated pursuant to Rule 457(c) under the Securities Act and
based upon the last sale price per share of the Issuer's common stock
on a date within five (5) days prior to the date of filing this
Registration Statement, as reported by the OTC Bulletin Board.
(2) Estimated 70,200,000 shares issuable pursuant to our equity line of
credit agreement with Cornell Capital Partners, L.P.
(3) Estimated solely for purposes of calculating the registration fee and
base on the last reported sale price per share on October 11, 2002.
(4) Previously paid $2,571.41.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to completion dated October 17, 2002
PROSPECTUS
VIDEOLOCITY INTERNATIONAL, INC.
70,500,000 Shares of Common Stock
This prospectus relates to the sale of up to 70,500,000 shares of our
common stock by certain persons who are, or will become, stockholders of
Videolocity International, Inc. Please refer to the "Selling Stockholders"
section beginning on page 19. We are not selling any shares of common stock
pursuant to this offering and, therefore, we will not receive any proceeds from
the offering. However, we will receive funds upon the sale and issuance of
shares under the equity line of credit agreement with Cornell Capital Partners,
L.P. We will bear all costs associated with the registration statement to which
this prospectus relates. Cornell Capital is entitled to retain 5.0% of the
proceeds raised under the equity line of credit.
The shares of common stock are being offered for sale on a best efforts
basis by the selling stockholders at prices established on the Over-the-Counter
Bulletin Board during the term of this offering. There are no minimum purchase
requirements. These prices will fluctuate based on the demand for the shares of
common stock.
The selling stockholders are as follows:
a. Cornell Capital Partners, L.P., who may offer and sell, from
time to time, up to 70.2 million shares of common stock being
issued pursuant to the equity line of credit, and 290,000
additional shares previously issued under that agreement;
b. Westrock Advisors, Inc., who may offer and sell, from time to
time, up to 10,000 shares of common stock previously acquired
pursuant to the placement agent agreement
We refer to Cornell Capital and Westrock Advisors, and other
stockholders who may offer and sell shares of our common stock under this
prospectus, as "selling stockholders."
Cornell Capital and Westrock Advisors are underwriters within the
meaning set forth in the Securities Act of 1933 with respect to the shares to be
offered and sold by each of them. Cornell Capital will pay us 95% of the market
price of our common stock. The 5% discount on the purchase of the common stock
received by Cornell Capital is considered an underwriting discount. None of the
proceeds from the sale of shares by selling stockholders will be placed in
escrow, trust or similar account. Broker- dealers who act in connection with the
sale of the common stock may also be deemed to be underwriters. Profits on any
resale of the common stock as a principal by these broker-dealers and any
commissions received by the broker-dealers, may also be deemed underwriting
discounts and commissions under the Securities Act.
Our common stock currently trades on the OTC Bulletin Board, also
referred to as the OTC-BB, under the symbol "VCTY." The last reported selling
price as of October 11, 2002 was $0.35.
These securities are speculative and involve a high degree of risk.
Investing in our common stock involves risks which are described in the "RISK
FACTORS" section beginning on PAGE 7 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is October __, 2002
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY........................................................................... 3
RISK FACTORS................................................................................. 7
USE OF PROCEEDS.............................................................................. 14
DILUTION..................................................................................... 14
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY.............................................. 15
CAPITALIZATION............................................................................... 16
EQUITY LINE OF CREDIT........................................................................ 17
PLAN OF DISTRIBUTION......................................................................... 18
SELLING STOCKHOLDERS......................................................................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS................................... 20
BUSINESS..................................................................................... 24
MANAGEMENT................................................................................... 34
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................. 39
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS................................................. 40
DESCRIPTION OF CAPITAL STOCK................................................................. 41
SHARES ELIGIBLE FOR FUTURE SALE.............................................................. 42
LEGAL MATTERS................................................................................ 43
EXPERTS...................................................................................... 44
WHERE YOU CAN FIND MORE INFORMATION.......................................................... 44
CONSOLIDATED FINANCIAL STATEMENTS............................................................ F-1 TO F-25
______________
You should rely only on the information contained in this prospectus.
We have not authorized any other person to provide you with different
information. This prospectus is not an offer to sell, nor is it seeking an offer
to buy, theses securities in any state where the offer or sale is not permitted.
The information in this prospectus is complete and accurate as of the date on
the front cover, but the information may have changed since that date.
All references in this prospectus to "we," "us" and "our" refer to
Videolocity International, Inc., unless indicated otherwise.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus, but does not contain all of the information that may be important to
you. This prospectus includes specific terms of the offering, information about
our business and financial data. We encourage you to read this prospectus in its
entirety, particularly the "Risk Factors" section, financial statements and
notes, before making an investment decision.
WHAT WE DO
We are a solution engineering and marketing company involved in the
deployment of the Videolocity Digital Entertainment SystemTM, or DES, and other
advanced digital information and entertainment systems. DES delivers
video-on-demand in near DVD quality, including movies and other videos, medical
information and educational material to individuals, residents, hotel guests,
and patients and attendants in the healthcare industry.
DES permits viewers to select from an extensive library of movie titles
or informational/educational content and view their selections on their
television screens, lap top computers or PDAs (personal digital systems). All
content is protected through our proprietary encryption and encoding process,
which limits viewing to the person, or persons, authorized to access the movie
or other content and prevents unauthorized digital reproduction or rebroadcast.
Our system also provides digital music-on-demand, Internet games, high-speed
Internet access and many other e-commerce applications.
We operate our business through five subsidiaries which perform various
functions strategic to their market place or core competency. To date, our
activities have been limited to DES and other technologies. We are presently
commencing the initial marketing of DES into various marketplaces.
ABOUT US
Our principal executive offices are located at 1762-A Prospector
Avenue, Park City, Utah 84060, telephone number (435) 615-8338.
Although we use the word International in our name, we are not
currently operating outside the U.S., except for limited marketing activities in
Canada. However, as we expand operations and as our business warrants, we fully
intend to operate and market our products wherever prudent, including
internationally.
OUR BUSINESS STRATEGY
Our current business strategy is to drive demand of the wireless usage
of our DES worldwide in the hospitality, healthcare and residential markets. We
are committed to continued development and installation of innovative, high
quality, cost effective systems to build an increased and ongoing revenue
stream. We provide a wireless system and also offer a parallel system over wire
using Ethernet, DSL CATV and fiber architectures. Our DES is available on either
a Mircosoft or Linux operating system in a stand alone set top box or integrated
in a television set.
SELLING STOCKHOLDERS
This prospectus relates to the sale of our common stock by certain
persons who are, or will become, stockholders of Videolocity. The selling
stockholders consist of Cornell Capital Partners, L.P. and Westrock Advisors,
Inc. who intend to sell up to 70.2 million shares of common stock. Pursuant to
the equity line of credit, we may, at our discretion, periodically issue and
sell to Cornell Capital shares of common stock for a total purchase price of $20
million. We are permitted to draw up to $250,000 a maximum of four times per
month. The total amount of shares issuable under the equity line is based upon
the sale of shares to Cornell Capital at 95% of the current market price at the
time of sale. Cornell Capital received an additional 290,000 shares of our
common stock under the equity line of credit agreement and Westrock Advisors
received 10,000 shares to act as our exclusive placement agent in connection
with the equity line of credit.
The following table sets forth the total amount of shares issuable
under the equity line if the maximum $20 million is used and presumes the
issuance of shares at various prices, based upon the formula set forth in the
equity line of credit agreement. You should note that there is no minimum price
at which shares may be issued under the equity line. Accordingly, if the price
of our stock declines and we elect to draw against the equity line at the lower
stock prices, we would issue more shares.
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Investor's Number
Current Price(1) Price(2) of Shares(3)
---------------- -------- ------------
$ 0.30 $ 0.285 70,175,438
0.35 0.3325 60,150,375
0.50 0.475 42,105,263
0.75 0.7125 28,070,175
1.00 0.95 21,052,631
1.25 1.1875 16,842,105
1.50 1.425 14,035,087
2.00 1.90 10,526,315
(1) Assumed current market price of common stock at time we draw
against the equity line.
(2) Price to Cornell Capital based on 95% of current market price.
(3) Represents total shares issued if the entire $20 million is
drawn at the prices depicted, but does not include the 300,000
shares issued upon entering into the equity line.
This prospectus relates only to 70.5 million shares of our common
stock. Thus, if we were to issue more than this amount under the equity line of
credit agreement, we would have to file a new registration statement to
accommodate the additional shares.
THE OFFERING
Securities offered by selling stockholders .... 70.5 million shares of our common stock
Offering price................................. Determined at the time of sale by the selling stockholders
Common stock outstanding before offering:...... 5,826,596 shares(1)
Common stock outstanding after offering:....... 76,026,596 shares(2)
OTC Bulletin Board Symbol...................... Common Stock: "VCTY"
Use of proceeds................................ We will not receive any proceeds from the shares offered by
the selling stockholders.
Risk Factors................................... The common stock offered involve a high degree of risk,
immediate substantial dilution, and should not be purchased
if you cannot afford the loss of your entire investment.
Before purchasing any of the offered shares, you should
review carefully and consider all information contained in
this prospectus, particularly the items set forth under "Risk
Factors."
(1) As of August 31, 2002 and includes:
o 290,000 shares issued to Cornell Capital under the equity line of
credit agreement; and o 10,000 shares issued to Westrock under the
placement agent agreement.
The amount of outstanding shares excludes outstanding options,
warrants, convertible promissory notes and convertible debentures which, if
exercised or converted in our common stock, would result in an additional
256,800 shares outstanding. The amount also excludes 50,000 shares of common
stock that has been authorized for issuance under our 2002 Stock Award Plan, but
has not been issued.
(2) Assumes 70.2 million shares of common stock issued under the equity
line of credit agreement at a price equal to 95% of the current market
price, plus the 300,000 previously issued. If we issue shares under the
equity line that results in more than an aggregate of 50 million shares
outstanding, we will have to amend our articles of incorporation to
increase our authorized capitalization.
USE OF PROCEEDS
We will not receive any proceeds from shares offered by the selling
stockholders. Any proceeds realized from the sale of our stock under the equity
line of credit will be used for general corporate purposes.
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SUMMARY FINANCIAL INFORMATION
The following information was taken from our financial statements for
the nine months ended July 31, 2002 and 2001 (unaudited) and the fiscal years
ended October 31, 2001 and 2000 appearing elsewhere in this prospectus. This
information should be read in conjunction with such financial statements and the
notes thereto. In management's opinion all adjustments, consisting of normal
recurring items, considered necessary for a fair presentation have been
included.
Consolidated Statements of Operations Data
Nine Months Years Ended
Ended July 31, Ended October 31,
2002 2001 2001 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Revenues: $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
Expenses:
Administrative 1,389,642 951,351 1,353,710 129,778
Loss of good will -- -- (958,628) --
Loss on transfer of license
agreement, net 150,000 -- 135, 491 --
Depreciation and amortization 12,300 76,003 69,260 --
----------- ----------- ----------- -----------
Total expenses 1,551,942 1,027,354 (2,517,089) (129,778)
----------- ----------- ----------- -----------
Net loss - from operations (1,551,942) (1,027,354) (2,517,089) (129,778)
Other income (loss)
Minority interests 73 6.859 (4,712) --
Interest income -- 5,334 5,578 --
Interest expense (325,070) (163,900) (201,449) --
----------- ----------- ----------- -----------
Net gain from sale of investment stock -- 312,075 338,049 --
Net loss $ 1,876,939) $ (866,986) $(2,379,623) $ (129,778)
=========== =========== =========== ============
Loss per common share - Basic $ (.38) $ (.20) $ (.15) $ (.02)
----------- ----------- ----------- -----------
Average outstanding common
shares (stated in 1000's) 4,900 4,299 43,087 6,406
Consolidated Balance Sheet Data
July 31, 2002 October 31, 2001,
------------- -----------------
(Unaudited)
Assets
Current assets
Cash $ 154,538 $ 411
Notes receivable - net or provision of
for doubtful accounts 200,000 350,000
---------- ----------
Total current assets 354,538 350,411
---------- ----------
Equipment - net of accumulated depreciation 86,182 73,012
---------- ----------
Other assets
Advance deposits 5,292 4,732
---------- ----------
Total assets $ 446,012 $ 428,1155
========== ==========
Liabilities and stockholders equity
Current Liabilities
Notes payable - related parties $ 627,800 450,000
Notes payable 1,072,000 300,000
Accrued interest - notes payable -- 13,949
Accounts payable 51,897 143,123
Total current liabilities 1,751,697 907,072
Redeemable preferred capital stock
Series A issued -- 950
Capital in excess of par value -- 3,957,380
-- 3,958,330
Minority interest 4,965 5,038
---------- ----------
Stockholders' equity - (deficiency)
Common stock 5,827 43,187
Capital in excess of par value 3,069,863 (1,976,071)
---------- ----------
Deficit accumulated during development stage (4,386,340) (2,509,401)
---------- ----------
Total stockholders; equity (deficiency) (1,310,650) (4,442,155)
---------- ----------
Total liabilities and stockholders deficiency$ 446,012 $ 428,155
========== ==========
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RISK FACTORS
A purchase of our common stock is speculative and involves a high
degree of risk. You should consider carefully the following risks, together with
all other information included in this prospectus, before you decide to buy our
common stock. Please keep these risks in mind when reading this prospectus,
including any forward- looking statements appearing herein. If any of the
following risks actually occurs, our business, financial condition or results of
operations would likely suffer materially. As a result, the trading price of our
common stock may decline and you could lose all or part of the money you paid to
buy our common stock.
Risks Relating to Our Business
Our extremely limited operating history makes it difficult for you to
evaluate our business and prospects.
We commenced our current business operations in January 2001 and have
conducted only minimal operations since that time. As a result of our short
operating history, we have only limited financial data and business information
for you to evaluate our business strategies, past performance and an investment
in our common stock. Thus, you may not have adequate information with which to
make an informed investment decision.
We have a history of losses and anticipate future losses that may cause
our stock price to decline.
We have not achieved any significant revenues to date and we may not
achieve, or subsequently maintain profitability if anticipated revenues occur
more slowly than we expect, or not at all. At July 31, 2002, our accumulated
deficit was approximately $4,386,340. We expect to continue to incur significant
expenses in connection with:
* funding for research and development;
* costs of our sales and marketing efforts;
* increased general and administrative expenses; and
* additional non-cash charges relating to amortization of
intangibles and other deferred expenses.
Accordingly, we need to generate significant revenues to achieve and
sustain profitability. If we do achieve profitability, we may be unable to
sustain or increase profitability on a quarterly or annual basis. The current
economic downturn has resulted in reduced entertainment spending in many of the
markets that we serve worldwide. Any of these factors could cause our stock
price to decline and result in you losing a portion or all of your investment.
There is substantial doubt about our ability to continue as a going
concern due to working capital shortages, which means that we may not
be able to continue operations unless we obtain additional funding.
The report of our independent accountants on our October 31, 2001
financial statements and note 13 thereto, indicates that there is substantial
doubt about our ability to continue as a going concern due to working capital
shortages. Our ability to continue as a going concern depends on our ability to
obtain additional funding. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The video-on-demand market is new and may not gain broad market
acceptance; our potential customers may not purchase our
video-on-demand systems which could cause our stock price to decline.
We are focusing our initial sales efforts on various video-on-demand
markets. The growth and future success of our business depends largely upon our
ability to penetrate new markets and sell our systems to individuals, residents,
hotel guests, and patients and attendants in the healthcare industry. Because
the video-on- demand market is relatively new, there can be no assurance that
there will be broad customer acceptance. If these potential customers determine
that video-on-demand is not viable as a business proposition, or if they decide
to delay their purchase decisions or to purchase systems from our competitors,
our business, financial condition and results of operations will be
significantly adversely affected. In this event, our stock price could decline
and you could lose a portion or all of your investment.
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If our technology is not accepted by the marketplace, our revenues will
decline which will most likely cause our stock price to decline.
Our technology is ready for deployment in the marketplace. Market
acceptance of our technology is critical to our future success. Factors that may
affect the market acceptance of our technology include:
* market acceptance of our DES and related technology;
* features, performance, and cost of installation and use of our
technology;
* availability of competing technologies;
* success and development of our marketing and distribution channels;
* the length of the sale cycle for our products;
* our ability to control costs;
* quality of our customer service and support of our technology; and
* general political and economic conditions in the United States and
abroad, including, but not limited to, results of terrorist events
throughout the world.
Failure of our existing or future technology to achieve and maintain
meaningful levels of market acceptance would materially adversely affect our
business, financial condition, results of operations and market penetration.
This would likely cause our stock price to decline.
Operating results are likely to fluctuate significantly and cause our
stock price to be volatile, which could cause the value of your
investment in our company to decline.
Our future quarterly and annual operating results are likely to
fluctuate significantly due to a variety of factors, many of which are outside
our control. If operating results do not meet the expectations of investors and
securities analysts, the trading price of our common stock could significantly
decline, which may cause the value of your investment in our company to decline.
Some of the factors that could affect our quarterly or annual operating results
or impact the market price of our common stock include:
* given the nature of the markets in which we participate, we may not
be able to reliably predict future revenue and profitability;
* our ability to develop, market and support our existing technology
and any new products that may supplement or enhance our DES or other
products we may develop;
* the timing and amount of, or cancellation or rescheduling of, orders
for our technology, particularly large orders for key installations;
* our ability to retain key management, sales and marketing and
engineering personnel;
* our ability to obtain sufficient supplies of sole or limited source
components for our DES technology;
* a decrease in the average rental prices of our content including
movies, music, educational and medical material;
* changes in costs of hardware components and software applications;
and
* the mix of technologies that we sell and the mix of distribution
channels through which they are marketed.
Due to these and other factors, quarterly and annual revenues, expenses
and results of operations could vary significantly and period-to-period
comparisons should not be relied upon as indications of future performance.
These fluctuations could cause our stock price to be volatile.
-8-
We currently depend on a single family of products and our future
success could depend on enhancement of our current products or
development of new products. If demand for our products declined or we
fail to develop and market new products in a timely manner, our
business could be adversely affected and our stock price would decline.
We expect that initially most of our revenues will be derived from the
recently developed DES. If there is not an immediate demand for DES and we are
unable to develop and market new or enhanced products, our business and revenues
will be adversely affected. Our failure to make timely introductions of new
products and service enhancements, or the failure of such new products or
enhancements to achieve market acceptance, could result in a material adverse
affect on our business, financial condition and results of operations. There can
be no assurance that we will be successful in developing and marketing new or
enhanced products. Failure to successfully market DES or to develop new products
could result is significant operating losses which will have a negative effect
on your investment in our stock.
System errors, failures, or interruptions could cause delays in
delivery or require design modifications, which may have a negative
impact on our business and damage our reputation and customer
relationships.
System errors or failures may adversely affect our business, reputation
and financial results. Despite our testing and testing by current and potential
customers, all errors or failures may not be found in our products or, if
discovered, successfully corrected in a timely manner. These errors or failures
could cause delays in product introductions and delivery or require design
modifications that could adversely affect our competitive position. Our
reputation may also suffer if our customers view our products as unreliable,
whether based on actual or perceived errors or failures in our products.
Further, a defect, error or performance problem with our DES could cause our
customers' cable television systems to fail for a period of time. Any such
failure would cause customer service and public relations problems for our
customers. As a result, any failure of our customers' systems caused by our
technology could result in delayed or lost revenue due to adverse customer
reaction, negative publicity regarding us and our products and services and
claims for substantial damages against us, regardless of our responsibility for
such failure. Any claim could be expensive and require us to spend a significant
amount of resources, regardless of whether we prevail.
If we lose key personnel or are unable to attract new qualified
personnel, we may be unable to successfully operate our business which
would adversely affect your investment.
We depend on the continued contributions of our executive officers and
other technical personnel to work effectively as a team, to execute our business
strategy and to manage our personnel. The loss of key personnel or their failure
to work effectively could materially harm our business because of the cost and
time necessary to replace and train replacements. Such a loss would also divert
managements' attention away from operational issues. There is intense
competition amongst employers to attract certain technical specialties. We may
not be able to attract and retain the necessary personnel to accomplish our
business objectives as our business develops and grows. This would adversely
affect our ability to satisfy future customer demand in a timely fashion or to
support our customers and operations. The resulting adverse effect on our
business could lead to a decline in our stock price and a loss of a portion or
all of your investment.
Some of our directors and executive officers have outside business
interests which may reduce the amount of time they can devote to our
business which could negatively affect the management of our business
and be a detriment to our ongoing operations.
Although we expect most of our directors and executive officers to
devote at least 50% of their time to the affairs and operations of our business,
some of these persons have other outside business interests to which they must
devote a portion of their time. If some of these persons spend more time with
their other business interests and less time to our business, it may negatively
affect the ability of our management personnel to effectively manage our
operations. In this event, our operations would most likely suffer which would
negatively affect our operating results.
Although we have not finalized any of our provisional applications for
patents, we will ultimately rely on the protections afforded to our
technology and intellectual property rights by the issuance of patents.
Our inability to protect our rights could impair our business, and
cause us to incur substantial expense to enforce our rights. Third
party claims against our intellectual property rights can harm our
reputation and ability to sell our products and would be costly to
defend.
-9-
Our business, future success and ability to compete are partially
dependent upon our proprietary technology. We rely primarily on a combination of
copyright, patent, trade secret and trademark laws to protect our proprietary
rights, which laws provide only limited protection. To date, we have filed six
provisional applications for patents, none of which have been finalized. In
addition, patents may not be issued on our current or future technologies. Also,
it may be possible for unauthorized third parties to copy or reverse engineer
aspects of our products, develop similar technology independently, or obtain and
use information that we regard as proprietary. In particular, we may provide our
customers or licensees with access to proprietary information which they may
improperly appropriate. Policing unauthorized use of our technology is difficult
and some foreign laws do not provide the same level of protection as U.S. laws.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or patents that we may obtain, or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and have
a material adverse effect on our future operating results.
We expect that digital video and software providers, such as ourselves,
will increasingly be subject to patent infringement claims as the number of
products and competitors grow and the functionality of products is enhanced and
overlaps with products of other industries. If third parties assert claims that
our products infringe their proprietary rights, we could incur substantial costs
associated with defending these claims, whether the claim have merit or not.
Such claims could be time-consuming, result in costly litigation, divert the
efforts of our technical and management personnel, cause product shipment delays
or require us to enter into royalty or licensing agreements, which may not be
available on acceptable terms or at all.
Additional required capital may not be available at attractive terms
which would have a material negative effect on our operating results
and our stock price.
To date, we have financed much of our operations through cash from the
private sale of our securities, loans from our officers and directors, and by
borrowing funds from third parties. We cannot assure you that future financing,
whether from external sources or related parties, will be available at
acceptable terms. Selling additional stock, either privately or publicly, could
dilute the equity interests of our stockholders. If we borrow more money, we
will have to pay interest and may also have to agree to restrictions that limit
our operating flexibility. If we are unable to obtain adequate financing, we may
have to curtail business operations which would have a material negative effect
on operating results and most likely result in a lower stock price.
We are a new business, significantly smaller than most of our
competitors, and we may lack financial resources required to capture an
increased market share or to compete successfully against our
competitors which would adversely affect our ability to generate
income.
The market for our DES technologies and products is highly competitive
and rapidly changing. Given the limited commercial deployments of
video-on-demand systems to date, the respective market shares of companies
competing in this market are uncertain. We are significantly smaller than the
majority of our competitors which will make it difficult for us to compete in
most markets. Also, if we develop new products, we will most likely encounter
additional competition in new markets. Although we believe our technology and
products are better than those offered by competitors, that difference may be
narrowed or eliminated in the future. If we are unable to compete successfully
with other in our market, our business will most likely fail resulting in a
decline in our stock price and a loss of your investment.
In the video-on-demand market, our competitors currently include the
following:
* in the domestic cable, international cable and digital subscriber
line market, principally SeaChange International Inc., nCUBE
Corporation, Concurrent Computer Corporation and DIVA Systems
Corporation;
* in the education market, principally Silicon Graphics, Inc., Cisco
Systems, Inc. and International Business Machines Corp., as well as
other third parties; and
* in the Video-on-Demand market, principally Lodgnet, OnCommand and
Hospitality Networks
If we do not manage our anticipated business growth, our ability to
manage our business effectively and continue to grow could be
negatively impacted.
We anticipate that initially, substantially all of our future revenue
growth will come from our DES operations. Our anticipated growth could place a
strain on our management systems and other resources. Our ability to
successfully implement our business plan in a rapidly evolving market will
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require an effective planning and management process. We must also continue to
improve our management and marketing efforts and recruit, hire and train new
personnel. We cannot assure you that we will be able to successfully manage our
anticipated expansion. If we fail to manage our growth, our operations may be
disrupted and expenses increase which will have a negative impact on our ability
to operate profitably.
Future acquisitions, alliances, joint ventures or divestitures that we
may possibly undertake could be difficult to integrate, disrupt our
business, dilute stockholder value and harm our operating results.
If appropriate opportunities arise in the future, we may possibly
consider acquiring or making investments in complementary businesses,
technologies, services or products, entering into joint ventures, or divesting
certain operations. The process of integrating any acquired business,
technology, service or product into our business and operations may result in
unforeseen operating difficulties and expenditures. Integration of an acquired
company also may consume significant management resources that would otherwise
be employed in the ongoing development of our business. In addition, we may not
realize the expected benefits of any acquisition, joint venture or divestiture.
We may be unable to successfully identify, negotiate or finance future
acquisitions or integrate any acquisitions with our current business. Future
acquisitions could result in potentially dilutive issuances of equity securities
or the incurrence of debt, contingent liabilities or amortization expenses
related to goodwill and other intangible assets, any of which could harm our
business and financial results.
Risks Relating to Our Industry
Implementing DES is complex, time consuming and expensive and we may
experience long sales and implementation cycles; this may cause our
quarterly revenues, expenses and operating results to vary
significantly in future, period-to-period comparisons.
Our products are relatively complex and their purchase generally
involves a significant commitment of capital, with delays frequently associated
with large capital expenditures and implementation procedures. Customers
purchasing our products must coordinate financing, planning and implementing the
products which can take considerable time. As a result, the sales cycles
associated with the purchase of our products may be lengthy and subject to a
number of significant risks, including customers' budgetary constraints and
internal acceptance reviews, over which we have little or no control. Delays
could cause us to recognize revenues from sales in a later period which could
negatively impact our quarterly results on period-to-period comparisons and make
it more difficult for investors to evaluate our business.
The success of our business is dependent upon the emerging digital
video market, which may not gain broad market acceptance; any failure
by the market to accept digital video technology will limit our
potential sales of our products.
Video-on-demand is a new and emerging technology and we cannot assure
you that it will attract widespread demand or market acceptance. Our success in
this market will depend upon the commercialization and broad acceptance of
video-on-demand by residential cable subscribers and other industry
participants, including cable system operators, content providers, set-top box
manufacturers, and educational and healthcare institutions.
Cable television operators historically have relied on traditional
analog technology for video management, storage and distribution. Interactive
technology installation, which is necessary to provide video-on-demand, requires
a significant initial investment of capital. The future growth of our business
will depend on the pace of the installation of interactive digital cable and
digital set-top boxes, the rate at which television operators deploy digital
infrastructure and the rate at which digital video technology expands to
additional market segments. If this market experiences slow growth or lack of
broad customer acceptance, our sales will be negatively impacted which will
adversely affect your investment in our stock.
The success of our business is dependent on the availability of, and
the distribution windows for, movies, programs and other content and,
if sufficient video-on-demand content is not available on a timely
basis, customers will be less likely to use our video-on-demand
products.
The success of DES will largely be dependent on the availability of a
wide variety and substantial number of movies, programs, educational matter and
other material or content in digital format. We do not produce or provide
digital video-on-demand content. Accordingly, we are dependent, in part, on
content providers such as traditional media and entertainment companies
providing significant content for video-on-demand. Further, we are dependent in
part on other third parties to convert existing analog content into digital
content so that it may be delivered via video-on-demand.
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In addition, we believe that the ultimate success of our
video-on-demand products will depend in part on the timing of the
video-on-demand distribution window. The distribution window is the time period
during which different mediums, such as home movie rental businesses, receive
and have exclusive rights to motion picture releases. Currently, video rental
businesses have an advantage of receiving motion picture releases on an
exclusive basis. This is before most other forms of non-theatrical movie
distribution, such as pay-per-view, premium television, video-on-demand, basic
cable and network syndicated television. The length of the exclusive
distribution window for movie rental businesses varies, typically ranging from
30 to 90 days for domestic video stores. Thereafter, movies are made
sequentially available to various television distribution channels. We believe
the success of our video-on-demand products will depend in part on movies being
available for video-on-demand distribution either simultaneously with, or
shortly after, they are available for video rental distribution. Distribution
channels are determined solely by the studio releasing the movie. If cable
operators and content aggregators with whom we contract with are unable to
acquire movies and other content in a timely manner, consumers will be less
likely to use our products which will have a material adverse effect on our
revenues.
We cannot assure you that our products and services will keep pace with
technological developments, emerging industry standards and the
changing needs of our customers or achieve market acceptance, any of
which could materially adversely affect our ability to market our
products and services.
The video-on-demand market is characterized by rapidly changing
technology, evolving industry standards and new product introductions and
enhancements. We cannot give you any assurance that we will be successful in
enhancing our real-time or video-on-demand products or developing, manufacturing
and marketing new products that satisfy customer needs, or that our products
will achieve market acceptance. Also, competitors may introduce new products and
technologies that may render one or more of our products obsolete. New
technologies in the real- time, television and video industries may result in
new products and services that could successfully compete with our products and
services. Our future success will depend on our ability to continue to enhance
our existing products, including development of new applications for our
technology, and to develop and introduce new products to meet and adapt to
changing customer requirements and emerging technologies. If we fail to
successfully respond to changing technology, we will be at a competitive
disadvantage which will have a material adverse effect on our revenues.
We are subject to certain governmental regulations and thus, new laws
or changes in existing laws, or any finding that we have been, or are
in noncompliance with such laws, could result in, among other things,
governmental penalties.
Our business may be subject to various international, federal, state,
local, health, safety, labor and product regulations. The regulations may be
complex, change frequently and may require significant expense in order to
comply. The television industry is subject to extensive regulation in the United
States and other countries. Our video-on-demand business is dependent upon the
continued growth of the digital television industry in the U.S. and
internationally. Television operators are subject to extensive government
regulation by the Federal Communications Commission and other federal and state
regulatory agencies. These regulations could have the effect of limiting capital
expenditures by television operators and thus could have a material adverse
effect on our ability to generate revenues. The enactment by federal, state or
international governments of new laws or regulations could adversely affect our
cable operator customers, and thereby materially adversely affect our revenues.
Further, our products and services may be subject to the rules of industry
standards bodies like the International Standards Organization, as well as
regulation of other agencies such as the FCC. If we fail to adequately address
any of these regulations, we could be subject to governmental penalties and our
ability to generate business revenues could be harmed.
Risks Relating to Ownership of Our Common Stock
Our common stock price has been volatile and, following this offering,
you may not be able to sell your shares at or above the price that you
pay for the shares.
Our stock is currently traded on the OTC Bulletin Board. If you
purchase shares of our common stock in this offering, you will pay a price
established by the current market place. Because there has been little trading
volume in our shares, the price has been quite volatile. Also, we have effected
two reverse stock splits since December 2000. The price of our common stock that
will prevail in the market after this offering may be higher or lower than the
price you pay. Certain factors, some of which are beyond are control, that may
cause our share price to fluctuate significantly include, but are not limited
to, the following:
-12-
* variations in our quarterly operating results;
* the development of the video-on-demand market in general;
* changes in market valuations of similar companies
* announcement by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
* loss of a major customer or failure to complete significant
transactions;
* additions or departures of key personnel; and
* fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
OTC-BB and technology stocks in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance.
In the past, class action litigation often has been brought against
companies following periods of volatility in the market price of those
companies' common stock. If we become involved in this type of litigation in the
future, it could result in substantial costs and diversion of management
attention and resources, which could have a further negative effect on your
investment in our stock..
Purchasers of the shares offered hereby will suffer immediate and
substantial dilution in the value of your investment.
You will incur immediate and substantial dilution in the net tangible
book value of common stock based on the current market price of $ 0.35 per
share, and assuming all the equity line of credit is fulfilled. There are no
limits on the maximum number of shares that may be issued under the equity line.
The lower the stock price at the time shares are issued under the equity line,
the more shares investor will receive which will increase dilution. Also, to the
extent that the investor under the equity line sells its shares into the market,
the price of our shares may decrease due to the additional shares in the market.
We do not intend to pay dividends which could negatively affect the
price of our stock.
To date, we have never declared or paid any cash dividends on shares of
our common stock. We currently intend to retain our future earnings for growth
and development of our business and, therefore, we do not anticipate paying any
dividends in the foreseeable future which may have a negative effect on the
price of our stock.
Our executive officers, directors and principal stockholders own a
significant percentage of our company and will be able to exercise
significant influence over our company, which could have a material and
adverse effect on the market price of our common stock.
After this offering and assuming all of the shares of common stock to
which this prospectus relates are issued, our executive officers, directors and
other principal stockholders and their affiliates will together control
approximately 3.3% of our outstanding common stock. As a result, these
stockholders, if they act together, may be able to control all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, and will continue to have significant
influence over our affairs. This concentration of ownership may have the effect
of delaying, preventing or deterring a change in control, could deprive our
stockholders of an opportunity to receive a premium for their common stock as
part of a sale and might affect the market price of our common stock.
The market price of our common stock may drop significantly when the
restrictions on resale by our existing securityholders lapse.
Following this offering, we will have approximately 76,026,596 shares
of common stock outstanding, premised on the maximum number of shares being
offered under the equity line. Approximately 4,975,742 shares, or 7%, of our
outstanding common stock will be subject to restrictions on resale under United
States securities laws.
As these restrictions on resale expire, the market price of our common stock
could drop significantly if holders of these shares sell them or are perceived
by the market as intending to sell them. These sales also may make it difficult
for us to sell equity securities in the future at a time and price that we deem
appropriate.
-13-
In order to fulfill the maximum dollar amount of the equity line based
on the current market price of our shares, we will have to amend our
articles of incorporation to increase the total authorize common stock
in order to accommodate the maximum number of shares issuable to
Cornell Capital, which could cause undue delay in securing financing.
Pursuant to our articles of incorporation, presently we are authorized
to issue a maximum of 50 million shares of common stock. In the event we draw
the maximum amount under the equity line at the current price of our common
stock, or less, we would have to issue more shares than we currently have
authorized. Accordingly, we would have to amend our articles of incorporation to
increase the authorized common stock, which could be timely and result in delays
in obtaining advances under the equity line. This delay may impede our securing
adequate capital and have a negative effect on the value of your investment.
Possible "Penny Stock" Regulation may have an adverse effect on the
market for our stock.
Trading of our common stock on the OTC Bulletin Board may be subject to
certain provisions of the Securities Exchange Act of 1934, commonly referred to
as the "penny stock" rule. A penny stock is generally defined to be any equity
security that has a market price less than $5.00 per share, subject to certain
exceptions. If our stock is deemed to be a penny stock, trading in our stock
will be subject to additional sales practice requirements on broker-dealers.
These may require a broker dealer to:
o make a special suitability determination for purchasers of our
shares;
o receive the purchaser's written consent to the transaction prior to
the purchase; and
o deliver to a prospective purchaser of our stock, prior to the first
transaction, a risk disclosure document relating to the penny stock
market.
Consequently, penny stock rules may restrict the ability of
broker-dealers to trade and/or maintain a market in our common stock. Also,
prospective investors may not want to get involved with the additional
administrative requirements, which may have a material adverse effect on the
trading of our shares.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING-STATEMENTS
This prospectus, including the sections entitled "Summary," "Risk
Factors," "Management's Discussion and Analysis or Plan of Operations" and
"Business," contains forward-looking statements. These statements relate to
future events or our future financial performance and involve known and unknown
risks and uncertainties. These factors may cause our company's or our industry's
actual results, levels of activity, performance or achievements to be materially
different from those expressed or implied by the forward-looking statements.
These risks and other factors include those listed under "Risk Factors" and
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology such as "may," "will" "should," "expects," "intends,"
"plans," anticipates," "believes," "estimates," "predicts," "potential,"
"continue," or the negative of these terms or other comparable terminology.
These statements are only predictions. Although we believe that the
expectations reflected in the forward- looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
USE OF PROCEEDS
This prospectus relates only to shares of our common stock that may be
offered and sold from time-to-time by certain selling stockholders. We will not
receive any proceeds from the sale of shares by the selling stockholders. You
should note that we will receive proceeds from the sale of shares to Cornell
Capital under the equity line of credit. However, we cannot predict the number
of draws we may make under the equity line or the amount of funds that we might
realize.
DILUTION
As of July 31, 2002, our net tangible book value was ($1,305,685), or
($0.22) per share of common stock. Net tangible book value per share is
determined by dividing our tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of our common stock.
-14-
Because this offering is being made solely by selling stockholders and
none of the proceeds will be paid to us, our net tangible book value will be
unaffected by this offering. Net tangible book value, however, will be impacted
by the common stock to be issued under the equity line of credit. The amount of
dilution will depend on the offering price and the number of shares to be issued
under the equity line. The following example shows the dilution to new investors
at an offering price of $0.35 per share.
For illustration purposes, we will assume that at July 31, 2002 we had
issued 70.2 million shares of common stock under the equity line of credit at an
assumed sale price of $0.35 per share, less commitment fees of $1.0 million and
$50,000 of other offering expenses. At a price of $$0.35 per share, we would
receive net revenues of approximately $18.95 million. Accordingly, our net
tangible book value at July 31, 2002 would have been $17,644,315 or $0.23 per
share. Such an offering would represent an immediate increase in net tangible
book value to our existing shareholders of $0.45 per share and an immediate
dilution to new stockholders of $0.12 per share, or 34%. The following table
illustrates the per share dilution:
Assumed sale price per share $ 0.35
Net tangible book value per share before the sale (0.22)
Increase attributable to new investor 0.45
Net tangible book value per share after this offering 0.23
Dilution per share to new investor 0.12
______________________
The offering price of our common stock to new investors by this
prospectus is based on the then-existing market price. To give prospective
investors an idea of the potential dilution per share they may experience, we
have prepared the following table showing the dilution per share at various
assumed offering prices to new investors:
Assumed No. of Shares to Be Dilution per Share to
Offering Price Issued(1) New Investors
$ 0.30 70,175,438 $ 0.07 - (23%)
0.35 60,150,375 0.12 - (34%)
0.50 42,105,263 0.13 - (26%)
1.00 21,052,631 0.30 - (30%)
1.50 14,035,087 0.61 - (41%)
2.00 10,526,315 0.92 - (46%)
_____________________
(1) Based on the number of shares issued at 95% of the current
market price at the time of sale for the maximum $20 million
under the equity line.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock trades in the over-the-counter market and quotations
are published on the OTC Bulletin Board under the symbol "VCTY." The table below
sets forth the high and low bid prices of our common stock for each quarterly
period indicated since July 2000 as reported by the OTC-BB. There was no
established market prior to the third quarter of 2000. Prior to March 2002 our
shares traded under the symbol "VIDC" and, prior to December 2000, our stock's
symbol was "PVTC." All quotations have been adjusted to give effect to the .61
for 1 reverse stock split effected by us on December 4, 2000, and the 1 share
for 10 shares reverse split effected March 1, 2002. On October 11, 2002, the
last reported sales price of our common stock on the OTC-BB was $ 0.35 per
share.
High Bid Low Bid
-------- -------
2000
Third Quarter $ 9.21 $ 9.21
Fourth Quarter 50.00 32.50
2001
First Quarter $ 53.75 $ 30.00
Second Quarter 51.00 22.50
Third Quarter 20.50 10.50
Fourth Quarter 10.10 1.10
2002
First Quarter $ 1.50 $ 0.90
Second Quarter 1.75 1.05
Third Quarter(1) 1.30 0.35
______________________
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(1) Through October 11, 2002.
The foregoing quotations represent inter-dealer prices without retail
mark-up, mark-down, or commission, and may not represent actual transactions.
Despite the publication of quotations during the above periods, there was light
trading volume in our shares and the quotations may not be indicative of an
established trading market.
We have never paid cash dividends on our common stock and do not
anticipate paying cash dividends in the foreseeable future.
At August 30, 2002, there were approximately 118 holders of record of
our common stock, including broker-dealers and clearing firms holding shares on
behalf of their clients, as reported by our transfer agent.
Equity Compensation Plan Information
The following table sets forth the number of securities that we may issue
pursuant to our equity compensation plans and the remaining number of shares
available under the plan. Presently, there are no options outstanding under the
plans.
Number of securities
remaining available for
Number of Securities to be Weighted-average exercise future issuance under
Issued upon exercise of exercise price of equity compensation plans
outstanding option, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a)
Plan category (a) (b) (c)
Equity compensation -0- -0- 738,412 (1)
plans approved by
security holders
_____________________
(1) The number of shares available for future issuance does not
include 256,800 share that have been reserved for plan units
that have been issued, but not yet vested under the 2000 Stock
Incentive Plan, and 50,000 shares that have been authorized
for issuance under the 2002 Stock Award Plan, but have not
been certificated.
CAPITALIZATION
The following table sets forth our capitalization as of July 31, 2002
on an actual basis. You should read this table together with the consolidated
financial statements and accompanying notes that we include later in this
prospectus.
July 31, 2002
(Unaudited)
Cash....................................................................... $ 154,538
Long-term debt............................................................. 0
Minority interest.......................................................... 4,965
Stockholders' equity (deficit)
Common stock: 50,000,000 shares authorized of $0.001 par value,
5,826,596 shares issued and outstanding............................... 5,827
Capital in excess of par value............................................. 3,069,863
Deficit accumulated during development state............................... (4,386,340)
Total stockholders' equity (deficiency) .............................. $ (1,310,650)
Total capitalization.................................................. $ (1,310,650)
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EQUITY LINE OF CREDIT
On May 28, 2002, we entered into an equity line of credit agreement
with Cornell Capital, a private limited partnership. Pursuant to the agreement,
Cornell Capital will provide to us private equity financing up to a maximum $20
million over a period of up to 24 months from the effective date of the
registration statement to which this prospectus relates. By the terms of the
equity line, we may, from time to time, in our sole discretion, sell shares of
our common stock to Cornell Capital at a price per share equal to 95% of the
average market price established during the pricing period related to a
particular sale. Each periodic sale is referred to as an advance. The pricing
period is defined as the five consecutive trading days after we give Cornell
Capital notice of an advance. A closing will take place seven trading days after
our notice of an advance. At the closing, we will deliver shares of our common
stock and Cornell Capital will pay the advance amount. Cornell Capital will
retain 5% of each advance under the terms of the equity line.
The equity line permits us to draw, at our option, up to $250,000 a
maximum of four times per month. The total amount of shares issuable under the
equity line is determined by the price of the actual sales. There is no minimum
price at which shares can be sold under the equity line of credit. Accordingly,
if the price of our stock declines, we will be obligated to issue more shares.
In no event will the number of shares issuable pursuant to an advance cause
Cornell Capital to own in excess of 9.9% of the then outstanding Videolocity
common stock.
In connection with the equity the line of credit agreement, we issued
to Cornell Capital 290,000 shares of our common stock as a commitment fee upon
execution of the agreement. We also issued to Westrock Advisors 10,000 shares of
common stock to act as our exclusive placement agent pursuant to the placement
agent agreement.
The equity line of credit agreement provides that Cornell Capital will
purchase up to $20 million of our shares and that we must register with the SEC
the resale of the common stock issuable under the equity line. We are also
required to register the additional 300,000 shares issued to Cornell Capital and
Westrock Advisors.
Registration enables Cornell Capital and Westrock Advisors to resell
their common stock from time to time in the market or in privately-negotiated
transactions. We will prepare and file amendments and supplements to the
registration statement as may be necessary in order to keep the registration
statement effective as long as the selling stockholders hold shares of our stock
or until such shares can be sold pursuant to an appropriate exemption from
registration. We have agreed to bear certain expenses (other than broker
discounts and commissions, if any), including certain legal fees for Cornell
Capital not to exceed $10,000 plus $500 for escrow fees per closing of each
advance under the equity line.
We anticipate that we will draw against the equity line up the
applicable maximum amount as we deem prudent and necessary based upon our
corporate needs. Our ability to put shares of our common stock to Cornell
Capital is subject to certain conditions and limitations, including, but not
limited to the following:
o the registrations statement, of which this prospectus is a
part, must have previously become effective and shall remain
effective on the date of each put;
o our representations and warranties to Cornell Capital set
forth in the equity line of credit agreement must be true and
correct in all material respects as of the date of each put;
o no statute, rule, regulation, executive order, decree, ruling
or injunction shall be in effect that prohibits, nor any
action, suit or proceeding shall be in progress, pending or
threatened that seeks to enjoin or prohibit, the transactions
contemplated under the equity line of credit agreement, or
otherwise has a material adverse effect on our business,
operations, properties or financial condition;
o at the time of a notice to draw against the equity line, there
shall have been no material adverse change in our business,
operations, properties, prospects or financial condition,
except as disclosed in our reports filed with the SEC pursuant
to the Exchange Act; and
o our common stock shall not have been delisted from its
principal market (currently the OTC-BB) nor suspended from
trading.
We intend to use our best efforts to satisfy the conditions required
under the equity line of credit agreement with Cornell Capital and believe we
will be able to sell shares to Cornell Capital thereunder. We cannot predict the
-17-
actual number of shares of our common stock that will be issued pursuant to the
equity line, in part, because we cannot estimate the total number of draws we
intend to make and the purchase price of the shares will fluctuate based on
prevailing market conditions. Assuming we draw down the entire $20 million
available under the equity line in a single advance, which is not permitted, and
the purchase price was equal to $0.35 per share, then we would issue
approximately 70 million shares of common stock to Cornell Capital. These shares
would represent approximately 92% of our then outstanding common stock upon
issuance. If the price of our common stock declines, we would be required to
issue a greater number of shares under the equity line.
Cornell Capital (or any other underwriter) has the right to review this
prospectus, the registration statement, and our records and properties to obtain
information about us and the accuracy of this registration statement and
prospectus. Cornell Capital has the opportunity to comment on the registration
statement and prospectus, but is not entitled to reject a notice to draw against
the equity line based on its review. Cornell Capital may be entitled to
indemnification by us for any lawsuits based on the interpretation of the
language in this prospectus with which it does not agree.
PLAN OF DISTRIBUTION
Pursuant to our equity line of credit agreement with Cornell Capital
and subject to certain conditions contained therein, we may from time to time,
in our sole discretion, sell or "put" shares of our common stock to Cornell
Capital. Thereafter, Cornell Capital may resell these shares pursuant to this
prospectus. Other than the equity line of credit agreement, we do not have any
material relationship with Cornell Capital.
We will not receive any of the proceeds from the sale of our common
stock by the selling stockholders. However, we will receive funds upon the sale
and issuance of shares under the equity line of credit agreement. We will bear
all costs relating to the registration of the common stock offered by this
prospectus, including printing, accounting, legal and filing fees. Such costs
are estimated by us to be approximately $50,000.
This prospectus relates to the offer and sale by selling stockholders
of our common stock. We are not aware of how or when selling stockholders will
choose to make such sales. Selling stockholders will be able to sell their
shares, from time to time, in any of several ways including, without limitation;
* one or more market transactions at the prevailing market
prices and terms;
* in negotiated transactions;
* block sales; or
* individual sales.
Sales by selling stockholders will be without the payment of any
underwriting discounts or commissions, except for usual and customary selling
commissions paid to brokers or dealers.
Under the securities laws of certain states, the selling stockholders
may sell their shares in such states only through registered or licensed brokers
or dealers. In addition, in certain states the shares of common stock may not be
sold unless the shares have first been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is
complied with.
Each selling stockholder has represented to us that it currently has no
plans, proposals, arrangements or understandings with any potential sales agent
with respect to participating in the distribution of our common stock. Each
selling stockholder has further represented that no securities selected dealer
agreement or similar agreement is intended to be used with respect to the
offering and sale of our common stock. Selling stockholders may sell their
shares in an ordinary brokerage transaction, without any placement or other
agent, and for normal and customary brokerage fees and/or commissions.
The selling stockholders are deemed to be underwriters with respect to
the shares sold by them. Also, broker-dealers, agents or other persons acting in
connection with such sales may also be deemed to be underwriters. Any commission
received by them or discounts or concessions allowed to such persons, and any
profits received on the resale of the shares may be deemed to be underwriting
discounts and commissions under the Securities Act.
Cornell Capital will pay to us 95% of the lowest closing bid price on
our shares reported by the OTC-BB, or other principal trading market on which
our shares may be traded, for the 5 days immediately following the notice date.
The 5% discount on the purchase price is deemed to be an underwriting discount
for Cornell Capital. Cornell Capital will also retain 5% of the gross proceeds
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raised under the equity line. In connection with the equity line, we have issued
290,000 shares of our common stock to Cornell Capital as a commitment fee, and
10,000 shares to Westrock Advisors as a placement agent fee.
We have advised the selling stockholders that during the time each is
engaged in distribution of the securities covered by this prospectus, each must
comply with Rule 10b-5 and the anti-manipulation provisions of Regulation M
under the Exchange Act. Accordingly, each selling stockholder:
* must not engage in any stabilization activity in connection
with our securities;
* must furnish each broker through which securities covered by
this prospectus may be offered the number of copies of this
prospectus which are required by each broker; and
* must not bid for or purchase any of our common stock or
attempt to induce any person to purchase any of our common
stock other than as permitted under the Exchange Act.
Any selling stockholders who may be "affiliated purchasers" of us as defined in
Regulation M, have been further advised that pursuant to Securities Exchange Act
Release 34-38067 (December 20, 1996), they must coordinate their sales under
this prospectus with each other and with us for purposes of Regulation M. None
of the selling stockholders has been an officer, director or otherwise an
affiliate of our company during the last three years.
SELLING STOCKHOLDERS
We entered into the equity line of credit with Cornell Capital to
provide financing for a period of up to 24 months from the effective date of the
registration statement. As Cornell Capital provides funds under the equity line,
it receives shares of our common stock.
This prospectus relates to the offer of common stock, received by the
selling stockholders under the equity line of credit agreement, into the public
market. All expenses associated with the sale of shares of common stock by the
selling stockholders will be paid by the selling stockholders.
Following effectiveness of our registration statement, the selling
stockholders' shares, upon issuance, will be free of restrictions, other than
restrictions under the Securities Act with respect to persons who may be deemed
to be our affiliates.
The selling stockholders may sell their respective shares of common
stock: (1) directly through broker-dealers acting as agents for them; or (2) to
broker-dealers who may purchase shares as principal and thereafter sell the
shares from time to time in negotiated transactions or otherwise. Such
broker-dealer, if any, may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or both. Compensation as to a particular broker-dealer may be in
excess of customary commissions.
None of the selling stockholders have held a position or executive
office, or had any other material relationship with us, except as follows:
o Cornell Capital is the investor under the equity line of
credit. All investment decisions for Cornell Capital are made
by its general partner, Yorkville Advisors, LLC. Mark Angelo,
the managing member of Yorkville Advisors, makes the
investment decisions on behalf of Yorkville Advisors.
o Westrock is the placement agent to us in connection with the equity
line of credit.
The following table sets forth as of the date hereof, certain
information regarding the beneficial ownership of our common stock, or the
maximum number of shares to be received upon fulfillment of the equity line of
credit, by each selling stockholder. Except as otherwise noted, the persons
shown in the table have sole voting and investment power with respect to the
shares. These selling stockholders are presented together in this table for
convenience of presentation only.
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Number
Beneficial Ownership Prior to Offering Of Shares
Name Number of Shares Percent of Class(1)(2) To Be Sold
---- ---------------- ---------------------- ----------
Cornell Capital Partners, L.P............... 70,490,000(3) 92.0% 70,490,000
Westrock Advisors, Inc...................... 10,000 0%(4) 10,000
Totals............................ 70,500,000 92.0% 70,500,000
(1) Total outstanding shares includes 5,826,596 shares issued and
outstanding as of August 30, 2002 plus the maximum number of shares
being offered by Cornell Capital and Westrock Advisors.
(2) Computation of percentages assumes maximum number of shares issued
under the equity line of credit. However, percentage does not take into
account: (i) additional shares that may be issued upon the exercise of
various options presently outstanding and exercisable; or (ii)
additional shares of common stock that may be issued upon conversion of
certain other convertible securities, either presently outstanding or
that may be issued in the future. See "Description of Securities", and
"Risk Factors."
(3) Based on 290,000 shares previously issued to Cornell Capital and the
issuance of approximately 70.2 million additional shares pursuant to
the equity line. Shares are issued under the equity line at 95% of the
market price of our common stock.
(4) Less than .01%.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion regarding our financial condition should be
read in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this prospectus.
Overview
We are a solution engineering and marketing company involved in the
deployment of the DES and other advanced digital information and entertainment
systems. DES delivers video-on-demand in near DVD quality, including movies and
other videos, medical information and educational material to individuals,
residents, hotel guests, and patients and attendants in the healthcare industry.
During fiscal 2001 and the first nine months of fiscal 2002 ended July
31, 2002, we were a research and development company and received no revenues
from operations. During this period we did realize minimal interest income.
Plan of Operation
We operate our business through five subsidiaries which perform various
functions, strategic to their market place or core competency. A sixth
subsidiary is inactive. To date, our activities have been limited to developing
the DES and other technologies. We are presently commencing the initial
marketing of DES into various marketplaces in the U.S. such as hospitality
(hotels and resorts) and healthcare (hospitals, long-term care facilities and
retirement centers) industries.
We intend to use our existing capital, together with proceeds from
prospective future financings, to continue deployment and sales of DES, which
includes high-speed Internet access. Management estimates that minimum expenses
during the next twelve months will be approximately $1.8 million, consisting of
$1.4 million in payroll, $70,000 for office rent, and $261,000 for general and
administrative expenses including legal and accounting fees. We anticipate
funding payroll expenses with proceeds from the equity line of credit. Research
and development expenses are estimated to be approximately $69,000 during the
next twelve months. These expenses will be directed at further development of
the DES and integration in television sets and other monitors. We will also
incur substantial additional costs in connection with the manufacture and
deployment of DES. Management further estimates that such costs will be a
minimum of $10 million, but we are optimistic that we will be able to cover most
of those costs from future financing.
Our subsidiary, Videolocity, Inc., has executed a non-exclusive
agreement dated May 11, 2002 with Tech Flex Funding Inc. of Mission Viejo,
California. Pursuant to this relationship, Tech Flex will provide funding for
production and installation of the DES and other products on a lease back
program without recourse to us. The Tech Flex financing package is underwritten
by American Express Equipment FinanceTM and includes maintenance and service
calls as well as future technology upgrades. All Videolocity products have been
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fully approved to be included in the financing package. Additionally, the
companies have agreed in writing to represent each other as business partners.
No other affiliation or contract between the two parties currently exist and no
revenues have been generated to date.
Currently, we do not intend to sell any hardware or software. Our
business plan is to manufacture or purchase hardware and software and deploy our
systems at no cost to the customer. It is anticipated that we will finance the
system equipment and realize the majority of the revenue stream created by the
end users. Presently, we do not anticipate any significant purchase or sale of
plant or equipment. Additionally, we do not anticipate the addition of large
numbers of employees because our business model calls for outsourcing any and
all functions that would be directly related to the number of deployments. We
are, and intend to remain, a technology company.
We anticipate generating future revenues from the delivery of video and
other content to the end users of our DES, together with high-speed Internet
access. Management believes that we will begin to realize revenues by December
31, 2002 from contracts currently being negotiated with hotel and healthcare
properties. We will charge a fee for each movie or other item of content viewed
through our system and/or high-speed Internet access and we will remit a portion
of each fee to the studio or other content provider. We also plan to sell or
lease our set-top boxes for use with the DES to viewers at a price calculated to
return it's out of pocket costs and a small profit over a period of three to
five years.
Although we have not finalized our structure for content fees, the
following is an estimate of content fees that we will charge end users:
Internet access: $ 6.95 to $ 11.95 for each 12 or 24 hour period
Video-on-demand: $ 5.95 to $ 12.95 per viewing
Games: $ 2.95 to $ 6.94 for each 1 to 4 hour period
Please note that all prices are subject to change and may vary depending upon
property location, usage volume and response to competition.
During the next twelve months, we plan to seek additional debt funding
in the form of credit lines for up to approximately $50 million. This would
permit us to cover our minimum expenses described above and accelerate
deployment of our DES. As of the date hereof, we have not formalized any new
funding except for the equity line of credit with Cornell Capital. We can not
give you any assurance that we will be able to secure such additional funding on
favorable terms to us, or otherwise. We have entered into a $20 million equity
line of credit agreement with Cornell Capital, which we anticipate will provide
us with adequate working capital for at least the next 24 months. Without
drawing against the equity line and based on current costs of operation,
contract commitments, and availability of credit, management estimates that our
current assets will be sufficient to fund our cost of operation for
approximately the next three months and that we must obtain additional financing
during that time in order to continue operations.
During the nine month period ended July 31, 2002, we have received an
aggregate of $949,800 in loans from various individuals, including $178,000 from
related parties. An additional $285,000 in loans during this period were
subsequently converted into shares of our common stock. These loans are
evidenced by 6% to 8% notes with 90 day maturities and the funds are being used
for general operational expenses. The notes have been extended with maturities
through October 2002.
On April 30, 2001, the board of directors unanimously authorized the
sale at the price of $1.00 per share of up to 1 million shares of the Common
Stock of Healthcare Concierge, Inc., formerly Videolocity Direct, Inc.
Healthcare Concierge is 94% owned by Videolocity International, Inc. and the 1
million shares to be sold are currently issued and outstanding. Although we
still intend to follow through with the sale of Healthcare Concierge shares, to
date we have not taken any action to proceed with such a sale.
Upon our acquisition of 5th Digit Technologies, LLC. in December 2000,
we issued 950,000 shares of Series A Preferred Stock, which shares were
redeemable at the option of the holders during the period from January 2 through
January 31, 2002, at a price of $5.00 per share. On January 2, 2002, we filed a
lawsuit alleging fraud and misrepresentation. Three of the individuals
originally comprising 5th Digit ownership, settled with us in an exchange (sale
and purchase) of one share of their Series "A" Preferred shares for three shares
Videolocity common stock. Subsequently, the Court canceled the remaining 350,000
Series "A" shares, leaving no shares outstanding.
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60 Day Secured Notes
On July 30, 2001 our Board of Directors authorized the borrowing of
$750,000 in 60 day secured notes bearing 6% simple interest. The notes are
secured by an assignment and collateral pledge of 100% of the outstanding stock
of our subsidiary, Videolocity Technologies, Inc. (5 million shares), which
holds our six Provisional Patent Applications. An aggregate of $750,000 of the
secured Notes had been placed by August 1, 2001, and have been extended until
November 2002 under the UCC-1 financing statement. A total of $450,000 of the
notes are with affiliated parties including Larry McNeill ($135,000), Bennie L.
Williams ($100,000) and ISOZ, LC ($215,000).
We owed certain of our affiliates approximately $320,000 which was due
as of July 29, 2001. The affiliates loaned us an additional $30,000 and agreed
to convert their total outstanding loans of $350,000 to the 60 day notes. One
additional affiliate loaned us $100,000 and three independent, unaffiliated
individuals each loaned an additional $100,000, bringing the total notes payable
to $750,000. These funds provided us with necessary operating capital. We also
expected certain other funds due to an agreement with Millennium International,
LLC. Millennium initially agreed to arrange for a $1 million loan to us.
However, due to overall market conditions created by the tragic events of
September 11, 2001, Millennium informed us that it would be unable to fulfil its
commitment. By mutual agreement, we terminated our arrangement with Millennium
on December 31, 2001.
The total of $750,000 in notes, which was due and payable on or before
October 31, 2001, has been continued from time to time until February 28, 2002.
As bonuses for these loans and the extensions thereof, we have issued an
aggregate of 685,000 shares of our common stock and 300,000 shares of common
stock of our subsidiary, Videolocity Direct, Inc., which is now known as
Healthcare Concierge, Inc. These notes remain outstanding as of the date hereof,
however extended until November 2002 under the UCC-1 financing statement.
UCC-1 and Extension of Secured Notes
On April 1, 2002, together with our subsidiary Videolocity
Technologies, Inc., we entered into a security agreement with the holders of
certain promissory notes totaling $1,050,000. The note holders were granted a
security interest, pro rata their loan amount, in the Provisional Patent
Applications which embrace the proprietary technology and intellectual property
held by Videolocity Technologies, Inc. In connection with the transaction, On
April 30, 2002 we filed a UCC-1 financing statement, with the State of Nevada,
covering the six Provisional Patent applications held in the name of Videolocity
Technologies, Inc. The financing statement extends, without penalty, certain
promissory notes totaling $1,050,000 to September 1, 2002. The amount and filing
also includes a note payable of $300,000 due to WAJ Enterprises LLC, which
releases a prior collateral security assignment of our Merit Studios, Inc. note
receivable, and a provision for the inclusion of additional future loans of
$450,000 under the security agreement.
Greenwood Technology Group
In October 2001 we entered into an agreement with The Greenwood
Technology Group, Potomac, MD., wherein Greenwood would arrange for and/or
provide capital (debt and/or equity) to us. However, no guarantees were given
that any such funding would be made available at acceptable terms or at all.
On December 12, 2001, we entered into a letter of intent with Greenwood
wherein it agreed to provide an initial bridge loan of $750,000 on or before
December 31, 2001, enabling us to continue operations. Greenwood also committed
to provide up to $1.7 million by March 1, 2002, and an additional $1.2 million
prior to April 1, 2002. These additional funds would retire any and all
outstanding payables and outstanding notes and, together with other funding,
would finance future operations.
From December 12, 2001 through December 31, 2001, Greenwood provided
only $50,000 and, from December 12, 2001 through May 23, 2002, Greenwood
provided an aggregate of $392,800 of the initial bridge loan. Under the terms of
the loan, we must repay the principal plus 8% interest on or before October 1,
2002. Greenwood did not fulfil its total commitment and we have agreed to
mutually terminate the letter of intent.
WAJ Enterprises, LLC.
In November 2001 Healthcare Concierge and Videolocity International
executed a promissory note for $300,000 in favor of the WAJ Enterprises, LLC. As
collateral security for the promissory note, we agreed to transfer to WAJ all of
our rights, title and interest to the first $300,000 payable under the Merit
License Repurchase Agreement. We also issued 50,000 shares of our common stock
as additional consideration for the loan.
On April 1, 2002, WAJ entered into an agreement rescinding its interest
in the collateral assignment of the Merit License Repurchase Agreements, wherein
Merit was to repurchase its technology. In exchange for rescinding its interest,
WAJ accepted a 20% interest in the UCC-1 filing of the Provisional Patent
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Applications for the total amount of its outstanding $300,000 note and all
interest earned to date, thus extending the due date until November 2000. The
20% interest represents WAJ's prorata share of the UCC-1, under which WAJ would
have a claim against our assets only if we were unable to repay the secured
notes.
Results of Operations
To date, we have not realized revenues from our operations, although we
did realize interest income of $5,334 for the nine months ended July 31, 2002
from interest earned in our bank accounts. For the nine months ended July 31,
2002, total expenses increased 51% from the comparable 2001 period. This is
attributed primarily to the 46% increase in administrative expenses in 2002
which reflects our increased activities related to readying the DES for
installation. Administrative expenses include ongoing research and development
of our technology. Also, we had interest expense of $325,070 for the nine months
ended July 31, 2002, compared to $163,900 for the same 2001 period, reflecting
increased financing activities in 2002. Management anticipates that as we scale
up the installation of the DES, our expenses will increase proportionately.
During our fiscal year ended October 31, 2001, we acquired through
Videolocity Direct (now Healthcare Concierge), a second Wormhole license from
Merit Studios, Inc. for the packing (compression) of all data. The first license
was acquired during October 2000. We paid approximately $225,000 for the license
and incurred additional other costs totaling approximately $39,000. After months
of delays, the promised Wormhole technology was never demonstrated or received
by the Company. Merit agreed to repurchase the two Wormhole licenses by
returning for cancellation the 2.5 million shares of Videolocity Direct stock it
had received for the first license and executed a $600,000 note receivable, due
March 1, 2002, in favor of Videolocity. We have retained 1million shares of
Merit Studios common stock as collateral for the note. Through the year ended
October 31, 2001, we recorded an allowance against the note receivable totaling
$250,000.
Also, during the fiscal year ended October 31, 2001, we purchased 5th
Digit Technologies, LLC in exchange for 950,000 shares of our Series "A"
preferred stock. We acquired 5th Digit in order to acquire certain patent
applications on proprietary technologies. In the transaction, $950,000 of
goodwill was recorded. Subsequently, we determined that 5th Digit did not own
the patent applications and the proprietary technology was not ready to deploy
as had been represented. We subsequently wrote off the goodwill.
Also in fiscal 2001, we sold 425,000 shares of Videolocity Direct
common stock to unrelated parties resulting in a gain of approximately $338,000.
Liquidity and Capital Resources
During the first nine months of fiscal 2002 our total current assets
increased from approximately $350,000 at October 31, 2001 to approximately
$355,000 at July 31, 2002. During this same period, cash increased from
approximately $400 to approximately $155,000. Total assets increased from
approximately $428,000 at October 31, 2001 to approximately $446,000 at July 31,
2002, due primarily to the increase in cash received from short-term borrowings
combined with the reduction in notes receivable.
Total current liabilities increased from approximately $907,000 on
October 31, 2001 to approximately $1,752,000 at July 31, 2002. The change is
attributed to the increase from $750,000 in notes payable to approximately
$1,670,000 during the nine months ended July 31,2002 due to additional
borrowing. Accounts payable decreased during the nine months ended July 31, 2002
from approximately $143,000 to $52,000 due to the Company making payments toward
accounts payable using cash received from the increase in short-term borrowings.
Inflation
In the opinion of management, inflation has not and will not have a
material effect on the operations in the immediate future.
Net Operating Loss
At July 31, 2002, Videolocity and its subsidiaries had accumulated a
net operating loss carryforward of approximately $4.315 million, with a tax
benefit of approximately $1.295 million. No tax benefit has been recorded in the
financial statements because the tax benefit has been fully offset by a
valuation reserve as the use of the future tax benefit is in doubt. The net
operating loss will expire in 2023. In the event of certain changes in control,
there will be an annual limitation on the amount of net operating loss
carryforwards which can be used.
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Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities. The new standard establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Accounting for changes in the values of
those derivatives depends on the intended use of the derivatives and whether
they qualify for hedge accounting. SFAS 133, as amended by SFAS 137 and SFAS
138, was adopted as of April 1, 2001. We believe the adoption of this statement
will have no material impact on our financial statements.
In June 2001, the FASB issued SFAS 141, Business Combinations, and SFAS
142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed after
June 30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that any purchase price allocatable to an assembled
workforce may not be accounted for separately. SFAS 142 requires that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 also requires that intangible assets with
estimatable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. We adopted SFAS 141 upon issuance
and SFAS 142 effective April 1, 2001. The adoption of SFAS 141 and 142 did not
affect our consolidated financial statements.
On August 16, 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations," which is effective for fiscal years beginning after
June 15, 2002. It requires that obligations associated with the retirement of a
tangible long-lived asset be recorded as a liability when those obligations are
incurred, with the amount of the liability initially measured at fair value.
Upon initially recognizing an accrued retirement obligation, an entity must
capitalize the cost by recognizing an increase in the carrying amount of the
related long-lived asset. Over time, the liability is accreted to its present
value each period, and the capitalized cost is depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon settlement.
Although we have not completed the process of determining the effect of this new
accounting pronouncement, we currently expect that the effect of SFAS No. 143 on
our consolidated financial statements, when it becomes effective, will not be
significant.
In October 2001, the FASB issued SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
Although SFAS 144 supersedes SFAS 121, it retains many of the fundamental
provisions of SFAS 121. SFAS 144 also supersedes the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, Reporting- the Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business. However, it retains the requirement in
APB 30 to report separately discontinued operations and extends that reporting
to a component of an entity that either has been disposed of, by sale,
abandonment, or in a distribution to owners, or is classified as held for sale.
SFAS 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. We believe the adoption of SFAS 144
will not have a significant effect on our consolidated financial statements.
BUSINESS
Historical Information
We originally incorporated in Nevada on November 5, 1985 as Pine View
Technologies, Inc. In 1987, we completed a public offering of common stock, from
which we realized net proceeds of approximately $103,361. We had limited
operations until 2000.
On December 4, 2000, we finalized the acquisition of Videolocity, Inc.,
a Nevada corporation, pursuant to a reorganization agreement dated as of
November 15, 2000. Videolocity, Inc. was initially created as Moviesonline, Inc.
to develop and market systems and products for the delivery of video and other
content to end users on demand. It also developed a business plan, assembled an
experienced management team, acquired rights to proprietary technology, and
raised $519,000 as initial working capital through the private placement of
common stock. In connection with the acquisition, we issued 3,028,125 shares of
our common stock to the shareholders of Videolocity, Inc. We also sold 610,000
shares of our common stock for $500,000 pursuant to a private placement, that
was subject to the completion of the acquisition and was closed immediately
following the transaction. As a result of the acquisition and private placement,
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15% of our outstanding shares were held by our shareholders prior to the
acquisition, 71%, were held by former shareholders of Videolocity, Inc., and
14%, were held by purchasers in the private placement. At the closing of the
acquisition, our incumbent directors resigned and the persons nominated by
Videolocity, Inc. were elected as our new directors.
In connection with our acquisition of Videolocity, Inc., we adopted its
stock incentive plan and reserved 1.0 million shares of its common stock for
issuance in connection with awards made under the plan to their key employees
and consultants. Also, we amended and restated our articles of incorporation
that included the following:
* changing our corporate name from Pine View Technologies, Inc.
to Videolocity International, Inc.;
* increasing our authorized capitalization to 125 million shares
of common stock, par value $0.001, and 10 million shares of
preferred stock, par value $0.001;
* limiting the liability of our directors and officers to the
maximum extent permitted by Nevada law; and
* other miscellaneous items.
The acquisition and related proposals were approved by the written
consent of shareholders holding a majority of our issued and outstanding shares
of common stock. The acquisition and reorganization was treated for accounting
purposes as a reverse acquisition of our company by Videolocity, Inc., although
for corporate purposes we are the acquiring entity.
On December 4, 2000, we effected a reverse stock split of our issued
and outstanding shares on a 0.61 share for one share basis. On March 1, 2002, we
effected a second reverse stock split on a one share for ten shares basis. In
July 2000, we change our authorized capitalization to 50 million shares of
common stock. Unless otherwise noted, all share figures in this prospectus have
been adjusted to give effect to the two stock splits.
Overview
We are presently a development stage company engaged in solution
engineering, marketing and deployment of our proprietary Videolocity Digital
Entertainment SystemTM, or DES, that we completed in 2001, as well as other
advanced digital information and entertainment systems. Our DES delivers to the
end user true video-on-demand in near DVD quality over Ethernet (connection
protocol), DSL, or Wireless WAN (Wide Area Network) and LAN (Local Area Network)
network architectures, combined with Wireless High Speed Internet Access.
Although we use the word International in our name, we are not
currently operating outside the U.S., except for limited marketing activities in
Canada. However, as we expand operations and as our business warrants, we fully
intend to operate and market our products wherever prudent, including
internationally.
DES is designed to deliver specific digital content including, but not
limited to video on-demand, music on- demand, server based or Internet based
games, high-speed Internet access 512 kilobits per second (kbps), E- commerce
applications, medical information, informational and educational material. The
target market is to individuals, hotel guests, and patients and attendants in
the hospitality and healthcare industry as well as communities. DES offers
streaming video-on-demand technologies that permit viewers to select from an
extensive library of movie titles or informational/educational content using an
easily navigated user interface. Users can view their selections on their
television screens, lap top computers or PDA's on-demand, in quality equivalent
to DVD, in real-time, full-screen and full-motion. All content is protected
through our proprietary encryption and encoding process to limit viewing to the
person or persons paying for the movie or other content. Our security protocol
also prevents unauthorized digital reproduction or rebroadcast of the ordered
movies and/or other content.
We have five subsidiaries which perform various functions of our
business. One of our subsidiaries, Videolocity Technologies, Inc., holds six
Provisional Patent Applications listed below and encompassing and protecting our
proprietary technology.
o Videolocity's Digital Entertainment Solution Application No. 60/297,79
Filed: June 14, 2001 - Assignment Date: August 24, 2001 Utility Patent
Application No. 10/172, 175 Utility Patent Filed: June 13, 2002 -
Assignment Date: June 13, 2002
o Videolocity's Video Encoding & Compression Process Application No.
60/336,703 Filed: December 7, 2001 - Assignment Date: January 12, 2002
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o Videolocity's Graphical User Interface Application No. 60/336,701 Filed:
December 7, 2001 - Assignment Date: January 12, 2002
o Videolocity's Embedded Software Image Application No. 60/336,702 Filed:
December 7, 2001 - Assignment Date: January 12, 2002
o Videolocity's Proprietary PCI Video Card Application No. 60/338,773
Filed: December 4, 2001 - Assignment Date: January 12, 2002
o Videolocity's Linux Solution Application filed No. 60/370,663 Filed:
April 8, 2002 - Assignment Date: May 24,2002
Please Note: A provisional application for patent is a U.S.
national application for patent that allows for
filing without a formal patent claim, oath or
declaration, or any information disclosure statement.
It provides the means to establish an early effective
filing date and allows the term "patent pending" to
be applied. A provisional application lasts for 12
months from the filing date and cannot be extended.
In order to benefit from the earlier filing date, we
must file a corresponding non-provisional application
for patent during the 12- month period.
To date we have focused on the acquisition and development of our
technology and we are now positioned to commence the initial marketing of DES
and related technology and products. We tailor the user interfaces and content
offering specifically to each market segment and to each customer within that
market segment. Our overall delivery system design, hardware components and
software applications remain identical, or only slightly modified to accommodate
larger user bases and/or infrastructures. This gives us the ability to customize
the feature settings and tailor the local content offering to the specific
audiences for each market segment.
Our subsidiaries and a summary of their primary functions are set forth
below:
Videolocity, Inc. (Operations, management and marketing)
A wholly owned subsidiary that we created to provide operational,
marketing and management support for the other subsidiaries.
Videolocity Technologies, Inc. (Licensing: internal and external)
A wholly owned subsidiary that we created to research and develop
systems for the delivery of digital entertainment and information. Videolocity
Technologies, Inc. holds our Provisional Patents on file with the U.S. Patent &
Trademark Office.
Hospitality Concierge, Inc. (Hospitality: hotel, timeshare and resort)
A wholly owned subsidiary that we created to develop and market systems
and products for the delivery of video and other digital content, to include
high-speed Internet, to end users on demand. Hospitality Concierge is focused
entirely on the hospitality industry.
Healthcare Concierge, Inc. (Healthcare: hospital, rehabilitation and
assisted living)
A 94% owned subsidiary that we created to develop and market technology
systems for the healthcare industry for the delivery of specific digital
content, including video, medical information and educational information, to
patients, families and attendants. The remaining 6% of Healthcare Concierge
shares is owned by 30 persons, including Larry R. McNeill and Bennie L.
Williams, each an officer and director our company. Healthcare Concierge was
originally formed under the name of Videolocity Direct, Inc., but changed its
name in December 2001 to the current name.
Videolocity Direct, Inc. (Residential: intelligent communities)
A wholly owned subsidiary that we created to develop and distribute
competitive last mile digital entertainment systems to the residential
community.
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Industry Background
Management believes that the market for our products represent a
combination of several large existing and rapidly expanding target areas. The
current market trend of broadband delivery into hotels, resorts, retirement
homes, universities, hospitals, extended stay facilities and residential
communities enables us to deliver content to many diverse market segments.
Management further believes that we can serve the existing market in
video rentals through alliances with existing video distribution channels. We
intend to explore potential strategic alliances and partnerships with network
and content providers such as telecommunications companies, cable companies, and
Internet/Broadband based content providers.
Strategic Partnerships
ONSAT Network Communications, Inc.
Videolocity has entered into a written strategic relationship agreement
dated January 18, 2002 with ONSAT Network Communications, Inc. The relationship
is designed to enhance our products with a satellite bandwidth backbone that can
connect with most terrestrial network infrastructures for high speed bandwidth
delivery to even remote and underdeveloped area. The complimenting technologies
enable the deployment of the DES virtually anywhere in North and South America.
Additionally, we have agreed with ONSAT to represent each other as technology
partners. No other affiliation or contracts with ONSAT currently exist and no
revenues have been generated to date.
TechFlex Funding, Inc.
Videolocity, Inc., our wholly owned subsidiary, has executed a written
non-exclusive contract dated May 11, 2002 with Tech Flex Funding Inc., of
Mission Viejo, Calif., for the financing of DES. The Tech Flex financing package
is underwritten by American Express Equipment FinanceTM and includes maintenance
and service calls as well as future technology upgrades. All Videolocity
products have been fully approved to be included in the financing package.
Additionally, we have agreed with Tech Flex to represent each other as business
partners. No other affiliation or contracts with Tech Flex currently exist and
no revenues have been generated to date.
Foundry Networks, Inc.
Videolocity has selected Foundry Networks, Inc. as the vendor of its
intelligent Fast Iron switch as the core switch for our network infrastructure.
Additionally, we have an understanding with Foundry to represent each other as
technology partners. No other affiliation or contracts currently exist and no
revenues have been generated to date.
VenturCom
We have selected VenturCom as the vendor for two technology products;
the user licenses for Embedded Windows NT, and the user licenses of VenturCom's
BootNIC product, a proprietary program that allows for remote loading of a
software boot image. Additionally, we have agreed with VenturCom in writing to
represent each other as technology partners. No other affiliation or contracts
currently exist and no revenues have been generated to date.
Viator Networks, Inc.
We have selected Viator Networks, Inc. As the vendor of the billing and
reporting server product for our network infrastructure. Additionally, we have
agreed with Viator in writing to represent each other as technology partners. No
other affiliation or contracts currently exist and no revenues have been
generated to date.
Major Events
5th Digit Technologies, LLC. Acquisition
On December 21, 2000 we acquired 5th Digit Technologies, LLC in
exchange for 950,000 shares of Series "A" Preferred stock, with a one year put
of $5.00 per share.
At the time of the acquisition, it was represented in the contract that we
were acquiring three Provisional Patent Applications representing exclusive
proprietary technologies which were ready to deploy. However, we subsequently
learned that 5th Digit did not own the Provisional Patent Applications and that
the exclusive proprietary technologies where not ready to deploy, as had been
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represented. The Provisional Patent Applications mentioned above are not, and
were never part of, any of our filings and are not part of any Provisional
Patent Applications currently held by Videolocity Technologies, Inc.
As a result of the transaction, we filed a lawsuit in January 2002
alleging fraud and misrepresentation. Three of the holders of the Preferred
shares settled with us by exchanging their 600,000 Preferred shares for 180,000
shares of our common stock. The remaining 350,000 Preferred shares were tendered
for liquidation at $5.00 per share and were subsequently deposited with the
Court pending the outcome of the legal action. In April 2000, the Court issued a
default judgment ordering cancellation of the 350,000 shares and ruling that any
and all redemption or other rights vested in and related to the shares be
voided. The 350,000 shares were canceled on April 12, 2002, leaving no Series
"A" Preferred shares outstanding.
Merit Studios, Inc. License Agreements
On October 27, 2000 Videolocity, Inc. acquired an exclusive license
from Merit Studios, Inc., who represented their Wormhole technology to be a
video packing (compression) technology.
On March 6, 2001 the license acquired from Merit was transferred, by
mutual agreement, to our newly created subsidiary, Videolocity Direct, Inc. (now
known as Healthcare Concierge, Inc.), wherein Merit Studios was issued 2.5
million shares of Videolocity Direct and we retained 5.0 million shares. The
license agreement guaranteed a completed Wormhole video technology on or before
April 30, 2001.
On May 29, 2001 Videolocity Direct acquired a second Wormhole license
from Merit for the packing (compression) of all data. We paid Merit and/or
expended a total of $600,000 hoping to commercialize the promised technology.
The promised deployable Wormhole technology was never demonstrated or received
by Videolocity Direct. After many months of delay and the inability to prove the
compression capability and/or marketability of the Wormhole technology, as
represented to us by Merit, Merit agreed to repurchase the two Wormhole
licenses. Merit agreed to pay $600,000 on or before March 1, 2002 and
immediately return for cancellation the 2.5 million shares of Videolocity Direct
stock it held. Upon full payment and receipt of the $600,000 by us, we agreed to
return 1.0 million shares of Merit common stock we had acquired coincidental
with the execution of the initial October 27, 2000 license agreement, together
with any and all rights under the two Wormhole license agreements, and as
amended.
We have no assurance that Merit will be able to fulfill the cash
obligation of $600,000 under its license repurchase agreement. However, because
of the original and continued representations by Merit to us as to the accuracy
concerning the Wormhole capabilities and the deployment dates of the Wormhole
technology, we will aggressively pursue the collection of the total amount due
under the contract. The $600,000 due from Merit will repay us the sums expended
by us on behalf of Merit and the Wormhole technology.
Market Segments
Healthcare - Healthcare Concierge, Inc.
The worldwide health-care market is a rapidly growing and completely
underserved, as far as video-on- demand and broadband access are concerned.
Management intends to focus on providing these services to hospitals and
assisted living centers.
In November 2001 we decided to change the corporate name of our 90% +
owned subsidiary, Videolocity Direct, Inc., to Healthcare Concierge, Inc. The
amendment for the name change was filed with the State of Nevada on December 31,
2001. We have transferred the healthcare technology and our healthcare business
division to Healthcare Concierge. Subsequently on April 30, 2002, we created in
Nevada a new, wholly owned corporate subsidiary under the name Videolocity
Direct, Inc.
Healthcare Concierge develops total systems for the delivery of
specific digital content (video, medical information, educational material) to
patients and attendants in the healthcare Industry. Healthcare Concierge offers
streaming video-on-demand technologies that permit viewers to select from an
extensive library of titles and or medical/educational content, and view them on
their television screens. "on-demand." The system is designed to play video in
like-DVD quality, in real-time, full-screen and in full-motion. All content is
protected through proprietary encryption and encoding process to limit viewing
to the patients and or persons receiving the video and to prevent unauthorized
reproduction or rebroadcast of all content ordered. The video content is being
streamed through a proprietary, multi-functional Digital Healthcare &
Entertainment System. Additionally, the system provides digital music-on-demand,
Internet games, high-speed Internet access and other e-commerce applications
together with certain specialized bedside patient care functionality.
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It is our present intention, most likely during the second half of
2002, to file a registration statement for Healthcare Concierge for the purpose
of raising equity for the implementation of its healthcare technology in the
healthcare marketplace. Completion and filing of the registration statement and
proposed IPO is subject to market conditions and there can be no assurance that
such an offering will be successful.
Hospitality - Hospitality Concierge, Inc.
The worldwide hospitality market is as diverse as it is large. There
are over 4.1 million hotel rooms in the U.S. alone. Because our technology is
deployable without prejudice as to the type of broadband delivery system, it is
ideal for installation in all types of hospitality facilities. While the
competition for high-end, large-scale properties is significant for both
video-on-demand systems and broadband access in the rooms, the mid-range and
lower-range properties are significantly underserved with either service.
Properties in this segment, ranging from 75 to 300 rooms, represent more than
56% of the total rooms in the U.S. This information was obtained from the 2001
Lodging Industry Profile from he American Hotel & Motel Association.
Residential - Videolocity Direct, Inc.
Management believes that, to date, broadband has made little impact
into the home marketplace and the implementation of DSL has been slow. Both
fiber and cable systems have limited reach due to the need to have cable
hardware in place. However, management anticipates that the use of radio
technology is capable of reaching markets not otherwise served by fiber or
cable. As wireless deployments become more prevalent in the marketplace, we
believe that our products using low bandwidth will be ideally suited for this
environment.
Research and Development - Videolocity Technologies, Inc.
Videolocity Technologies, Inc. our wholly owned research and
development subsidiary, holds our six Provisional Patent Applications, which
encompass the proprietary technology and intellectual property of our company.
In addition to the six Provisional Patent Applications, we presently have a U.S.
Patent Application and an International Patent Application pending which
encompasses the Videolocity Digital Entertainment Solution. We also have a
backlog of viable proprietary concepts that are in the advanced research and
development stages.
We have obtained or filed trademark and/or servicemark applications
preserving our right to use the following trademarks and servicemarks:
* Videolocity * Videolocity Technologies
* Videolocity Direct * VideolocityTV
* Videolocity and Design (logo) * Digital Entertainment System
* DES
All of the above applications are currently pending, with the exception
of Videolocity Technologies, which mark was published August 20, 2002. As we
proceed forward with the commercialization of our current products and other
products, we will file U.S. and foreign trademark applications to protect
selected product names. We intend to obtain copyright protection on our product
packaging, instruction sheets, and such other materials that we believe are
significant to warrant procurement of copyrights.
Our Technology
We provide a pay-per-view system that delivers video-on demand in near
DVD quality. Our system can be deployed in closed system environments such as in
hotels, resorts, hospitals, rehabilitation or assisted living facilities, or
over a wide area wireless network throughout communities, campuses and
developments. By using a proprietary encoding process, smaller files at higher
quality are delivered. Smaller files mean smaller servers, more simultaneous
users on a network segment, and the ability to download the movie and/or other
content from or to a remote library. The system provides high availability of
the local Internet connection to support multiple users with the web surfing,
email, and web radio. The server software on the caching server improves overall
network capacity, and improves video quality of service on the network.
The system can deliver digital media-on-demand to a multimedia PC, or
to our proprietary DES. It displays full-resolution text and graphics onto any
standard TV in high resolution. The system is fast, reliable, and powered by a
high-level CPU and customized chip sets. We provide an entirely software based
design, thus eliminating the need for hard drives in our digital set top box
devices.
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In addition to video content viewing, the DES provides digital music,
games, full web surfing and a variety of computer applications such as e-mail
and messaging. The customized Web Browser is fully compliant with the current
version of HTML and JavaScript, ensuring proper web page display. Our software
based design lets us upgrade and update any and all software versions, players
and plug-ins remotely and quickly. With an easy, user- friendly graphic user
interface, the DES allows for sending and receiving text, data, graphics and
video at the click of a keyboard and/or handheld remote control. All content can
be enjoyed using wireless headsets and therefore ensuring privacy for the end
user.
DES is a true digital information and entertainment end-to-end
solution. It provides fully integrated software driven hardware application and
is fully scalable for any size deployment. The system is adaptable to all
architecture and is customized for each application.
Our technology allows us to deliver true video-on-demand streaming in
Mpeg4 format at 900 kbps (kilobits per second) or less achieving near DVD
quality over most wired or wireless network architectures. We will use existing
networks where feasible and/or deploy new networks where necessary. Accordingly,
we can offer the following innovations and features:
* Property/Facility Information * Personal and Corporate E-mail
* Specific Application Content / Information * Music on Demand
* Specific Educational Content / Information * Internet Games
* Dietary Menus * Wireless Headset
* Movies/Videos on Demand * Wireless Keyboard
* High Speed Internet Access * Handheld Remote Control
The features are very flexible and are delivered over an entirely software based
platform, available on either a Microsoft or Linux Operating Systems.
Our Business Strategy
Our current business strategy is to drive demand of the wireless usage
of our digital entertainment and information system worldwide in the
hospitality, healthcare and residential markets. We intend to take full
advantage of the technologies we have developed. We will initially market our
products to those market segments that management has identified as having
significant revenue and growth potential. Any additional markets that have need
for our technologies may be approached with established partners using a
licensing scenario. Both business models will support ongoing revenue streams
for all entities.
We are committed to continued development and installation of
innovative, high quality, cost effective systems to build an increased and
ongoing revenue stream. We provide a quality wireless solution and a parallel
solution over wire (Ethernet, DSL, CATV) and Fiber architectures. Our DES is
available on either a Mircosoft or Linux OS in a stand alone set top box or
integrated in a television set.
All functions that are not part of our core expertise will be
outsourced to strategic partners specializing in those fields. This will allow
us to focus on continued technical development and will ensure that our
technologies will continue to provide competitive advantages.
Research and Development
We have devoted the majority of our resources to developing advanced
technology on a new operating system (Linux OS), conducting beta testing and
engineering supporting our wireless delivery platforms, and deploying
infrastructures. For the past two years, we have spent substantial resources,
approximately $2.5 million, to facilitate the engineering and technical
development of our DES using a Microsoft Operating System and beta testing it,
both wired and wireless, though our facilities in Park City, Utah. We catagorize
pure research and development expenditures (for tax purposes) in the fiscal
years of 2000 and 2001 and the first eight months of fiscal 2002 as $0, $27,818,
and $60,000 respectively. The $2.5 million was raised as part of the overall
initial capital contribution and by borrowed funds and short term financings.
Manufacturing
To date, we have engineered and selected all sourcing and outsourcing
of components, manufacturing, assembly, testing and shipping. All supplies are
available and ready for shipment to or through U.S. based assembly.
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Our vendors are ready to produce, assemble, test and ship all products. We do
not anticipate significant delays or back orders, all of which are scaleable
with relatively short notice.
We are currently negotiating a vendor agreement covering the
engineering, manufacturing, testing and shipping for our turnkey set top box
device with IWSsales. The agreement will cover all aspects of the production of
our set top box device and should be finalized by approximately late October
2002.
Any and all other hardware components are readily commercially
available and have been sourced from a variety of vendors. No special
manufacturing agreements are needed at this time in order to start ordering the
commercially available products. Several large companies market the variety of
components we will require such as the following DELL Computer Corp, Foundry
Networks, Inc., SMC, CISCO Systems, Inc., Solitek, Pairlink and BroMax.
Marketing
Our initial marketing effort is focused on hotels, hospitals, long-term
care homes, retirement centers as well as developments, universities, resorts,
multi-dwelling units/timeshares and planned residential communities in the U.S.
We are using existing channels to pursue the hospitality and healthcare markets.
We also intend to pursue strategic alliances and partnerships with network and
content providers to further our efforts and impact residential applications.
The sales and distribution will focus on the following primary
channels:
* Traditional distribution channels for target markets
* Strategic alliances and partnerships
* Trade shows and conferences
* Leverage existing contacts of management team and investors
* Website and hyperlinks to trade sites
* Advertising in trade publications
* Direct mailing campaign and telemarketing efforts
Our sales and channel support is headquartered in Park City, Utah with
additional regional support organizations planned throughout the country.
Members of the support team will be compensated with base salary, commission and
stock option programs.
We intend to promote our products aggressively through Internet
websites and will ensure that the sites are easily searchable through all the
major search engine companies under a variety of topics and key words. We also
intend to place advertisements on strategic websites to attract the target
markets described above.
To date we have marketed our products to the hospitality and healthcare
industries as well as some telecommunications companies and cable TV companies.
Marketing efforts have been limited to the United States and Canada. Our
marketing includes live demonstrations on site and presentations at conference
and trade show exhibits. For the nine months ended July 30, 2002, we have
expended approximately $135,000 for marketing expenses.
Competition
While competition for high-end large-scale properties is significant
for both video-on-demand systems and broadband access in the rooms, we believe
the mid-range and lower-range properties are significantly underserved with
either service. Properties in this segment ranging from 75 to 300 rooms,
represent more than 56% of the total rooms in the U.S. Because our cost for
deployment is far less on a per location basis than other existing technologies,
we believe we are ideally suited for this market. Present competition mainly
comes from cable TV or satellite pay-per-view services that lack the ability to
provide true video-on-demand, broadband access or easily navigated Internet
access. Two smaller companies, Hospitality Networks and KoolConnect, are both
currently trying to deploy their systems.
Competition in the hospitality sector comes mainly from LodgeNet and
On-Command. According to published information from their respective websites,
On-Command currently has more than 750,000 hotel rooms world-wide but only
35,000 of them have current true video-on-demand systems. Both companies are
deploying systems that use high bandwidth MPEG 2 formats while Videolocity uses
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the more efficient MPEG 4 format. These type systems are readily available for
purchase and represent the main technology of the competition to our DES.
Comparable cost for these systems typically starts at approximately $150,000 to
$200,000, not including set-top- boxes. The equivalent for our system would be
approximately $35,000. Our pricing advantage is based on using commercially
available servers using our software based technologies versus having to deploy
expensive proprietary hardware based server systems. Additionally, our higher
compression ratios reduce storage requirements.
While companies like On-Command and LodgeNet rely on direct sales, we
will mainly use existing companies/channels that are presently specifically
serving our target market segments with related products. We market our products
to the hospitality industry through our subsidiary Hospitality Concierge.
There currently exists little competition for video-on-demand in the
healthcare industry. Most companies, such as HCORP and Get Well Network, provide
limited functionality at lower delivery quality. We market our products to the
healthcare industry through our subsidiary Healthcare Concierge.
The home entertainment industry is extremely competitive and is
dominated by several large companies with worldwide name brand recognition and
substantial financial resources. In attracting subscribers to our video-
on-demand system, we will be competing with traditional video rental chains such
as Blockbuster Video, Hollywood Video, and Movie Gallery; providers of video
entertainment over cable and satellite networks, such as DirectTV, Dish Network,
and ATT; video stores, supermarkets, mass merchandisers, club stores, and other
retail outlets that sell video cassettes; web-based video channels; and movie
theaters, live theater, sporting events, and other similar businesses that
compete for the general public's entertainment dollar.
In addition, numerous companies including Blockbuster Video, Microsoft
WebTV, EchoStar, and TIVO, all of which have substantially greater resources and
name recognition than us, have announced their intent to deliver state of the
art video-on-demand systems in the near future, although to the best of our
knowledge, no such systems are available for widespread public use as of this
date. Several major movie studios, including Sony, Walt Disney Co. and 20th
Century Fox have also announced their intention to develop systems for the
delivery of movies directly to consumers over the Internet, which could impede
our ability to obtain content for use with its video-on-demand systems and could
provide significant additional competition from large, established companies
with a high degree of name recognition in the entertainment industry. There can
be no assurance that other companies will not develop technologies superior to
ours, that new technology will not emerge that renders our technology obsolete,
that we will be precluded from licensing the video content we require to
effectively compete in the market, or that a competing company or companies will
not be able to capture more market share than us due to name recognition and the
expenditure of greater amounts for marketing and advertising. We will market to
the residential market segments through our subsidiary Videolocity Direct.
Backlog
We presently do not have a backlog for any of our products and do not
foresee a backlog in the immediate future.
We have entered into certain letters of agreement that anticipate
future contracts with the following businesses:
* Fandango Resorts - Hotels Park City (includes other Fandango
Resorts properties)
We will deploy our DES in the new Fandango Hotel Park City, a new
all-suite, condominium luxury resort hotel currently under construction and
scheduled to open in Park City, Utah in the fall of 2002. Fandango Resorts is a
premier resort development and management company that specializes in the
programming, marketing and management of upscale, full service boutique resorts.
The Fandango projects integrate beautiful accommodations, personalized service
and luxurious amenities found only in the finest hotels with the specialized
requirements of condominium ownership. Headquartered in Park City, Utah,
Fandango Resorts' founders have 45 years of experience with deluxe hotels and
resorts. Our projected installation date for the Fandango Park City property is
November 2002.
* Jameson Health System
Jameson Hospital is committed to providing convenient, affordable, high
quality healthcare to the people of Lawrence County. Serving as the primary
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subsidiary of Jameson Health System, Inc., Jameson Hospital continues to be a
healthcare leader as well as the largest employer in Lawrence County. Jameson
Hospital is a 204 bed facility featuring a skilled nursing unit, inpatient and
outpatient rehabilitation units, senior adult day health care, an inpatient
geriatric psychiatric unit, a maternity care center, pediatrics unit, cardiac
services and emergency department. Our project finalization date for the Jameson
Hospital is scheduled for November 2002.
Regulation
We are not required to obtain any government approval as a condition to
marketing our DES. However, such systems will be required to operate in
compliance with applicable regulations of the FCC, when in wireless mode, and
the set-top boxes used in connection with such systems may require approval from
Underwriters' Laboratories. We will also be subject to various federal, state
and local laws that govern the conduct of our business, including state and
local advertising, consumer protection, credit protection, licensing, and other
labor and employment regulations. We have not incurred any notice, warning or
expenses resulting from compliance or non- compliance with federal, state or
local environmental laws.
We offer wireless delivery of content using equipment complying with
Part 15 of the FCC rules in the unlicensed band. All radiating components used
by Videolocity are compliant with applicable FCC rules by the vendors of the
components.
Properties
Our principal executive offices are located at 1762-A Prospector
Avenue, Park City, Utah 84060, and our telephone number is (435) 615-8338. This
facility consists of approximately 2800 square feet of office space and is
subject to a lease that expires December 31, 2002 with a monthly rental payment
of $3,000. This facility also houses our technical and marketing offices.
We are currently evaluating the need for additional space and may
relocate our corporate offices in the near future.
Product Liability and Liability Insurance
We may be exposed to potential product liability claims by users of our
products. We currently maintain general business liability insurance limited to
$200,000 coverage per occurrence and in the aggregate. We have not obtained
product liability insurance to date, however it is available.
Employees
We presently have nine full-time employees, one consultant, and one
part-time consultant. We do not anticipate a need to hire additional high-level
employees for the next several months, except for possibly a technical director,
marketing and sales project manager, and two or more assistants. In addition to
our employees, we may use the services of certain consultants on a contract
basis. Presently, we do not believe that our employees will be represented by
unions and considers our relationship with our employees to be good.
Legal Proceedings
On January 4, 2002 we filed an action in the Third Judicial District
Court of Salt Lake County, Utah, against the holders of our Series "A" Preferred
stock, issued pursuant to our acquisition of 5th Digit Technologies. The suit
alleges fraud and misrepresentation of the technology which induced our
acquisition of 5th Digit. Three of the individuals originally comprising 5th
Digit ownership, settled with us by exchanging their 600,000 Series "A"
Preferred shares for 180,000 shares of our common stock. The remaining 350,000
Preferred shares were tendered for liquidation at $5.00 per share on January 24,
2002, however, the shares were deposited with the Court.
On April 11, 2002 the Court entered a default judgment against the
holder of the 350,000 Preferred shares, ordering cancellation of the shares. It
was further adjudged and decreed that any and all redemption or other rights
vested in and related to the shares be voided. The 350,000 Preferred shares were
cancelled on April 12, 2002. The defendant has filed an appeal of the Court's
final order, however we have not been required to take any responsive action to
date.
On August 26, 2002 our subsidiary, Healthcare Concierge, Inc., filed an
action in the Third District Court of Salt Lake County, Utah against Merit
Studios, Inc. The action seeks $600,000 that is owed by Merit Studios to
Healthcare Concierge pursuant to a promissory note executed in consideration for
the reconveyance to Merit Studios of two license agreements. The action is in
the initial stages and the defendant has not yet been served and, accordingly,
we are not able to assess our likelihood of success at this time.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, their ages and positions held as
of September 30, 2002 are as follows:
Name Age Position
---- --- --------
Bennie L. Williams............... 65 Chairman of the Board and Director
Robert E. Holt................... 38 President, Chief Executive Officer and Director
Larry R. McNeill................. 60 Vice President and Director
Dan Driscoll..................... 45 Vice President Corporate Development and Director
Cortney Taylor................... 41 Chief Financial Officer
On September 5, 2002, the Board of Directors accepted the resignation
of George Norman, chairman of and a director of four of our subsidiaries,
Videolocity, Inc., Videolocity Technologies, Inc. Hospitality Concierge, Inc.,
Videolocity Direct, Inc. Mr. Norman cited health reasons for his resignation.
Concurrent with Mr. Norman's resignation, the Board also accepted the
resignation of D. T. Norman, wife of Mr. Norman, as a director and secretary /
treasurer of Videolocity International for personal reasons related to Mr.
Norman's health. Ms. Norman also resigned as a director and secretary /
treasurer of Videolocity, Inc., Videolocity Technologies, Inc., Healthcare
Concierge, Inc., Hospitality Concierge, Inc. and Videolocity Direct, Inc. Also
on September 5, Dr. James P. Hill resigned as vice chairman and director of
Videolocity International, citing time and travel constraints as his reason.
Effective September 1, 2002, Cortney Taylor became our new chief
financial officer. Mr. Taylor replaces Larry R. McNeill, who resigned as our CFO
and the CFO of Videolocity, Inc., Healthcare Concierge, Inc., Hospitality
Concierge, Inc. and Videolocity Technologies, Inc. Mr. McNeill remains a
director. All of our directors will devote more than 50% of their time to the
business of VCTY, except for Mr. Driscoll.
Currently we have six members on our board of directors. Each of these
directors will hold office until the next annual meeting of our stockholders and
until his or her successor is elected and qualified, subject to removal by the
board of directors and or shareholders.
Certain biographical information of our directors and officers is set
forth below.
Bennie L. Williams. Mr. Williams was appointed Chairman and a director
in June 2001. He has spent 36 years in the broadcasting industry in general
management, sales management, marketing, promotion and advertising of several
radio stations. Mr. Williams was Vice President of sales for Intermountain Radio
Network, with 132 affiliates. From 1970 to 1987, he was Vice President of sales
for Communications Investment Corporation's twelve owned and operated stations
in Utah, Idaho and Montana. In addition he was general manager of KALL AM and
KLCY FM until his retirement in 1988. At that time he founded his own company, a
sole proprietorship named Business Idea Company of America, which was an
investment portfolio management firm that also provided marketing, advertising
and consulting services to select clients. Business Idea Company became inactive
in the fourth quarter of 2001and never had any business relationship with
Videolocity. Mr. Williams is currently serving his sixth year as Chairman of the
Board of Governors of Shriners Hospital for Children, Intermountain, in Salt
Lake City.
Robert E. Holt. Mr. Holt acted until January 2002 as Chief Operating
Officer of Greenwood Technology Group. Prior to joining Greenwood Technology
Group, Mr. Holt held a series of leadership positions with high-tech companies
including Qualcomm Inc. from May 1997 to September 2001, where he was head of
the Wireless Campus Group, overseeing product development, marketing, and
technology introduction. Mr. Holt served as a Director of Qualcomm Ventures and
Wireless Infrastructure Products Division. He has 10 years of P&L responsibility
between the U.S. Army Signal Corps, GTE Government Systems, PrimeCo PCS and
Sprint PCS where he led the development and deployment of wireless networks in
over thirty countries. His expertise is around the following issues: Strategic
Planning/Partnership, Competitive Intelligence, Operations and Implementation.
Mr. Holt has earned a Bachelor of Science degree in electrical engineering and a
master of science degree in communications. He has also earned certification in
project management, PCS technologies, call processing and systems engineering.
Larry R. McNeill. From October 1998 to the present, Mr. McNeill has
been the Chief Financial Officer of Theatre Candy Distributing Company, Inc. of
Salt Lake City, Utah. In February 1996, Mr. McNeill retired from Salt Lake City
based Smith's Food & Drug Centers, Inc. after 17 years as an executive officer
of that company, most recently Senior Vice President of Corporate Development.
In that capacity he managed over 60 employees within the real estate, legal, and
research departments of that company. Mr. McNeill is a director of Theatre Candy
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Distributing Company, Inc.; American Polymer Corp.; Water and Wellness
Centers LLC; Construction.com, LLC; and Financial Services, LLC. He is the
President of the West Valley Colonels Association and past president and founder
of the Cystic Fibrosis Foundation of Utah. Mr. McNeill holds a B.A. degree in
Business Administration, Economics and Russian, a MBA degree in Business
Management, and is pursuing his Ph.D. in Business Administration. Effective
September 1, 2002, Mr. McNeill resigned as our CFO, but remained as a director.
He also resigned as CFO of Videolocity, Inc., Healthcare Concierge, Inc.,
Hospitality Concierge, Inc. and Videolocity Technologies, Inc.
Dan Driscoll. Mr. Driscoll is Senior VP of Business Development of the
Wireless Division of CommScope, Inc. The CommScope Wireless Division was created
in 1997; Mr. Driscoll has spearheaded the sales and business development since
1998. CommScope Wireless Division produces cable, connectors and accessories for
Wireless Telecom operators, AT&T and Sprint among others and Mr. Driscoll's
leadership has positioned CommScope as the No. 2 worldwide supplier. Mr.
Driscoll has 20 years experience in sales and business development in the
Wireless Telecom arena, his expertise in developing strategic partners was
instrumental in Hewlett Packard's entrance in the RF/Microwave component market
through its purchase of Avantek. Mr. Driscoll holds both a BSBA and BSEE from
Villanova University. He also holds multiple business certificates from PCS
technology to process control programs. Mr. Driscoll is actively involved in his
community, and has created two non-profit organizations that promote youth
activities; which organizations currently generate over $200,000 of revenue each
year. Mr. Driscoll has been chairman of the local Parks and Recreation of his
community for the past 15 years and previously played football in the CFL and
NFL.
Dr. James P. Hill. Dr. Hill is the Executive Director of the Home
Challenge Trust Fund of the Indianapolis Neighborhood Housing Partnership. Prior
to his current position, he served as the Chief Development Officer of Community
Hospitals Indianapolis Foundation in Indianapolis, Indiana. Prior to that he
served as Vice President and Associate Dean of Southern Illinois University
School of Medicine; President of Indiana Wesleyan University; Academic Dean,
Peidmont Community College; Division Chair of Math and Science, Virginia Western
Community College; and Department Chair of Chemistry, Virginia Western Community
College. Dr. Hill has served on numerous boards and community civic groups
including the Chamber of Commerce Board, Economic Development Council, Crisis
Nursery Center Board, Symphony Board and President, and Area Scout Council
Board. He also holds memberships in several national and state professional
associations and honor societies. Dr. Hill holds a Doctorate in Administration
and Statistical Research Design Methodology from Virginia Polytechnic Institute
and State University, a Masters degree in Chemistry and Biology from the
University of Virginia, and a Bachelor's degree in Biology and Chemistry from
Roanoke College. Dr. Hill is the brother-in-law of George Norman, a co- founder,
officer and director of Videolocity, Inc. On September 5, Dr. Hill resigned as
vice chairman and director of VCTY.
D. T. Norman. D.T. Norman is a co-founder of Videolocity, Inc. and
serves as Secretary, Treasurer and a director of that company. She is also
Secretary, Treasurer and a director of Brain Tree International, Inc., an
inactive public company, and is Secretary and a director of Dynamic Software,
past Secretary and a director of Santa Barbara Oil Corp., past Secretary and
director of Pacifica Financial Corp., a director of Worldwide Ministries and
Education Fund, and a director of the Stubbs Foundation. D.T. Norman is the wife
of George Norman, a co-founder, officer and director of Videolocity, Inc. On
September 5, 2002, Ms. Norman resigned as a director and secretary / treasurer
of Videolocity International, Videolocity, Inc., Videolocity Technologies, Inc.,
Healthcare Concierge, Inc., Hospitality Concierge, Inc. and Videolocity Direct,
Inc.
Cortney Taylor. Mr. Taylor became our new chief financial officer
effective September 1, 2002. Mr. Taylor is a CPA, a member of the UACPA and
AICPA, and a member of the Utah State University, School of Accountancy Advisory
Board. From November 1994 to August 2002, he was employed in the Utah offices of
Grant Thornton, LLP. as an assurance senior manager. Mr. Taylor holds B.S. and
Masters of Accounting degrees from Utah State University.
Committees of the Board of Directors
Our audit committee presently consists of Ms. Norman and Messrs.
McNeill and Williams. It is responsible for reviewing the scope of annual
audits, considering specific problems and questions that arise during the course
of audits, monitoring the adequacy of accounting and audit controls, and such
other functions as the board of directors may from time to time delegate to it.
Our audit committee must report to the board of directors when asked to do so.
Our executive committee consists of Ms. Norman and Messrs. McNeill and
George Norman and is authorized to exercise the powers of the board during
intervals between board meetings. The executive committee also handles matters
concerning compensation and salaries, subject to review and approval by the
board. A nominating committee consisting of Ms. Norman and Messrs. Hill and
Williams reviews the qualifications of potential candidates for the board,
evaluates the performance of incumbent directors and recommends to the board
nominees for election to the board at the annual meeting of stockholders.
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Director Compensation
Presently, we do not provide monetary compensation to directors for
serving on our board of directors or the boards of our subsidiaries, or for
attendance at board or committee meeting. We anticipate that as we acquire
adequate funding, we will consider instituting a policy to compensate our
directors. In that event, we believe that any proposed compensation will be
equivalent to that of companies of similar size and stature as ours. We have
issued compensation shares totaling 325,000 under our 2002 Stock Incentive and
Stock Award Plan to our directors for past service rendered in 2000 and 2001.
Those current and former directors receiving shares were:
Robert Holt 100,000 shares
Dan Driscoll 100,000 shares
Bennie L. Williams 25,000 shares
Larry R. McNeill 25,000 shares
D. T. Norman (former director) 25,000 shares
James P. Hill (former director) 25,000 shares
Lawrence Turel (former director) 25,000 shares
Significant Employees, Consultants and Directors of Our Subsidiaries
The following tables set forth information with respect to current
directors and executive officers of five of our subsidiaries. 5th Digit
Technologies, LLC is presently inactive. These persons are expected to make a
significant contribution to our business.
Videolocity, Inc.
Name Age Positions
---- --- ---------
Robert E. Holt................... 38 President, Chief Executive Officer and Director
Larry R. McNeill................. 60 Director
Martin P. Senn................... 39 Senior Vice President and Chief Operating Officer
Please note that the directors and executive officers for Hospitality
Concierge, Inc. and Videolocity Direct, Inc. are the same as for Videolocity,
Inc.
The resumes for Ms. Norman and Messrs. Holt and McNeill are set forth
above under the information for our parent company. Biographical information for
Messrs. Norman and Senn is set forth below.
George Norman. Mr. Norman is the co-founder of Videolocity, Inc. and
served as its president through July 1999. Prior to founding Videolocity, he was
semi-retired. He is President and a director of Dynamic Software, past President
and a director of Santa Barbara Oil Corp., past President and director of
Pacifica Financial Corp., a director of Worldwide Ministries and Education Fund,
and a director of the Stubbs Foundation. Approximately thirty years ago, in
1970, Mr. Norman was convicted of two counts of aiding and abetting the
misapplication of bank funds and was sentenced to two years on each of the
counts, of which he served nine months at the Federal Medical Center in
Rochester, Minnesota. Prior to 1970, Mr. Norman spent many years in the
operation and ownership of broadcasting properties and other general business
activities. Mr. Norman is the husband of D.T. Norman and the brother-in-law of
Dr. James P. Hill. Mr. Norman notified the board in June 2002 of his intention
to retire and leave our company in September 2002. On September 5, 2002, Mr.
Norman resigned as chairman of and a director of four of our subsidiaries,
Videolocity, Inc., Videolocity Technologies, Inc. Hospitality Concierge, Inc.,
Videolocity Direct, Inc.
Martin P. Senn. From June 1999 until he joined Videolocity in November
2000, Mr. Senn was Vice President, Sales & Marketing of Teleflex Systems, Inc.,
a provider of state-of-the-art billing solutions, voice/data processing
platforms, calling cards, and operator services software, where he handled
public relations and corporate development. From May 1995 to June 1999, Mr. Senn
served as Vice President of Sales & Marketing for Teltrust Inc, forming and
managing its Teleservices division and actively working on applications and
designs with Teltrust's Internet division. The Teleservices division grew in 4
years to annual revenue of over $10 million with over 700 employees. From
November 1993 to May 1995, Mr. Senn managed Online Reservations Systems, Inc., a
Park City, Utah based company providing wholesale and retail travel operations.
Mr. Senn holds a Masters degree in Travel Industry Management, Marketing and
Languages from the University of Zurich, Switzerland. He speaks fluent English,
German, Italian and French, and speaks conversational Spanish.
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Healthcare Concierge, Inc.
The following table sets forth information with respect to the current
directors and executive officers of Healthcare Concierge, Inc., (formally named
Videolocity Direct, Inc.) our 94% owned operating subsidiary. These persons are
expected to make a significant contribution to our business.
Name Age Positions
---- --- ---------
Bennie L. Williams............... 65 Chairman and Director
Robert E. Holt................... 38 President, Chief Executive Officer and Director
Martin P. Senn................... 39 Vice President, Chief Operating Officer and Director
Larry R. McNeill................. 60 Director
The resumes for Messrs. Williams, Holt and McNeill are set forth above
under the information for our parent company. Mr. Senn's resume is set forth
above under Videolocity, Inc.
The following table sets forth information with respect to the current
directors and executive officers of Videolocity Technologies, Inc., our wholly
owned operating subsidiary.
Videolocity Technologies, Inc.
Name Age Position
---- --- --------
Robert E. Holt................... 38 President / CEO / Director
Bennie L. Williams............... 65 Director
Martin P. Senn................... 39 Vice President / COO / Director
Larry R. McNeill................. 60 Director
The resumes for Messrs. Holt, Williams and McNeill are set forth above
under the information for our parent company. Resumes for Messrs Norman and Senn
resume are set forth above under Videolocity, Inc.
In September 2002, we employed Jay Muse as Vice President of
technology. Mr. Muse was formerly senior technologist at Iomega, Inc., where he
advised that company on technical issues regarding product roadmap, competitive
intelligence, patent applications and market strategy. Prior to joining Iomega,
Mr. Muse worked at General Electric Corporate Research.
Executive Compensation
The following table sets forth all cash compensation actually paid (and
not deferred) by us for services rendered for the years ended October 31, 2001
and 2000 to our Chief Executive Officer and to each of the next four most highly
compensated executive officers whose total annual salary and bonus was in excess
of $100,000.
Summary Compensation Table
Other
Name and Annual Compensation Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
- ------------------ ---- ------ ----- ------------ ------------
Robert E. Holt 2002(1) $130,000 $ -0- $ -0- $ 85,000(2)
President and C.E.O
Martin P. Senn, 2002(1) 79,917 -0- -0- 7,750(3)
C.O.O 2001 128,000 -0- -0- -0-
2000 -0- -0- -0- -0-
Jerry E. Romney, Jr, 2001 150,000 -0- -0- 5,000(4)
President 2000 -0- -0- -0- -0-
________
(1) Through nine month period ended July 31, 2002.
(2) Received 110,000 shares of VCTY common stock valued at
$85,000.
(3) Received 8,750 shares of VCTY common stock valued at $7,750.
(4) Vested 5,000 shares of common stock under our 2000 Stock
Incentive Plan.
Employment Agreements
We have entered into employment agreements with Mr. Holt and Mr. Senn.
Certain aspects of these agreements are specific to the individual's agreement:
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Mr. Holt: Pursuant to his employment agreement dated January 16, 2002,
Mr. Holt is serving as our Chief Executive Officer and receives an annual base
salary of $240,000. His employment has an initial term of three years ending
January 15, 2005. Mr. Holt is entitled to 90,000 plan units under our 2000 Stock
Incentive Plan, of which 5,000 have vested. Mr. Holt received a bonus of 100,000
shares under our 2002 Stock Incentive Stock Award Plan. In addition, upon our
receiving a minimum of $1 million in capital funding, Mr. Holt will receive a
bonus of 100,000 shares of our common stock and the right to purchase at $0.01
per warrant, 900,000 stock purchase warrants, exercisable at $1.00 per share.
Mr. Senn: Pursuant to his employment agreement dated November 16, 2000
with our subsidiary Videolocity, Inc. (formerly Moviesonline, Inc.), Mr. Senn is
serving as its Chief Operating Officer and receives an annual base salary of
$137,000, increased in October 2001 from an initial base salary of $125,000. His
employment has an initial term of three years ending November 16, 2003. Mr. Senn
is also entitled to 118,750 plan units under our 2000 Stock Incentive Plan, of
which he has vested rights in 6,875 shares of our common stock.
Each of the above-described employment agreements has the following
uniform terms:
Assignment of Inventions: During the terms of the employment
agreements, any invention, discovery, concepts and ideas, whether or not
patentable or subject to copyright protection, which the employee discovers or
conceives, will become our sole property.
Non-Compete: During the term of their agreement with us and for two
years after the expiration of Mr. Senn's agreement, and three years after the
expiration of Mr. Holt's agreement, the employees agree not to:
* own, manage operate or control any business that competes with
us;
* provide services to any business in the video-on-demand
industry that is directly competitive with us;
* solicit any business similar to ours from, or sell any
products or services that are in direct competition with ours
to, any business that within one year prior to the date of
termination of employment, was a customer or client of ours or
any of our subsidiaries; and
* solicit the employment of any of our full-time executives or
employees as of the date of termination of the agreement.
Change of Control:
In the event of a change of control of our company, whether by merger,
acquisition, consolidation, reorganization, liquidation or otherwise, the
employee will be entitled to voluntarily terminate his agreement and receive
certain benefits set forth below:
* the annual base salary through the date of termination, to the extent
not theretofore paid;
* reimbursement for any monies advanced by employee through the date of
termination;
* all other payments and benefits to which the employee is entitled
through the date of termination;
* for six months after the termination date, continued health and
medical insurance coverage; and
* all unvested plan units under the stock incentive plan will vest.
Indemnification of Directors and Executive Officers and Limitation on Liability
We have adopted certain provisions in our articles of incorporation
that limit the liability of our directors and executive officers and provide for
indemnification by us for our directors and officers to the fullest extent
permitted by Nevada law. Such provisions substantially limit the shareholders'
ability to hold directors and officers liable for monetary damages resulting
from breaches of their fiduciary duties.
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Benefit Plans
Videolocity, Inc. 2000 Stock Incentive Plan
We adopted the Videolocity, Inc. 2000 Stock Incentive Plan in
connection with our acquisition of Videolocity, Inc. We have reserved one
million shares of common stock for issuance under the plan. As of June 28, 2002,
plan awards with respect to 282,283 shares have been made, of which 32,208 plan
awards have vested and 32,208 shares issued. Plan awards with respect to 717,717
shares remain available under the plan. All awards made under the plan are made
in plan units. Each plan unit becomes convertible, at the option of the
participant, into one share of our common stock on the date vesting requirements
for the plan units have been satisfied. Shares to be issued under the plan will
be registered under the Securities Act of 1933. The awards granted to date
provide certain continued vesting as set forth and determined in each individual
employment agreement, to be vested on the first day of each consecutive fiscal
quarter.
If a plan participant voluntarily terminates his employment or is
terminated for cause, any unvested plan awards will be forfeited. If a plan
participant is terminated without cause, terminates for good reason (including a
change of control), dies, or becomes disabled, all as defined in the plan, any
unvested plan awards will vest on the date of such termination.
Videolocity International, Inc. 2002 Stock Option and Stock Award Plan
Also at the time of our acquisition of Videolocity, Inc., we adopted an
omnibus stock option and stock award plan. The plan was inactive until it was
formalized on March 1, 2002 as the Videolocity International, Inc. 2002 Stock
Option and Stock Award Plan The plan may be administered either by the board or
by a committee to be appointed from time to time by the board. Awards granted
under the plan may be stock options, appreciation rights, or stock awards which
are awarded to employees, including officers and directors, who, in the opinion
of the board or the committee, have contributed, or are expected to contribute,
materially to the success of our company. In addition, at the discretion of the
board or the committee, options or bonus stock may be granted to individuals who
are not employees, but contribute to our success as advisors or consultants.
All of our employees, officers, directors, advisors and consultants are
eligible to participate under the plan. A maximum of 500,000 shares of our
common stock are available for grant under this plan. The identification of
individuals entitled to receive awards, the terms of the awards, and the number
of shares subject to individual awards, are determined by the board or the
committee, at their sole discretion. As of July 31, 2002, a total of 467,855
shares have been granted under the plan, of which 417,855 shares have been
issued, leaving 32,155 shares remaining to be granted and issued.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information, to the best of our knowledge
as of September 30, 2002, regarding beneficial ownership of our common stock by:
* each of the named executive officers;
* each or our directors; and
* each person known to us to own beneficially more than 5% of
our common stock;
* all executive officers and directors as a group.
Beneficial ownership is determined based on the rules and regulations
of the SEC. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are exercisable, or exercisable
within 60 days of September 30, 2002, are counted as outstanding. These shares,
however, are not counted as outstanding for purposes of computing the percentage
ownership of any other person. Except as may be indicated in the footnotes to
this table and pursuant to applicable community property laws, each stockholder
named in the table has sole voting and investment power with respect to the
shares set forth opposite that stockholder's name.
Unless otherwise indicated, the address for each director, executive
officer and 5% owner is c/o Videolocity International, Inc. 358 South 700 East,
Suite B604, Salt Lake City, Utah 84102.
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Beneficial Ownership
Name of Beneficial Owner Shares Percent
------------------------ ------ -------
Directors and Executive Officers:
Dan Driscoll............................................. 225,122 3.9 %
Robert E. Holt........................................... 105,000 1.8 %
Larry R. McNeill......................................... 236,000 4.1 %
Martin P. Senn(1)........................................ 43,125 .8 %
Bennie L. Williams....................................... 335,000 5.8 %
5% Owners
Dr. James P. Hill, Ph.D(2)............................... 650,001 11.2 %
D. T. Norman............................................. 300,000 5.1 %
Kirk Schneider(3)........................................ 372,000 6.4 %
Cornell Capital Partners, L.P............................ 290,000 5.0 %
All executive officers and directors as a group (5 persons) 944,247 16.2 %
(1) Includes 31,250 shares held of record by Sweetspot Communications, LLC,
a Utah limited liability company of which Mr. Senn is the manager.
(2) Includes 650,001 shares held of record by a G.I.N., LLC, of which Dr.
Hill is the manager.
(3) Includes 250,000 shares held of record by Joss Investments, LC, of
which Kirk Schneider is the manager. Kirk Schneider's address is 1201 S. Main
Street, Salt Lake City, Utah 84111.
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions with 5% Stockholders
The following persons purchased shares of our common stock in the
private placement of 610,000 shares completed on December 4, 2000 and
immediately following the acquisition of Videolocity, Inc.: Stephen B. Cluff, a
former officer and director, 12,200 shares; Kirk Schneider, a greater than 5%
shareholder, 61,000 shares; Mark Schneider, a greater than 5% shareholder,
54,900 shares; Noland Schneider, the father of Kirk Schneider and Mark
Schneider, 122,000 shares; and Jeri Staten, the sister of Kirk Schneider and
Mark Schneider, 61,000 shares. Such persons purchased the shares at a price of
approximately $0.82 per share, which was the same price paid by the other
purchasers in the private placement. Noland Schneider provided assistance in
locating an entity to be used in the acquisition of Videolocity, Inc. and
assisted in negotiating the terms of the reorganization, but did not receive any
compensation for such activities.
Transactions with Officers and Directors
In July 2001, two of our current directors Larry R. McNeill and Bennie
L. Williams loaned to our company $135,000 and $100,000, respectively, pursuant
to certain 60-day secured notes issued by us bearing interest at 6%. The notes
have been extended through October 2002. As additional consideration for the
loans, we issued to Mr. McNeill and Mr. Williams 67,500 shares and 50,000
shares, respectively, of Videolocity Direct, Inc. common stock (now known as
Healthcare Concierge, Inc.). On November 9, 2001, as consideration for extending
the term of the notes, we issued to Mr. McNeill and Mr. Williams 13,500 shares
and 10,000 shares, respectively, of Videolocity International, Inc. common
stock. A former director, D.T. Norman, through ISOZ, L.C. of which she is the
manager, also loaned to us in July 2001 an aggregate of $215,000 pursuant to the
60 day 6% secured notes. ISOZ received 107,500 shares of Videolocity Direct
stock as additional consideration for the loan. During the second quarter of
fiscal 2002, Ms. Norman, on behalf of ISOZ, L.C., voluntarily contributed back
to us for cancellation, a total of 50,000 shares of Videolocity International
common stock to offset some of the additional shares that we had to issue as
consideration to acquire certain loans and extensions from other parties. All of
the aforementioned notes remain outstanding as of the date hereof, having been
secured under a UCC-1 filing and are due in November 2002.
Through June 28, 2002, the following officers, employees and consultant
received an aggregate of 32,559 shares of our common stock under the Videolocity
Inc. 2000 Stock Incentive Plan: Jerry E. Romney, Jr., Martin P. Senn, Luigi A.
DeAngelis, David M. Smith, Joshua L. Hamer, Wilford T. Lee, and Steven Fogarty.
On July 30, 2001 our board of directors authorized the borrowing of
$750,000 in 60 day secured notes bearing 8% simple interest. The notes are
secured by an assignment and collateral pledge of 100% of the outstanding stock
of Videolocity Technologies, Inc. (5 million shares), which holds our six
Provisional Patent Applications.
-40-
We owed certain of our affiliates approximately $320,000 which was due
as of July 29, 2001. The affiliates loaned an additional $30,000 and agreed to
convert their already outstanding loans of $320,000, wherein the affiliates
became part of the $750,000 loan package. One additional affiliate loaned
$100,000 and three independent unaffiliated individuals each loaned an
additional $100,000 bringing the total notes payable to $750,000. This provided
us with very necessary operating capital. There were certain expected funds
having been introduced and anticipated with the help of Millennium
International, LLC. that suddenly became unavailable because of the overall
market conditions created by the September 11, 2001 tragedy.
The total of $750,000, which was due and payable on or before October
31, 2001, has been continued from time to time until September 1, 2002, having
been secured under our UCC-1 filing. As bonuses for these loans and the
extensions thereof, we have issued an aggregate of 68,500 of our restricted
shares of common stock and 300,000 restricted shares of Videolocity Direct,
Inc., now known as Healthcare Concierge, Inc.
DESCRIPTION OF CAPITAL STOCK
Common Stock
We are authorized to issue 50 million shares of common stock. At August
30, 2002, there were 5,826,596 shares of common stock outstanding and held of
record by approximately 118 stockholders.
All of our shares of common stock have equal rights and privileges with
respect to voting, liquidation and dividend rights. Each share of common stock
entitles the holder thereof to:
* one non-cumulative vote for each share held of record on all
matters submitted to a vote of the stockholders;
* to participate equally and to receive any and all such
dividends as may be declared by the board of directors; and
* to participate pro rata in any distribution of assets
available for distribution upon our liquidation.
Our stockholders have no preemptive rights to acquire additional shares
of common stock or any other securities.
Preferred Stock
We are also authorized to issue one million shares of preferred stock ,
par value $.001 per share. Our preferred shares may be issued in various series
with terms, rights, voting privileges and preferences to be determined at the
discretion of the board of directors at the time of issuance. All fully paid
shares of preferred stock of the Company shall not be liable to call or
assessment.
* In December 2000, we issued 950,000 shares of series A Preferred stock
pursuant to our acquisition of 5th Digit Technologies, LLC. On February 1, 2001,
we sold 40,000 series A Preferred shares at $2.50 per share, which sale was
rescinded in March 2001 and all monies paid were returned. During 2001, the
600,000 shares of series A Preferred stock were cancelled and 180,000 shares of
our common stock were issued to the holders. Pursuant to the legal action we
filed against the holder of the remaining 350,000 preferred shares, the Court
ordered the shares to be canceled, which they were on April 12, 2002
Presently, we do not have any shares of preferred stock outstanding.
Options
As of June 28, 2002, we had outstanding options to purchase an
aggregate of 282,800 shares of our common stock at the exercise price of $1.00
per share, all of which are presently exercisable.
Registration Rights
Under the terms of the equity line of credit agreement and placement
agent agreement, Cornell Capital and Westrock Advisors have registration rights
for their shares of common stock derived from those agreements. Accordingly,
this prospectus and the registration statement to which it relates, includes the
shares of common stock of Cornell Capital and Westrock Advisors derived from
their respective agreements with us.
-41-
Indemnification Matters
As permitted by the provisions of the Nevada Revised Statutes (NRS), we
have the power to indemnify any person made a party to an action, suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of our company, against expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred by them in connection with
any such action, suit or proceeding if they acted in good faith and in a manner
which they reasonably believed to be in, or not opposed to, the best interest of
our company and, in any criminal action or proceeding, they had no reasonable
cause to believe their conduct was unlawful. Termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that the
person did not act in good faith and in a manner which they reasonably believed
to be in or not opposed to our best interests, and, in any criminal action or
proceeding, they had no reasonable cause to believe their conduct was unlawful.
We must indemnify a director, officer, employee or agent of Videolocity
who is successful, on the merits or otherwise, in the defense of any action,
suit or proceeding, or in defense of any claim, issue, or matter in the
proceeding, to which they are a party because they are or were a director,
officer employee or agent of Videolocity, against expenses actually and
reasonably incurred by them in connection with the defense.
We may make provisions to pay the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding as the
expenses are incurred and in advance of the final disposition of the action,
suit or proceeding, upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that they are not entitled to be indemnified by
us.
The NRS also permits a corporation to purchase and maintain liability
insurance or make other financial arrangements on behalf of any person who is or
was a director, officer, employee or agent of Videolocity, or is or was serving
at the request of the corporation as a director, officer, employee or agent, of
another corporation, partnership, joint venture, trust or other enterprise for
any liability asserted against them and liability and expenses incurred by them
in their capacity as a director, officer, employee or agent, or arising out of
their status as such, whether or not we have the authority to indemnify them
against such liability and expenses.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended, may be permitted to officers, directors or persons controlling
us pursuant to the foregoing provisions, we have been informed that in the
opinion of the SEC, such indemnification is against public policy as expressed
in such Act as is therefore unenforceable.
Amendment of Articles of Incorporation
Any amendment to our articles of incorporation must first be approved
by a majority of the board of directors and, thereafter, by a majority of the
total votes eligible to be cast by holders of our voting stock with respect to
such amendment. Approval by shareholders may be by written consent in lieu of
shareholders' meeting.
By-Law Provisions
Our By-Laws provide that a special meeting of stockholders may be
called by the board of directors or by holders of a majority of our outstanding
shares. Further, only those matters included in the notice of the special
meeting may be considered or acted upon at that special meeting, unless
otherwise provided by law. In addition, our By-Laws include advance notice and
informational requirements and time limitations on any director nomination or
any new proposal which a stock holder wishes to make at an annual meeting of
stockholders.
Transfer Agent
The transfer agent and registrar for our common stock is Colonial Stock
Transfer Company, 66 Exchange Place, Salt Lake City, Utah 84111, telephone (801)
355-5740.
SHARES ELIGIBLE FOR FUTURE SALE
If our current stockholders sell substantial amounts of our common
stock, including shares issued upon the exercise of outstanding options and/or
warrants, into the public market following this offering, the market price of
our common stock could fall. These sales also might make it more difficult for
us to sell equity or equity-related securities in the future at a time and price
that we deem appropriate.
-42-
Upon completion of this offering, we will have outstanding
approximately 76,026,596 shares of our common stock, assuming all of the shares
offered by this prospectus are issued. All of the shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act. Of the balance of the shares to be
outstanding, approximately 850,854 shares are held by public stockholders and
may also be freely traded without restriction. This leaves approximately
4,975,742 restricted shares eligible for future sale in the public market
pursuant to Rule 144 as follows:
Date Number of Shares
---- ----------------
After the date of this prospectus. 3,638,125 shares
After 180 days from the date 148,500 shares
of this prospectus (subject, in some
cases, to volume limitations)
At various times after 180 days from 1,189,117 shares
the date of this prospectus (subject, in
some cases, to volume limitations).
Lock- Up Agreements. In connection with the equity line of credit
agreement, our officers and directors have executed lock-up agreements
concerning our common stock. Each lock-up agreement provides that during the
term of the equity line of credit agreement, the officer or director may not,
without the prior written consent of Cornel Capital, sell or otherwise dispose
of their Videolocity shares except pursuant to Rule 144.
Rule 144. In general, under Rule 144 as currently in effect, beginning
90 days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of
* 1% of the number of shares of our common stock then
outstanding, which will equal to approximately 760,266 shares
immediately after this offering; or
* the average weekly trading volume of our common stock on a
national securities exchange and/or reported through the
automatic quotation system of a registered securities
association during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been
affiliate at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering.
As of July 31, 2002, there were outstanding options to purchase an
aggregate of 282,800 shares of our common stock at the exercise price of $1.00
per share, all of which are presently exercisable. Shares of our common stock
issued upon conversion of these options would be eligible for sale under Rule
144 one year after the holders exercises the option and makes full payment for
the shares.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Leonard E. Neilson, P.C., Attorney at Law. Mr. Neilson is the beneficial
owner of 46,000 shares of our common stock and is the custodian for his children
that own 4,000 shares.
-43-
EXPERTS
The financial statements as of October 31, 2001 and 2000 included in
this prospectus have been so included in reliance on the report of Andersen
Andersen & Strong, L.C., independent accountants, given on the authority of said
firm as experts in auditing and accounting. The auditors' report contains an
explanatory paragraph relating to our ability to continue as a going concern
which is further explained in note 13 to the financial statements. We have
prepared the unaudited financial statements for the period ended July 31, 2002.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC for
the stock offered by this prospectus. This prospectus does not include all of
the information contained in the registration statement. You should refer to the
registration statement for additional information about us, our common stock and
this offering, including the full texts of the exhibits, some of which have been
summarized in this prospectus.
We are subject to certain reporting requirements of the Securities
Exchange Act of 1934 and, in accordance with that Act, we file reports, and
other information with the SEC. We intend to furnish our stockholders with
annual reports containing financial statements audited by independent
accountants, quarterly reports containing unaudited financial statements for the
first three quarters of each fiscal year, and other periodic reports as we may
deem appropriate or as we may be required by law.
You may inspect and copy our registration statement, reports and other
information at the SEC's public reference room at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information about
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains our registration
statement, reports and other information that was filed electronically. The
address of the SEC's Internet site is "http://www.sec.gov."
-44-
VIDEOLOCITY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2001
F-1
VIDEOLOCITY INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountant....................................... F-3
Consolidated Balance Sheet as of October 31, 2001....................................... F-4
Consolidated Statements of Operations................................................... F-5
Statement of Changes in Stockholders' Equity............................................ F-6
Consolidated Statements of Cash Flows .................................................. F-7
Notes to Financial Statements........................................................... F-8
F-2
941 East 3300 South, Suite 202
Salt Lake City, Utah 84106
Telephone 801 486-0096
Fax 801 486-0098
ANDERSEN ANDERSEN & STRONG, L.C.
- -----------------------------------------------------
Certified Public Accountants and Business Consultants
Member SEC Practice Section of the AICPA
Board of Directors
Videolocity International Inc. and Subsidiaries
Salt Lake City, Utah
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheet of Videolocity
International Inc. and Subsidiaries (development stage company) at October 31,
2001 and the related statements of operations, stockholders' equity, and cash
flows for the year ended October 31, 2001, and the period May 26, 2000 to
October 31, 2000 and the period May 26, 2000 (date of inception - note 6 ) to
October 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Videolocity International Inc.
and Subsidiaries at October 31, 2001 and the results of operations, and cash
flows for the year ended October 31, 2001, and the period May 26, 2000 to
October 31, 2000 and the period May 26, 2000 (date of inception - note 6 ) to
October 31, 2001, in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company does not have sufficient
working capital to service its debt and for its planned activity, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 13. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Salt Lake City, Utah
February 8, 2002 /s/ Andersen Andersen and Strong
--------------------------------
Andersen Andersen and Strong
F-3
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
(Development Stage Company)
CONSOLIDATED BALANCE SHEET
October 31, 2001
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 411
Note receivable - net of provision for doubtful accounts - Note 3 350,000
-----------
Total Current Assets 350,411
-----------
EQUIPMENT - net of accumulated depreciation - Note 2 73,012
-----------
OTHER ASSETS
Advance deposits 4,732
-----------
$ 428,155
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - related parties - Note 5 $ 450,000
Notes payable - Note 5 300,000
Accrued interest - notes payable - Note 5 13,949
Accounts payable 143,123
-----------
Total Current Liabilities 907,072
-----------
REDEEMABLE PREFERRED CAPITAL STOCK
10,000,000 shares authorized at $0.001 par value;
950,000 series A issued - Notes 1, 9, &12 950
Capital in excess of par value - Note 9 & 12 3,957,380
-----------
3,958,330
MINORITY INTERESTS 5,038
-----------
STOCKHOLDERS' EQUITY - (deficiency)
Common stock
125,000,000 shares authorized, at $0.001 par value;
43,186,860 shares issued and outstanding 43,187
Capital in excess of par value - Note 12 (1,976,071)
Deficit accumulated during the development stage - Note 2 (2,509,401)
-----------
Total Stockholders' Equity (deficiency) (4,442,285)
-----------
$ 428,155
===========
The accompanying notes are an integral part of these financial statements.
F-4
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
( Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended October 31, 2001 and the Period
May 26, 2000 to October 31, 2000 and the Period
May 26, 2000 ( date of inception - note 6 ) to October 31, 2001
- --------------------------------------------------------------------------------
May 26, 2000
Oct 31, Oct 31, to
2001 2000 Oct 31, 2001
----------- ----------- -----------
REVENUES $ 5,578 $ -- $ 5,578
----------- ----------- -----------
EXPENSES
Administrative 1,353,710 129,778 1,483,488
Interest 201,449 -- 201,449
Depreciation and amortization 69,260 -- 69,260
----------- ----------- -----------
1,624,419 129,778 1,754,197
----------- ----------- -----------
NET LOSS - from operations (1,618,841) (129,778) (1,748,619)
----------- ----------- -----------
OTHER INCOME (LOSS)
Minority interests (4,712) -- (4,712)
Loss of good will (958,628) -- (958,628)
Net gain from sale of investment stock 338,049 -- 338,049
Net loss from transfer of license agreement - Note 3 (135,491) -- (135,491)
----------- -----------
(760,782) (760,782)
----------- ----------- -----------
NET LOSS $(2,379,623) $ (129,778) $(2,509,401)
=========== =========== ===========
LOSS PER COMMON SHARE
Basic $ (.06) $ (.02) --
----------- ----------- -----------
AVERAGE OUTSTANDING
COMMON SHARES
Basic (stated in 1000's) 43,087 6,406 --
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-5
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
(Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY Period May 26, 2000 ( date of inception -
note 6 ) to October 31, 2001
- --------------------------------------------------------------------------------
Capital in
Preferred Stock Common Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
----------- ----------- ---------- ----------- ----------- -----------
Balance May 26, 2000 -- $ -- 6,406,098 $ 6,406 $ 79,920 $ --
Net operating loss for the period
May 26, 2000 to October 31, 2000 -- -- -- -- -- (129,778)
----------- ----------- ---------- ----------- ----------- -----------
Balance October 31, 2000 -- -- 6,406,098 6,406 79,920 (129,778)
Issuance of common stock for bonus
interest expense at $.50 - August 2001 -- -- 150,000 150 74,850 --
Issuance of common stock for
acquisition of Videolocity
International Inc. - Dec 4, 2000 -- -- 30,280,762 30,281 359,165 --
Issuance of class A preferred stock for
Acquisition of 5thDigit
Technology LLC - Dec 5, 2000 950,000 950 -- -- 949,050 --
Issuance of common stock for
cash at $.082 - Dec 7, 2000 -- -- 6,100,000 6,100 493,900 --
Issuance of common stock for incentive
stock plan at $.10 - September 2001 -- -- 50,000 50 4,950 --
Issuance of common stock for public
relations agreement at $.10 -
August 2001 -- -- 200,000 200 19,800 --
Provision for redemption value
of preferred stock - note 9 - -- -- -- -- (3,957,380) --
Net operating loss for the year
ended October 31, 2001 -- -- -- -- (2,379,623)
Less minority interest -- -- -- -- (326) --
----------- ----------- ---------- ----------- ----------- -----------
Balance October 31, 2001 950,000 $ 950 43,186,860 $ 43,187 $(1,976,071) $(2,509,401)
=========== ========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
(Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended October 31, 2001 and the Period May
26, 2000 to October 31, 2000 and the Period May
26, 2000 ( date of inception - note 6 ) to October
31, 2001
- -------------------------------------------------------------------------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Oct 31, Oct 31, May 26, 2000
2001 2000 to Oct 31, 2001
---------- ----------- -----------
Net loss $(2,379,623) $ (129,778) $(2,509,401)
Adjustments to reconcile net loss to
net cash provided by operating
activities
Minority interest 4,712 -- 4,712
Loss of good will 958,628 -- 958,628
Change in short term note receivable (350,000) -- (350,000)
Change in accounts and short term notes payable 687,152 19,920 687,152
Depreciation and amortization 69,260 -- 69,260
Issuance of common stock for services and expenses 70,000 -- 70,000
Net gain from sale of investment stock (452,558) -- (452,558)
---------- ----------- -----------
Net Decrease in Cash From Operations (1,392,429) (109,858) (1,522,207)
---------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of equipment (78,763) (6,433) (78,763)
Advance deposits 5,924 -- (4,732)
Acquisition costs of good will (8,628) -- (8,628)
Cost of investment stock and licenses 571,373 -- 595,516
---------- ----------- -----------
489,906 (6,433) 503,393
---------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of common capital stock - Note 6 500,000 519,225 1,019,225
---------- ----------- -----------
Net change in Cash (402,523) 402,914 411
Cash at Beginning of Period 402,934 -- --
---------- ----------- -----------
Cash at End of Period $ 411 $ 402,914 $ 411
========== =========== ===========
NON CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES
Issuance of 30,280,762 common shares for all outstanding stock of Videolocity Inc. $ 389,446
-----------
Issuance of 950,000 preferred shares for members' interests in 5th Digit Technologies LLC 950,000
-----------
Issuance of 150,000 common shares for expenses 75,000
-----------
Issuance of 250,000 common shares for services 25,000
-----------
The accompanying notes are an integral part of these financial statements.
F-7
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Company was incorporated under the laws of the State of Nevada on November
5, 1985 with authorized common stock of 50,000,000 shares at $0.001 par value
with the name "Pine View Technologies Corporation. On November 27, 2000 the name
was changed to "Videolocity International Inc." and on November 22, 2000 the
Company increased the authorized common capital stock to 125,000,000 with the
same par value and authorized preferred capital stock of 10,000,000 shares at
$.001 par value. The terms of the preferred are outlined in note 8.
The Company and its subsidiaries are in the business of developing and marketing
systems, products, and solutions for the delivery of video and other content to
end users on demand. The Company has not started operations.
On December 4, 2000 the Company completed a reverse common stock split of .61
shares for each outstanding share. This report has been completed showing after
stock split shares from inception.
On December 4, 2000 the Company completed a private placement offering of
6,100,000 common shares for $500,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
- ------------------
The Company recognizes income and expenses based on the accrual method of
accounting.
Dividend Policy
- ---------------
The Company has not yet adopted a policy regarding payment of dividends.
Income Taxes
- ------------
On October 31, 2001, the Company and its subsidiaries had an accumulated net
operating loss available for carryforward of $2,259,401. The tax benefit of
approximately $677,820 has been fully offset by a valuation reserve because the
use of the future tax benefit is doubtful since the Company has not started
operations. The net operating loss will expire in 2022.
Amortization of the License Agreements
- ---------------------------------------
The license agreements are being amortized to expense over ten years.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to significant
concentration of credit risk consists of a note receivable. (note 3)
F-8
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Equipment
Office equipment and the digital entertainment system is being depreciated over
five years.
Office equipment $31,717
Digital entertainment system 47,046
Less accumulated depreciation (5,751)
------
73,012
Basic and Diluted Net Income (Loss) Per Share
- ---------------------------------------------
Basic net income (loss) per share amounts are computed based on the weighted
average number of shares actually outstanding. Diluted net income (loss) per
share amounts are computed using the weighted average number of common shares
and common equivalent shares outstanding as if shares had been issued on the
exercise of any preferred share rights unless the exercise becomes antidilutive
and then only the basic per share amounts are shown in the report.
Principals of Consolidation
- ---------------------------
The consolidated financial statements shown in this report includes the assets
and liabilities of all subsidiaries and excludes the historical operating
information of the Company prior to December 4, 2000, and the operating
information of the 5th Digit Technologies, LLC (subsidiary) prior to December
22, 2000. (Note 6 and 8)
All intercompany transactions have been eliminated
Financial Instruments
- ---------------------
The carrying amounts of financial instruments, including cash, a note
receivable, and accounts payable, are considered by management to be their
estimated fair values.
Estimates and Assumptions
- -------------------------
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of the assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing these financial statements.
Recognition of Income
- ---------------------
The Company is installing the equipment needed to deliver digital information an
entertainment content in selected hotels. After the equipment is operational,
the user will pay for its use with a credit card and the Company will receive
approximately 80% of the proceeds.
F-9
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Comprehensive Income
- --------------------
The Company adopted Statement of Financial Accounting Standards No. 130. The
adoption of this standard had no impact on the total stockholder's equity.
Good Will
- ---------
The pronouncement regarding the valuation of good was adopted on July 1, 2001.
(Note 8)
Other Recent Accounting Pronouncements
- --------------------------------------
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial statements.
3. NOTE RECEIVABLE
The Company has a note receivable of $600,000 (outlined in note 4) due within
120 days from October 31, 2001, with no interest, secured by 1,000,000 common
shares of Merit Studios, Inc., held by the Company. At the report date Merit
Studios, Inc. common stock was trading over the counter with a liquidation value
of $.35 per share. For reporting purposes the value of the note receivable is
shown at $350,000, the liquidation value of the security. The note receivable
has been used as partial security on a note payable given by the Company
outlined in Note 12.
4. ACQUISITION OF LICENSE AGREEMENT
On October 27, 2000, the Company entered into a technology license agreement
with Merit Studios, Inc. pertaining to Merit's proprietary compression
technology as it applies to the compression and delivery of video and other
content. The terms of the original license agreement of two years were amended
by an agreement entitled "Amended and Restated License Agreement", as revised
and restated, on March 6, 2001 which provides for an exclusive license for ten
years, which will continue after May 6, 2011 on a non-exclusive basis for an
additional ten years, however the Company must commence marketing of the
technology within one year, otherwise the exclusive rights may convert to
non-exclusive rights. The terms of the agreement was $250,000, with $50,000
being allocated to the purchase price of the 1,000,000 common shares of Merit
Studios, Inc. Royalties are provided at 10% of the net revenue per transaction
and 50% of all of the initial amounts received from the sales of sub-licenses.
Merit Studios, Inc. received one third of the outstanding stock of Videolocity
Direct, Inc. (a subsidiary of the Company) to which the license agreements with
Merit Studios Inc. have been assigned.
On May 29, 2001, the Company, through its subsidiary Videolocity Direct, Inc.,
entered into an additional technology license agreement with Merit Studios,
Inc., pertaining to Merit's proprietary compression technology for all aspects
and applications in addition to the video application previously licensed. The
terms of the license extend for a period commencing on May 29, 2001 and
continuing through May 28, 2011. The license will continue on a non-exclusive
F-10
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
4. ACQUISITION OF LICENSE AGREEMENT - continued
basis from May 29, 2011 until the expiration or termination of the agreement.
The terms of the agreement provides for a payment of $200,000 upon execution and
future advance royalty payments. Royalties are provided at 20% of net revenues
and 40%of the initial upfront payments received by Videolocity Direct Inc. from
the sale of sublicenses of the Wormhole technology.
On October 31, 2001, which was amended on November 2, 2001, the Company, through
its subsidiary Videolocity Direct, Inc., agreed to sell and reassign the above
two license agreements to Merit Studios Inc. The terms of the agreement included
a note receivable of $600,000 due to Videolocity Direct, Inc. (subsidiary)
within 120 days from October 31, 2001 with no interest, the return of 2,500,000
common shares of Videolocity Direct, Inc. to Videolocity Direct, Inc for
cancellation, and the reassignment of the 1,000,000 common shares of Merit
Studios Inc. held by Videolocity Inc.(subsidiary). The shares in Merit Studios
Inc.
will be held as security until the note receivable is paid. (note 3)
5. NOTES PAYABLE
The Company has short term financing of $750,000 and has issued notes payable,
to six individuals and companies, with a due date of February 28, 2002,
including 8% interest. The loans are secured by all of the stock of Videolocity
Technologies Inc. (subsidiary) held by the Company. During November 2001,
535,000 common shares of the Company were issued to the note holders as bonus
interest. $450,000 of the $750,000 was received from related parties.
6. ACQUISITION OF ALL OUTSTANDING STOCK VIDEOLOCITY, INC.
On December 4, 2000 the Company (parent) completed the acquisition of all of the
outstanding stock of Videolocity International, Inc. ( subsidiary), by a stock
for stock exchange in which the stockholders of of the subsidiary received
30,280,762 common shares of the parent, representing 82% of the outstanding
stock of the parent. For reporting purposes, the acquisition was treated as an
acquisition of the parent by the subsidiary (reverse acquisition) and a
recapitalization of the subsidiary. For reporting purposes the assets and
liabilities of the subsidiary are shown in the balance sheet as if the
acquisition had been completed on October 31, 2000. The historical operating
statements prior to December 4, 2000 are those of the subsidiary. No good will
was recognized from the acquisition.
The subsidiary was organized on May 26, 2000 for the purpose of developing and
marketing systems, products, and solutions for the delivery of video and other
content to end users on demand.
7. RELATED PARTY TRANSACTIONS
Officers, directors, employees and their affiliates, have acquired 41 % of the
common stock issued.
Included in the notes payable outlined in note 5 is $450,000 due to related
parties.
F-11
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
8. ACQUISITION OF ALL MEMBERS' INTERESTS OF 5TH DIGIT TECHNOLOGIES, LLC
On December 22, 2000 the Company ( the parent) acquired all of all the
outstanding members' interest in 5th Digit Technologies LLC (the subsidiary) in
exchange for 950,000 series A preferred shares of the parent, valued at $1.00
per share, in which good will of $950,000 was recognized. Prior to June 30, 2001
the good will was being amortized over ten years, or a shorter period if an
impairment in value was determined. On October 31, 2001 the remaining value of
the good will was determined to be zero and was expensed, which resulted from
the conditions outlined in note 12.
5th Digit was organized on October 10, 2000 and began operations after December
22, 2000. The acquisition was recorded as a purchase and the operating
statements of 5th Digit after November 1, 2001 are included in the consolidated
operating statements. There was no contingent consideration in the merger
agreement.
9. REDEEMABLE PREFERRED CAPITAL STOCK
During December 2000 the Company issued 950,000 shares of series A preferred
stock and 40,000 shares of series B preferred stock. During March 2001 the sale
of the series B preferred stock was rescinded and all monies paid were returned.
The terms of the series A stock are outlined as follows.
(1) Voting. Each share of preferred series A stock shall be entitled to
one vote on all matters submitted to a vote of the shareholders.
2 Conversion.. Each share of preferred series A stock shall be convertible
into one share of common stock by the holders at any time upon delivery
to the Company by written notice of their election to convert.
Each share of preferred series A stock shall automatically be converted
to common shares on February 1, 2002.
(ii Redemption. Upon written notice from the holders of the series A
preferred stock as provided below, the Company will redeem the
preferred stock during the 30 day period January 2, 2002 through
January 31, 2002 at a price $5.00 per share. Any holder of the
preferred stock desiring to redeem his shares shall provide written
notice to the Company within the 30-day period described above. The
total redemption value is $4,750,000 resulting in an accretion of
$3,800,000, over the issue value, which is being amortized over one
year as an addition to the capital in excess of par value under the
redeemable preferred capital stock.
(ii Call Provision. The preferred stock shall be callable by the Company
until January 31, 2002 at a price of $5.00 per share and the Company
shall provide written notice of its intent to call not less than 30
days prior to the effective date of the call. Any holder of preferred
stock may elect to convert to common stock prior to the call with
notice of such conversion within five days prior to the effective date
of the call.
F-12
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
9. PREFERRED CAPITAL STOCK - continued
(ii Liquidation.. The preferred stock shall be entitled to a preference
over the common stock at $5.00 per share in the event of dissolution
of the Company.
Subsequent to October 31, 2001 600,000 of the outstanding series A preferred
shares were retired. ( note 12)
10. STOCK INCENTIVE PLAN
On October 1, 2000 the Company established a stock incentive plan to attract and
retain qualified people to serve as key employees. Awards made under the plan
shall be in plan units and each unit can be convertible, at the option of the
participant, into one share of the Company's common stock after the vesting
requirement has been satisfied. The Company reserved 10,000,000 common shares
that can be issued under the plan. During August 2001, 50,000 shares had been
issued under the plan for services rendered and During December 2001 an
additional 50,000 shares were issued.
11. CONTINUING AND CONTINGENT LIABILITIES
On August 1, 2001 the Company entered into a public relations agreement with
Millennium International, LLC in which 200,000 common shares were issued during
August 2001 and an additional 100,00 shares were issued during December 2001 and
100,000 shares to be issued during February 2002. The terms of the agreement is
for 18 months after August 1, 2001.
The Company is obligated under an office lease for $6,500 per month through Dec
2002.
12. SUBSEQUENT EVENTS
On November 6, 2001 the Company entered into a stock repurchase agreement to buy
back 200,000 shares of Videolocity Direct, Inc. (subsidiary), including a new
loan to the Company of $100,000, for a note payable of $300,000, including 8%
interest. The due date of the note is the date on which the note receivable of
$600,000 is paid to the Company as outlined in Note 3. The note payable is
secured by the note receivable to the extent of amount due on the note payable.
During November 2001, 500,000 common shares of the Company were issued to the
note holder as bonus interest.
During February 2002 the Company issued 1,800,000 common shares for the
retirement of 600,000 series A preferred stock. A legal action was started
against the holder of the remaining 350,000 shares outstanding alleging
misrepresentation of the technology acquired as part of the merger with 5th
Digit Technologies, LLC as outlined in note 8. Legal council believes the
Company will be successful in its effort to have the shares returned to the
company and canceled.
F-13
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
13. GOING CONCERN
The Company does not have the working capital necessary to service its debt and
for its planned activity.
Continuation of the Company as a going concern is dependent upon obtaining
additional working capital and the management of the Company has developed a
strategy, which it believes will accomplish this objective through additional
equity funding and long term financing which will enable the Company to operate
for the coming year.
F-14
VIDEOLOCITY INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2002
(Unaudited)
F-15
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
July 31, October 31,
2002 2001
----------- -----------
CURRENT ASSETS
Cash $ 154,538 $ 411
Note receivable, net 200,000 350,000
----------- -----------
Total current assets 354,538 350,411
PROPERTY AND Equipment, at cost, net 86,182 73,012
Other assets 5,292 4,732
----------- -----------
$ 446,012 $ 428,155
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 51,897 $ 143,123
Accrued interest payable -- 13,949
Notes payable 1,699,800 750,000
----------- -----------
Total current liabilities 1,751,697 907,072
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE PREFERRED CAPITAL STOCK
12,500,000 shares authorized, $0.001 par value, none outstanding at July 31,
2002, 950,000 series A issued
and outstanding at October 31, 2001 -- 950
Capital in excess of par value -- 3,957,380
----------- -----------
-- 3,958,330
MINORITY INTERESTS 4,965 5,038
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; 12,500,000 shares
authorized, 5,826,596 issued and outstanding at
July 31, 2002 (4,318,686 at October 31, 2001) 5,827 4,319
Additional paid-in capital 3,069,863 (1,937,203)
Deficit accumulated during the development stage (4,386,340) (2,509,401)
----------- -----------
Total stockholders' deficit (1,310,650) (4,442,285)
----------- -----------
$ 446,012 $ 428,155
=========== ===========
The accompanying notes are an integral part of these statements.
F-16
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three months ended Nine months ended From
July 31, July 31, May 26, 2000
-------------------------- -------------------------- through
2002 2001 2002 2001 July 31, 2002
----------- ----------- ----------- ----------- -----------
Revenue $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
Operating expenses
Administrative expenses 512,915 356,613 1,389,642 951,351 2,873,130
Write off of good will -- -- -- -- 958,628
Loss on transfer of license
agreement, net -- -- 150,000 -- 285,491
Depreciation and amortization 4,100 29,815 12,300 76,003 81,560
----------- ----------- ----------- ----------- -----------
517,015 386,428 1,551,942 1,027,354 3,576,893
----------- ----------- ----------- ----------- -----------
Operating loss (517,015) (386,428) (1,551,942) (1,027,354) (3,576,893)
Gain on sale of stock, net -- 112,275 -- 312,075 338,049
Interest income -- -- 5,334 5,578
Other expense - interest (132,271) (163,900) (325,070) (163,900) (526,519)
Minority interests 39 6,859 73 6,859 (4,639)
----------- ----------- ----------- ----------- -----------
Loss before income taxes (649,247) (431,194) (1,876,939) (866,986) (4,386,340)
Income taxes -- -- -- -- --
----------- ----------- ----------- ----------- -----------
NET LOSS $ (649,247) $ (431,194) $(1,876,939) $ (866,986) $(4,386,340)
=========== =========== =========== =========== ===========
Loss per common share
Basic and Diluted $ (0.12) $ (0.10) $ (0.38) $ (0.20)
Weighted-average common and dilutive common
equivalent shares outstanding
Basic and Diluted 5,477,835 4,298,700 4,900,399 4,298,700
The accompanying notes are an integral part of these statements.
F-17
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
For the period May 26, 2000 (inception) through October 31,
2000, the year ended October 31, 2001, and for the nine
months ended July 31, 2002
Deficit
accumulated
Preferred stock Common stock Additional during the
-------------------------- -------------------------- paid-in development
Shares Amount Shares Amount capital stage
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 26, 2000
(inception) -- -- -- $ -- $ -- $ --
Issuance of common stock -- -- 640,610 641 85,685 --
Net loss for the period -- -- -- -- -- (129,778)
----------- ----------- ----------- ----------- ----------- -----------
Balance at October 31, 2000 -- -- 640,610 641 85,685 (129,778)
Issuance of Series A preferred
stock 950,000 950 -- -- 949,050 --
Provision for redemption
value of preferred stock -- -- -- -- (3,957,380) --
Issuance of common stock -- -- 3,678,076 3,678 985,442 --
Net loss for the year -- -- -- -- -- (2,379,623)
----------- ----------- ----------- ----------- ----------- -----------
Balance at October 31, 2001 950,000 950 4,318,686 4,319 (1,937,203) (2,509,401)
Redemption of preferred stock (600,000) (600) 180,000 180 2,208,320
Cancellation of preferred stock (350,000) (350) -- -- 1,748,880 --
Cancellation of common stock -- -- (50,000) (50) 50 --
Issuance of common stock for
compensation and incentive stock
plan -- -- 798,559 799 471,045 --
Issuance of common stock on conversion -- -- 579,351 579 578,771 --
of debt and interest
Net loss for the period -- -- -- -- -- (1,876,939)
----------- ----------- ----------- ----------- ----------- -----------
Balance at July 31, 2002 -- -- 5,826,596 $ 5,827 $ 3,069,863 $(4,386,340)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
F-18
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended From
July 31, May 26, 2000
-------------------------- through
2002 2001 July 31, 2002
----------- ----------- -----------
Increase (decrease) in cash
Cash flows from operating activities
Net loss $(1,876,939) $ (873,845) $(4,386,340)
Adjustments to reconcile net loss to
net cash used in operating activities
Minority interests (73) -- 4,965
Loss from transfer of license agreement 150,000 -- 285,491
Depreciation and amortization 12,300 76,003 81,560
Write off of goodwill -- -- 940,059
Issuance of common stock for services and interest 690,888 182,500 1,267,284
Changes in assets and liabilities
Other assets (560) -- (68,800)
Accounts payable and accrued liabilities (91,226) 366,389 51,897
----------- ----------- -----------
Total adjustments 761,329 624,892 2,562,456
----------- ----------- -----------
Net cash used in operating activities (1,115,610) (248,953) (1,823,884)
----------- ----------- -----------
Net cash flows from investing activities -
Purchase of license agreement -- (476,500) (476,500)
Advance deposits -- (31,407)
Purchase of property and equipment (25,470) (30,782) (104,234)
----------- ----------- -----------
Net cash flows used in investing activities (25,470) (538,689) (580,734)
----------- ----------- -----------
Cash flows from financing activities
Increase in notes payable 1,295,207 -- 2,059,156
Proceeds from issuance of common stock -- 500,000 500,000
----------- ----------- -----------
Net cash provided by financing activities 1,295,207 500,000 2,559,156
----------- ----------- -----------
Net increase (decrease) in cash 154,127 (287,642) 154,538
Cash at beginning of period 411 402,934
----------- ----------- -----------
Cash at end of period $ 154,538 $ 115,292 $ 154,538
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ -- $ -- $ --
Income taxes -- -- --
Noncash investing and financing activities
- ------------------------------------------
During the nine months ended July 31, 2002, the Company issued 180,000
shares of common stock on conversion of 600,000 shares of preferred stock
resulting in a reclassification from redeemable preferred capital stock
totaling $2,208,480. The Company also cancelled 350,000 shares of preferred
stock resulting in a reclassification from redeemable preferred capital
stock totalling $1,748,880. The Company converted loans and accrued interest
totaling $359,356 to common stock.
The accompanying notes are an integral part of these statements.
F-19
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES
The information for Videolocity International Inc. (VII) at July 31, 2002 and
for the three months ended July 31, 2002 and 2001 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) which in the
opinion of management, are necessary to state fairly the financial information
set forth therein in accordance with accounting principles generally accepted in
the United States of America.
NOTE B - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been prepared by
the Company in accordance with accounting principles generally accepted in the
United States of America for interim financial reporting and the instructions to
Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, certain information
and footnote disclosures normally included in financial statements prepared
under accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such regulations. This report on Form
10-QSB for the three months ended July 31, 2002 should be read in conjunction
with the Company's annual report on Form 10-KSB for the fiscal year ended
October 31, 2001. The results of operations for the three months ended July 31,
2002, may not be indicative of the results that may be expected for the year
ending October 31, 2002.
NOTE C - ORGANIZATION AND BUSINESS ACTIVITY
The Company is a Nevada corporation organized on November 5, 1985 under the name
Pine View Technologies. On November 27, 2000 the Company's name was changed to
Videolocity International Inc. On December 4, 2000, the Company acquired
Videolocity Inc. in a transaction recorded as a recapitalization of VII with the
Company being the legal survivor and Videolocity Inc. being the accounting
survivor and the operating entity. Videolocity, Inc., the accounting survivor
was founded on May 26, 2000. The Company and its subsidiaries were established
to develop and market systems, products, and solutions for the delivery of
video, high speed internet access, and other content to end users such as
hotels, hospitals, and condominiums on demand.
At July 31, 2002 and October 31, 2001, the Company was considered a development
stage company as its activities had principally been related to market analysis,
capital raising, development and other business planning activities and as such
the Company had no revenue from its planned principal operations.
On March 1, 2002 the Company completed a reverse common stock split of one share
for ten outstanding shares. This report has been completed showing after stock
split shares from inception.
F-20
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE D - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and operations of the
Company and its wholly owned subsidiaries, Videolocity, Inc., Videolocity
Technologies Inc., Hospitality Concierge, Inc., Videolocity Direct Inc., Fifth
Digit Technologies, LLC. and its 93.5 percent owned subsidiary Healthcare
Concierge, Inc. All material intercompany accounts and transactions have been
eliminated in consolidation.
NOTE E - NET EARNINGS (LOSS) PER SHARE
Basic Earnings Per Share (EPS) are calculated by dividing net earnings (loss)
available to common shareholders by the weighted-average number of common shares
outstanding during each period. Diluted EPS are similarly calculated, except
that the weighted-average number of common shares outstanding includes common
shares that may be issued subject to existing rights with dilutive potential.
All common shares with dilutive potential described in Note M are not included
in the computation of diluted loss per share for periods of net loss because to
do so would be anti-dilutive.
NOTE F - INCOME TAXES
On July 31, 2002, the Company and its subsidiaries had an accumulated net
operating loss available for carryforward of approximately $4,315,000. The tax
benefit of approximately $1,295,000 has been fully offset by a valuation reserve
because the use of the future tax benefit is doubtful since the Company is in
the development stage and has not began its intended operations. The net
operating loss will expire through 2023.
NOTE G - NOTE RECEIVABLE
The Company has a $600,000 non-interest bearing note receivable (Note H) due on
or before February 28, 2002. The Company holds 1,000,000 shares of Merit
Studios, Inc. common stock as security valued at approximately $300,000 at July
31, 2002. The Company has recorded an allowance for bad debt totaling $400,000
against the note.
NOTE H - ACQUISITION OF LICENSE AGREEMENTS
On October 27, 2000, the Company entered into a technology license agreement
with Merit Studios, Inc. pertaining to Merit's proprietary compression
technology as it applies to the compression and delivery of video and other
content. On May 29, 2001, the Company, through its subsidiary Videolocity
Direct, Inc., entered into an additional technology license agreement with Merit
Studios, Inc., pertaining to Merit's proprietary compression technology for all
aspects and applications in addition to the video application previously
licensed.
F-21
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE H - ACQUISITION OF LICENSE AGREEMENTS - CONTINUED
On October 31, 2001 (amended on November 2, 2001), the Company, through its
subsidiary Videolocity Direct, Inc., agreed to sell and reassign the above two
license agreements to Merit Studios Inc. The terms of the agreement included a
note receivable of $600,000 due to Videolocity Direct, Inc. (subsidiary) within
120 days from October 31, 2001 with no interest, the return of 2,500,000 common
shares of Videolocity Direct, Inc., which were returned to Videolocity Direct,
Inc. and cancelled on November 11, 2001, and the reassignment of the 1,000,000
common shares of Merit Studios Inc. held by Videolocity Inc. (subsidiary). The
shares in Merit Studios Inc. will be held as security until the note receivable
is paid (Note G). Videolocity Direct, Inc. changed its name to Healthcare
Concierge Inc. on December 31, 2001.
NOTE I - ACQUISITION OF PATENTS
On April 6, 2002 a Provisional Patent Application was filed with the United
States Patent and Trademark Office for the "Videolocity Digital Entertainment
System - Linux Version", which as given an Application No. 60/370,663. On May
20, 2002 an Assignment of Provisional Patent Application No. 60/370,663 was
filed on behalf of Videolocity Technologies, Inc.
NOTE J - NOTES PAYABLE
The Company has notes payable totaling $1,699,800, to various individuals and
companies including related parties (Note P), with extended maturities from
September 2002 through November 2002 and interest rates ranging from 6% through
20 %.
On April 30, 2002 the Company filed a UCC-1 financing statement, with the state
of Nevada, on the six Provisional Patent applications held in the name of
Videolocity Technologies, Inc. in favor of certain promissory note holders, as
security, in exchange for an extension of maturity dates to September 2002 on
promissory notes totaling $1,050,000.
NOTE K - RECAPITALIZATION
On December 4, 2000, the Company (formerly Pine View Technologies, Inc.)
acquired Videolocity Inc. The combination of Videolocity Inc. and the Company
was recorded as a recapitalization of Videolocity Inc. with the Company being
the legal survivor and Videolocity Inc. being the accounting survivor.
Videolocity, Inc. the accounting survivor, was founded on May 26, 2000. After
the recapitalization, approximately 82 percent of the outstanding shares of the
Company were held by former stockholders of Videolocity, Inc.
F-22
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE L - REDEEMABLE PREFERRED CAPITAL STOCK
During December 2000 the Company issued 950,000 shares of series A preferred
stock and 40,000 shares of series B preferred stock for the purchase of 5th
Digit Technologies, LLC. During March 2001 the sale of the series B preferred
stock was rescinded and all monies paid were returned. During 2002, the Company
exchanged 600,000 of the outstanding series A preferred shares for 1,800,000
common shares of the Company. A legal action was filed against the holder of the
remaining 350,000 preferred shares outstanding, alleging misrepresentation of
the technology acquired as part of the purchase of 5th Digit Technologies, LLC.
On January 24, 2002 the outstanding 350,000 preferred shares were tendered for
liquidation at $5.00 per share and were subsequently deposited with the court
pending the outcome of the legal action.
On April 11, 2002 the Third Judicial District Court, Salt Lake County, signed a
Default Judgment against the holder of the outstanding 350,000 preferred shares
ordering cancellation of the shares. It was further adjudged and decreed that
any and all redemption or other rights vested in and related to the shares be
voided. The 350,000 preferred shares were cancelled on April 12, 2002.
NOTE M - STOCK INCENTIVE PLANS
On October 1, 2000 the Company established a stock incentive plan to attract and
retain qualified people to serve as key employees. Awards made under the plan
shall be in plan units and each unit can be convertible, at the option of the
participant, into one share of the Company's common stock after the vesting
requirement has been satisfied. The Company reserved 1,000,000 common shares
that can be issued under the plan. As of July 31, 2002, the Company has 301,234
outstanding plan units subject to vesting requirements. During the nine months
ended July 31, 2002 the Company issued 24,959 shares of common stock in exchange
for vested plan units resulting in compensation expense of approximately
$25,000. The Company has issued 29,959 common shares under the plan.
On March 26, 2002 the Company filed an additional stock option and stock award
plan, which had been approved by the shareholders of Pine View Technologies in
November 2001 as part of the merger with Videolocity, Inc. The purpose of the
plan is to enable the Company to attract and retain qualified persons to serve
as officers, directors, key employees and consultants of the Company, and to
align the financial interests of these persons with those of its shareholders by
providing those officers, directors, key employees and consultants with a
proprietary interest in the Company's performance and progress through the award
of stock options, appreciation rights or stock awards from time to time.
The plan shall remain in effect for a period of five years or until amended or
terminated by action of the Board. The termination of the Plan shall not affect
any outstanding awards made under the Plan. The maximum number of shares of
Common Stock, which may be issued pursuant to the Plan is 500,000. The Company
has issued 417,855 shares under the Plan.
F-23
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE N - COMMITMENTS AND CONTINGENCIES
The Company is obligated under office leases for $6,500 per month through
December 2002.
On December 26, 2001 Gateway Center, LLC filed a complaint in the Third District
Court, Summit County against a former company president, Jerry Romney, Jr. and
Movies on Line, Inc. (now Videolocity, Inc.). The complaint alleges non-payment
of Common Area Maintenance fees for office space leased between August 2000 and
December 31, 2000 in the amount of $1,564.
On April 8, 2002, the company filed a response which alleges that during the
entire term of the Lease, the Gateway Center, LLC never provided written or oral
notice of any sums it claimed were due and owning for "additional rent" or any
other purpose, never sent a monthly or other statement for any such additional
amount, never demanded payment of any such sums and, when the term of the lease
had expired, they orally notified the company that it had paid all amounts that
Gateway Center, LLC had claimed under the lease. The company received no notice,
written oral of any supposed amount due until September 24, 2001.
On May 2, 2002 the company filed a complaint in the Third Judicial District
Court, Salt Lake County against a former employee. The complaint alleges a
willful breach of the provisions of the Employment Agreement executed between
the parties on March 16, 2001. The complaint also alleges misrepresentation and
fraud on the part of the former employee.
NOTE O - EQUITY LINE OF CREDIT AGREEMENT
On May 28, 2002 Videolocity International, Inc. finalized an Equity Line of
Credit Agreement, with Cornell Capital Partners, LP, a New Jersey-based domestic
investment fund. Under the Equity Line, Videolocity has the right, but not the
obligation, to require Cornell Capital to purchase shares of Videolocity common
stock up to a maximum amount of $20,000,000 over a 24-month period. There is no
minimum draw down although Videolocity may make draws, as provided below, during
the term of the Equity Line.
Pursuant to terms of the Equity Line, Videolocity is required to file with the
SEC a registration statement covering the shares to be acquired by Cornell
Partners. The 24-month term commences on the effective date of the registration
statement. The Company is currently working toward completion of the
registration. The purchase price of the shares will be 95% of the lowest closing
bid price of Videolocity common stock during the five consecutive trading days
immediately following receipt of the Company's notice of its intent to make a
draw. Videolocity may make up to four draws per month at a maximum $250,000 per
draw. In addition to the shares to be issued under the Equity Line, Videolocity
will include in its registration statement an additional 300,000 shares being
issued to Cornell Partners and the Placement Agent in connection with the
execution of the Equity Line.
F-24
Videolocity International Inc. and Subsidiaries
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE P - SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
Officers, directors, employees and their families and affiliates, have acquired
36 % of the common stock issued and have made short term loans to the Company
totaling approximately $628,000 with interest rates ranging from 6.0% to 8.0%.
A director of the Company caused the voluntary contribution and cancellation of
50,000 shares as manager of ISOZ, LC.
NOTE Q - RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial statements
NOTE R - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. However, the Company
has incurred losses since its inception and has not yet been successful in
establishing profitable operations. These factors raise substantial doubt about
the ability of the Company to continue as a going concern. In this regard,
management is proposing to raise necessary additional funds not provided by its
planned operations through loans and/or through additional sales of its common
stock. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
F-25
We have not authorized any dealer, salesperson or other person to provide to you
any information or make any representations about Videolocity International,
Inc. except the information or representations contained in this prospectus. You
must not rely on any additional information or representations if made.
This prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy any securities of Videolocity International, Inc.:
* except the common stock offered by this
prospectus; 70,500,000 Shares of Common Stock
* in any jurisdiction in which the offer or solicitation
is not authorized;
* in any jurisdiction where the dealer or other
salesperson is not qualified to make the offer or ---------------------
solicitation; PROSPECTUS
---------------------
* to any person to whom it is unlawful to make the
offer or solicitation; or
* to any person who is not a United States resident or
who is outside the jurisdiction of the United States.
October _,2002
The delivery of this prospectus or any resulting sale does not imply that:
* there have been no changes in the affairs of
Videolocity International, Inc. after the date of this
prospectus; or
* the information contained in this prospectus is correct after the date
of this prospectus.
Until _______, 2002, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters.
F-26
VIDEOLOCITY INTERNATIONAL, INC.
Part II
Item 24. Indemnification of Directors and Officers
As permitted by the provisions of the Nevada Revised Statutes (the
"NRS"), we have the power to indemnify any person made a party to an action,
suit or proceeding by reason of the fact that they are or were a director,
officer, employee or agent of our company, against expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by them in
connection with any such action, suit or proceeding if they acted in good faith
and in a manner which they reasonably believed to be in, or not opposed to, the
best interest of our company and, in any criminal action or proceeding, they had
no reasonable cause to believe their conduct was unlawful. Termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which they
reasonably believed to be in or not opposed to our best interests, and, in any
criminal action or proceeding, they had no reasonable cause to believe their
conduct was unlawful.
We must indemnify a director, officer, employee or agent of Videolocity
who is successful, on the merits or otherwise, in the defense of any action,
suit or proceeding, or in defense of any claim, issue, or matter in the
proceeding, to which they are a party because they are or were a director,
officer employee or agent of Videolocity, against expenses actually and
reasonably incurred by them in connection with the defense.
We may make provisions to pay the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding as the
expenses are incurred and in advance of the final disposition of the action,
suit or proceeding, upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that they are not entitled to be indemnified by
us.
The NRS also permits a corporation to purchase and maintain liability
insurance or make other financial arrangements on behalf of any person who is or
was a director, officer, employee or agent of Videolocity, or is or was serving
at the request of the corporation as a director, officer, employee or agent, of
another corporation, partnership, joint venture, trust or other enterprise for
any liability asserted against them and liability and expenses incurred by them
in their capacity as a director, officer, employee or agent, or arising out of
their status as such, whether or not we have the authority to indemnify them
against such liability and expenses.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended, may be permitted to officers, directors or persons controlling
us pursuant to the foregoing provisions, we have been informed that in the
opinion of the SEC, such indemnification is against public policy as expressed
in such Act as is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution
Filing fee under the Securities Act of 1933......... $ 7,500
Accountants' fees and expenses...................... 2,500
Legal fees and related expenses..................... 20,000
Printing and filing charges......................... 6,500
Transfer agent and registrar fees and expenses...... 2,500
Miscellaneous....................................... 11,000
Total.................................. $ 50,000
Item 26. Recent Sales of Unregistered Securities
The following table sets forth information relating to all previous
sales of securities by the Registrant within the past three years that were not
registered under the Securities Act of 1933, as amended.
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Date
of Sale Name of Purchaser Type Number Consideration
- ------------ ----------------- ---- --------- -------------
12-04-2000 Shareholders of Moviesonline, Inc. (a) 3,028,125 In exchange for the acquisition of
Moviesonline, Inc., valued at
$389,446
12-05-2000 Owners of 5th Digit Technologies, LLC (b) 950,000 In exchange for the acquisition of
5th Digit Technologies, LLC, valued
at $950,000
12-07-2000 3 purchasers in private placement (a) 610,000 Cash of $500,000
08-1-2001 6 persons in private placement, (c) $750,000 Cash
including three affiliates, Larry McNeill,
Bennie L. Williams and ISOZ, LC
08-03-2001 To certain debtors (Edwards and Davis) (a) 10,000 Additional interest on loans, valued
at $8,000
08-20-2001 Millennium International, LLC (a) 20,000 Consideration for services, valued
at $20,000
08-28-2001 To certain debtor (Crown Jewels, LLC) (a) 5,000 Additional interest on loan, valued
at $4,000
11-05-2001 To certain debtor (WAJ Enterprises, LLC) (a) 50,000 Additional interest on loan, valued
at $40,000
11-09-2001 To certain debtors (Davis, Edwards, (a) 30,000 Additional interest on loans, valued
McNeill and Williams) at $24,000
11-09-2001 Larry R. McNeill (a) 13,500 Additional interest on loan, valued
at $10,800
11-09-2001 Bennie L. Williams (a) 10,000 Additional interest on loan, valued
at $8,000
12-11-2001 Millennium International, LLC (a) 10,000 Consideration for Services, valued
at $8,000
02-05-2002 Alpay Kasal, Daniel Osorio & (a) 180,000 Exchange and retirement of Series
Collette Horrell A Preferred stock valued at
$180,000
02-05-2002 Bernard E. Driscoll (a) 5,000 Additional interest on loan, valued
at $5,000
04-01-2002 Greenwood Technology Group (a) 50,000 Additional interest on loans, valued
at $50,000
04-30-2002 Bernard E. Driscoll (a) 25,495 Conversion of promissory note and
interest, valued at $25,495
06-07-2002 Cornell Capital Partners, L.P. (a) 290,000 Additional consideration under
equity line of credit agreement,
valued at $290,000 (advance fee)
06-07-2002 Westrock Advisors, Inc. (a) 10,000 Consideration under placement
agent agreement, valued at $10,000
(advance fee)
06-10-2002 Frank Divito, Art Duran, Mike Evans, (a) 17,000 Consideration for loans, valued at
Mark Barnhart & Mike Black $17,000
S-2
06-11-2002 Dan Driscoll (a) 125,122 Conversion of promissory note
and interest, valued at $125,122
06-14-2002 Greenwood Technology Group (a) 183,124 Conversion of promissory note
and interest, valued at $183,124
06-17-2002 Arnold Y. Kapiloff (a) 17,855 Consideration of services valued
at $17,855
06-19-2002 Richard H. McCullough (a) 10,000 Consideration for loan, valued at
$10,000
07-15-2002 Timothy E, Perschke, KMA, Inc. & (a) 8,000 Additional consideration for
Bruno A. Muscatello UCC-1 loan valued at $8,000
07-25-2002 Frank Divito & Richard Ehnot (a) 1,000 Additional consideration for
UCC-1 loan valued at $8,000
Healthcare Concierge, Inc. Securities
07-30-2001 to 27 persons including affiliates McNeill, (a) 425,000 Cash and exchange of debt,
07-23-2002 Williams and ISOZ, LC (d) valued at $338,000
- -----------------
(a) Common Stock.
(b) Preferred Stock
(c) 6% Secured 60 day Notes
(d) A total of 425,000 shares were issued by VCTY to 27 persons. Of the
original shares, 129,000 shares have been canceled, leaving 296,000 shares
outstanding.
With respect to the above issuances for services rendered, cash,
acquisitions, consideration for loans and interest, we relied on the exemptions
from registration provided by Sections 4(2) and 4(6) of the Securities Act of
1933. Each issuance made in reliance on Section 4(2) was made pursuant to
individual agreements and are made only with persons who were sophisticated in
such transactions. Each person had knowledge of and access to sufficient
information about Videolocity to make an informed investment decision, including
the fact that the securities were deemed restricted securities.
For issuances upon the exchange of preferred stock and conversion of
notes, we relied on the exemption from registration provided by Section 3(a)(9)
of the Securities Act. All securities issued to the aforementioned persons bear
restrictive legends preventing their transfer except in accordance with the
Securities Act and the regulations promulgated thereunder. In addition, stop
transfer instructions pertaining to these shares have been or will be lodged
with our transfer agent.
Item 27. Exhibits
(a) The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
- ----------- ------------
2.1(1) Agreement and Plan of Reorganization With Pine View
Technologies, Inc. Dated as of November 15, 2000
2.2(1) Articles of Merger Between Pine View Merger Co. and
Videolocity, Inc. Dated December 1, 2000
3.1(1) Amended and Restated Articles of Incorporation
3.2(2) By-Laws
3.3(3) Designation of Rights, Preferences and Privileges for the
Series B Voting Preferred Stock of Videolocity International,
Inc.
S-3
3.4(6) Amendment to Articles of Incorporation
5.1 Opinion of Leonard E. Neilson, Attorney at Law, regarding
legality of securities being registered
10.1(1) License Agreement Between Videolocity, Inc. (formerly
Moviesonline, Inc.) and Merit Studios, Inc. dated October 27,
2000
10.1(a)(4) Amended and Restated License Agreement [Video] between
Videolocity Direct, Inc. and Merit Studios, Inc. dated
effective as of October 27, 2000
10.2(4) Services Agreement between Videolocity International, Inc. and
Sinclair-Davis Filing Trading Corp. dated as of April 26, 2001
10.3(5) Additional Technology License Agreement dated May 29, 2001,
between Videolocity Direct, Inc. and Merit Studios, Inc.
10.4 Equity Line of Credit Agreement with Cornell Capital Partners,
L.P.
10.5 Registration Rights Agreement with Cornell Capital Partners,
L.P. related to Equity Line of Credit Agreement
10.6 Escrow Agreement with Cornell Capital Partners, L.P., Butler
Gonzalez LLP and First Union National Bank, related to Equity
Line of Credit Agreement
10.7 Placement Agent Agreement with Westrock Advisors, Inc.,
related to Equity Line of Credit Agreement
10.8(6) Employment Agreement with Robert E. Holt
10.9(6) Employment Agreement with Martin P. Senn
10.10(6) Lease of Prospector Square Facility and Extension
10.11(6) UCC-1 Security Agreement
10.12(6) Amendment to Agreement of Purchase and Reassignment with Merit
Studios, Inc.
10.13 Employment Agreement with Cortney Taylor
10.14 Settlement Agreement with 5th Digit, LLC and Istream TV
10.15 Strategic Alliance Agreement with OnSat Network Communications
10.16 Tech Flex Funding Dealer Marketing Agreement
10.17 Value Added Reseller Agreement with Vistor Networks, Inc.
10.18 Specimen promissory note
21.1(6) Subsidiaries
23.1 Consent of Andersen Andersen & Strong, L.C., Certified Public
Accountants
23.2 Consent of Leonard E. Neilson, Attorney at Law (included as
part of Exhibit 5)
- ------------------
(1) Incorporated by reference to the Form 10-KSB for the fiscal
year ended October 31, 2000.
(2) Incorporated by reference to the registration statement on
Form S-18 filed with the Commission, SEC file no. 33-2310-D.
(3) Incorporated by reference to the Form 10-QSB for the period
ended January 31, 2001.
(4) Incorporated by reference to the Form 10-QSB for the period
ended April 30, 2001.
(5) Incorporated by reference to the Form 10-QSB for the period
ended July 31, 2001.
(b) Financial Statement Schedules for Registrant.
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or
the required information is shown in the financial statements
or notes therein.
S-4
(b) Financial Statement Schedules for Registrant.
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable, or
the required information is shown in the financial statements
or notes therein.
Item 28. Undertakings
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or
events which, individually or together represent a fundamental
change in the information in the registration statement; and
notwithstanding the forgoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospects filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities as at that time
to be the initial bona fide offering.
(3) File a post effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) If the issuer relies on Rule 430A under the Securities Act, the
small business issuer will:
(1) For determining any liability under the Securities Act
treat the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be a part of this registration statement as of the time the Commission
declared it effective.
(2) For determining any liability under the Securities Act,
that each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
S-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Salt
Lake City, State of Utah, on this 17th day of October 2002.
VIDEOLOCITY INTERNATIONAL, INC.
(REGISTRANT)
By: /s/ROBERT E. HOLT
---------------------------
Robert E. Holt
Chief Executive Officer
In accordance with the requirements of the Securities act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
By: /s/ ROBERT E. HOLT
------------------------------------------
Robert E. Holt
Chief Executive Officer and Director
Date: October 17, 2002
By: /s/BENNIE L. WILLIAMS
Bennie L. Williams,
Chairman and Director
Date: October 17, 2002
By: /s/LARRY R. MCNEILL
---------------------------------
Larry R. McNeill,
Vice President and Director
Date: October 17, 2002
By: /s/DAN DRISCOLL
---------------------------------------
Dan Driscoll,
Vice President Corporate Development
and Director
Date: October 17, 2002
By: /s/ CORTNEY TAYLOR
----------------------------
Cortney Taylor,
Chief Financial Officer
Date: October 17, 2002
S-6