SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the three months ending March 31, 2003
--------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to ___________
Commission file number 0-27043
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E-VIDEOTV, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 51-0389325
- -------------------------------- ---------------------------
(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.)
2111 Wilson Blvd - Suite #700, Arlington VA 22201
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(Address of Principal Executive Offices)
703-351-5011
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date: 32,553,881 as at May 9, 2003.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
E-VIDEOTV, INC.
FORM 10-QSB
FOR THE QUARTER (3 Months) ENDED March 31,2003
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 2
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 2
Item 2. Management's Discussion and Analysis and Plan of
Operation. . . . . . . . . . . . . . . . . . . . . . . . 1
PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 3
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . 3
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 3
Item 4. Submission of Matters to a Vote of Security Holders. . . 3
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 3
Item 6. Exhibits and Reports on Form 8-K.. . . . . . . . . . . . 3
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following financial statements are included as part of this quarterly
report:
Unaudited Consolidated Balance Sheet at March 31, 2003 and December 31, 2002.
Unaudited Consolidated Statement of Operations for the period from inception,
March 5, 1999, to March 31, 2003, and the three months ended March 31, 2003 and
2002.
Unaudited Consolidated Statement of Cash Flows for the period from inception,
March 5, 1999, to March 31, 2003, and the three months ended March 31, 2003 and
2002.
Notes to the Unaudited Consolidated Financial Statements . . . . . . . . . . . .
============================================================================================
E-VIDEOTV, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
March 31 December 31
2003 2002
- --------------------------------------------------------------------------------------------
(unaudited)
ASSETS
Current
Cash 12,792 20,189
Computer equipment (net of accumulated depreciation of $63,006
(2002: $58,106)) 20,961 25,861
Debt issue costs (Note 6) 16,064 34,364
------------ -------------
$ 49,817 $ 80,414
============ =============
- --------------------------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 4) $ 835,407 $ 792,849
Loans payable (note 5) 225,976 199,076
Convertible debentures (Note 6) 794,096 681,993
------------ -------------
1,855,479 1,673,918
Non-current deferred revenue 300,000 320,000
------------ -------------
2,155,479 1,993,918
------------ -------------
SHAREHOLDERS' DEFICIENCY
Capital stock (Note 7)
Issued and outstanding:
32,553,881 (2002: 32,553,881) common shares 3,255 3,255
Additional paid-in capital 5,503,730 5,503,730
Share subscriptions 79,200 79,200
------------ -------------
5,586,185 5,586,185
Deficit accumulated during the development stage (7,691,847) (7,499,689)
------------ -------------
(2,105,662) (1,913,504)
------------ -------------
$ 49,817 $ 80,414
============ =============
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<FN>
Continuance of operations (Note 1)
See accompanying notes to the consolidated financial statements.
2
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E-VIDEOTV, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
Cumulative Quarter Quarter
March5, 1999 Ended Ended
to March 31 March 31 March 31
2003 2003 2002
- -----------------------------------------------------------------------------------------------------
Revenue $ 100,000 $ 20,000 $ 20,000
-------------- ------------ ------------
General and administrative expenses
Bad debts 80,500 - -
Compensation expense for stock options 420,583 - 16,000
Corporate promotion 283,953 346 18,415
Depreciation and amortization 801,623 4,900 20,600
General corporate expenses 198,496 - 10,228
Interest expense 1,229,598 164,953 196,613
Management and consulting services 1,470,728 10,000 53,287
Office expenses 244,610 5,129 19,120
Professional fees 453,659 10,945 21,634
Rent 176,251 702 17,751
Royalties 250,000 - -
Software development 130,775 13,500 -
Travel 221,085 1,683 10,759
-------------- ------------ ------------
5,961,861 212,158 384,407
-------------- ------------ ------------
Loss before undernoted (5,861,861) (192,158) (364,407)
-------------- ------------ ------------
Write-off of distribution rights and software development
costs (1,841,360) - -
Interest income 11,374 - -
-------------- ------------ ------------
(1,829,986) (192,158) (364,407)
-------------- ------------ ------------
Net loss $ (7,691,847) $ (192,158) $ (364,407)
============== ============ ============
Weighted average number of common shares
Outstanding 32,553,881 24,108,557
============ ============
Net loss per share, basic and diluted (0.01) (0.02)
============ ============
- -----------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
3
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E-VIDEOTV, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
Cumulative Quarter Quarter
March 5, 1999 Ended Ended
to March 31 March 31 March 31
2003 2003 2002
- ------------------------------------------------------------------------------------------------
CASH DERIVED FROM (APPLIED TO)
OPERATING
Net loss for period $ (7,691,847) $(192,158) $(364,407)
Deferred revenue (100,000) (20,000) (20,000)
Bad debts 80,500 - -
Compensation expense for stock options 420,583 - 16,000
Write-off of distribution rights and software
development costs 1,841,360 - -
Depreciation and amortization 811,557 4,900 20,600
Amortization of debenture discount 1,068,244 130,403 177,727
Debenture Interest paid in shares 5,720 - 2,606
Management fee paid in shares 238,000 - -
Subscription of shares for services 25,200 - -
Change in non-cash operating capital
Receivables and prepaids 19,036 - 6,432
Payables and accruals 737,746 42,558 3,821
--------------- ---------- ----------
(2,543,901) (34,297) (157,221)
--------------- ---------- ----------
FINANCING
Proceeds from issuance and subscription of
common shares 1,538,101 - -
Convertible debentures issued 1,000,000 - -
Convertible debenture issue costs (163,250) - -
Advances on loans payable 417,950 26,900 (19,540)
Repayments of loans payable (132,474) - (100,139)
Cash acquired on acquisition of parent company 1,001,481 - -
Loans from parent company prior to acquisition 115,000 - -
--------------- ---------- ----------
3,776,808 26,900 (119,679)
--------------- ---------- ----------
INVESTING
Advances to Ziracom Digital Communications, Inc. 76,843 - 346,587
Non-current receivables (80,500) - (52,300)
Computer equipment (47,427) - (5,847)
Distribution rights (300,000) - -
License (445,000) - -
Software development (424,031) - -
--------------- ---------- ----------
(1,220,115) - 288,440
--------------- ---------- ----------
Net increase (decrease) in cash 12,792 (7,397) 11,540
Cash, beginning of period - 20,189 -
--------------- ---------- ----------
Cash, end of period $ 12,792 $ 12,792 $ 11,540
=============== ========== ==========
NON-CASH ACTIVITIES NOT INCLUDED IN CASH FLOWS
Shares issued to pay management fees $ 238,000 $ - $ -
Shares issued on conversion of debentures $ 118,205 $ - $ 52,850
Debenture interest paid in shares $ 5,720 $ - $ 2,606
Shares issued to settle loan from related party $ 59,500 $ - $ -
Shares subscribed to settle trade payables $ 54,000 $ - $ -
Shares cancelled on termination of license $ 30,163 $ - $ -
Shares issued to acquire license $ 791,773 $ - $ -
Compensation expense for stock options $ 420,583 $ - $ 16,000
Cancellation of loans from parent company on
acquisition $ 115,000 $ - $ -
Value of shares issued in excess of cash
acquired on acquisition of parent company $ 95,374 $ - $ -
Shares issued to acquire Ziracom (Note 3) $ 259,654 $ - $ 259,654
See accompanying notes to the consolidated financial statements.
4
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
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1. BASIS OF PRESENTATION
The company was incorporated in the state of Delaware, U.S.A. on July 25, 1997
under the name Oro Rico Mining Corporation. On August 25, 1997, ORM, Inc., an
inactive company incorporated in Colorado on July 25, 1997, was merged into the
company. The name of the company was changed to Asia Pacific Enterprises, Inc.
on October 16, 1997 and to e-VideoTV, Inc. on August 6, 1999.
On June 23, 1999 the company acquired all of the outstanding shares of e-Video
U.S.A., Inc. This business combination has been accounted for as an acquisition
of the company by e-Video U.S.A., Inc.
The company had previously commenced its planned principal operations although
it had not yet earned significant revenue. The company's previous operational
focus was to secure licensing operators for its Faster-Than-Real-Time ("FTRT")
video on demand service. To that end, management devoted substantially all of
the company's resources to the identification and qualification of such
potential licenses.
In November 2001, the company changed its operational focus from the licensing
of FTRT video on demand service to focus on the acquisition of technologies,
especially in the field of video compression, and sell these technologies to
interested parties and/or enter into reseller agreements. The company has sold
its exclusive license rights in the U.S.A. for analog copy protection for video
transmissions received in FTRT back to Macrovision Corporation
The company acquired, through its acquisition of Ziracom Digital Communications,
Inc. ("Ziracom") (Note 3), video compression technology. The Alpha-Omega CODEC
uses a set of proprietary algorithms to analyse a video signal and determine how
best to apply its selection of compression techniques. The compression
techniques utilized in Alpha-Omega include MPEG-Discrete Cosine Transforms,
Wavelet Transforms, Color Tables, Color Quantization, and Video Masking. The
company has generated revenues in the first quarter of $20,000. This is revenue
earned by Ziracom from the sale of a five (5) year license for a total
consideration of $400,000. All funds were paid in January 2002.
The Company's consolidated financial statements for the period ended March 31,
2003, have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business for the foreseeable future. The Company incurred a net
loss of $192,158 for the three months ended March 31, 2003 and has a working
capital deficiency of $1,842,687 and accumulated deficit of $7,691,847 at March
31, 2003. These factors raise substantial doubt about the Company's ability to
continue as a going concern which is dependent upon its ability to raise
additional capital through private placements and other types of venture
fundings and through financing agreements with its clients. The outcome of these
matters cannot be predicted at this time. No assurances can be given that the
Company will be successful in raising sufficient additional capital. Further,
there can be no assurance, assuming the Company successfully raises additional
funds, or that the Company will achieve positive cash flow. If the Company is
unable to obtain adequate additional financing, management will be required to
curtail the Company's operating expenses. These consolidated financial
statements do not include any adjustments to the specific amounts and
classifications of assets and liabilities that might be necessary should the
Company be unable to continue in business.
5
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These unaudited consolidated financial statements are presented in U.S. dollars
in accordance with accounting principles generally accepted in the United States
of America and have been prepared on the same basis as the annual audited
consolidated financial statements.
In the opinion of management, these audited consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation for each of the periods presented. The results of
operations for interim periods are not necessarily indicative of results to be
achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying consolidated financial statements and
related footnotes have been condensed and do not contain certain information
that will be included in the company's annual consolidated financial statements
and footnotes. For further information, refer to the consolidated financial
statements and related footnotes for the years ended December 31, 2002 and 2001
included in the company's Annual Report on Form 10-KSB.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates
TRANSLATION OF FOREIGN CURRENCIES
The company considers the U.S. dollar its functional currency. Monetary assets
and liabilities are translated at the exchange rate in effect at the balance
sheet date and non-monetary assets and liabilities at the exchange rates in
effect at the time of acquisition or issue. Revenues and expenses are
translated at the rates in effect at the time of the transaction. Exchange
gains or losses arising on translation are included in net income or loss for
the period.
FINANCIAL INSTRUMENTS
The company has various financial instruments, including cash, receivables,
accounts payable and accrued liabilities, loans from related and unrelated
parties and convertible debentures. It was not practicable to determine the
fair value of the loans from a related party or the convertible debenture. The
carrying values of all other financial instruments approximates their fair
values
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards (FAS) 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed, the company capitalizes certain computer software development costs
upon the establishment of technological feasibility. Technological feasibility
is
6
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
considered to have occurred upon completion of a detailed program design which
has been confirmed by documenting and tracing the detail program design to
product specifications and has been reviewed for high-risk development issues,
or to the extent a detailed program design is not pursued, upon completion of a
working model that has been confirmed by testing to be consistent with the
product design. Amortization is provided based on the greater of the ratios that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product, or the straight line method
over the estimated useful life of the product commencing upon technological
feasibility.
Management regularly reviews the carrying value of its software development
costs to assess whether or not there has been an impairment in its carrying
value. When the carrying values of these assets exceed their estimated net
recoverable amounts, an impairment provision is recorded.
LOSS PER SHARE
The company follows Statement of Financial Accounting Standard No. 128, to
calculate loss per share. Basic loss per share is computed using the weighted
effect of all common shares issued and outstanding. Diluted loss per common
share is computed giving effect to all potential dilutive options and warrants
that were outstanding during the year. For all periods presented, all
outstanding options and warrants were anti-dilutive.
ACCOUNTING FOR STOCK OPTIONS
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"), which requires
entities to calculate the fair value of stock awards granted to employees. This
statement provides entities with the option of either electing to expense the
fair value of employee stock-based compensation or to continue to recognize
compensation expense under previously existing accounting pronouncements and to
provide pro forma disclosures of net earnings (loss) and, if presented, earnings
(loss) per share, as if the above-referenced fair value method of accounting was
used in determining compensation expense.
The company accounts for the options issued to directors and employees in
accordance with the provisions of APB Opinion No. 25, Accounting for Stock
Options Issued to Employees. Had compensation cost for the stock option plan
been determined based on the fair value at the grant date consistent with the
method of SFAS No. 123, Accounting for Stock-Based Compensation, the company's
net loss and net loss per share would have been the pro forma amounts indicated
below:
March 31 March 31
2003 2002
---------- ----------
NET LOSS:
Actual net loss $(192,158) $(364,407)
Pro forma stock based compensation - (38,000)
---------- ----------
Pro forma net loss $(192,158) $(402,407)
========== ==========
LOSS PER SHARE:
Actual net loss per share $ (0.01) $ (0.02)
Pro forma net loss per share $ (0.01) $ (0.02)
7
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The fair value of each option grant was estimated at the grant date using the
Black-Scholes option-pricing model for the period ended March 31, 2002, assuming
a risk-free interest rate of 4.88%, volatility of 2.16%, zero dividend yield,
and an expected life of 5.00 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options and warrants which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions, including the expected stock price volatility.
Because the company's employee stock options and warrants have characteristics
significantly different from traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
measure of the fair value of its employee stock options.
Stock options issued to non-employees are recorded at the fair value of the
services received or the fair value of the options issued, whichever is more
reliably measurable. Compensation is charged to expense over the shorter of the
service or vesting period. Unearned amounts are shown as deferred compensation
in stockholders' equity.
STOCK ISSUED FOR NON-CASH CONSIDERATION
Stock issued for non-cash consideration is recorded at the fair value of the
stock issued.
3. ACQUISITION
Pursuant to a Share Purchase Agreement entered into between the company, Ziracom
Digital Communications Inc., and its shareholders, the company purchased all of
Ziracom's outstanding common shares for 8,655,138 of the company's common
shares. Ziracom became a subsidiary of e-VideoTV, Inc. following completion of
the transaction on February 14, 2002. The transaction has been accounted for by
the purchase method with the company as the acquirer. The results of Ziracom's
operations are included subsequent to its acquisition date on February 14, 2002.
NET IDENTIFIABLE ASSETS ACQUIRED
Receivables $ 83,275
Capital assets 25,724
Software development costs 635,667
Payables and accruals (85,012)
Deferred revenue (400,000)
----------
$ 259,654
==========
CONSIDERATION
8,655,138 common shares $ 259,654
==========
8
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES March 31 December 31
2003 2002
--------- -----------
Trade payables $ 336,290 $ 320,281
Accrued liabilities 25,500 33,501
Interest payable (Note 6) 154,617 120,067
Accrued management fees (Note 9) 319,000 319,000
--------- -----------
$ 835,407 $ 792,849
========= ===========
- --------------------------------------------------------------------------------
5. LOANS PAYABLE March 31 December 31
2003 2002
--------- -----------
Loans from directors and former directors
with no specific terms of repayment $ 118,476 $ 118,476
Loan from a shareholder bearing no interest,
unsecured and repayable at $3,000 per month.
At March 31, 2003, this loan is nineteen
months in arrears. 24,000 24,000
Loan from shareholders bearing no interest
and with no terms of repayment 7,600 7,600
Loans received from unrelated individuals.
These loans bear interest at 8% and are due
for repayment on November 22, 2003 for $49,000
and March 7, 2004 for $26,900. If these loans
are not repaid when due, the holders have the
option of conversion at prices of $0.05 and
$0.025 per share respectfully. The aggregate
number of shares that could be issued
upon conversion is 2,056,000. 75,900 49,000
--------- -----------
$ 225,976 $ 199,076
--------- -----------
9
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
- --------------------------------------------------------------------------------
6. CONVERTIBLE DEBENTURES
On July 6, 2001, the company received $1,000,000 from the sale of convertible
debentures and warrants to purchase up to 666,666 shares of the company's common
stock (Note 8). The principal on the debentures is due June 6, 2003. Interest
at 8% per annum on the debenture principal outstanding is due quarterly
commencing September 30, 2001. The debentures and any unpaid and accrued
interest may be converted at the option of the holder into common shares of the
company. The conversion price per share is the lesser of $0.4747 and 80% of the
average of the three lowest closing prices of the common shares on the principal
market where the shares trade for the sixty trading days prior to conversion.
The company may redeem the convertible debentures on five days notice by paying
the holders 190% of the principal outstanding plus accrued interest. Upon
receiving the repayment notice, the debenture holders have the option of
converting the debentures to common shares within five days.
The company has determined the fair value of the warrants to be $486,600, using
the Black Scholes option-pricing model. This warrant value is reflected as an
addition to paid-in capital and a discount to the debenture principal.
The debentures contain a "beneficial conversion" feature as the fair value of
the underlying stock was greater than the fair value of the debenture at the
date of issuance. The value of the beneficial conversion feature has been
calculated as $513,400, which has been recognized as an addition to paid-in
capital and a discount to the debenture principal.
The discounts to the debenture principal are amortized over the life of the
debentures as interest expense. Any unamortized discounts related to debentures
converted to common stock are written off as interest expense at the conversion
date.
The company incurred $163,750 in cash commissions and expenses related to the
issuance of the debentures, which has been recognized as a deferred cost to be
amortized by the interest method over the term of the debt. Any unamortized
issue costs related to debentures converted to common stock are written off as
interest expense at the conversion date.
10
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
- --------------------------------------------------------------------------------
6. CONVERTIBLE DEBENTURES (Continued)
The following table summarizes the activity in the debentures to March 31, 2003.
Convertible Debentures
-----------------------------------
Deferred
Original Unamortized Net Book Issue
Principal Discounts Value Costs
----------- ----------- --------- ----------
DURING THE YEAR ENDED DECEMBER 31
2002
Debentures issued on July 6, 2001 $1,000,000 $1,000,000 $ - $ 163,250
Debentures converted to common stock (128,090) (106,033) (22,057) (17,310)
Amortization of discounts (704,050) 704,050 (111,576)
----------- ----------- --------- ----------
Balance, December 31, 2002 871,910 189,917 681,993 34,364
DURING THE THREE MONTHS ENDED MARCH
31, 2003
Amortization of discounts - (112,103) 112,103 (18,300)
----------- ----------- --------- ----------
Balance, March 31, 2003 $ 871,910 $ 77,814 $794,096 $ 16,064
=========== =========== ========= ==========
The company has not made interest payments as required under the terms of the
convertible debenture agreements. At March 31, 2003, $154,617 in interest on
these convertible debentures has been accrued but is unpaid. Notwithstanding
this technical default, the creditor has agreed not to demand repayment of the
loan.
- --------------------------------------------------------------------------------
7. CAPITAL STOCK
AUTHORIZED CAPITAL
100,000,000 shares of common stock with a par value of $0.0001
5,000,000 shares of preferred stock with a par value of $0.0001
11
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
- --------------------------------------------------------------------------------
7. CAPITAL STOCK (Continued)
STOCK OPTIONS
The company's directors have approved a stock option plan that sets aside
7,500,000 shares of the company's common stock for issuance upon the exercise of
stock options that may be granted to directors, employees and consultants.
On December 30, 2002, the company cancelled all outstanding options and at March
31, 2003, there were no options outstanding.
WARRANTS
The following warrants to purchase shares of common stock were issued during the
year ended December 31, 2001 and are outstanding:
Number of
shares issuable
on exercise exercise price per share expiry date particulars of issuance
- --------------- ------------------------------ ------------ ------------------------------
666,666 the lesser of $0.4747 and July 6, 2006 issued in connection with the
80% of the average of the issuance of the convertible
three lowest closing prices of debentures (Note 9)
the common shares on the
principal market where the
shares trade for the sixty
trading days prior to exercise
SHARE SUBSCRIPTIONS
March 31, 2003 December 31, 2002
---------------- -----------------
Number Amount Number Amount
------- ------- -------- -------
Shares to be issued in settlement of
trade payables 180,000 $54,000 180,000 $54,000
Subscription of shares to be issued for
services rendered 84,000 25,200 84,000 25,200
------- ------- -------- -------
264,000 79,200 264,000 79,200
======= ======= ======== =======
- --------------------------------------------------------------------------------
12
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E-VIDEOTV, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
March 31, 2003
(Unaudited)
- --------------------------------------------------------------------------------
7. CAPITAL STOCK (Continued)
SHARES ISSUABLE UNDER CONVERTIBLE DEBENTURES
Based on an estimate of the company's share price at March 31, 2003, the terms
of the company's convertible debenture (Note 6) would enable the debenture
holder to exercise its conversion rights to acquire approximately 88,000,000
common shares.
- --------------------------------------------------------------------------------
8. INCOME TAXES
At March 31, 2003, the company had net operating losses carried forward of
approximately $7,352,000 (December 31, 2002: $7,160,000) that may offset
against future taxable income until 2020. The potential tax benefits of the
losses carried forward are offset by a valuation allowance of the same amount as
there is substantial uncertainty that the losses will be used before they
expire.
- --------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
During the period ending March 31, 2003 no consulting fees were paid or accrued
to officers or directors (2002: $32,500). Included in accounts payable and
accrued liabilities is $424,205 (2002: $152,107) owing to directors or officers.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's prime undertaking is the development, design, and deployment of
its "Alpha-Omega" video Compression technology used over wired and wireless
networks. This video compression CODEC focuses on video compression allowing it
to deliver video signals for remote video surveillance, education and
entertainment, wireless hand-held computers and video cell phones.
The "Alpha-Omega" Video Compression CODEC offers a powerful solution to users
needing high compression rates while maintaining excellent video quality for
video streaming applications, video file downloads, and video conferencing.
During the quarter ending March 31,2003, the company focused on completion of
the reflector, thus allowing for multiple video conferencing. The Company also
continued to reduce its overhead and carefully controlled its limited financial
resources in order to complete the technology. Expenses during the quarter
ending March 31, 2003 were $212,158 vs. $384,407 in the quarter ending March 31,
2002. Included in this are non-cash items such as interest expense, $164,953,
vs. $196,613 in March 31, 2002, and depreciation and amortization, being $4,900
in March 31, 2003 vs. $20,600 at March 31, 2002.
During the quarter ending March 31, 2003, the Company obtained private loans in
the amount of $26,900. These loans are for a term of one year and carry
provisions regarding conversion into common shares at $0.025 per share. These
funds plus funds on hand at the beginning of the quarter, $20,000, allowed the
Company to focus on completion of its video compression CODEC.
There were delays during the quarter on the completion but the Company is
confident that marketing on the technology will commence by June or July 2003.
The Company intends to market the Alpha-Omega technology through non-exclusive
Marketing Agreements and through its own in-house personnel. To date, the
Company has executed one agreement with a marketing company but to date no
software has been delivered.
The Company is currently beta testing the technology with certain parties who
are assessing the Alpha-Omega software for their particular needs. The
applications for the Alpha-Omega include Internet video streaming, wireless
video devices, video cell phones, cable & satellite television broadcasts,
remote security devices, remote newsgathering, and downloading of movies. Both
the encoder and decoder can be customized to be compatible with alternate
platforms, custom solutions, and stand-alone solutions. The Alpha-Omega supports
file formats of type ASF (streaming) and AVI (video files). The Alpha-Omega
software has a number of proprietary techniques to perform video compression
using an automated intelligent algorithm that selects in real-time the most
efficient combinations of its internal compression methods for each scene and
frame. The Alpha-Omega also incorporates additional proprietary methods to
reduce image macro blocking in low bandwidth applications
After completion of the reflector, the Company plans to continue its research
and development program in order to extend the technology to include handheld
PDA devices, and fully intends to license the Alpha-Omega to semiconductor
companies for embedding into their devices. This research will continue at its
relocated head office in Arlington Virginia.
Controls and procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chairman and Chief Financial Officer, and
Chief Executive Officer of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chairman and Chief Financial Officer and the Chief Executive Officer
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ending March 31 2003, the Company had revenue of $20,000.
This represents three months of a five (5) year license agreement for a total of
$400,000 from an initial licensing sale in January 2002. Revenue recognition is
spread over a 60- month period.
During the quarter ending March 31, 2003, the Company incurred losses of
$192,158 vs. $364,407 for the quarter ending March 31 2002. The loss for March
31, 2003 included amortization of debenture discount and interest of $164,953,
thus reducing actual cash expenses significantly for the quarter. The Company
continues to reduce overhead and focus its limited financial resources on
completion of the software.
During the quarter ending March 31, 2003, the Company obtained private loans in
the amount of $26,900. These loans are for a one-year period and have the option
of conversion into common shares at a price of $0.025 per share. These loans
assisted in paying for research and development costs and sundry consulting
fees.
In July 2001, the Company completed a $1,000,000 8% convertible debenture
financing that is redeemable in June 2003. Interest is payable quarterly and to
date, this interest has accrued and not been paid. At March 31 2003, the accrued
interest amounted to $154,617.The debenture is due June 6 2003. The unconverted
balance of the debenture at March 31 2003 is $871,910. The Lender has provided a
waiver re default on the outstanding interest. The debenture is convertible
based on a conversion formula. In addition to the debenture, the fund received
666,666 warrants to purchase additional shares in the Company. These warrants
have an exercise price of approximately $0.40 per share. The Company is in
discussions with the Lender regarding the debt and both parties are actively
working towards a mutually satisfactory option regarding retirement of this
debt.
The floating conversion price for the convertible debentures is the lesser of
(i) 80% of the average of the three lowest closing bid prices of the common
stock for the twenty (20) trading days prior to the closing date, or (ii) 80% of
the average of the three lowest closing bid prices of the common stock for the
sixty (60) trading days prior to the conversion date, as defined in the
convertible debenture. The maximum number of shares of common stock that the
subscriber or group of affiliated subscribers may own after conversion at any
given time is 4.99%. In connection with the financing, the company entered into
certain covenants including, but not limited to, the following: (i) the company
may not redeem the convertible debentures without the consent of the holder;
(ii) the company will pay to certain finders a cash fee of ten percent (10%) of
the principal amount of the convertible debentures for location of the
financings; (iii) the company has agreed to incur certain penalties for untimely
delivery of the shares.
The Company further recognizes that its development schedule will be delayed
unless additional capital required is available when needed. The Company
anticipates revenue from licensing of its Alpha-Omega software in the next three
months. In addition to this, the Company is exploring loans from private
investors, and additional loans from directors and/or existing shareholders
although there can be no assurance that these loans will be successfully
obtained. In the event that the Company is not able to obtain these loans it
will be unable to fund its operations.
Inflation has not been a factor during the quarter ending March 31 2003.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are none at the present time.
ITEM 2. CHANGES IN SECURITIES.
There are no changes in the Company's securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the three
months ended March 31, 2003.
ITEM 5. OTHER INFORMATION.
The Company has no other information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
E-VIDEOTV, INC.
Date May 12, 2003 By /s/ Robert G. Dinning
----------------- -------------------------------------
Robert G. Dinning
Chairman and Chief Financial Officer
Date May 12, 2003 By /s/ Gianfranco Fiorio
----------------- -------------------------------------
Gianfranco Fiorio
Chief Executive Officer
Certification of Principal Executive Officer and Principal Financial Officer
Regarding Facts and Circumstances Relating to Exchange Act Filings
1. I have read this quarterly report on Form 10-QSB of e-VideoTV, Inc.;
2. Based on my knowledge, the report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by the report.
3. Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the report;
4. I am:
(a) responsible for establishing and maintaining internal disclosure
controls and procedures for the company;
(b) have designed such disclosure controls and procedures to ensure that
material information relating to the company is made known to me by others
within the company, particularly during the period in which the periodic reports
are being prepared;
(c) have evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the report; and
(d) have presented in the report my conclusions about the effectiveness of
their disclosure controls and procedures based on my evaluation as of that date;
5. I have disclosed, based on our most recent evaluation to the company's
auditors and the board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the company's ability to record, process,
summarize, and report financial data and have identified for the company's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal controls; and
6. I have indicated in the report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
BY: /s/ Robert Dinning Subscribed and sworn to
----------------------------------- before me this 15th day of
Robert Dinning, Chairman and C.F.O. May 2003
(Principal Executive Officer) and
(Principal Financial Officer)
DATE: May 15, 2003
------------------ /s/
-------------------------
Notary Public
My Commission Expires: