U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission file number 33-2310-D
VIDEOLOCITY INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in charter)
NEVADA 87-0429154
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1762-A Prospector Dr., Park City, Utah 84060
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(Address of principal executive offices) (Zip Code)
(801) 230-0839
--------------------------
(Issuer's telephone number)
Not Applicable
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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
equity, as of the latest practicable date.
As of June 11, 2001, there were 42,986,860 shares of the registrant's
common stock, par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format
(Check one):
Yes [ ] No [X]
VIDEOLOCITY INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
April 30, 2001 and October 31, 2000 4
Condensed Consolidated Statements of Operations
for the three and six month periods ended April
30, 2001 and 2000 and from inception on May 26,
2000 through April 30, 2001 5
Condensed Consolidated Statements of Cash Flows
for the six month periods ended April 30, 2001
and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
2
Part I--Financial Information
Item 1. Financial Statements
The accompanying unaudited condensed consolidated balance sheets of Videolocity
International, Inc. (the "Company" or the "Issuer") at April 30, 2001 and
October 31, 2000, and the related unaudited consolidated condensed statements of
operations for the three and six month periods ended April 30, 2001 and 2000,
and the period from inception on May 26, 2000 to April 30, 2001, and the
unaudited consolidated condensed statements of cash flows for the six month
periods ended April 30, 2001 and 2000, have been prepared by the Company's
management and they do not include all information and notes to the financial
statements necessary for a complete presentation of the financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles. In the opinion of the Company's management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature. The financial statements included in this
report on Form 10-QSB should be read in conjunction with the Company's audited
financial statements and the notes thereto included in its annual report on Form
10-KSB for the year ended October 31, 2000.
Operating results for the quarter ended April 30, 2001 are not necessarily
indicative of the results that may be expected for the year ending October 31,
2001.
3
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
(Development Stage Company)
CONSOLIDATED BALANCE SHEETS
April 30, 2001 and October 31, 2000
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------
Apr 30, Oct 31,
2001 2000
---- ----
ASSETS
CURRENT ASSETS
Cash $ 101,198 $ 402,934
Accounts receivable 54,500 -
----------- ---------
Total Current Assets 155,698 402,934
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EQUIPMENT - net of accumulated depreciation - Note 2 28,113 -
----------- ---------
OTHER ASSETS
Advanced deposits 22,231 10,656
Marketable securities - available-for-sale - Note 3 50,000 50,000
License agreement - Note 2 & 4 238,911 200,000
Good will - Note 6 926,672 -
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1,237,814 260,656
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$ 1,421,625 $ 663,590
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - license agreement - Note 4 $ - $ 200,000
Accounts payable 39,175 19,920
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Total Current Liabilities 39,175 219,920
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REDEEMABLE PREFERRED CAPITAL STOCK
10,000,000 shares authorized at $0.001 par value;
950,000 series A issued - Notes 1 & 8 950 -
Capital in excess of par value 2,215,727 -
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2,216,677 -
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MINORITY INTERESTS 2,700 -
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STOCKHOLDERS' EQUITY
Common stock
125,000,000 shares authorized, at $0.001 par value;
42,986,860 shares issued and outstanding on
April 30, 2001; 6,405,610 on October 31, 2000 42,986 6,406
Capital in excess of par value (314,342) 567,043
Deficit accumulated during the development stage (565,571) (129,779)
----------- ---------
Total Stockholders' Equity (deficiency) (836,927) 443,670
----------- ---------
$ 1,421,625 $ 663,590
=========== =========
The accompanying notes are an integral part of these
financial statements.
4
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
(Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three and Six Months Ended April 30,
2001 and 2000 and the Period May 26, 2000 (date
of inception) to April 30, 2001
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
Three Months Six Months
------------------------- ----------------------- May 26, 2000
Apr 30, Apr 30, Apr 30, Apr 30, to
2001 2000 2001 2000 Apr 30, 2001
---------- ---------- --------- --------- ------------
REVENUES $ 2,961 $ - $ 6,218 $ - $ 9,475
---------- ------- --------- ------- ----------
EXPENSES
Research and development 27,818 - 27,818 - 27,818
Administrative 361,676 - 567,804 - 700,840
Depreciation and amortization 36,929 - 46,188 - 46,188
---------- ------- --------- ------- ----------
426,423 - 641,810 - 774,846
---------- ------- --------- ------- ----------
NET LOSS - before other income (423,462) - (635,592) - (765,371)
NET GAIN FROM SALE OF
INVESTMENT STOCK 199,800 - 199,800 - 199,800
NET LOSS $ (223,662) $ - $(435,792) $ - $ (565,571)
========== ======= ========= ======= ==========
======= ======= ======= ======= =======
LOSS PER COMMON SHARE
Basic $ - $ - $ - $ -
---------- ------- --------- ------- ----------
AVERAGE OUTSTANDING COMMON SHARES
Basic (stated in 1000's) 42,987 42,787 42,987 42,787
---------- ------- --------- ------- ----------
The accompanying notes are an integral part of these
financial statements.
5
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
(Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended April 30, 2001 and 2000
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
Apr 30, Apr 30,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(435,792) -
Adjustments to reconcile net loss to net cash
provided by operating activities
Change in accounts receivable (54,500) -
Change in accounts payable 19,255 -
Depreciation and amortization 46,188 -
Issuance of common stock for services 20,000 -
Net Decrease in Cash From Operations (404,849) -
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (30,782) -
Advance deposits (14,605) -
Purchase of license agreement (251,500) -
Advances on note receivable (100,000) -
--------- ---------
(396,887) -
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common capital stock 500,000 -
--------- ---------
Net decrease in Cash (301,736) -
Cash at Beginning of Period 402,934 -
--------- ---------
Cash at End of Period $ 101,198 $ -
========= =========
NON CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES
Issuance of 30,281,250 common shares for all outstanding
stock of of Videolocity Inc. $ -
---------
Issuance of 950,000 preferred shares for members' interests
in 5th Digit Technologies LLC 950,000
---------
Issuance of 200,000 common shares for services 20,000
---------
The accompanying notes are an integral part of
these financial statements.
6
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.
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 cash of $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 April 30, 2001, the Company and its subsidiaries had an accumulated net
operating loss of $565,571 with a tax benefit of $169,670 from the carry
forward. The tax benefit 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 Agreement
The license agreement is being amortized to expense over ten years.
Equipment
Office equipment is being depreciated over five years.
7
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consists of cash and accounts receivable. Cash
balances are maintained in accounts that are not federally insured for amounts
over $100,000 but are other wise in financial institutions of high credit
quality. The accounts receivable are considered by management to be fully
collectable.
Principals of Consolidation
The consolidated financial statements shown in this report include the assets
and liabilities of Videolocity, Inc. (subsidiary) as if the acquisition of the
subsidiary by the Company was completed on October 31, 2000 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.
All intercompany transactions have been eliminated
Financial Instruments
The carrying amounts of financial instruments, including cash, marketable
securities, 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.
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.
8
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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. MARKETABLE SECURITIES - AVAILABLE - FOR - SALE
On October 27, 2000 the Company acquired 1,000,000 common shares of Merit
Studios, Inc. for $50,000. See Note 4
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 were $250,000, with $50,000
being allocated to the purchase price of the 1,000,000 common shares of Merit
Studios, Inc. outlined in note 3. 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.
5. 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
30,281,250 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.
9
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
6. 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 in which good will
was recognized. The historical operating statements prior to December 22, 2000
are not included in the operating statements.
The subsidiary was organized on October 10, 2000.
7. RELATED PARTY TRANSACTIONS
Officers, directors, employees and their affiliates, have acquired 71 % of the
common stock issued and 100% of the preferred stock issued. Included in the
accounts payable on April 30, 2001 are amounts due to related parties of $1,030.
8. 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.
3. 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, at $316,667 per month as an addition to the capital in excess of
par value under the redeemable preferred capital stock.
10
VIDEOLOCITY INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - continued
- --------------------------------------------------------------------------------
8. PREFERRED CAPITAL STOCK - continued
4. 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.
5. 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.
9. 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 has reserved 400,000 common shares
that can be issued under the plan. On the date of this report no awards had been
made under the plan.
On November 15, 2000, the Company established an omnibus stock option and stock
award plan and reserved 5,000,000 shares of the Company's common stock for
issuance under the plan. As of the date of this report, no awards had been made
under such plan.
10. CONTINUING AND CONTINGENT LIABILITIES
On December 20, 2000 the Company entered into employment agreements starting
January 5, 2001 and continuing for one year which provide for annual salaries of
$175,000 for two related parties.
On May 3, 2001 the Company engaged Sinclair-Davis Trading Corp to provide public
relations services. The terms of the agreement provided for the issuance of
200,000 common shares of the Company, which was completed, and 200,000 shares to
be issued on August 3, 2001.
11
Item 2. Management's Discussion and Analysis or Plan of Operation
Plan of Operation
The following discussion should be read in conjunction with the Issuer's
unaudited financial statements included elsewhere in this report.
Videolocity's plan of operation is to use its existing capital together with the
proceeds from future financings to complete development and commence deployment
and sales of its Digital Entertainment System, which was formerly referred to by
the Company as its "video-on-demand system." As of April 30, 2001, Videolocity
had net cash assets in the amount of approximately $101,198. Videolocity
estimates that its minimum expenses during the next twelve months will be
approximately $1,200,000, consisting of $900,000 in payroll, $49,000 for office
rent, and $151,000 for general and administrative expenses, including legal and
accounting. Videolocity will also incur substantial additional costs in
connection with the manufacture and deployment of its Digital Entertainment
System. Videolocity estimates that such costs will be a minimum of $10,000,000
but plans to finance those costs based on contracts entered into for the
deployment of its Digital Entertainment System. Videolocity has entered into a
strategic relationship with Tech Flex Funding, Inc. (underwritten by American
Express Equipment Finance), wherein funding is available for all its future
installations on a lease back program without recourse to Videolocity.
The 950,000 issued and outstanding shares of Videolocity's Series A Preferred
Stock are 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. If such shares are not
converted to common stock and the holders demand redemption of such shares, the
Company will be required to pay a maximum of $4,750,000 to the holders if all
shares are redeemed.
Videolocity plans to generate revenues from the delivery of video content to the
end users of its Digital Entertainment System and believes revenues from
contracts will commence by mid-summer from one completed contract and by early
fall from other contracts that are currently in negotiation. Videolocity will
charge a fee for each movie or other item of content viewed through its system
and anticipates that it will remit a portion of such fee to the studio or other
content provider. Videolocity also plans to sell or lease the set-top boxes for
use with its Digital Entertainment System to its viewers at a price calculated
to return its out of pocket costs and a small profit over a period of three
years.
Videolocity plans to seek additional equity financing in two or more offerings
during the next twelve months in a total amount of up to approximately
$25,000,000, which will permit it to cover its minimum expenses described above
and to accelerate the deployment of its Digital Entertainment System.
Videolocity has not entered into any agreement or arrangement for the provision
of such financing and no assurances can be given that it will be able to obtain
such financing on terms acceptable to it or at all. Based on its current costs
of operation, contract commitments, and availability of credit, Videolocity
estimates that its current assets will be sufficient to fund its cost of
operation for approximately three months and that it will be required to obtain
additional financing before that time in order to continue its operations.
Negotiations for additional debt and equity funding are ongoing at the present
time. The Company has received an additional $300,000 in debt financing from
affiliated parties since April 30, 2001.
12
Forward Looking Statements
This report contains forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. These statements reflect the views of
Videolocity International, Inc. ("Videolocity" or the "Issuer") with respect to
future events based upon information available to it at this time. These
forward-looking statements are subject to certain uncertainties and other
factors that could cause actual results to differ materially from these
statements. Forward-looking statements are typically identified by the use of
the words "believe," "may," "will," "should," "expect," "anticipate,"
"estimate," "project," "propose," "plan," "intend," and similar words and
expressions. Examples of forward-looking statements are statements that describe
the proposed operation and marketing of Videolocity's Digital Entertainment
System, statements that describe the functions and operations of technology it
has licensed but not tested, statements with regard to the nature and extent of
competition Videolocity may face in the future, and statements with respect to
future strategic plans, goals or objectives. Forward-looking statements are
contained in this information statement under the caption "Plan of Operation."
The forward-looking statements are based on present circumstances and on
Videolocity's predictions respecting events that have not occurred, that may not
occur, or that may occur with different consequences and timing than those now
assumed or anticipated. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various
factors, including the risk factors discussed in this report. These cautionary
statements are intended to be applicable to all related forward-looking
statements wherever they appear in this report. Any forward-looking statements
are made only as of the date of this report and Videolocity assumes no
obligation to update forward-looking statements to reflect subsequent events or
circumstances.
Part II--Other Information
Item 1. Legal Proceedings
During the quarter ended April 30, 2001, Videolocity and iStreamTV, Inc. entered
into a settlement agreement with respect to the pending actions between such
parties, their affiliates and others in the Supreme Court of the State of New
York, County of New York, and the Third District Court for the District of Utah.
Pursuant to the terms of the settlement agreement, both actions were dismissed
with prejudice, 5th Digit Technologies, a subsidiary of Videolocity, assigned
its interest in three patent applications to iStreamTV without warranty, and
iStream reimbursed Videolocity, Inc. for a portion of a $4,000 deposit
previously paid by Videolocity, Inc. to iStreamTV. The patent applications
assigned by 5th Digit did not pertain to products currently being used by the
Company or proposed to be used by it in the future.
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
On or about April 30, 2001, Videolocity and one accredited investor mutually
agreed to rescind the sale of 40,000 shares of Videolocity's Series B Preferred
Stock, and the purchase price for the shares was refunded to the investor and
the shares were cancelled. As a result, there are no shares of Series B
Preferred Stock issued and outstanding, and Videolocity has no current plans to
sell any additional shares of Series B Preferred Stock.
On or about April 30, 2001, Videolocity sold 200,000 shares of Videolocity
Direct, Inc., a 66.67% owned subsidiary of Videolocity, to one accredited
investor for $200,000. In addition, on May 3, 2001,
13
Videolocity issued 200,000 shares of its restricted common stock to
Sinclair-Davis Trading Corp., and agreed to issue it an additional 200,000
restricted shares of common stock in three months, pursuant to the terms of the
Services Agreement described in Item 5 below. The Company granted Sinclair-Davis
a one-time demand registration right and piggy-back registration rights with
respect to such shares. No underwriter was involved in the foregoing
transactions and the shares were issued or sold by the Issuer directly to the
investor and Sinclair-Davis. The shares were sold without registration under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on the
exemption from such registration requirements provided by Section 4(2) of the
Securities Act for transactions not involving any public offering. The shares
were sold without general advertising or solicitation. The purchasers
acknowledged that they were purchasing "restricted securities" which had not
been registered under the Securities Act and which were subject to certain
restrictions on resale, and the certificates representing the shares were
imprinted with the usual and customary restricted stock legend.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Videolocity entered into a Services Agreement with Sinclair-Davis Trading Corp.
dated as of April 26, 2001, pursuant to which Sinclair-Davis agreed to provide
public relations services to Videolocity during the eighteen-month term of the
Agreement. Videolocity issued Sinclair-Davis 200,000 restricted shares of its
common stock and agreed to issue an additional 200,000 restricted shares of its
common stock three months from the signing date of the agreement. Videolocity
also granted Sinclair-Davis a one-time right to demand registration of such
shares and "piggy-back" registration rights with respect to such shares. The
foregoing summary of the Services Agreement is qualified in its entirety by
reference to the Services Agreement, a copy of which is included as an exhibit
to this report.
On or about May 30, 2001, Videolocity Direct, Inc., a partially owned subsidiary
of Videolocity, and Merit Studios, Inc. ("Merit") entered into a License
Agreement (the "License Agreement") for Merit's Wormhole Data (Compression)
Packing Technology. The agreement grants Videolocity Direct an additional
exclusive license to the WormHole Data (Compression) Packing Technology for 20
years, 10 years exclusive and 10 years non-exclusive; provided, that if the
Company has not obtained content rights and commenced marketing efforts within
one year of Merit's completion of the WormHole Video System, Merit may convert
the exclusive rights to non-exclusive rights. Videolocity Direct will pay cash
payments of $29 million over 10 years, and royalties, to Merit Studios. The
royalties are 20 percent on all net revenue received by Videolocity Direct from
its use of the WormHole Technology, together with 40 percent of any initial
sublicense fees. The agreement separate from and in addition to the Amended and
Restated License Agreement under which Videolocity Direct previously acquired an
exclusive license for Merit's WormHole Video-On-Demand System. The foregoing
summary of the License Agreement is qualified in its entirety by reference to
the License Agreement, a copy of which will be filed as an exhibit to
Videolocity's Form 10-QSB for the quarter ending July 31, 2001. Merit owns
33.33% of Videolocity Direct.
14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following documents are included as exhibits to
this report:
Exhibit SEC Ref.
No. No. Title of Document Location
- ------- -------- ----------------- --------
10.1 10 Amended and Restated License Agreement This
[Video] between Videolcity Direct, Inc. and Filing
Merit Studios, Inc. dated effective as of
October 27, 2000
10.2 10 Services Agreement between Videolocity This
International, Inc. and Sinclair-Davis Filing
Trading Corp. dated as of April 26, 2001
(b) Reports on Form 8-K. The Issuer did not file any current
reports on Form 8-K during the fiscal quarter ended April 30,
2001.
Signatures
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Videolocity International, Inc.
Dated: June 15, 2001 By /s/ Jerry E. Romney, Jr.
-------------------------
Jerry E. Romney, Jr.
President
Dated: June 15, 2001 By /s/ Larry R. McNeill
---------------------
Larry R. McNeill, Vice
President and CFO and Chief
Financial Officer (Principal
Financial and Accounting Officer)
15