UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-QSB
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTER ENDED JUNE 30, 2003
COMMISSION FILE NO. 133-16736
ECONTENT, INC.
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 23-2442288
- ------------------------------ --------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2760 Appaloosa Trail, Wellington, FL 33401
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(561) 719-9841
--------------
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Transitional Small Business Disclosure Format: Yes / / No ]/X/
The number of shares outstanding of each of the registrant's classes of
common stock as of August 1, 2003, is 44,888,572 shares all of one class of $.08
par value common stock and no shares of convertible preferred stock with a
$10.00 par value.
eCONTENT, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE COMPANY
INDEX
PAGE
PART I FINANCIAL INFORMATION
Unaudited Consolidated Balance Sheet-June 30, 2003...............2
Unaudited Consolidated Statements of Operations-Three Months
Ended June 30, 2003............................................3
Unaudited Consolidated Statements of Operations-Nine Months
Ended June 30, 2003............................................4
Unaudited Consolidated Statement of Cash Flows-Nine Months
Ended June 30, 2003............................................5
Notes to the Consolidated Financial Statements...................6
Management's Discussion and Analysis of Financial
Conditions and Results of Operations..........................13
PART II OTHER INFORMATION
Item 1. Legal Proceedings...............................................17
Item 2. Changes in Securities...........................................17
Item 3. Defaults Upon Senior Securities.................................17
Item 4. Submission of Matters to a Vote of Security Holders.............17
Item 5. Other Information...............................................17
Item 6. Exhibits on Reports on Form 8-K.................................17
Signature Page..................................................18
eCONTENT, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2003
(UNAUDITED)
ASSETS
Current Assets:
Due from prior investee $ 20,000
Deferred costs 55,438
------------
Total Current Assets 75,438
------------
Deferred production costs 128,519
------------
Property and equipment, net of accumulated
depreciation of $48,040 41,522
------------
Other Assets:
Due from prior investee 80,000
Intangible assets, net of accumulated
amortization of $81,433 9,048
------------
Total Other Assets 89,048
------------
Total Assets 334,526
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Cash overdraft 2,387
Accounts payable and accrued expenses 302,418
Due to stockholder 15,000
Other current liabilities 313,458
------------
Total Current Liabilities 630,876
------------
Other Liabilities 186,750
------------
Bridge loans expected to convert to equity 214,506
------------
Stockholders' Equity:
Common stock, par value $.08 per share; authorized
50,000,000 shares, 44,888,572 issued and outstanding
Convertible preferred stock, authorized 1,000,000 shares,
par value $10.00; no shares issued and outstanding 3,591,086
Additional paid in capital 8,942,097
Deficit accumulated during development stage (13,230,788)
------------
Total Stockholders' Equity (Deficit) (697,606)
------------
Total Liabilities and Stockholders' Equity $ 334,526
============
See notes to the consolidated financial statements.
2
eCONTENT, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FROM APRIL 1,
1998
(DATE OF
FOR THE INCEPTION)
THREE MONTHS ENDED TO
JUNE 30, JUNE 30,
2002 2003 2003
------------ ------------ ------------
Total Revenues $ -- $ -- $ --
------------ ------------ ------------
Direct Costs and Expenses:
Development, production and distribution 156,213 5,880 2,311,046
General and administrative 484,191 59,637 5,679,024
Depreciation and amortization 7,599 7,599 126,398
Stock based compensation and stock grants 150,000 210,000 4,172,249
------------ ------------ ------------
Total Direct Costs and Expenses 798,003 283,116 12,288,717
------------ ------------ ------------
Loss from operations before other expenses
and provisions for income taxes (798,003) (283,116) 12,288,717
Other Operating Income (Expense):
Interest income -- -- $ 1,666
Settlement income (expense) -- (92,500) 1,142,609
Interest expense (net) (25,117) (2,500) (85,219)
Equity in earnings (Loss) of
unconsolidated subsidiary -- -- 96,774
Loss from termination of interest in
unconsolidated subsidiary -- -- (1,985,901)
Impairment Loss -- (112,000) (112,000)
------------ ------------ ------------
Total Other Operating Income (Expense) (25,117) (207,000) (942,071)
------------ ------------ ------------
Operating Income (Loss) before income taxes (823,120) (490,116) (13,230,788)
(Provision for) Benefit from income taxes -- -- --
------------ ------------ ------------
Net Income (Loss) $ (823,120) $ (490,116) $(13,230,788)
============ ============ ============
Loss per common share, basic and diluted $ (.04) $ (0.01)
============ ============
Weighted average common shares outstanding,
basic and diluted 22,504,561 39,510,001
============ ============
See notes to the consolidated financial statements.
3
eCONTENT, INC. AND SUBSIDIARIES
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FROM APRIL 1,
1998
(DATE OF
FOR THE INCEPTION)
NINE MONTHS ENDED TO
JUNE 30, JUNE 30,
2002 2003 2003
------------ ------------ ------------
Total Revenues $ -- $ -- $ --
------------ ------------ ------------
Direct Costs and Expenses:
Development, production and distribution 281,653 53,640 2,311,046
General and administrative 830,212 256,797 5,679,024
Depreciation and amortization 22,747 28,897 126,398
Stock based compensation and stock grants 150,000 302,000 4,172,249
------------ ------------ ------------
Total Direct Costs and Expenses 1,284,612 641,334 12,288,717
------------ ------------ ------------
Loss from operations before other expenses
and provisions for income taxes (1,284,612) (641,334) (12,288,717)
Other Operating Income (Expense):
Interest income -- -- 1,666
Settlement income (expense) -- (92,500) 1,142,609
Interest expense (net) (33,260) (9,000) (85,219)
Equity in earnings of unconsolidated
subsidiary -- -- 96,774
Loss from termination of interest in
unconsolidated subsidiary -- -- (1,985,901)
Impairment Loss -- (112,000) (112,000)
------------ ------------ ------------
Total Other Operating Income (Expense) (33,260) (213,500) (942,071)
------------ ------------ ------------
Operating (Loss) before income taxes (1,317,872) (854,834) (13,230,788)
Provision for income taxes -- -- --
------------ ------------ ------------
Net (Loss) $ (1,317,872) $ (854,834) $(13,230,788)
============ ============ ============
Loss per common share, basic and diluted $ (.06) $ (0.03)
============ ============
Weighted average common shares outstanding,
basic and diluted 22,302,913 34,208,279
============ ============
See notes to the consolidated financial statements.
4
eCONTENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
FROM APRIL 1,
1998
(DATE OF
FOR THE INCEPTION)
NINE MONTHS ENDED TO
JUNE 30, JUNE 30,
2002 2003 2003
------------ ------------ ------------
Cash flows from operating activities:
Net Loss $ (1,317,872) $ (854,834) $(13,230,789)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 22,747 28,897 126,398
Interest expense paid with equity -- -- 17,500
Loan fees -- -- 25,000
Stock based compensation and expenses
paid by stock and warrants 840,320 583,900 8,191,235
Equity in earnings of unconsolidated
subsidiary -- -- (96,774)
Settlement income relating to stock -- -- (1,393,769)
Loss on termination of interest in
unconsolidated subsidiary -- -- 1,985,909
Changes in assets and liabilities:
Deferred charges and other current assets (6,101) 110,146 220,216
Other liabilities 252,918 18,500 507,810
Accounts payable and accrued expenses 56,729 (26,000) 747,616
Cash overdraft -- 2,387 2,387
------------ ------------ ------------
Net cash used in operating activities (151,259) (85,004) (2,845,261)
------------ ------------ ------------
Cash flows from investing activities:
Investment in intangible assets -- -- (90,481)
Investment in property and equipment -- -- (67,378)
Advance on production rights -- (337,500)
------------ ------------ ------------
Investment in MPI -- -- (1,850,000)
------------ ------------ ------------
Net cash used in investing activities -- -- (2,345,359)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock -- 25,000 4,438,166
Proceeds from loans 144,000 60,000 650,213
Advances from (repayment to)and stockholders -- -- 400,954
Repayment of loans -- -- (298,713)
------------ ------------ ------------
Net cash provided by financing activities 144,000 85,000 5,190,620
------------ ------------ ------------
Net increase (decrease)in cash and
cash equivalents (7,259) (4) --
Cash and cash equivalents, Beginning of Period 9,158 4 --
------------ ------------ ------------
Cash and cash equivalents, End of Period $ 1,899 $ -- $ --
============ ============ ============
See notes to the consolidated financial statements.
5
ECONTENT, INC. AND SUBSIDIARIES
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
NOTES TO FINANCIAL STATEMENT
JUNE 30, 2003
(UNAUDITED)
A. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOSSES SINCE REORGANIZATION:
The Company's had a working capital deficit at June 30, 2003 of $555,438.
Since the reorganization, the Company has funded its operations from the
issuance of common stock and loans from officers and certain shareholders. The
Company has incurred operating losses totaling $13,230,788 from inception April
1, 1998 through June 30, 2003. The Company's ability to continue as a going
concern and its future success is dependent upon its ability to raise capital in
the near term to:
(1) satisfy its current obligations,
(2) continue its development of programs, and
(3) successfully implement its plans to market the products of
co-venturers through television, home video merchandise licensing and
other media for a share of the revenue from the exploitation of each
program.
The Company believes that it will be able to complete the necessary steps
in order to meet its cash flow requirements throughout fiscal 2003 and
continue its development and commercialization efforts. Management's plans
in this regard include, but are not limited to, the following:
The Company presently has ongoing negotiations with a number of financing
alternatives, including convertible bridge notes and private placements of
equity, with one or more of which it believes will be able to successfully
close to provide necessary working capital.
In addition to the above financing activities, the following business
initiatives are also ongoing and are expected to provide additional working
capital to the Company:
On June 13, 2003, the Company terminated a proposed merger with Angel
Babies, LLC and appointed Peter Keefe as the Company's President. Mr.
Keefe's network of global contacts, associations and affiliations in the
children's and family entertainment and licensing industries connects the
Company with a uniquely broad, and extremely valuable, base of exciting
revenue generating marketing opportunities.
The Company has relationships with several producers, in addition to the
"Nine Dog Christmas" and the "Z-Force" projects. The Company has built
working alliances with several outside production studios and talent pools
and the Company has identified several projects it will implement on a
program by program basis during fiscal 2003 and beyond.
Management believes that actions presently being taken to complete the
Company's development stage through the successful production of
professional content with associative distribution earning and revenue
sharing agreements, will ultimately generate sufficient revenue thereon to
support operations. However, there can be no assurance that eContent will
generate sufficient revenues to provide positive cash flows from operations
or that sufficient capital will be available, when required, to permit the
Company to realize its plans. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
6
ECONTENT, INC. AND SUBSIDIARIES
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
NOTES TO FINANCIAL STATEMENT
JUNE 30, 2003
(UNAUDITED)
NATURE OF OPERATIONS:
eContent Inc. is an integrated vertical marketing company that designs and
executes business development strategies for three primary client groups;
content providers, developers, and distributors. The Company is concentrating on
building its revenue base with companies that operate in the core industry
sector of children's and family entertainment, and merchandise licensing. On
January 4, 1999 the Company acquired all of the issued and outstanding shares of
Media Visions Properties, Inc. and changed its name to Media Vision Productions,
Inc. from Gulfstar Industries effective the same date. This transaction was
accounted for as a reverse merger. On October 1, 1999 the Company changed its
name to eContent, Inc. The primary business of eContent is to design, develop
and market television programming, internet content and to capitalize on related
merchandising opportunities.
Presently, the Company's focus is to identify, develop, produce, promote
and ultimately distribute programming on a project by project basis. Because
eContent has been in the development stage, the accompanying financial
statements should not be regarded as typical for normal operating periods.
BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form l0-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended June 30, 2003
are not necessarily indicative of the results that may be expected for the year
ended September 30, 2003.
REORGANIZATION AND SUBSEQUENT RECAPITALIZATION:
In July 1997, the Company's predecessor, Gulfstar Industries, filed a
petition under Chapter 11 of the Bankruptcy laws. The Company's petition was
confirmed by the Bankruptcy Court on September 2, 1998 and became effective on
January 4, 1999. The Plan of Reorganization and confirmation of the same
included the acceptance of the agreement and merger plan between eContent Inc.
(formerly Media Visions Productions, Inc.) (the Company) and Media Vision
Properties, Inc., whereby holders of existing voting shares immediately before
the confirmation retain less than 50% of the voting shares of the surviving
entity and the post petition liabilities allowed and claims exceed the carrying
value of assets. On January 4, 1999, pursuant to the plan of reorganization and
plan of merger the Company changed its name to Media Vision Productions, Inc. On
October 1, 1999, the Company changed its name to eContent, Inc.
For accounting purposes the acquisition has been treated as an acquisition
of eContent, Inc. (formerly Media Vision Productions, Inc.) by Media Vision
Properties, Inc. and therefore a recapitalization of Media Vision Properties,
Inc. The historical financial statements prior to January 4, 1999 are those of
Media Vision Properties, which was incorporated on June 17, 1997 but did not
issue stock, have assets, or commence operations until April 1, 1998.
Additionally, proforma information is not presented since the transaction is
treated as a recapitalization.
7
ECONTENT, INC. AND SUBSIDIARIES
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
NOTES TO FINANCIAL STATEMENT
JUNE 30, 2003
(UNAUDITED)
RESTATEMENT TO TREAT MPI AS UNCONSOLIDATED:
During the year ended September 30, 2000, the Company initially recorded
its investment in MPI as a consolidated subsidiary of the Company pursuant to a
stock purchase agreement from May of 2000. Upon the acquisition of a 51%
interest in MPI at that time, the Company had a conditional option to acquire
the remaining 49% of MPI, with certain extensions through July 30, 2001. On July
30, 2001, eContent let its right to complete the acquisition of MPI expire, and
subject to the return of certain shares, the Company forfeited any interest in
MPI. The Company has restated its financial statements for the fiscal year ended
September 30, 2000 to record this investment as an unconsolidated subsidiary,
which is a change in the reporting entities of the Company, and during the
fiscal year ended September 30, 2001 the Company recorded a loss on the
termination of its investment in MPI effective July 30, 2001. Subsequent to
September 30, 2001, the Company and MPI concurrently exchanged certain releases
relating to the preceding and entered into a preliminary program production
agreement.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated balance sheet as of June 30, 2003 includes
the accounts of the Company and its wholly owned subsidiary, Media Vision
Properties Inc., which commenced operations on April 1, 1998 and National
Licensing Corporation, which commenced operations on September 5, 2000. The
consolidated statements of operations include the results of operations of the
Company and Media Vision Properties, Inc. for all periods presented and National
Licensing Corporation effective September 5, 2000.
All significant intercompany accounts and transactions have been
eliminated.
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
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
RECENT ACCOUNTING PRONOUNCEMENTS:
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 requires that gains and losses from extinguishment of
debt be classified as extraordinary items only if they meet the criteria in APB
No. 30 ("Opinion No. 30"). Applying the provisions of Opinion No. 30 will
distinguish transactions that are part of an entity's recurring operations from
those that are unusual and infrequent that meet the criteria for classification
as an extraordinary item. The Company is required to adopt SFAS No. 145 no later
than the first quarter of fiscal 2003, although early adoption is allowed. The
Company has not yet evaluated the impact from SFAS No. 145 on its financial
position and results of operations, if any.
8
ECONTENT, INC. AND SUBSIDIARIES
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
NOTES TO FINANCIAL STATEMENT
JUNE 30, 2003
(UNAUDITED)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullified Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including certain costs incurred in a restructuring." SFAS No. 146 requires
that a liability at fair value for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. However, an entity's
commitment to a plan, by itself, does not create a present obligation to others
that meets the definition of a liability. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company has not yet determined the
impact of SFAS No. 146 on its financial position and results of operations, if
any.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (" FIN 45"). FIN 45 requires a company, at
the time it issues a guarantee, to recognize an initial liability for the fair
value of obligations assumed under the guarantee and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements of FIN 45 are effective for guarantees issued or
modified after December 31, 2002 and adoption of the disclosure requirements are
effective for the Company during the first quarter ending January 31, 2003. The
Company does not expect the adoption of FIN 45 will have a significant impact on
its consolidated financial position or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46 (" FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The Company does not expect the
adoption of FIN 46 will have a significant impact on its consolidated financial
position or results of operations.
LOSS PER COMMON SHARE, BASIC AND DILUTED:
The Company accounts for net loss per common share in accordance with the
provisions of Statements of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" ("EPS"). SFAS No. 128 reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Common equivalent shares
have been excluded from the computation of diluted EPS since their effect is
antidilutive. The 1998 earnings per share were restated to reflect the 1 for 25
split pursuant to the plan of re-organization, and the 4,000,000 shares issued
in the merger accounted for as a reorganization were treated as outstanding
effective from the date of inception.
9
ECONTENT, INC. AND SUBSIDIARIES
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
NOTES TO FINANCIAL STATEMENT
JUNE 30, 2003
(UNAUDITED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities to
recognize as expense over the vesting period, the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants as if the fair value-based method,
as defined, had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure required
by SFAS No. 123. Compensation expense is generally recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. The Company accounts for non-employee stock-based awards in which goods
or services are the consideration received for the equity instruments issued
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more readily determinable.
DEFERRED COSTS:
Deferred costs relating to production agreements are charged to operations
over the effective period of each agreement. Deferred costs estimated to be
charged to operations during the next year are classified as current assets.
B. INTANGIBLE ASSETS
Intangible assets consist of Reorganization Costs capitalized in connection
with the acquisition of Media Vision Productions, Inc. pursuant to APB 16.
Amortization is computed using the straight-line method over the estimated
useful life of the asset, estimated to be years.
Amortization expense was $13,572 and $13,572 for the nine month ended June
30, 2002 and 2003, respectively.
C. COMMITMENTS AND CONTINGENCIES
On September 24, 1999 the Company entered into employment agreements with
its president and two executive officers. The general terms of the agreements
provide for the three officers to receive annual salaries totaling $515,000 for
fiscal 2000, $566,500 for fiscal 2001 and $623,150 for fiscal 2002.
Additionally, the agreements provide for stock options and grants of shares. In
May 2001, these agreements were canceled and certain shares were returned to the
Company. The settlement with the two executive officers, now directors, provided
for the agreement to lock up their remaining shares for six months through
October 26, 2001, and the payment of $48,000 each through May, 2002. The
termination agreement with the Company's previous president resulted in the
return of certain shares to the Company and a consulting contract for $2,500 per
week for 103 weeks commencing on May 29, 2001.
On October 5, 1999, the Company entered into a licensing agreement with an
individual and Spartan Sporting Goods and Fashions, Inc. ('Spartan') a privately
held New York Corporation for the exclusive master license of certain logos,
trademarks and copyrights. The agreement provides that the Company pay 30% of
all royalty income received from the producers under this agreement to the
Licensor, or 'Spartan'. Additionally, the agreement provides for a minimum
annual non-refundable license fee, optional for each annual renewal, for up to
nine years.
10
ECONTENT, INC. AND SUBSIDIARIES
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
NOTES TO FINANCIAL STATEMENT
JUNE 30, 2003
(UNAUDITED)
From time to time, the Company may be involved in various legal proceedings
and other matters arising in the normal course of business.
In December, 2001 the Company the Company entered into a five year
preliminary program production agreement with MPI. Significant terms of the deal
memo include the following:
MPI will provide for the production and delivery of a minimum of five
television programs per year subject to the approval and funding by the Company
of each program. Upon recoupment of the Company's investment in each program,
net direct proceeds from the exploitation of merchandising of related products
and royalties thereon from each program will be remitted 50% to the Company and
50% to MPI. In consideration for the execution of the agreement, the Company
provided a grant of warrants to Robert Marty, the president of MPI, with 4 year
vesting to purchase up to 1,400,000 shares of the Company's common stock at
approximately $.13 per share (valued at $235,200). The fair value of the
warrants on the date of the grant was based upon the Black-Scholes stock option
pricing model using the following weighted average assumptions: annual expected
rate of return of 0%, annual volatility of 163.7%, risk free interest rate of
5.5% and expected option life of 3 years.
On February 7, 2003 eContent Inc. entered into a conditional plan for a
corporate combination agreement to merge with Anglebabies LLC, a California
Limited Liability Company. The terms of the agreement provided for eContent to
receive 100% of all Anglebabies, LLC's interests; in exchange for which the
interest of the members of the limited liability company were to be issued
shares of eContent common or preferred stock, totaling approximately 80% of the
value of the new combination. The number of shares to be issued were subject to
an adjustment after the issuance of a fairness opinion. All terms and conditions
of the agreement were subject to shareholder approval. On June 13, 2003 the
Company elected to not implement this agreement.
D. INCOME TAXES
No provision has been made for corporate income taxes on the parent company
due to cumulative losses incurred. The Company has available unrealized tax
benefits of approximately $4,331,600 in the form of net operating loss ("NOL")
carryforwards of approximately $12,740,000 for federal income tax purposes to
reduce future taxable income. If not utilized, the federal NOL's expire at
various dates through 2022.
Certain changes in stock ownership can result in a limitation in the amount
of net operating loss and tax credit carryovers that can be utilized each year,
including the merger and plan of acquisition dated January 4, 1999.
The Company has recognized these tax benefits as a deferred tax asset
subject to a 100% valuation allowance since it is uncertain whether or not these
tax benefits will be realized.
11
ECONTENT, INC. AND SUBSIDIARIES
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
NOTES TO FINANCIAL STATEMENT
JUNE 30, 2003
(UNAUDITED)
E. EQUITY TRANSACTIONS
During the nine months ended June 30, 2002, the Company issued 16,000
warrants to purchase one share each of the company's common stock at an exercise
price of $.15, for a period of five years.
During the nine months ended June 30, 2002, in connection with the
execution of the preliminary program production agreement with MPI discussed in
Note C., the Company provided a grant of warrants to Robert Marty, the president
of MPI, with 4 year vesting to purchase up to 1,400,000 shares of the Company's
common stock at approximately $.13 per share (valued at $235,200). The fair
value of the warrants on the date of the grant was based upon the Black-Scholes
stock option pricing model using the following weighted average assumptions:
annual expected rate of return of 0%, annual volatility of 163.7%, risk free
interest rate of 5.5% and expected option life of 3 years. The Company recorded
$117,600 as expense and $117,600 as deferred production costs.
For the nine months ended June 30, 2003, the Company issued shares of its
common stock as follows:
In the first quarter, the Company issued 800,000 shares of its common stock
for its two officers as compensation, valued at $32,000 and issued 140,000
shares for consulting services valued at $9,200.
In the second quarter, the Company issued 6,000,000 shares of its common
stock for two of its officers as compensation, valued at $120,000. Additionally
the company issued 1,200,000 shares for legal services valued at $24,000,
2,600,000 shares for consulting services valued at $52,000, 750,000 shares as
reparations to an individual investor valued at $15,000 and 1,200,000 shares,
valued at $24,000, in a settlement offer for outstanding fees related to
licensing agreement executed in 1999.
In the current quarter, the Company issued 3,000,000 shares of its common
stock to the Company's new president, valued at $210,000 in connection with his
employment agreement. The Company issued 50,000 shares of its common stock in
private placements generating $25,000 in net proceeds, which included 150,000
shares for the conversion of $5,000 bridge financing. Additionally, in
connection with the termination of the merger agreement, the Company issued
2,400,000 shares of its common stock to settle with a shareholder who pledged
certain shares as collateral for a loan of $50,000, resulting in a reparative
loss on settlement of $92,00 for the quarter and nine month periods.
12
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements, as well as information relating to the plans of the Company's
current management.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE, 2003 VS. THREE MONTHS ENDED JUNE 30, 2002
The Company has not yet recorded any revenue.
The Company recorded a net loss of $490,116 for the three months ended
June 30, 2003 as compared to a loss of $823,120 for the three months ended June
30, 2002. This represents a loss per common share of $.01 for the quarter ended
June 30, 2003 on average shares outstanding of 39,510,001, as compared to a loss
per common share of $.04 for the quarter ended June 30, 2002 on average shares
outstanding of 22,504,561.
Production expenses were $5,880 for the three months ended June 30,
2003 compared to $156,213 for the three months ended June 30, 2002. This
decrease is attributable to the reduction of expenses related to licencing and
production agreements in place with MPI and Spartan.
General and administrative expenses decreased to $59,637 during the
quarter ended June 30, 2003 from $484,191 during the quarter ended June 30,
2002. The decrease in these costs can be attributed to a reduction of non-cash
consulting and legal expenses related to the merger and increased marketing
activities on new programing projects initiated during the quarter ended June
30, 2002.
Stock based compensation during the current quarter ended June 30,2003
increased to $210,000 compared to $150,000 for the same period last year, the
increase primarily attributable to grants of shares to officers including
3,000,000 shares issued to the new president in connection with his employment
in June.
The Company also recorded settlement expense of $92,500 in the current
period, the net result of terminating the plan of merger with Angel Babies, LLC.
NINE MONTHS ENDED JUNE 30, 2003 VS. NINE MONTHS ENDED JUNE, 2002
The Company has not yet recorded any revenue.
The Company recorded a net loss of $854,834 for the nine months ended
June 30, 2003 as compared to a loss of $1,317,872 for the nine months ended June
30, 2002. This represents a loss per common share of $.03 for the nine months
ended June 30, 2003 on average shares outstanding of 34,208,279, as compared to
a loss per common share of $.06 for the same period ended June 30, 2002 on
average shares outstanding of 22,304,913.
Production expenses decreased to $53,640 for the nine months ended June
30, 2003 compared to $281,653 for the nine months ended June 30, 2002. This
reduction is attributable to reduced projects under development during the
period that required outlays by the Company.
General and administrative expenses were reduced to $256,797 during the
period ending June 30, 2003 from $830,212 during the period ending June 30,
2002. The decrease in these costs primarily relate to the reduction of full time
employees and a reduction in marketing costs related to the co-production of
syndicated programming.
13
Stock based compensation during the nine month period ended June
30,2003 increased to $302,000 compared to $150,000 for the same period last
year, the increase primarily attributable to grants of shares to officers
including 3,000,000 shares issued to the new president in connection with his
employment in June.
The Company also recorded settlement expense of $92,500 in the current
period, the net result of terminating the plan of merger with Angel Babies, LLC.
PLAN OF OPERATIONS AND BUSINESS STRATEGY
eContent has recently reorganized its management structure and
redirected its core business focus.
Entertainment industry veteran Peter Keefe, the new Company President, is
establishing the Company as a successful creator, producer and marketer of high
quality children's and family entertainment television and home video
programming. Keefe is also positioning the Company as a brand manager of the
merchandise licensing activities that flow from those programs as well as from
products and programs the Company is already involved with.
Such licensing categories include: Toys; Video Games; Book & Comic
Publishing; Music CDs; Sporting Goods & Apparel; Trading Cards; Gifts &
Novelties; Product & Character Driven Apparel; Theme Park Character Licensing;
Soda, Cereal & Candy Tie-ins; Fast Food Promotions and Internet Applications.
Americans spent over twenty billion dollars on toys in 2002 and the
home video business, which is driven by children's titles, is also expected to
generate over twenty billion dollars in sales in 2003.
The Company will receive revenues from sales commissions, management
fees and profit participation in the entertainment properties that it becomes
involved in.
eContent is now engaged in the television sales and marketing of a new
animated Christmas Special called Nine Dog Christmas and the Company will be
involved in the production and marketing of a Halloween Special sequel called
Nine Dog Night of Fright. eContent is also managing the production and marketing
of a new action-adventure animated show property called Z~Force.
The Company anticipates that both properties will generate substantial
revenues in the US and International marketplace.
Peter Keefe's network of global contacts, associations and affiliations
in the children and family entertainment and licensing industries connects the
Company with a uniquely broad, and extremely valuable, base of exciting revenue
generating marketing opportunities.
The Company continues its plans to generate its revenues from retainer
fees, performance incentives, and equity-based annuities created through the
formation of partnerships; and agreements influenced by the scope of engagement
with each client. As the Company reaches critical mass in its client base,
revenues can multiply from cross-client promotions, and equity position
providing significant upside at substantially lower risk. This is a key
component of the business model and an important valuation driver for the
Company as it grows. By building a diverse portfolio of clients the Company
minimizes the risk associated with any one particular property or project buy
maximizes benefits for revenue and profit.
14
LIQUIDITY AND CAPITAL RESOURCES
As discussed in the accountants' report for the fiscal year ended
September 30, 2002, the Company's ability to continue as a going concern is
uncertain without additional financing.
The Company's had a working capital deficit at June 30, 2003 of
$555,438. Since the reorganization, the Company has funded its operations from
the issuance of common stock and loans from officers and certain shareholders.
The Company has incurred operating losses totaling $13,230,788 from inception
April 1, 1998 through June 30, 2003. The Company's ability to continue as a
going concern and its future success is dependent upon its ability to raise
capital in the near term to:
(1) satisfy its current obligations,
(2) continue its development of programs, and
(3) successfully implement its plans to market the products of co-
venturers through television home video, merchandise licensing and
other media for a share of the revenue from the exploitation of each
program.
The Company believes that it will be able to complete the necessary
steps in order to meet its cash flow requirements throughout fiscal
2003 and continue its development and commercialization efforts.
Management's plans in this regard include, but are not limited to, the
following:
The Company presently has ongoing negotiations with a number of
financing alternatives, including convertible bridge notes and private
placements of equity, with one or more of which it believes will be
able to successfully close to provide necessary working capital.
In addition to the above financing activities, the following business
initiatives are also ongoing and are expected to provide additional
working capital to the Company:
On June 13, 2003, the Company terminated a proposed merger with Angel
Babies, LLC and appointed Peter Keefe as the Company's President. Mr.
Keefe's network of global contacts, associations and affiliations in
the children and family entertainment and licensing industries connects
the Company with a uniquely broad, and extremely valuable, base of
exciting revenue generating marketing opportunities.
The Company has relationships with several producers, in addition to
the "Nine Dog Christmas" and the "Z-Force" projects. The Company has
built working alliances with several outside production studios and
talent pools and the Company has identified several projects it will
implement on a program by program basis during fiscal 2003 and beyond.
Management believes that actions presently being taken, including
terminating the plan of merger with Angelbabies, LLC., to complete the Company's
development stage through the successful production of professional content with
associative distribution earning and revenue sharing agreements, and ultimately
sufficient revenue thereon to support operations. However, there can be no
assurance that eContent will generate sufficient revenues to provide positive
cash flows from operations or that sufficient capital will be available, when
required, to permit the Company to realize its plans.
15
INFLATION
The rate of inflation has had little impact on the Company's results of
operations and is not expected to have a significant impact on continuing
operations.
FORWARD LOOKING AND OTHER STATEMENTS
We have made statements in this document that are forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "can," "will,"
"expect," "anticipate," "believe," "estimate," and "continue" or similar words.
You should read statements that contain these words carefully because they: (1)
discuss our future expectations; (2) contain projections of our future results
of operations or on our fiscal conditions, or (3) state other "forward looking"
information.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or which we do not fully control. Important factors that
could cause actual results to differ materially from these expressed or implied
by our forward-looking statement, include, but are not limited to those risks,
uncertainties and other factors discussed in this document.
ITEM 3. CONTROLS AND PROCEDURES
The Company's present Board of Directors performed an evaluation of the
Company's disclosure controls and procedures within 90 days prior to the filing
date of this report. Base on their evaluation, they concluded that material
information concerning the Company which could affect the disclosure in the
Company's quarterly and annual reports is made know to them by the other
officers and employees of the Company, and that the communications occur with
promptness sufficient to assure the inclusion of the information in the then
current report.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect those controls
subsequent to the date on which the Board performed their evaluation.
16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
eContent, Inc.'s predecessor had commenced an action against its former
president of its MBT subsidiary. On May 16,1996 we terminated the President of
the former PTS Subsidiary. The former president of the PTS subsidiary has
commenced an action for wrongful termination and the Company has defended its
position and has commenced a countersuit alleging misrepresentation in
connection with the acquisition of PTS. The Company filed for reorganization
under Chapter 11 of the bankruptcy laws, which has been approved by the court
and which has been deemed effective on January 4, 1999. The above claims against
the Company were dismissed in the reorganization. The former President of the
PTS Subsidiary appealed this decision and effective September 30, 2001, the
Company recorded the settlement with the former President for the issuance of
91,833 shares of the Company's common stock valued at $13,775, as well as the
extension of 33,000 warrants for one share each of the Company's common stock
exercisable through October, 2004 for a price equal to 75% of the trading price
on the date of exercise.
In September, 2000 the Company terminated its Executive Vice President,
Gary A. Goodell. In December, 2000 the former Executive Vice President filed a
complaint in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach
County seeking restatement of his employment contract. In March 2001, Bill
Campbell joined Gary Goodell's suit.
In May 2001, the suit was settled, resulting in the return of certain
shares by both directors and the agreement to lock up their remaining shares for
six months through October 26, 2001, and the payment of $48,000 each through
May, 2002.
In May 2001, the prior president, John Scarlet, instituted a suit in
federal court against the Company's current president and an investment banker,
in connection with his employment contract. This suit was dropped. His
termination agreement resulted in the return of certain shares and consulting
contract for $2,500 per week for 103 weeks commencing on May 29, 2001.
ITEM 2. CHANGES IN SECURITIES.
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION.
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 99.1 and 99.2 - Officer Certifications
No reports on Form 8-K, however on June 13, 2003 the Company announced the
termination of its plan of merger with AngelBabies, LLC and its then President
and CEO on June 16, 2003 the Company announced the appointment of Mr. Peter
Keefe as President.
17
SIGNATURES
In accordance with the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant, caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
eContent Inc.
(Formerly Media Vision Productions, Inc.)
Dated: August 15, 2003
By: /s/ PETER KEEFE
--------------------
Peter Keefe
Pursuant to the requirement of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
NAME TITLE DATE
By: /s/ PETER KEEFE CEO, President August 15, 2003
- -----------------------------
Peter Keefe
By:/s/ WILLIAM H. CAMPBELL Acting Chief Financial August 15, 2003
- ----------------------------
William H. Campbell Officer, Corporate
Secretary, Director
By: /s/ GARY GOODELL Director August 15, 2003
- ----------------------------
Gary Goodell
18
CERTIFICATION
I, Peter Keefe, Chief Executive Officer, certify that:
1. I have reviewed this Quarterly report on Form 10-QSB of eContent,
Inc.;
2. Based on my knowledge, this quarterly 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 this
annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant'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 registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly 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 our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: August 15, 2003
by: /s/ Peter Keefe
--------------------
Peter Keefe, CEO/President
CERTIFICATION
I, William Campbell, Chief Financial Officer, certify that:
1.I have reviewed this Quarterly report on Form 10-QSB of eContent,
Inc.;
2. Based on my knowledge, this quarterly 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 this
annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant'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 registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly 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 our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: August 15, 2003
by: /s/ William H. Campbell
William H. Campbell, Chief Financial Officer