SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission file number: 0-29651
USA VIDEO INTERACTIVE CORP.
(Exact name of registrant as specified in its charter)
WYOMING 06-1576391
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
70 Essex Street, Mystic, Connecticut 06355
(Address of principal executive offices) (ZIP code)
(860) 572-1560
(Registrant's Telephone Number, including Area Code)
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 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 |_|
At May 15, 2002, there were 91,745,089 shares of the registrant's common stock
outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CAUTIONARY STATEMENT
Certain statements contained in this Quarterly Report on Form 10-Q ("Report"),
including, without limitation, statements containing the words
"believes,""anticipates," "estimates," "expects," and words of similar import,
constitute "forward-looking statements." Readers should not place undue
reliance on these forward-looking statements. USA Video's actual results could
differ materially from those anticipated in these forward-looking statements
for many reasons, including risks and uncertainties set forth in USA Video
Interactive Corp.'s Annual Report on Form 10-K, the most important of which are
summarized below under Factors Which May Affect Future Results of Operations, as
well as in other documents USA Video files with the Securities and Exchange
Commission ("SEC").
The following information has not been audited. You should read this
information in conjunction with the unaudited financial statements and related
notes to financial statements included in this report.
OVERVIEW OF THE COMPANY
USA Video Interactive Corp. ("USA Video" or the "Company") designs and markets
to business customers streaming video and video-on-demand systems, services and
source-to-destination digital media delivery solutions that allow live or
recorded digitized and compressed video to be transmitted through Internet,
intranet, satellite or wireless connectivity. The Company's systems, services
and delivery solutions include video content production, content encoding, media
asset management, media and application hosting, multi-mode content
distribution, transaction data capture and reporting, e-commerce, specialized
engineering services, and Internet streaming hardware.
USVO holds the patent for Store-and-Forward Video-on-Demand (#5,130,792), filed
in 1990 and issued by the United States Patent and Trademark Office on July 14,
1992. It has been cited by at least 145 subsequent patents. USVO holds similar
patents in England, France, Spain, Italy, Germany, and Canada, and has a patent
pending in Japan. USVO anticipates actively engaging in licensing this patent.
MARKETS AND PRODUCTS:
As an outgrowth of its video streaming systems business and specialized
engineering services, USVO has identified emerging markets for global media
streaming services and has developed a unique solution to provide a wide range
of business customers with value-added streaming media support services. With
this services-based approach, called StreamHQ(TM), customers can leverage USVO's
infrastructure and technical expertise, while focusing on their own core
business competencies.
StreamHQ(TM) facilitates the transmission of digitized and compressed video to
the user's desktop via multiple streaming modes that take advantage of the
available connectivity. While competitive services take a "one-size-fits-all"
streaming approach, StreamHQ(TM) brings unique value propositions to individual
vertical markets with functionality designed specifically for those markets.
Beyond quality streaming, USVO's overriding goal has been to give customers
media asset management tools and information that provide a basis for them to
calculate their return on investment in streaming media expenditures.
StreamHQ(TM) encompasses a range of end-to-end services from source to viewing,
including content production, content encoding, asset management and protection,
media and application hosting, multi-mode content distribution, and transaction
data capture and reporting.
USVO has tailored an initial deployment product, Zmail, which uses StreamHQ(TM)
to deliver rich media emails. Zmail leverages the diverse functional
capabilities of this architecture to provide a value-added service to
advertisers, as well as other business applications, such as corporate
communications, consumer notices, product recalls, and customer support.
Clicking on a link within a Zmail accesses a customized web page with an
embedded, non-proprietary streaming player (e.g., Windows Media, QuickTime).
The user can customize his or her viewing experience and access any of the web
page links for additional information, guidance, or e-commerce. Zmail
functionality monitors all media player transactions, as well as web
click-throughs, and aggregates the data across multiple users to provide
web-based campaign reports to the customer.
3
TECHNOLOGY APPROACH:
USVO is approaching the global media streaming services market with a Tier 1
media-streaming infrastructure that the Company has attempted to differentiate
from competitive products and services in terms of architectural, functional,
and business features. Leveraging some of the industry's most prominent
providers for data storage, networking, and data management, StreamHQ(TM)
strives to compete based on service availability, an efficient streaming
process, redundancy and fail-over features, and continuity in the event of power
outages.
USVO has created a modular system that can be scaled to meet the requirements of
a growing clientele. StreamHQ(TM) can also be rapidly replicated to provide a
streaming utility in multiple Internet Data Centers around the world.
StreamHQ(TM) functionality is software driven, allowing USVO to create future
system enhancements based on the needs of the marketplace. Additionally, USVO
can customize the baseline features of StreamHQ(TM) and plans to expand the
system features to support the specialized needs of additional types of
customers.
RESEARCH AND DEVELOPMENT:
USVO has ongoing research and development (R&D) efforts that are aimed at
improving the efficiency and security of media delivery to clients. Among these
R&D efforts is the ongoing development of technology that will help protect the
intellectual property of content owners. USVO also has a proprietary
still-image wavelet compression technology.
BUSINESS OBJECTIVES:
USVO has established the following near-term business objectives:
1. Establish StreamHQ(TM) as the industry standard in the streaming video and
rich media marketplace;
2. Generate services- and systems-based revenues in accordance with the
corporate business plan;
3. Attain industry recognition for the superior architectural, functional, and
business differentiators of the StreamHQ(TM) architecture;
4. Leverage USVO's digital video patent for licensing fees and partnerships in
the United States and internationally;
5. Develop at least one client per year for a complete StreamHQ(TM) system,
including intellectual property licensing and operational support;
6. Expand StreamHQ(TM) functionality to provide enhanced support for corporate
training and education markets; and
7. Patent and license new technology developed within the corporate R&D
program.
MARKET PERSPECTIVE:
With its StreamHQ(TM) service offering, USVO's goals are: 1) to become a
market-leading streaming media service provider; 2) to establish itself as a
leader in streaming technology innovation; 3) to capture revenue and market
share from services and products in advertising, corporate communications,
education, entertainment, and other markets. Numerous published reports
estimate the current value of these markets as in excess of 20 billion dollars.
As a secondary objective, USVO intends to leverage its broad video-on-demand
patent by licensing it to other companies.
The Company was incorporated on April 18, 1986, as First Commercial Financial
Group Inc. in the Province of Alberta, Canada. In 1989,its name was changed to
Micron Metals Canada Corp., which purchased 100% of the outstanding shares of
USA Video Inc., a Texas corporation, in order to focus on the digital media
business. In 1995, the Company changed its name to USA Video Interactive Corp.
and continued its corporate existence to the State of Wyoming. The Company has
five wholly-owned subsidiaries: USA Video (California) Corp., USA Video Corp.,
USA Video Productions Inc., USA Video Technologies, Inc., and USVO, Inc. USA
Video's executive and corporate offices are located in Mystic, Connecticut, and
its Canadian offices are located in Vancouver, British Columbia.
RESULTS OF OPERATIONS
Sales
Sales booked during the three-month period ended March 31, 2002 were $26,253, as
compared to $1,060 during the three month period ended March 31, 2001.
Approximately eighty five percent (85%) of these revenues were attributable to
sales of StreamHQ(TM) services and approximately fifteen percent (15%) were
attributable to sales of engineering services.
Also during the three-month period ended March 31, 2002, the Company signed
additional sales contracts that will generate approximately $100,000 of revenue,
which will be reflected in future financial statements as recorded after March
31, 2002.
4
Starting in the fourth quarter of 2000 and continuing during the next 18 months,
the Company concentrated its managerial and technical efforts on the remaining
critical stages of developing and refining its new streaming rich media
services.
These services are intended to become the Company's core business in place of
its hardware-based systems for video encoding, decoding and streaming; the
market for which has diminished significantly in the last 15 to 18 months. The
Company believes the market declined for a number reasons, the most important of
which is that customers no longer can afford to invest in expensive hardware
systems of this type. As a result, profit margins on the Company's hardware
systems have continued to decline, as the Company has lowered prices in the face
of declining demand. A change in focus was necessary to capture the market for
affordable streaming media services.
The change in focus required shifting technical and managerial resources from
sales of the old line of products to service-based offerings. Additionally, the
Company was required to make a significant investment in a centralized computer
hardware and software infrastructure that will be used to provide the new
services, as well as hiring a core sales team on which to build a growing sales
organization for the future.
Cost of Sales
The cost of sales for the three months ended March 31, 2002 was $12,072, as
compared to $723 for the comparable period of 2001. The increase in cost of
sales is directly attributable to the growth in sales.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses consisted of product marketing
expenses, consulting fees, office, professional fees and other expenses to
execute the business plan and for day-to-day operations of the Company.
Selling, General and Administrative expenses for the three months ended March
31, 2002 decreased $71,278 to $351,228 from $422,506 for the three months ended
March 31, 2001. The reduction was due to consolidation efforts of management.
Professional expense for the three months ended March 31, 2002, decreased to
$40,948 from $70,241 for the comparable period of 2001. The Company utilized
its staff to perform tasks previously outsourced.
Product marketing expenses for the three months ended March 31, 2002, decreased
to $63,503 from $113,922 for the comparable period of 2001, as the Company
reduced its marketing efforts and increased its sales force.
Sales expense increases to $43,835 for the three months ended March 31, 2002
from $6,089 for the comparable period in 2001. The Company has hired additional
staff/consultants and engaged in marketing activities in an effort to identify
and assess appropriate market segments, develop business arrangements with
prospective partners, create awareness of new products and services, and
communicate to the industry and potential customers. Other components of
Selling, General and Administrative expense did not change significantly.
Research and Development Expenses
Research and development expenses consisted primarily of compensation, hardware,
software, licensing fees, and new product applications for the Company's
proprietary StreamHQ(TM). Research and development expenses decreased by seven
percent (7%) to $218,145 for the three months ended March 31, 2002, from
$235,234 for the comparable period in 2001. The reduction was due to
consolidation efforts of management.
As the Company consolidates its business, its product development, product
marketing, and other general and administrative expenses will continue to
decrease.
Non-Cash Compensation Charges
Non-cash compensation charges for the three months ended March 31, 2002 of
$12,718 was due to the earnings of a portion of the options issuance to purchase
925,000 common shares issued to consultants.
Net Losses
To date, the Company has not achieved profitability and, in fact, expects to
incur substantial net losses for at least the remainder of 2002. The Company's
net loss for the three months ended March 31, 2002 was $676,780 as compared with
a net loss of $1,298,068 for the three months ended March 31, 2001.
5
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company's had a cash position of $70,522, compared to
$104,238 at December 31, 2001. The Company's principal sources of cash during
the three months ended March 31, 2002, were advances from shareholders and
insiders of the Company.
The Company will require additional financing to fund current operations through
the remained of 2002. The Company has historically satisfied its capital needs
primarily by issuing equity securities. The Company will require an additional
$3.0 million to $3.5 million to finance operations for the rest of fiscal 2002
and intends to seek such financing through sales of its equity securities.
Assuming the aforementioned $3.0 million to $3.5 million in financing is
obtained, the Company believes that continuing operations for the longer term
will be supported through anticipated growth in revenues and through additional
sales of the Company's securities. Although longer-term financing requirements
may vary depending upon the Company's sales performance, management expects that
the Company will require additional financing of $5.0 million to $6.0 million
for fiscal 2002. The Company has no binding commitments or arrangements for
additional financing, and there is no assurance that management will be able to
obtain any additional financing on terms acceptable to the Company, if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Certain risks and uncertainties could cause actual results to differ materially
from the results contemplated by the forward-looking statements contained in
this Report. Risks and uncertainties have been set forth in the Company's Annual
Report on Form 10-K, as well as in other documents the Company files with the
SEC. These risk factors include the following:
THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE ITS
BUSINESS AND PROSPECTS.
The Company's business and prospects must be considered in light of the risks
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as streaming media.
IF THE COMPANY IS UNABLE TO OBTAIN SUBSTANTIAL ADDITIONAL FINANCING IN THE NEXT
FEW MONTHS IT MAY NOT BE ABLE TO MAINTAIN OPERATIONS AT CURRENT LEVELS.
The Company requires substantial additional financing to maintain operations at
current levels beyond the first quarter of 2002. Financing may not be available
when needed on terms favorable to the Company, or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may be
unable to further develop or enhance its products and services, take advantage
of future opportunities or respond to competitive pressures, or ultimately, to
continue in business.
CONTINUATION OF THE CURRENT SLUMP IN THE TECHNOLOGY SECTOR WILL ADVERSELY AFFECT
DEMAND FOR THE COMPANY'S PRODUCTS AND SERVICES.
The Company's sales have been adversely affected by the ongoing slump in the
technology industry segment and the continuation of these market conditions can
be expected to result in depressed demand for the Company's products and
services.
THE COMPANY'S OPERATING RESULTS IN FUTURE PERIODS ARE EXPECTED TO BE SUBJECT TO
SIGNIFICANT FLUCTUATIONS, WHICH WOULD LIKELY AFFECT THE TRADING PRICE OF ITS
COMMON SHARES.
Factors that could cause such fluctuations include the Company's ability to
attract and retain customers; the introduction of new video transmission
services or products by others; price competition; the continued development of
and changes in the streaming media market; its ability to remain competitive in
its product and service offerings; its ability to attract new personnel; and
potential U.S. and foreign regulation of the Internet.
THE COMPANY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD RENDER THE
COMPANY'S PRODUCTS AND SERVICES OBSOLETE.
Keeping pace with the technological advances may require substantial
expenditures and lead time, particularly with respect to acquiring updated
hardware and infrastructure components of its systems. The Company may require
additional financing to fund such acquisitions. Any such financing may not be
available on commercially reasonably terms, if at all, when needed.
6
IF THE COMPANY DOES NOT CONTINUOUSLY IMPROVE ITS TECHNOLOGY IN A TIMELY MANNER,
ITS PRODUCTS COULD BE RENDERED OBSOLETE.
These changes and developments may render the Company's products and
technologies obsolete in the future. As a result, the Company's success depends
on its ability to develop or adapt products and services or to acquire new
products and services that can compete successfully. There can be no assurance
that the Company will be successful in these efforts.
THE COMPANY INTENDS TO ISSUE ADDITIONAL EQUITY SECURITIES, WHICH MAY DILUTE THE
INTERESTS OF CURRENT SHAREHOLDERS OR CARRY RIGHTS OR PREFERENCES SENIOR TO THE
COMMON SHARES.
Accordingly, existing shareholders may experience additional dilution of their
percentage ownership interest in the Company. In addition, the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of the Company's common shares.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company believes its exposure to overall foreign currency risk is not
material. The Company does not manage or maintain market risk sensitive
instruments for trading or other purposes and is not exposed to the effects of
interest rate fluctuations as it does not carry any long-term debt.
The Company reports its operations in US dollars and its currency exposure,
although considered by the Company as immaterial, is primarily between the US
and Canadian dollars. Exposure to other currency risks is also not material as
international transactions are settled in US dollars. Any future financing
undertaken by the Company will be denominated in US dollars. As the Company
increases its marketing efforts, the related expenses will be primarily in US
dollars. In addition, 90% of the Company's bank deposits are in US dollars.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any other material pending legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security holders during the
first quarter of 2002.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the first quarter of the fiscal year covered by this Report, the
registrant filed the following reports on Form 8-K:
(i) On January 11, 2002, the registrant filed a report on Form
8-K wherein the registrant reported that it had signed a
sales and marketing partnership agreement with Ministry of
Media GmbH http://www.ministry.de/, a leading web
advertising agency, media consulting and technology
provider, and production and marketing company headquartered
in Hamburg, Germany.
7
(ii) On January 11, 2002, the registrant filed a report on Form
8-K wherein the registrant reported that it had completed a
contract with FamilyLife http://www.familylife.com/ designed
to generate more effective communications and increased
financial support for its growing non-profit ministry to
families in the United States and worldwide.
(iii) On January 15, 2002, the registrant filed a report on Form
8-K wherein the registrant reported that the registrant is
expanding the scope and breadth of its StreamHQ (TM)
infrastructure and services using Speedera Networks,
Inc.'s content delivery network to support clients and
Consumers around the world. Speedera is a top tier global
provider of content delivery services.
(iv) On January 22, 2002, the registrant filed a report on Form
8-K wherein the registrant reported that that it had signed
a strategic sales and marketing agreement with eDirect, Inc.
(www.edirect.com), the nation's largest owner of opt-in
email names.
(v) On January 23, 2002, the registrant filed a report on Form
8-K wherein the registrant reported the latest expansion of
its StreamHQ(TM) Internet media-delivery architecture, with
the unveiling of mediaClix(TM); billed as "the power behind
the click," mediaClix(TM) empowers under-performing
"click-through" models with the power of StreamHQ(TM) rich
media and the intelligence of its advanced data capture and
reporting.
(vi) On February 5, 2002, the registrant filed a report on Form
8-K wherein the registrant reported that it was expanding
the scope and breadth of its efforts to enforce its
pioneering video technology patents by retaining the
services of J. Andrew Huffman, a patent and litigation
attorney who will serve the registrant as in-house patent
counsel.
(vii) On February 6, 2002, as amended on February 7, 2002, the
registrant filed a report on Form 8-K wherein the registrant
reported that World Vacations, Incorporated had contracted
to use the registrant's Zmail and mediaClix(TM) services for
a promotional campaign targeted to the travel and tourism
markets.
(viii) On February 15, 2002, the registrant filed a report on
Form 8-K wherein the registrant reported that it had
completed a contract with Miriam Masullo, PhD, to promote
her campaign for election to the United States House of
Representatives.
(ix) On February 25, 2002, the registrant filed a report on
Form 8-K wherein the registrant reported that it had
completed a contract with Mortgage Lenders Network USA, Inc.
www.mlnusa.com to deploy Zmail and mediaClix to increase its
sales and brand awareness in the nationwide mortgage banking
business.
(x) On March 18, 2002, the registrant filed a report on Form 8-K
wherein the registrant reported that it had been contracted
to provide Zmail and mediaClixTM services for a leading
European-based sports car manufacturer, with an initial
order for a 100,000-name Zmail campaign and a corresponding
mediaClix(TM) campaign.
(xi) On April 15, 2002, the registrant filed a report on Form 8-K
wherein the registrant reported that it had placed eight of
its twenty employees in the Connecticut office on a
temporary furlough.
8
(xii) On May 14, 2002, the registrant filed a report on Form 8-K
wherein the registrant reported that the prominent
intellectual property and technology law firm Fish &
Richardson P.C. (www.fr.com) will commence protection of
the registrant's store-and-forward video-on-demand U.S.
patent (number 5,130,792), beginning with an aggressive
licensing program.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USA Video Interactive Corp.
Dated: May 14, 2002 By: /s/ Anton J. Drescher
--------------------------------
Name: Anton J. Drescher
Title: Chief Financial Officer
F1
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
(STATED IN US DOLLARS)
--------------------
F2
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(STATED IN US DOLLARS)
MARCH 31, DECEMBER 31,
2002 2001
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 70,522 $ 104,238
Marketable securities - related parties. . . . . . . . . . . . . . . 47,292 42,616
Accounts receivable, net of allowance for doubtful accounts of $-0-. 28,156 30,900
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 12,000
Prepaid expenses and other current assets. . . . . . . . . . . . . . 16,036 21,613
------------- --------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . 174,006 211,367
Property and Equipment - at cost, net of accumulated
depreciation of $681,121 and $573,015, respectively. . . . . . . . 992,233 1,100,339
Other Assets, net of accumulated amortization of $8,847
and $8,016, respectively. . . . . . . . . . . . . . . . . . . . . . 69,642 70,472
Deferred Tax Assets, net of valuation allowance
of $7,498,000 and $7,215,000, respectively . . . . . . . . . . . . - -
------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,235,881 $ 1,382,178
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . $ 1,112,172 $ 948,417
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . 453,532 91,480
------------- --------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . 1,565,704 1,039,897
------------- --------------
Commitments and Contingencies
Stockholders' Equity (Deficiency):
Preferred stock - no par value; authorized 250,000,000 shares,
none issued
Common stock - no par value; authorized 250,000,000 shares,
issued and outstanding 91,745,088 shares. . . . . . . . . . . . 29,492,071 29,492,071
Accumulated other comprehensive loss . . . . . . . . . . .. . . . (81,811) (86,487)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . .. . . (29,740,083) (29,063,303)
------------- --------------
STOCKHOLDERS' EQUITY (DEFICIENCY). . . . . . . . . . . . . . . (329,823) 342,281
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY). . . . $ 1,235,881 $ 1,382,178
============= ==============
SEE ACCOMPANYING NOTES
F3
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN US DOLLARS)
THREE MONTHS ENDED MARCH 31, 2002 2001
(UNAUDITED)
Revenue. . . . . . . . . . . . . . . . . $ 26,253 $ 1,060
------------ ------------
Expenses:
Cost of sales. . . . . . . . . . . . . 12,072 723
Research and development . . . . . . . 218,145 235,234
Selling, general and administrative. . 351,228 422,506
Depreciation and amortization. . . . . 108,937 80,548
Noncash compensation charges . . . . . 12,718 565,597
------------ ------------
Total expenses . . . . . . . . . . . . . 703,100 1,304,608
------------ ------------
Loss from operations . . . . . . . . . . (676,847) (1,303,548)
------------ ------------
Other income (expense)
Interest income. . . . . . . . . . . . 67 3,591
Other. . . . . . . . . . . . . . . . . - 1,889
------------ ------------
67 5,480
------------ ------------
Net loss . . . . . . . . . . . . . . . . $ (676,780) $(1,298,068)
============ ============
Net loss per share - basic and diluted . $ (.01) $ (.02)
============ ============
Weighted-average number of common
shares outstanding - basic and diluted 91,745,088 82,277,867
============ ============
SEE ACCOMPANYING NOTES
F4
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(STATED IN US DOLLARS)
THREE MONTHS ENDED MARCH 31, 2002 2001
(UNAUDITED)
Net loss. . . . . . . . . . . . . . . . . . $(676,780) $(1,298,068)
Other comprehensive loss:
Change in unrealized loss on investments. 4,676 (33,112)
---------- ------------
Comprehensive loss. . . . . . . . . . . . . $(672,104) $(1,331,180)
========== ============
SEE ACCOMPANYING NOTES
F5
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(STATED IN US DOLLARS)
(UNAUDITED)
COMMON STOCK ACCUMULATED
OTHER STOCKHOLDERS'
COMPREHENSIVE ACCUMULATED EQUITY
SHARES AMOUNT LOSS DEFICIT (DEFICIENCY)
Balance at December 31, 2001 91,745,088 $ 29,492,071 $(86,487) $(29,063,303) $ 342,281
Change in unrealized loss
on investments. . . . . . . - - 4,676 - 4,676
Net loss . . . . . . . . . . - - - (676,780) (676,780)
------------- -------------- --------- ------------- -------------
Balance at March 31, 2002. . 91,745,088 $ 29,492,071 $(81,811) $(29,740,083) $ (329,823)
============= ============== ========= ============= =============
SEE ACCOMPANYING NOTES
F6
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN US DOLLARS)
THREE MONTHS ENDED MARCH 31,. . . . . . . . . . . . . . . . . . . . . 2002 2001
(UNAUDITED)
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(676,780) $(1,298,068)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 108,936 80,548
Noncash compensation charge . . . . . . . . . . . . . . . . . . . 12,718 565,597
Changes in operating assets and liabilities:
Decrease in accounts receivable . . . . . . . .. . . . . . . . . 2,744 89,253
Increase in inventories . . . . . . . . . . . .. . . . . . . . . - (7,100)
Decrease in prepaid expenses and other current assets . .. . . . 5,577 9,514
Increase in other assets. . . . . . . . . . . . . . . . .. . . . - (4,000)
Increase (decrease) in accounts payable and accrued expenses.... 151,037 (410,907)
Decrease in accounts payable and accrued expenses -
related parties. . . . . . . . . . . . . . . . . . . . . . .. . - (20,830)
Increase (decrease) in due to related parties. . . . . . . . . 362,052 (4,273)
---------- ------------
NET CASH USED IN OPERATING ACTIVITIES . .. . . . . . . . . . . (33,716) (1,000,266)
---------- ------------
Cash flows from investing activities:
Purchases of property and equipment, net. . . . . . . . . . . . . . - (13,774)
---------- ------------
Cash flows from financing activities:
Proceeds from the issuance of common stock. . . . . . . . . . . . . - 1,333,260
Proceeds from the issuance of common stock upon exercise of warrants - 15,625
---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . - 1,348,885
---------- ------------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . (33,716) 334,845
Cash and cash equivalents at beginning of period. . . . . . . . . . . 104,238 231,197
---------- ------------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . $ 70,522 $ 566,042
========== ============
SEE ACCOMPANYING NOTES
F7
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01(a)(5) 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 the management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. The results for the interim periods are
not necessarily indicative of the results that may be attained for an entire
year or any future periods. For further information, refer to the Financial
Statements and footnotes thereto in the Company's annual report on Form 10-K for
the fiscal year ended December 31, 2001.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basic loss per common share ("EPS") is computed as net loss divided by the
weighted-average number of common shares outstanding during the period. Diluted
EPS includes the impact of common stock potentially issuable upon the exercise
of options and warrants. Potential common stock has been excluded from the
computation of diluted net loss per share as their inclusion would be
antidilutive.
Inventory, which consists of computer equipment, is stated at the lower of cost
or market using the specific-identification method.
The assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars at current exchange rates, and revenue and expenses are
translated at average rates of exchange prevailing during the period. The
aggregate effect of translation adjustments is immaterial at March 31, 2002 and
2001.
NOTE C - CONTINGENT LIABILTIY
The Company is party to a default judgement entered against one of the Company's
subsidiaries. During the year ended December 31, 1995, a claim was made to the
Company for the total amount payable under the terms of the lease with the
Company's subsidiaries for office space in Dallas Texas through 2002. The
Company's management is of the opinion that the amount payable under the terms
of this judgement is not estimable or determinable at this time and may be
substantially mitigated by the landlord renting the property to another party.
The range of possible loss is from $-0- to approximately $500,000. Any
settlement resulting from the resolution of this contingency will be accounted
for in the period of settlement when such amounts are estimable or determinable.
NOTE D - STOCKHOLDERS' EQUITY (DEFICIENCY)
During January 2002 the Company issued 4,680,000 options to purchase common
stock to certain officers and directors of the Company under the 2001 Stock
Option Plan ("the "2001 Plan"). The stock options are exercisable at a price of
$0.50 (U.S.) per share for a term of two years from the date of grant.
During January 2002 the Company issued 925,000 options to purchase common stock
to certain service providers of the Company under the 2001 Plan. The stock
options are exercisable at a price of $0.50 (U.S.) per share for a term of two
F8
years from the date of grant. In accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") 123, the Company has charged to
operations for the three-month period ended March 31, 2002 approximately $13,000
which is based on the fair value of the stock options as services are provided.
At March 31, 2002 since such options have not yet vested, this amount is
included in accounts payable and accrued expenses in the accompanying
consolidated balance sheet.
NOTE E - RELATED PARTY TRANSACTIONS
During the three-month period ended March 31, 2002 advances were made by certain
directors and officers of the Company of approximately $161,000, net of
repayments. These advances are non-interest bearing and are due on demand. These
advances are included in due to related parties on the accompanying consolidated
balance sheet.
During the three-month period ended March 31, 2002 advances were made by
shareholders of the Company of approximately $201,000. These advances are
non-interest bearing and are due on demand. These advances are included in due
to related parties in the accompanying consolidated balance sheet.