SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 2000
-------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to ____________
Commission file number 0-27043
-------
E-VIDEOTV, INC.
--------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 51-0389325
------------------------------- ---------------------
(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.)
7333 E. Doubletree Ranch Rd, Scottsdale, AZ 85258
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
480-778-1499
--------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name Of Each Exchange
Title Of Each Class On Which Registered
---------------------- ---------------------
---------------------- ---------------------
---------------------- ---------------------
Securities registered under Section 12(g) of the Exchange Act:
Common stock, par value $0.0001 per share
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. Nil
---
Page 1
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold or the average bid and asked prices of such common equity, as of
a specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
$5,749,448 As of March 15, 2001
------------------------- -----------------------------
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date: 16,757,072 As of March 15,
----------- ----------
2001
----
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933. The listed documents should be clearly
described for identification purposes.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
Page 2
TABLE OF CONTENTS
PART I.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . . 4
Item 2. Description of Property. . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 10
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 5. Market for Common Equity and Related Stockholder Matters.. . . . 11
Item 6. Management's Discussion and Analysis and Plan of Operation.. . . 11
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . 27
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act. . . . . . . . 28
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 30
Item 11. Security Ownership of Certain Beneficial Owners and Management . 31
Item 12. Certain Relationships and Related Transactions . . . . . . . . . 32
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 33
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-3-
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF THE BUSINESS
The Company was incorporated in Delaware on July 25, 1997 under the name Oro
Rico Mining Corporation. On August 25, 1997, ORM, Inc., an inactive company
incorporated in Colorado on July 25, 1997, was merged into the Company. The
name of the Company was changed to Asia Pacific Enterprises, Inc. on October 16,
1997. On June 23, 1999, the Company acquired EVideo U.S.A., Inc. by issuing
6,623,016 of its common shares to eVideo International, Inc. On August 6, 1999
the Company changed its name to e-VideoTV, Inc.
Unless otherwise indicated, all references to the Company include the operations
of the Company and its wholly owned subsidiary, EVideo U.S.A., Inc.
The primary business of the Company is to develop, deploy, acquire and license
technologies related to the Video-On-Demand (VOD) industry. The Company believes
that the VOD industry is moving rapidly towards a download model, where movies
will be downloaded as compressed digital files to a hard drive located in the
set top box. The cost of hard drive storage has dropped in the last year and is
enabling such new product and service opportunities. The Company also believes
that the movie industry will be even more aggressive in its copyright protection
efforts once electronic delivery to the home of digital quality movies becomes
more prevalent. The movie industry is defined as the major motion picture
studios, including MGM, Paramount, Disney, Dreamworks, Universal/Sony, and
Warner Bros. The movie industry's current position is that all STB (set top box)
makers and all distributors have the ability to provide analog copy protect on
request for their properties. The industry takes this position because they own
the intellectual property and can dictate copy-protection and thus deter
unauthorized copying of videos.
In support of this strategy, the Company has acquired the exclusive rights from
Macrovision to use their copy protection technology for Pay-Per-View (PPV) and
Video-On-Demand (VOD) movies downloaded to set top boxes ("STB") in "faster than
real time" (FTRT) in cable, satellite and broadband applications in the USA.
"Faster than real time" is also known as Less-Than-Real-Time. An example of FTRT
would be a 2-hour movie stored in a file and downloaded to a set top box in less
than 15 minutes. The Company also has first rights with Macrovision to expand
its exclusive license to other countries.
Macrovision is the de-facto worldwide industry standard in analog copy
protection technology for movies. Macrovision copy protection allows consumers
to view on TV, but not record on VHS tape, programs that are copy protected. The
purpose of the technology is to deter unauthorized home taping of digitally
delivered programs. Thus, the Macrovision protection device is installed in
virtually all digital home movie devices such as DVD players, cable set top
boxes, and satellite receivers. The Macrovision technology protects the analog
output connection to the television set. It is estimated that currently there
are approximately 250 million analog TV sets in the USA.
The Company intends to license FTRT copy protection to all US cable, satellite
and DSL broadband operators that download movies in FTRT. The Company will
collect a license sign-up fee plus royalty fees based on a percentage of revenue
for each movie viewed.
The Company also intends to license all set top box manufacturers that make
units capable of receiving movie downloads in FTRT and sold in the US. The
Company will collect a license sign-up fee plus royalty fees for each set top
box shipped. The Company estimates there are in excess of 50 set top box
manufacturers and all these companies will be contacted regarding licensing.
-4-
In March 2000, the company executed a LESS-THAN-REAL-TIME MASTER LICENSE
AGREEMENT with Macrovision Corporation, a Delaware corporation, of 1341 Orleans
Drive, Sunnyvale, California 94089, USA. The company paid an initial license fee
of $400,000. As part of this agreement, the Company issued 502,713 shares of
its common stock to Macrovision, which represents 3% of the Company's
outstanding common shares, and agreed to issue the licensor 3 additional shares
for each 97 shares the Company subsequently issues to third parties. The 502,713
shares were issued at a value of $1.575 per share for a total consideration of
$791,773. The anti-dilution provisions within the agreement shall remain in
effect as long as the agreement is in force.
The license is for a five year term ending January 31, 2005 and may be extended
until January 31, 2010. A usage royalty based on pay-per-view transaction fees
charged to viewers is collected from the operator and a portion is payable to
Macrovision. Minimum annual royalties of $250,000 are due each January 31 from
2001 until 2004, and as the license is extended, of $350,000 each January 31
from 2005 until 2009.
Each minimum royalty paid may be applied against usage royalties incurred during
the following twelve months. The minimum royalty of $250,000 for the year 2001
has been paid to Macrovision. Annual pre-payment royalty fees are due by January
31st each year.
The license will become non-exclusive if the Company does not generate a
one-month usage royalty of $1,000 by January 31, 2002, or if FTRT broadcasts do
not generate in excess of $250,000,000 in gross VOD/PPV revenues in the United
States in the fourth full year of operation following the month the Company
first generates a usage royalty of $1,000.
The Company has the option of extending the exclusive license to other
countries, subject to certain restrictions and payments.
At the present time, the Company is in the development stage, does not have any
customers, and has not earned any revenues from its proposed operations. The
Company currently has 5 employees, who are employed by the Company through
consulting contracts. The Company's head office is located in Scottsdale,
Arizona. The Company expects to expand its workforce in the next 12 months.
All of the shares issued and to be issued to eVideo International, Inc. for the
acquisition of EVideo U.S.A., Inc. have been released from escrow. As the
business model has changed significantly from what was contemplated at the time
of the transaction, both the Board of Directors and other significant
shareholders deemed it both applicable and appropriate to cancel the escrow
agreement and release the shares.
COMPETITION
The Company is not aware of any visible direct competitors in this FTRT
copy-protection field. Since the Macrovision technology is a de-facto industry
standard, and the Company has exclusive rights, the Company believes it has no
apparent competitors for licensing FTRT analog copy-protection.
-5-
THE INDUSTRY
Electronically delivered VOD movies will compete directly with the video store
business that represents $15 billion in revenue per year. Cable operators,
satellite operators, and broadband DSL operators are eager to enter the VOD
market and capture a share of this revenue. These operators will offer VOD by
electronically delivering movies to the home. However, unlike Pay-Per-View, full
VOD allows the viewer to have full VCR-like control over the movie. This allows
them the capability to pause, stop, rewind, or fast-forward the movie just like
the video rental experience. Without this rich control capability, viewers tend
to prefer the video store rental, making this a requirement for any VOD success.
Providing this individual control capability using streaming methods has
required that the operators allocate a unique dedicated channel to each viewer
while their movie is playing.
Some cable operators have attempted to offer a VOD solution by streaming video
to the home set top box. With streaming, to provide the full VCR like control
that consumers demand, they must allocate a unique individual channel to each
viewer for the duration of the movie including "pause" and "re-play" time.
Although these systems have worked well in small trials, operators are now
finding that scaling the solution to meet full subscriber demand is costly. They
must deploy large amounts of fiber and other expensive equipment to create the
channel capacities required. In addition, satellite broadcasters do not have the
wireless bandwidth capacity to allocate sufficient channels to effectively
provide such VOD services to their large subscriber base.
The Company feels that an elegant VOD solution exists by downloading the movie
to a set top box containing a hard drive. Multi-cast techniques can be used to
transmit the movie file simultaneously to large numbers of set top boxes for
recording on a local hard drive. When the viewer actually watches the movie,
functions such as pause, rewind, etc. are local functions and do not require any
network activity or consume precious network bandwidth. This allows for
independent VOD viewing by up to 100% of the subscribers simultaneously yet
requiring only a small number of transport channels.
The Company believes that the next major growth in the home entertainment
industry is focused on Personal Television, powered by set-top boxes with hard
drives that can store programs, VOD movies, provide time shifting and Personal
TV channels (PTV). Most of the major set top manufacturers are now introducing
units with hard drives of up to 40 GBytes. This is sufficient capacity to store
10-15 movies. Set top box manufacturers are also providing time-shift and live-
pause functionality similar to TIVO and ReplayTV as consumers find these
conveniences attractive.
OTHER TECHNOLOGIES & PATENT PENDING
The Company has also developed a technical methodology related to the
pre-caching of movies in set top boxes prior to the viewer ordering the movie
regardless of the download speed. This innovation offers industry advantages in
delivery efficiencies and consumer satisfaction. The Company has filed for a
patent with the US Patent Office. The Company has subsequently learned that an
existing patent by others has some similar claims. Further investigation by the
Company's patent legal council, on this matter, is required to determine the
extent of overlap and/or uniqueness of the Company's patent claims.
-6-
In addition, the Company has identified a number of issued patents that it may
wish to acquire to compliment the Company's work in the areas of VOD and caching
and could create an expanded license model beyond the Macrovision technology.
The Company plans to explore these opportunities. While the company wishes to
acquire existing patents, it should be noted that it currently does not have the
resources to make such patent acquisitions.
During the year, the company spent $254,100 on research and development. This is
primarily represented by fees paid or payable to Mssrs. Nickerson and Bennett.
In 1999, the company did not expense any funds on research and development.
RISK FACTORS
An investment in stock of the Company is highly speculative, involves a high
degree of risk, and should not be made by any person who cannot afford the loss
of the entire investment. The following factors should be considered carefully
in evaluating the Company and its business.
Lack of Prior Operations and Experience
The Company is a development stage company, has no revenues from operations and,
except for the services of its officers and directors and the cash on hand, has
no other significant tangible assets. Accordingly, there can be no assurance
that the Company will operate at a profitable level. The Company's proposed
business involves licensing technology related to the electronic delivery of
videos on an FTRT basis. Future development and operating results will depend on
many factors, including the initial sign up of the licensees, the demand for the
Company's technology, price sensitivity, and the Company's ability to develop
territories and control costs. In addition, the Company's future prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered in establishing a new business in the video entertainment industry,
which is characterized by intense competition, rapid technological change,
significant regulation and significant consolidation of ownership.
Acceptance of Company's Technology; Creation of New Market
There can be no assurance that the Company's acquired licensing technologies
will be activated by cable, satellite television, and other broadband operators.
In fact, there has not yet been widespread acceptance of the FTRT caching
technology to date. Although the Company believes that there will be a large
market for its copy protection technology, there can be no assurance that such a
market will develop, or how quickly such development may occur. The cable and
digital broadcast industries have not yet determined whether they will utilize
caching technologies, or streaming delivery that would not require a license
from the Company. If the cable and digital broadcast companies choose to use
streaming technology as their primary VOD delivery model then the Company will
be unable to continue as a going concern.
A critical factor in the Company's ability to market its technologies will be
any decisions by the movie industry and other content providers to abandon or
reduce copy protection requirements. Should this happen then the Company will be
unable to continue as a going concern.
A digital set-top box capable of receiving and storing the videos in FTRT is
currently estimated to cost approximately $400. This price could be a barrier to
acceptance of the Company's FTRT technology. It is also undetermined whether
this box cost would be borne by the subscriber or the operator. The inability of
operators to raise the necessary capital to purchase such boxes could hinder the
Company's ability to develop and expand its market presence.
-7-
Dependence upon the Macrovision license. The Company's success is dependent
upon exploiting its license with Macrovision. If the Company is unable to
continue to make payments to Macrovision to keep its exclusive license or if the
Company forfeits such license for any other reason, it will be unable to
continue as a going concern
Additional Financing Required - Dilution to Present Shareholders
The Company does not currently have sufficient funds to reach full market
penetration of its licenses and generate royalty income and be competitive in
the industry. The Company's capital requirements will depend on a variety of
factors, including the signing up of licensees, the time involved to achieve
significant sign ups, the acquisition of further licenses, patents, and other
technologies and market acceptance of and demand for its technologies. The
timing and amount of such capital requirements cannot be accurately predicted.
There is no assurance that additional funds will be available from any source
when needed by the Company. If additional funds are not available, the Company
may not be able to continue in business.
In order to raise additional capital, the Company may issue additional shares of
common stock at prices that will be determined by the Company's Board of
Directors. The issuance of any such shares may result in a reduction of the net
book value per share or market price of the outstanding shares of the Company's
common stock, and will reduce proportionate ownership and voting power of all
other shareholders. Further, any such issuance may result in a change in
control of the Company.
The Company is currently negotiating with an international investment bank and
NASD member firm regarding additional funding. The outcome of these negotiations
will not be known for at least 90 days.
Stock Options
The Company has approved a stock option plan that sets aside 5,000,000 of the
Company's common stock for issuance upon the exercise of stock options.
During the year, the following stock options were granted:
Date Granted Optionee No. of Shares Effective Date Expiration Date
------------- -------------------- ------------- -------------- ---------------
Nov 30, 2000 Glen Williamson 155,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Karen Blandini 155,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Dan Cravens 120,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Phil Dion 120,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Jennifer Schrier 20,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Peter Wilson 400,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Peter Van der Gracht 50,000 Nov 30, 2000 Nov 30, 2005
Nov 30, 2000 Lisa Payne 50,000 Nov 30, 2000 Nov 30, 2005
---------
1,070,000
-8-
On Jan 12, 2001, the following options were granted:
Jan 12, 2001. Roy Bennett 1,100,000 Jan 12, 2001 Jan 12, 2006
Jan 12, 2001. Robert Dinning 1,100,000 Jan 12, 2001 Jan 12, 2006
Jan 12,2001 . Harvey Nickerson 1,100,000 Jan 12, 2001 Jan 12, 2006
Jan 12, 2001. Charles Weber 300,000 Jan 12, 2001 Jan 12, 2006
---------
3,600,000
---------
Total Options 4,670,000
=========
The issuance of options under the stock option plan could adversely affect the
market price of the Company's common stock and could impair the Company's
ability to raise additional capital through the sale of its equity securities or
debt financing. Exercise of any such options will result in dilution to the
proportional interests of shareholders of the Company at the time of exercise
and, to the extent that the exercise price is less than the book value of the
common stock at that time, to the book value per share of the common stock.
No Dividends
The Company never has paid and does not anticipate paying dividends on its
common stock in the foreseeable future. Retained earnings, if any, will be
utilized for the operation and expansion of the Company's business.
Limited Public Market for Common Stock
The Company's common stock is traded in the over-the-counter market. An
investment in the Company's common stock should be considered highly illiquid,
and there can be no assurance that a market for the Company's common stock will
continue.
Penny Stock Regulation
The Securities and Exchange Commission (the "SEC") has adopted rules that
regulate broker-dealer practices in connection with transactions in "penny
stocks." Penny stocks generally are equity securities with a price of less than
$5.00 per share (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ National Market System, provided that current
price and volume information with respect to transactions in such securities is
provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prepared by the
SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer also must provide the
customer with bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from such rules, the broker-dealer must
make a special written determination that a penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure requirements often have the effect of reducing
the level of trading activity in any secondary market for a stock that becomes
subject to the penny stock rules. The Company's common stock is subject to the
penny stock rules, and accordingly, owners of the Company's common stock may
find it difficult or impossible to sell their shares.
Need for Experienced Management and Key Employees
-9-
The Company is dependent upon the services of a few key management and technical
personnel. The loss of any one of their services, or an inability to recruit
and retain additional qualified personnel, could have a material adverse effect
on the Company.
Corporate Size Disadvantage & New Technologies
The cable, satellite and STB industries are characterized by a large percentage
of the industry controlled by a small number of large companies. The Company
will be at a disadvantage in negotiating licenses with other companies having
larger technical and legal staffs, established market positions and greater
financial and operational resources than the Company. There can be no assurance
that the Company will be able to conclude licenses in a timely manner. There
can be no assurance that other companies will not succeed in developing
products, or new competing technologies that are more effective or more
effectively marketed than technologies marketed by the Company or that render
the Company's technology obsolete.
Dependence on Third Parties
The Company will rely on Macrovision's ability to enforce its intellectual
property rights licensed to the Company. Any change in Macrovision's ability to
do this could have a material adverse effect on the Company.
Control by Principal Shareholders.
The Company's officers, directors and principal shareholders own approximately
47.7% of the Company's outstanding common stock. The Company's officers and
directors will therefore be able to influence the election of the Company's
Directors and thereby direct the Company's policies and affairs.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not currently own any material amount of property or equipment.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not party to any pending legal proceeding nor is any of its
property the subject of any pending legal proceeding. The Company is not aware
of any proceeding that a governmental authority is contemplating.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year covered by this report.
-10-
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock has been quoted on the National Association of
Securities Dealers' Over-the-Counter market since May 11, 1999. There is no
other public trading market for the Company's equity securities.
The following table summarizes trading in the Company's common stock, as
provided by quotations published on the OTC Bulletin Board for the period
indicated. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
Quarter ended High Bid Low Bid High Bid Low Bid
------------------ --------- -------- -------- -----------
March 31, 2000 $ 5.19 $ 4.81 n/a
June 30, 2000 $ 2.69 $ 2.53 June 30, 1999 $ 4.19 $ 1.63
September 30, 2000 $ 0.81 $ 0.68 Sept 30, 1999 $ 2.50 $ 0.63
December 31, 2000 $ 0.30 $ 0.22 Dec 31, 1999 $ 3.25 $ 1.06
As of February 8, 2001, there were approximately 331 holders of record of the
Company's common stock.
The Company has not paid, and, in the foreseeable future, the Company does not
intend to pay, any dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
The Company continues to focus on its exclusive rights in the USA to license the
use of Macrovision Corporation's analog copy protection used in home movie
devices and set-top boxes for video received in Faster Than Real Time (FTRT) and
stored for later viewing. The Company also has first rights with Macrovision to
expand its exclusive license to other countries.
Macrovision copy protection allows consumers to view, but not record, programs
that are copy protected at the direction of program copyright holders. The
technology is designed to deter unauthorized home taping of digitally delivered
programs. Macrovision holds a 3% equity interest in the Company.
The Company reviewed its software developed with the assistance of BurntSand and
determined that because of a change in the business model, this software is no
longer necessary. Accordingly, the Company has written down software development
costs by $424,031.
During the year, the Company completed a private placement for 666,000 common
shares, resulting in proceeds of $1,048,600. These shares were sold at $1.575
per share. The Company has also received $45,000 in share subscriptions. 45,000
common shares will be issued after the year-end for these share subscriptions.
An additional $99,000 was raised through loans. These loans include a loan for
$47,500 that is interest free until August 16, 2001 and thereafter will bear
interest at US prime plus 2%. The remaining $51,500 was received from directors
and there are no set terms of repayment.
Subsequent to the year-end, the Company agreed to a private placement for the
sale of 687,500 common shares at $0.80 per share for $550,000. There will be one
warrant available per share issued provided the placement is fully completed.
Each warrant shall be outstanding for two years and exercisable at $0.30 per
share in the first year and $0.50 per share in the second year. The Company will
undertake to file a registration in the current fiscal year. As at March 28,
2001, $425,000 has been received and the Company has been advised by the
remaining investor that the balance of $125,000 will close in April 2001.
-11-
In February, 2001, the Company prepaid its royalties to Macrovision for the year
2001 in accordance with the terms of its agreement. While the Company does not
currently have sufficient funds to continue operation, it will continue to
pursue private placements, loans, and any other appropriate terms of financing.
The Company has initiated three specific strategies regarding VOD:
1. Licensing operators such as cable, satellite, wireless, DSL and
other broadband distributors for FTRT VOD service.
2. Licensing set-top box manufacturers and strategic partners.
3. Developing technologies and acquiring patents and technologies to
expand its licensing model with VOD operators and STB
manufacturers.
The annual home movie market is estimated at $15 billion. Of this, it is
estimated that 85% is represented by new release movies. VOD content can be
started at anytime thus there is no discernable need for recording of the
program. It is expected that the movie industry will require new VOD
new-release-content be copy protected similar to video store rentals.
Macrovision is the accepted copy-protection standard.
The license rights from Macrovision Corp are for a five year period with an
option to renew for an additional five years. The Company has complied with all
requirements of its agreement with Macrovision Corp to date, and is cognizant of
its obligations both now and in the future regarding its commitment to
Macrovision.
In the next 12 months, the Company estimates it will require funding for:
international licenses, operating licenses in various countries, patent
purchases, and general working capital. Depending on the rollout of these items,
funding requirements could range from $5 - $10 million. The Company has financed
its development stage to date by private placements of common stock. It also
recognizes that it currently does not have sufficient funds to finance its
operation over the next 12 months. The Company plans to complete additional
private placement financings to provide the necessary funds. The inability of
the Company to arrange necessary financing will have a material adverse effect
on proposed operations.
In the year 2001, the company intends to undertake additional R&D related to the
head-end software, head-end servers, and set top box software to further support
the download model for VOD content. The company intends to work closely with
equipment manufacturers and vendors as appropriate in each of these areas. In
addition, the company intends to explore the acquisition of patents and
technologies related to its VOD licensing activities. Currently the company does
not have the resources to complete these R&D efforts.
The Company further recognizes that its development schedule will be delayed
unless additional capital required is available when needed.
Inflation has not been a factor during the year ending December 31, 2000.
-12-
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included in this Annual Report on Form
10-KSB:
PAGE #
Report of the Independent Auditors 14
Consolidated Balance Sheets as at December 31, 2000 and
1999 15
Consolidated Statements of Operations for the
cumulative period from inception, March 5, 1999, to
December 31, 2000, the year ended December 31, 2000 and
the period from inception, March 5, 1999, to December
31, 1999 16
Consolidated Statements of Cash Flows for the
cumulative period from inception, March 5, 1999, to
December 31, 2000, the year ended December 31, 2000 and
the period from inception, March 5, 1999 to December
31, 1999 17
Consolidated Statement of Shareholders' Equity from
inception, March 5, 1999, to December 31, 2000 18
Notes to the Consolidated Financial Statements 19-27
-13-
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS
To the Shareholders of e-VideoTV, Inc.
We have audited the consolidated balance sheet of e-VideoTV, Inc. (A Development
Stage Company) as at December 31, 2000 and statements of operations, cash flows
and shareholders' equity for the year then ended. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2000
and the results of its operations and its cash flows for the year then ended in
accordance with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
the company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the company has no established source of
revenue and is dependent on its ability to raise substantial amounts of equity
funds. This raises substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Vancouver, Canada GRANT THORNTON LLP
March 13, 2001 Chartered Accountants
-14-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN U.S. DOLLARS)
DECEMBER 31,
------------------------
2000 1999
$ $
------------ ----------
ASSETS
CURRENT
Cash 2,276 105,002
Receivables and prepaids 9,176 2,904
------------ ----------
TOTAL CURRENT ASSETS 11,452 107,906
COMPUTER EQUIPMENT
(net of accumulated depreciation of $10,181 (1999: $247) 19,622 29,556
DISTRIBUTION RIGHTS AND SOFTWARE DEVELOPMENT (note 3) 1,229,418 730,256
------------ ----------
1,260,492 867,718
============ ==========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (note 4) 495,149 248,899
Loans from related parties (note 5) 99,000 -
------------ ----------
594,149 248,899
------------ ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 6)
Authorized - 100,000,000 (1999 - 30,000,000) shares of
common stock, $0.0001 par value and 5,000,000 shares
of preferred stock, $0.0001 par value
Issued and outstanding - 16,757,072 (1999 - 15,588,359) common shares 1,676 1,559
Additional paid in capital 3,328,136 1,095,297
Share subscriptions 45,000 -
------------ ----------
TOTAL SHARE CAPITAL 3,374,812 1,096,856
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (2,708,469) (478,037)
------------ ----------
666,343 618,819
------------ ----------
1,260,492 867,718
============ ==========
The accompanying notes are an integral part of these consolidated financial statements.
-15-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
CUMULATIVE, INCEPTION,
INCEPTION TO YEAR ENDED MARCH 5, 1999
DECEMBER DECEMBER TO DECEMBER
31, 2000 31, 2000 31, 1999
$ $ $
============ =============== ==========
Revenue - - -
------------ --------------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Amortization 307,602 307,355 247
Compensation expense for stock options (Note 6) 392,583 392,583 -
Corporate promotion 161,205 119,068 42,137
General corporate expenses 137,111 81,499 55,612
Management and consulting fees (Note 9) 739,905 583,265 156,640
Office expenses 115,140 101,108 14,032
Professional fees 248,371 82,450 165,921
Rent 77,589 53,761 23,828
Travel 114,988 86,510 28,478
------------ --------------- ----------
2,294,494 1,807,599 486,895
WRITE-OFF OF SOFTWARE DEVELOPMENT COSTS (Note 3) 424,031 424,031 -
INTEREST INCOME (10,056) (1,198) (8,858)
------------ --------------- ----------
NET LOSS FOR THE PERIOD 2,708,469 2,230,432 478,037
============ =============== ==========
Weighted Average Number of Shares
Outstanding 9,543,179 5,470,052
--------------- ----------
NET LOSS PER SHARE (basic and diluted) 0.23 0.09
=============== ==========
The accompanying notes are an integral part of these consolidated financial statements.
-16-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
CUMULATIVE, INCEPTION,
INCEPTION TO YEAR ENDED MARCH 5, 1999
DECEMBER DECEMBER TO DECEMBER
31, 2000 31, 2000 31, 1999
$ $ $
============ =============== ==========
OPERATING ACTIVITIES
Net loss for the period (2,708,469) (2,230,432) (478,037)
- compensation expense for stock options (Note 6) 392,583 392,583 -
- write-off of software developments costs 424,031 424,031 -
- depreciation and amortization 317,536 317,289 247
CHANGE IN NON-CASH OPERATING WORKING CAPITAL
- receivables and prepaids 3,428 (6,272) 9,700
- payables and accruals 462,919 246,250 216,669
------------ --------------- ----------
(1,107,972) (856,551) (251,421)
------------ --------------- ----------
FINANCING ACTIVITIES
Proceeds from sale of common shares 1,048,601 1,048,600 1
Shares subscribed 45,000 45,000 -
Loans from related parties 99,000 99,000 -
Loans from parent company prior to acquisition 115,000 - 115,000
Cash acquired on acquisition of parent company 1,001,481 - 1,001,481
------------ --------------- ----------
2,309,082 1,192,600 1,116,482
------------ --------------- ----------
INVESTING ACTIVITIES
Distribution rights (300,000) - (300,000)
License (445,000) (415,000) (30,000)
Software development (424,031) (23,775) (400,256)
Office equipment (29,803) - (29,803)
------------ --------------- ----------
(1,198,834) (438,775) (760,059)
------------ --------------- ----------
INCREASE (DECREASE) IN CASH DURING THE PERIOD 2,276 (102,726) 105,002
CASH AT THE BEGINNING OF THE PERIOD - 105,002 -
------------ --------------- ----------
CASH AT THE END OF THE PERIOD 2,276 2,276 105,002
============ =============== ==========
NON-CASH ACTIVITIES NOT INCLUDED IN CASH FLOWS
Issuance of shares to acquire license (Note 3) 791,773 791,773 -
Cancellation of loans from parent company
on acquisition 115,000 - 115,000
Ascribed value of shares issued in excess of cash
acquired on acquisition of parent company 95,374 - 95,374
Compensation expense for stock options (Note 6) 392,583 392,583
The accompanying notes are an integral part of these consolidated financial statements.
-17-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
INCEPTION, MARCH 5, 1999, TO DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
ADDITIONAL TOTAL
PAR PAID IN SHARE SHAREHOLDERS'
NUMBER VALUE CAPITAL SUBSCRIPTIONS DEFICIT EQUITY
OF SHARES $ $ $ $ $
Issuance of shares for cash on
incorporation 1 1 - - - 1
Adjustment for change in share
structure resulting from
acquisition of eVideo U.S.A., Inc. 6,623,015 661 (661) - - -
Shares outstanding at date of
acquisition of eVideo U.S.A., Inc.
previously issued for cash, net of
ssue costs (note 3) 8,965,343 897 1,095,958 - - 1,096,855
Net loss, inception to December
31, 1999 - - - - (478,037) (478,037)
---------- ------ ------------ -------------- ------------ ---------------
Balance, December 31, 1999 15,588,359 1,559 1,095,297 - (478,037) 618,819
Issuance of shares for cash on
March 17, 2000 666,000 67 1,048,533 - - 1,048,600
Issuance of shares for license on
March 17, 2000 (Note 3) 502,713 50 791,723 - - 791,773
Share subscriptions received - - - 45,000 45,000 - 45,000
Compensation expense for stock
options (Note 6) - - 392,583 - - 392,583
Net loss, year ended December
31, 2000 - - - - (2,230,432) (2,230,432)
---------- ------ ------------ -------------- ------------ ---------------
Balance, December 31, 2000 16,757,072 1,676 3,328,136 45,000 (2,708,469) 666,343
========== ====== ============ ============== ============ ===============
The accompanying notes are an integral part of these consolidated financial statements.
-18-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
1. OPERATIONS AND GOING CONCERN
The Company was incorporated in the state of Delaware, USA on July 25, 1997
under the name Oro Rico Mining Corporation. On August 25, 1997, ORM, Inc.,
an inactive Company incorporated in Colorado on July 25, 1997, was merged
into the Company. The name of the Company was changed to Asia Pacific
Enterprises, Inc. on October 16, 1997 and to e-VideoTV, Inc. on August 6,
1999.
On June 23, 1999 the Company acquired all of the outstanding shares of
eVideo U.S.A., Inc. (note 7). This business combination has been accounted
for as an acquisition of the Company by eVideo U.S.A., Inc.
The Company has commenced its planned principal operations although it has
not yet earned any revenue. The Company's current operational focus is to
secure licensing operators for its faster than real time (FTRT) video on
demand service. To that end, management is devoting substantially all of
the Company's resources to the identification and qualification of such
potential licenses. The ability of the Company to market and exploit its
FTRT video on demand technology is dependent on the company's ability to
obtain adequate additional financing and to achieve profitable operations.
The Company raised financing of $1,192,600 during 2000 through share
issuances, share subscriptions and loans from related parties. Subsequent
to year end, additional financing of $425,000 was obtained through the
issuance of common shares (note 10). The company continues to devote
significant efforts to obtaining private financing to fund the marketing of
its technology.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
TRANSLATION OF FOREIGN CURRENCIES - The Company considers the U.S. dollar
its functional currency. Monetary assets and liabilities are translated at
the exchange rate in effect at the balance sheet date and non-monetary
assets and liabilities at the exchange rates in effect at the time of
acquisition or issue. Revenues and expenses are translated at the rates in
effect at the time of the transaction. Exchange gains or losses arising on
translation are included in net income or loss for the period.
FINANCIAL INSTRUMENTS - The company has various financial instruments,
including cash, receivables, accounts payable and accrued liabilities and
loans from related parties. It was not practicable to determine the fair
value of the loan from a related parties. The carrying values of all other
financial instruments approximates their fair values.
The accompanying notes are an integral part of these consolidated financial
statements.
-19-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS
DISTRIBUTION RIGHTS AND SOFTWARE DEVELOPMENT - The costs incurred to
acquire the Company's distribution rights and develop its software were
previously capitalized based on AICPA Statement of Position 98-1. During
2000, as a result of a change in business focus from licensing and
distribution to concentrate solely on licensing, management determined that
the capitalized software development costs should be written off (Note 3).
The costs associated with the acquisition of distribution rights and
required payments under license agreements have been capitalized and will
be amortized over the term of the underlying license.
Management regularly reviews the carrying value of its distribution rights
to assess whether or not there has been an impairment in its carrying
value. When the carrying values of these assets exceed their estimated net
recoverable amounts, an impairment provision is recorded.
DEFERRED INCOME TAXES - Deferred income taxes are provided for significant
carryforwards and temporary differences between the tax basis of an asset
or liability and its reported amount in the financial statements that will
result in taxable or deductible amounts in future periods. Deferred tax
assets or liabilities are determined by applying the presently enacted tax
rates and laws. A valuation allowance is required when it is more likely
than not that some portion or all of the deferred tax asset will not be
realized.
LOSS PER SHARE - The company follows Statement of Financial Accounting
Standard No. 128, to calculate earnings per share. Basic loss per share is
computed using the weighed effect of all common shares issued and
outstanding.
ACCOUNTING FOR STOCK OPTIONS - In October 1995, the FASB issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), which requires entities to calculate the
fair value of stock awards granted to employees. This statement provides
entities with the option of either electing to expense the fair value of
employee stock-based compensation or to continue to recognize compensation
expense under previously existing accounting pronouncements and to provide
pro forma disclosures of net earnings (loss) and, if presented, earnings
(loss) per share, as if the above-referenced fair value method of
accounting was used in determining compensation expense.
The company accounts for stock-based employee or director compensation
arrangements in accordance with Accounting Principles Board Opinion No. 25
- Accounting for Stock Issued to Employees ("APB No. 25").
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
Stock options issued to non-employees are recorded at the fair value of the
services received or the fair value of the options issued, whichever is
more reliably measurable. Compensation is charged to expense over the
shorter of the service or vesting period. Unearned amounts are shown as
deferred compensation in shareholders' equity.
RECENT ACCOUNT PRONOUNCEMENTS
SFAS Nos. 133 and 138
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and SFAS No. 138,
"Accounting for Certain Derivative Instruments and certain Hedging
Activities, an amendment of FASB Statement No. 133", effective for fiscal
years beginning after June 15, 2000. These Statements establish accounting
and reporting standards for derivative instruments and hedging activities,
including certain derivative instruments embedded in other contracts, and
requires that an entity recognize all derivatives as assets or liabilities
in the balance sheet and measure them at fair value. If certain conditions
are met, an entity may elect to designate a derivative as follows: (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure
to variable cash flows of a forecasted transaction, or (c) a hedge of the
foreign currency exposure of an unrecognized firm commitment, an
available-for-sale security, a foreign currency denominated forecasted
transaction, or a net investment in a foreign operation. The Statements
generally provide for matching the timing of the recognition of the gain or
loss on derivatives designated as hedging instruments with the recognition
of the changes in the fair value of the item being hedged. Depending on the
type of hedge, such recognition will be in either net income or other
comprehensive income. For a derivative not designated as a hedging
instrument, changes in fair value will be recognized in income in the
period of change. Management is currently evaluating the impact of adopting
SFAS Nos. 133 and 138 on the financial statements, but does not anticipate
that they will have a material impact.
SFAS No. 140
The Financial Accounting Standards Board issued SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which replaces SFAS 125. The new Statement revises some of
the standards for accounting for collateral and for securitizations and
other transfers of financial assets. It is based on the
financial-components approach used in SFAS 125 and carries over most of
that Statement's accounting provisions without change. The revised
accounting provision apply to transfers of financial assets occurring after
March 31, 2001. SFAS 140 also requires expanded disclosures about
securitized and pledged financial assets, which are effective for fiscal
years ending after December 15, 2000. Management is evaluating the impact
of adopting SFAS No. 140 on the financial statements, but does not
anticipate that it will have a material impact.
The accompanying notes are an integral part of these consolidated financial
statements.
-21-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
COMPUTER EQUIPMENT - Computer equipment is recorded at cost less
accumulated depreciation. The company records depreciation on computer
equipment on a straight line basis over 36 months.
3. DISTRIBUTION RIGHTS AND SOFTWARE DEVELOPMENT
December 31,
2000
Accumulated Net book December 31,
Cost Amortization value 1999
$ $ $ $
---------- ------------- ---------- -------------
Distribution rights 300,000 60,000 240,000 300,000
Payments under license agreement 1,236,773 247,355 989,418 30,000
Software development costs - - 400,256
---------- ------------- ---------- -------------
1,536,773 307,355 1,229,418 730,256
========== ============= ========== =============
In 1999, the Company paid $300,000 to a company controlled by an officer
and director for the right to distribute video movies electronically in the
United States in accordance with a system developed by that officer and
director. At the time, that company had an option to acquire an exclusive
license from an unrelated corporation to use certain technology which
prevents a video from being copied onto a video cassette tape or other
unauthorized device. The rights to the technology are limited to the
electronic distribution of videos in the United States by means that
transmit the video in FTRT for subsequent playback and viewing at normal
speed.
During 2000, the Company paid the optionor an additional $415,000 to
maintain and exercise the option and acquire the license. In addition to
the cash consideration, the Company issued 502,713 shares of its common
stock valued at $791,773 to the licensor, which represents 3% of the
Company's outstanding common shares, and agreed to issue the licensor 3
additional shares for each 97 shares the Company subsequently issues to
third parties.
The copy-protection license is for a five year term ending January 31, 2005
and may be extended until January 31, 2010. A usage royalty of 1% of the
gross pay-per-view transaction fees charged to viewers is payable to the
licensor. Minimum annual royalties of $250,000 are due each January 31 from
2001 until 2004, and, if the license is extended, of $350,000 each January
31 from 2005 until 2009. The January, 2001 option payment was made in
February, 2001.
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
The license may be extended if the Company has materially complied with all
of the terms and conditions of the license agreement if the Company
provides the optionor with written notice on or before September 14, 2004.
Each minimum royalty paid may be applied against usage royalties incurred
during the following twelve months.
The license will become non-exclusive if the Company does not generate a
one-month usage royalty of at least $1,000 by January 31, 2002, or if the
Company's transmission business does not generate in excess of $250,000,000
in gross revenues in the United States in the fourth full year of operation
following the month it first generates a usage royalty of at least $1,000.
The Company incurred costs of $400,256 in 1999 and $23,775 in 2000 on the
design and operational testing of an electronic video delivery system
software and the evaluation of hardware installation options and methods
for internal use. During 2000, management determined that this development
work would likely not provide substantive service potential and the
$424,031 in development costs incurred were written off.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, 2000 December 31, 1999
$ $
------------------ ------------------
272,149 144,023
Accounts payable 223,000 104,876
------------------ ------------------
Accrued liabilities 495,149 248,899
================== ==================
5. LOANS FROM RELATED PARTIES
December 31, 2000 December 31, 1999
Loan from a company controlled by shareholders of the $ $
------------------ ------------------
Company. The loan is interest free up to August 16,
2001 after which it shall bear interest at the U.S.
Federal Reserve Board prime rate plus 2% and shall
become payable on demand 47,500 -
Loans from directors of the Company. These loans
bear no interest, have no set terms of repayment and are
unsecured. 51,500 -
------------------ ------------------
99,000 -
================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
6. SHARE CAPITAL
AUTHORIZED CAPITAL
During 2000 the Company increased its authorized capital from 30,000,000
common shares with a par value of $0.0001, to 100,000,000 shares of common
stock, par value $0.0001 per share and 5,000,000 shares of preferred stock,
par value $0.0001 per share.
STOCK OPTIONS
Subject to shareholder approval, the Company's directors resolved to create
an employee and director stock option plan that sets aside 5,000,000 shares
of the Company's common stock for issuance upon the exercise of stock
options.
The company accounts for its stock option plan in accordance with the
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees.
Had compensation cost for the stock option plan been determined based on
the fair value at the grant date consistent with the method of SFAS No.
123, Accounting for Stock-Based Compensation, the company's pro-forma net
loss and pro-forma net loss per share would not have been different than
its actual net loss and net loss per share reported in these financial
statements.
The fair value of each option grant was estimated at the grant date using
the Black-Scholes option-pricing model for the period from inception to
December 31, 2000, assuming a risk-free interest rate of 4.88%, a
volatility factor of 2.06%, zero dividend yield, and an expected life of
six years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options and warrants which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the company's
employee stock options and warrants have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
A summary of the status of the company's options as at December 31, 2000
and changes during the year ended December 31, 2000 is presented below:
EXERCISE WEIGHTED
PRICE AVERAGE
PER SHARE EXERCISE PRICE SHARES
========== =============== =========
Granted at FMV $ 0.50 $ 0.50 1,070,000
=========
Options outstanding at
December 31, 2000 - 1,070,000
=========
Options exercisable at
December 31, 2000 - 1,070,000
=========
Weighted-average fair value of
options granted during the
year $ 0.37
=========
The following table summarizes information concerning options outstanding
at December 31, 2000:
TOTAL OUTSTANDING EXERCISABLE
------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OF SHARES LIFE PRICE OF SHARES PRICE
--------- --------- --------- --------- --------- ---------
0.50 1,070,000 4.91 $ 0.50 1,070,000 $ 0.50
========== =========
The company granted options to purchase 1,070,000 shares of the company's
common stock to non-employees during the year ended December 31, 2000 and
recognized expense related to these options of $392,583. The expense amount
was determined by the fair value of the options issued calculated using the
Black-Scholes model.
WARRANTS
Warrants that entitled the holder to purchase up to 307,693 shares of
common stock at $3.25 per share expired on May 25, 2000 without being
exercised.
ESCROWED SHARES
During 1999, a director of the Company placed 345,000 shares of common
stock into escrow. These shares were released to the former director on
February 9, 2001.
In addition, all of the 6,623,016 common shares issued for the acquisition
of eVideo U.S.A., Inc. (note 7) were held in escrow at December 31, 2000.
These shares were released from escrow on February 9, 2001.
The accompanying notes are an integral part of these consolidated financial
statements.
-25-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
7. BUSINESS COMBINATION
On June 23, 1999, the Company acquired all of the outstanding shares of
eVideo U.S.A., Inc. in exchange for the issuance of 6,623,016 shares of its
common stock. This business combination has been accounted for as an
acquisition of the Company by eVideo U.S.A., Inc. Accordingly, these
consolidated financial statements combine the operations of eVideo U.S.A.,
Inc. since its incorporation on March 5, 1999 and the operations of
e-VideoTV, Inc. since the date of acquisition, June 23, 1999. All
intercompany transactions and balances have been eliminated.
At the date of acquisition, the net tangible assets of e-VideoTV, Inc.
acquired were:
Cash $ 1,001,481
Other current assets 12,604
Advances to eVideo U.S.A., Inc. 115,000
Current liabilities (32,230)
--------------
Value assigned to 8,965,343 shares outstanding
at date of acquisition $ 1,096,855
==============
8. INCOME TAXES
At December 31, 2000 the Company has net operating losses carried forward
of approximately $2,100,000 (1999: $570,000) that may be offset against
future taxable income from 2019 to 2020. The potential tax benefits of the
losses carried forward are offset by a valuation allowance of the same
amount as there is substantial uncertainty that the losses carried forward
will not expire unused.
9. RELATED PARTY TRANSACTIONS
Pursuant to a management agreement effective for two years commencing June
21, 1999, the Company has committed to pay $12,000 per month to a company
controlled by an officer and director of the Company for the services of
that officer. $144,000 was paid during the year ended December 31, 2000 and
$95,000 was paid for the period from inception to December 31, 1999.
Consulting fees of $467,500 have been paid to other companies that employ
other directors and officers of the Company. (1999: $58,649). Accrued
liabilities at December 31, 2000 include $233,000 (1999: $Nil) of amounts
due to related parties under consulting agreements.
The accompanying notes are an integral part of these consolidated financial
statements.
-26-
E-VIDEOTV, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
10. SUBSEQUENT EVENTS
ADVISORY SERVICES AGREEMENT
On January 30, 2001, the Company entered into a 12 month exclusive
agreement with a financial advisory company which will provide advisory
services to the Company in the areas of corporate development, corporate
finance, and capital placement transactions. Compensation to the advisory
company will range from 1% to 6.0% of the 'aggregate consideration'. The
agreement specifies a minimum fee of $250,000 should a financing as
specified in the agreement be completed with this financial advisory
company.
ISSUANCES OF CAPITAL STOCK
Subsequent to December 31, 2000 the Company completed a private placement
of $425,000 through the issue of 531,250 shares of its common stock. Each
share has a warrant attached exercisable for two years for the purchase of
one additional share at $0.30 per share in the first year and $0.50 per
share in the second year.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No disagreements.
The accompanying notes are an integral part of these consolidated financial
statements.
-27-
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company are:
Name Age Position Director Since
--- --- -------- ---------------
Charles Weber 57 President and CEO, and Director July 1, 2000
Roy Bennett 54 Founder and Director June 22, 1999
Robert Dinning 61 Chief Financial Officer, Secretary June 22, 1999
and Director
Harvey Nickerson 43 Chief Technology Officer and April 1, 2000
Director
CHARLES WEBER has been President and a Director since July 10, 2000. Mr. Weber
has extensive experience in senior management positions, having previously been
President and CEO of Lucasfilm Ltd, a well-known studio where he was responsible
for all aspects of the Company's operations including the making of blockbuster
movies such as Raiders of the Lost Ark, and More American Graffiti. He has also
been president and CEO/COO of Embassy Communications, Entertainment Company of
America and CanWest International Group.
Mr. Weber is a member of The Academy of Motion Pictures Arts and Sciences and
The Academy of Television Arts and Sciences. Mr. Weber is a graduate of
Manhattan College, where he received a Bachelor of Business Administration
degree and went on to earn a Master's degree in Business Administration from
Hofstra University.
ROY B. BENNETT has been an officer and director of the Company since June 1999.
Mr. Bennett has also been the President of Roy B. Bennett and Associates Ltd., a
private venture capital and management company specializing in new technology
start-ups, corporate structuring and private funding since 1994. Mr. Bennett has
a B.Sc. (1969) degree in Biology and a M.Sc.(1970) in Applied Sciences, both
from Simon Fraser University in Burnaby B.C. As well, Mr. Bennett has a M.Sc.
(1971) in Entomology at the University of London, London England and a Diploma
of Imperial College (D.I.C.) in Applied Science - Imperial College, London,
England.
ROBERT DINNING has been a director of the Company since June 1999 and an officer
of the Company since January 2000. Mr. Dinning is a Chartered Accountant, who
has been a Business and Financial Management Consultant since 1977. He has been
President of Castle Creek Capital Corp since 1999 and has provided management
and financial advice to clients (both public and private companies) in the
software technology, resource, hospitality and retail industries since 1977. In
the past five years, positions held include; Chief Financial Officer and
Director of First American Scientific Corp. from October 1995 to June 1999, and
has been a Director of Visionary Solutions Ltd. He is currently a Director of
Reward Enterprises Inc. and Apolo Gold Inc. Prior to 1977 Mr. Dinning was CFO
and Secretary of a large national public broadcasting company in Canada.
HARVEY NICKERSON has been an officer of the Company since January 2000 and a
director since April 2000. Mr. Nickerson is responsible for the architecture,
technical direction and development of the Company's products. Prior to joining
e-Video, Mr. Nickerson had an 18-year career in the technology, semiconductor
and cable TV industry. After success as a design engineer, his career has grown
to also include executive management, business planning, international product
marketing, and technology licensing. Mr. Nickerson has two degrees in
Electrical Engineering.
-28-
During the past five years, none of the Company's directors, executive officers,
promoters or control persons:
(1) have been involved in any bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to that
time;
(2) have been convicted in a criminal proceeding or are subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
(3) have been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting such person's involvement in any type of business, securities or
banking activities; or
(4) have been found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated.
All directors are appointed until next annual meeting of shareholders. There is
no compensation for attending meetings but travel expenses are reimbursed.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 furnished to the registrant under
Rule 16a-3(e) during the year ended December 31, 1999 and Forms 5 furnished to
the registrant, or written representations from reporting persons that no Form 5
is required to be filed, with respect to the year ended December 31, 1999, the
only person who, at any time during the fiscal year, was a director, officer, or
beneficial owner of more than 10% of any class of equity securities of the
registrant who failed to file on a timely basis, was Robert Dinning, who failed
to file Form 3 by August 27, 1999 and a Form 5 by February 14, 2000 to disclose
his initial ownership of securities.
-29-
ITEM 10. EXECUTIVE COMPENSATION.
The following table on discloses all compensation received by the Company's
President (the Chief Executive Officer) during the years ending December 31,
1997, 1998, 1999 and 2000. During 1997, 1998 and 1999 no executive officer
received cash or other compensation from the Company in excess of $100,000.
Annual Compensation Long-Term Compensation
----------------------------------------------- ----------------------------------
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Payment Bonus sation Awards SAR's Payouts sation
Charles J. Weber 2000 $ 77,500 (1) 0 0 0 0 0 0
President/CEO
Since July 10, 2000
Roy B. Bennett 2000 $153,000 (1) 0 0 0 0 0 0
President June 21 1999 $76,000 (1) 0 0 0 0 0 0
To July 10, 2000
Director - June 21,
1999.
Robert G. Dinning 2000 $ 126,000(1) 0 0 0 0 0 0
Director - June 21,
1999. 1999 -
CFO/Secretary since
Jan 31, 2000
Harvey Nickerson 2000 $111,000 (1) 0 0 0 0 0 0
CTO since
Jan31, 2000
Director April 1,
2000.
Adrian Rollke 1999 $ 20,538 (1) 0 0 0 0 0 0
President from
Aug 27,1997 to
June 21,1999
(1) Paid or due to a corporation wholly owned by the named executive officer for the services of the named
executive officer.
The Company has employment agreements with Bennett, Weber and Nickerson. The
Company entered into a two-year non-cancellable management agreement with Roy B.
Bennett and Associates Ltd ("RBA Ltd."), a company wholly owned by Roy B.
Bennett, the Company's president, effective June 21, 1999.
-30-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows the ownership of the Company's common stock by the
Company's officers and directors and by those persons known by the Company to be
the beneficial owner of more than 5% of the Company's common stock. Unless
otherwise indicated all shares are owned of record.
Amount Owned
and nature of Percent of
Name and Address of Beneficial Owner ownership Class
---------------------------------------------- -------------- -----------
Roy B. Bennett, Director and Founder 6,623,016 39.5%
8266 East del Cadena Drive Indirect(1) 680,000 4.1%
Scottsdale, AZ 85258 Indirect(2) 350,000 2.1%
Indirect(3) 340,000 2.0%
Indirect(4) 340,000 2.0%
Charles J. Weber, Director, President and CEO 0 0.0%
11471 Sunset Blvd
Los Angeles CA. 90049
Robert G. Dinning, Director, 0 0.0%
Chief Financial Officer, and Secretary
#12-1900 Indian River Cr
North Vancouver, BC, Canada V7G 2R1
Harvey Nickerson, Director and CTO 0 0.0%
8631 E. San Jacinto Drive
Scottsdale, AZ 85258
Directors and Executive Officers as a 7,993,016 47.7%
group (5 persons)
(1) Shares are owned by Moti Holdings Ltd. a Bahamian company of
which Mr. Bennett is a beneficial owner.
(2) Shares are owned by Albany International Holdings Ltd. a Bahamian
company of which Mr. Bennett is a beneficial owner.
(3) Shares are owned by Reef International Holdings Ltd. a Bahamian
company of which Mr. Bennett is a beneficial owner.
(4) Shares are owned by Bellcrest Holdings Ltd, a Bahamian company of
which Mr. Bennett is a beneficial owner.
There are no arrangements known to the Company, which may result in a change in
control of the Company.
-31-
Options have been granted to the following officers and directors:
Date Granted
Name and Exercisable No.of Shares/Price Expiration Date
---------------- --------------- ------------------ ----------------
Charles Weber Jan 12, 2001 300,000 - $0.25 January 12, 2006
Roy Bennett Jan 12, 2001 1,100,000 - $0.25 January 12, 2006
Robert Dinning Jan 12, 2001 1,100,000 - $0.25 January 12, 2006
Harvey Nickerson Jan 12, 2001 1,100,000 - $0.25 January 12, 2006
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From February 1999 to March 31, 2000 Cebu Holdings Inc. ("Cebu") has provided
office space, furniture, equipment and management services to the Company. Cebu
is wholly owned by Karl Rollke, the father of Adrian Rollke, a former director
and former officer of the Company. Adrian Rollke is also an officer of Cebu.
Cebu did not charge the Company for any costs or expenses during 1997 or 1998.
During the year ended December 31, 2000, Cebu charged $14,618 to the Company for
rent, office supplies and services. This arrangement terminated March 31, 2000
by mutual consent.
See Part I, Item 1 of this Annual Report for information concerning the
acquisition of eVideo USA, Inc. from Roy Bennett, an officer and director of the
Company.
Subsequent to year-end, an escrow agreement regarding 6,623,016 was cancelled.
These shares were under an escrow agreement which has been cancelled after
discussion with the board of directors of the company and other parties involved
at the time of the escrow agreement. The business model has changed
significantly since the escrow agreement was executed and all parties felt it
was appropriate to cancel such agreement.
-32-
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
PAGE
Exhibit 2 Articles of Incorporation, as amended, and Bylaws
Exhibit 2.1 Articles of Incorporation, as amended on August 5, 1999
Exhibit 3 Instruments Defining the Rights of Security Holders
Exhibit 3.1 Warrant Agreement
Exhibit 4 Subscription Agreement None
Exhibit 5 Voting Trust Agreement None
Exhibit 6 Material Contracts
Exhibit 6.1 Agreement dated June 8, 1999 between the
Registrant, eVideo U.S.A., Inc., eVideo
International, Inc., Roy B. Bennett & Associates
Ltd. and Roy B. Bennett with respect to the
acquisition of eVideo U.S.A., Inc. by the
Registrant
Exhibit 6.2 Management agreement effective June 21, 1999
between eVideo U.S.A., Inc. Roy B. Bennett &
Associates Ltd. pursuant to which Roy B. Bennett
and Associates Ltd. agrees to provide the services
of Roy Bennett and a project manager
Exhibit 7 Material Foreign Patents None
Exhibit 8 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, etc. None
Exhibit 10 Amendment dated September 1, 1999 to the Agreement
dated June 8, 1999 between the Company, eVideo
U.S.A., Inc., eVideo International Inc., Roy B.
Bennett & Associates Ltd. and Roy B. Bennett
Exhibit 10 Amendment dated January 31, 2000 to the Agreement
dated June 8, 1999 between the Company, eVideo
U.S.A., Inc., eVideo International Inc., Roy B.
Bennett & Associates Ltd. and Roy B. Bennett
-33-
SIGNATURES
In accordance with Section 13 or 15(d) of Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
E-VIDEOTV, INC.
Date: March 31, 2001 By:
--------------------------- ---------------------------
Charles J. Weber
Director, President and Chief Executive
Officer
In accordance with Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated
Date: March 31, 2001
--------------------------- ---------------------------
Roy B. Bennett
Director and Founder
Date: March 31, 2001
--------------------------- ---------------------------
Robert G. Dinning
Director and Chief Financial Officer,
and Secretary
Date: March 31, 2001
--------------------------- ---------------------------
Harvey Nickerson
Director and Chief Technology Officer
-34-