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16
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Second Quarter ended January 31, 2000
COMMISSION FILE NUMBER: 0-28767
EDITWORKS, LTD.
(Exact name of Registrant as specified in its charter)
NEVADA 88-0403070
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
24843 DEL PRADO SUITE 318 DANA POINT CA 92629
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 248-9561
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 7,312,200
Yes [X] No [ ] (Indicate by check mark whether the Registrant (1) has filed
all report 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.)
As of January 31, 2000, the number of shares outstanding of the Registrant's
Common Stock was 7,312,200.
<PAGE>
PART I: FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS.
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Attached hereto and incorporated herein by this reference are consolidated
unaudited financial statements (under cover of Exhibit F2Q-2000) for the six
months ended January 31, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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(A) PLAN OF OPERATION. We have launched our current business and established a
computer aided, post-production editing service for various media businesses,
using 3-D capable computer equipment developed by the Avid 9000 Digital
Editing System. The Avid 9000 is the only disk-based digital nonlinear video
workstation to feature real-time, full-motion alpha keys for two independent 3-D
video channels, the equivalent of four video channels. We have had only two
contract customers to date. We have one current contract customer, namely
Reliant Interactive Media Corp. We are accordingly highly dependent at present
on the good will of a single principal customer. While we have no present plans
to engage in Reverse Acquisition transactions, such transactions are possible in
the forseeable future. At the end of our contract with Reliant, depending upon
certain elections of Reliant whether or not to exercise its options to purchase
our equipment, then, we must decide whether to acquire new equipment and
continue our operations, or not. It will depend upon whether we are able to
attract other customers and other business. Our present business is profitable
for the present term, as further explained in this Report.
(1) PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS. We will continue to
service the existing contract with Reliant Interactive Media Corp. We may seek
additional customers at some indefinite future time, but its present resources
do not permit extensive advertising or promotion. It is accordingly dependent
upon word of mouth and favorable referrals from its existing and previous
customers and from such other business acquaintances as may provide such
referrals. We have no plans to pursue any Reverse Acquisition at any time, but
as a practical matter we could not do so before obtaining quote-ability on the
OTCBB. It is not foreseeable that we might begin to plan along these lines at
any time before November of 2000, and then only if our present business activity
does not appear to provide indications of future profitability at that time.
We currently enjoy a very complex relationship with Reliant Interactive
Media Corp. pursuant to that certain Editworks Ltd. Service Agreement of
October, 1999, which is Exhibit 6.1. to our Form 10-SB (our last previous
filing). As a practical matter, this relationship makes Reliant the sole
customer of this Registrant for the immediate future. For a monthly fee of
$10,000.00, beginning October 1, 1999, Editworks Ltd., this Registrant, has
relocated all of its editing equipment to Reliant's facilities in Florida, and
performs editing, production and post-production services to Reliant, in
connection with Reliant's business of producing Infomercial media marketing
programs. Of that $10,000.00 per month, $2,500.00 has been allocated by the
parties as a tentative acquisition by Reliant of an equity interest in the
equipment. The term of the contract is for one year, but may be extended for two
additional one-year terms. If the contract is terminated by Reliant at the end
of one year, Editworks Ltd. will repurchase the Reliant equity in the equipment
for half the payments applied to it; or, in the alternative, Reliant may
purchase the equipment outright for a lump sum payment of $100,000 at the end of
one year, or $50,000 at the end of two years, or $25,000 at the end of three
years. The purpose and effect of these provisions is that at the end of the
first year, Reliant has an incentive to either terminate then or proceed for a
full three years, for the reason that, should Reliant terminate after the end of
the first one-year term, its tentative credit for equity shall have lapsed, and
the equipment shall be owned by the Registrant unless Reliant purchases it.
<PAGE>
As a matter distinct from those amounts and agreed payments, Editworks
shall pay to Reliant an amount of $200 per month as rent for the use of the
facilities provided by Reliant. As a further complexity of this Relationship,
Reliant shall pay to Registrant a royalty equal to one quarter of one percent
(0.25%) on Reliant's gross sales (as defined by GAAP accounting) less shipping,
handling, returns and taxes, on all Infomercials for which EditWorks provides or
has provided services pursuant to the agreement. The royalties shall be paid for
as long as there are revenues realized on the particular infomercial; however,
the royalties shall be paid only on an aggregate of the first $50,000,000 in
revenues as defined previously. As these royalties may be paid, one-half of such
royalties shall be credited to Reliant's earning new investment restricted
shares of Editworks common stock, on the basis of one such share per $5.00 of
credited payments. Such shares entitlement shall accumulate, such that actual
issuance shall be in no less than 100 share blocks. Editworks shall pay Reliant
one-half of all net profits (again as defined by GAAP) realized from
post-production contracts with third parties facilitated by Reliant. The
agreement expressly provides that neither party is the agent of the other, that
they are not partners, nor joint-venture participants, but principal parties
dealing at arm's length.
Briefly summarized here, it is material that the agreement has an initial
one-year term, but may be extended for two additional terms for a total of three
years. It is an open question whether, at the end of the term, Reliant will
choose to purchase the Registrant's equipment, pursuant to agreement, or whether
Registrant will retain it. Thus, the Registrant may be in continuous operation
for the next three years or may have an election to make in one year, whether to
purchase new equipment and continue in its present business, or whether then to
seek an acquisition, most likely, a reverse acquisition transaction.
CASH REQUIREMENTS AND NEED FOR ADDITIONAL FUNDS, TWELVE MONTHS. We have no
immediate or forseeable need for additional funding, from sources outside of its
circle of shareholders, if at all, during the next twelve months. We expect our
revenues to fund current operations adequately, and may exceed them
substantially; although there can be no guaranties about future results. This
optimistic statement must be qualified by the reality that its revenues to date
from Reliant are receivables unpaid, and that the timing of payment of accrued
receivables from Reliant may depend to some degree on the monthly liquidity of
Reliant, in terms of its collection of its receivables. Reliant Interactive
Media Corp. is a public reporting corporation. Its reports and financial
statements are accessible by the public as public information from standard
sources including EDGAR. Short-term advances by the principal shareholder may be
made in the case that realization of receivables fall short of current expenses,
in the short term.
<PAGE>
The stabilized monthly expenses of this Registrant are expected to follow
the following established pattern, of about $8,000.00 per month. The table which
follows provides a breakdown of those normal monthly expenses
The Remainder of this Page is Intentionally left Blank
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Expenses Monthly Annualized
-------- -----------
Services:
- -----------------------
One Employee $ 5,000 $ 60,000
Contract Services 500 6,000
- ----------------------- -------- -----------
Rent:
- -----------------------
Office 1,000 12,000
Editing Facilities 200 2,400
- ----------------------- -------- -----------
Other:
- -----------------------
Insurance on Equipment 200 2,400
Utilities 0 0
Telephone 125 1,500
Shipping 35 420
TOTALS $ 7,060 $ 84,720
======================= ======== ===========
</TABLE>
It would follow that the Registrant would require revenues to exceed
$100,000.00 annually to approach substantial profitability. While such a goal is
believed to be achievable in the next twelve months, a cautionary consideration
is appropriate. Increased business activity may engender increased costs. There
is no assurance, therefore, that this Registrant will achieve substantial
profitability in the next twelve months.
There are certain other corporate expenses not included in the foregoing
tabular analysis; namely, the expenses of auditing the corporation, legal and
professional requirements, including expenses in connection with this 1934 Act
Registration of its common stock, and periodic and other reports required to be
filed by 1934 Act reporting companies, the expenses, mostly legal and
professional, of corresponding with NASD, as may be required, in response to its
comments on any submission of the common stock of this Registrant for quotation
on the OTCBB. It is the estimate of management that these supplementary expenses
may approach, but will not exceed $20,000.00 in the next twelve months.
<PAGE>
We may be forced to effect some advances from its Principal Shareholder,
for costs involved in maintenance of corporate franchise and filing reports as
may be required, when and if this 1934 Act registration is effective. Should
this become necessary, the maximum amount of such advances is estimated not to
exceed $20,000.00. No agreement by the Principal shareholder to make such
advances is in place, and no guarantee can presently be given that additional
funds, if needed, will be available. It is by far more likely that advances will
take the form of providing services on a deferred compensation basis. Should
further auditing be required, such services by the Independent Auditor may not
be the subject of deferred compensation. The expenses of independent Audit
cannot be deferred or compensated in stock or notes, or otherwise than direct
payment of invoices in cash.
We do not anticipate any contingency upon which we would voluntarily cease
filing reports with the SEC, even though we may cease to be required to do so.
It is in our compelling interest to report its affairs quarterly, annually and
currently, as the case may be, generally to provide accessible public
information to interested parties, and also specifically to maintain its
qualification for the OTCBB, if and when the Registrant's intended application
for submission may become effective.
SUMMARY OF PRODUCT RESEARCH AND DEVELOPMENT. None. We are not engaged in
research and development.
EXPECTED PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT. None.
However, please refer to the previous discussion for disclosure of the
contingencies which might result in the sale of Registrant's equipment on or
after September 30, 2000.
EXPECTED SIGNIFICANT CHANGE IN THE NUMBER OF EMPLOYEES. None. It is
possible, however that a significant increase in the business of its sole
customer would result in the increase of the editing staff of this Registrant
from its present single employee.
(B) DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OPERATIONS AND RESULTS FOR THE PAST TWO FISCAL YEARS. None. This Company
was incorporated on August 20, 1998, for the purpose of establishing a computer
aided, post-production editing service for various media businesses, using 3-D
capable computer equipment developed by the Avid 9000 Digital Editing System.
It had some limited operations during its first fiscal year ended July 31, 1999.
From inception on August 20, 1998 through July 31, 1999, the Registrant's first
fiscal year, it enjoyed revenues of $72,663, with first-year general and
administrative and total expenses of $169,213, for a net loss of $96,550 ($0.014
per share) for its first fiscal year.
<PAGE>
More recently, for the six months ended January 31, 2000, revenues were
$34,000, and total expenses were $84,284, for a net loss of $49,384.
Its current arrangement with Reliant Interactive Media Corp. is presently
productive, but may impose interim limitations on Registrant's ability to expand
current operations. Pursuant to this arrangement, the Registrant has placed
substantially all of its equipment in Florida, in facilities provided by
Reliant, and has stationed its employee at that location. Reliant is the
producer of infomercial marketing audio-visual products, principally infomercial
video programs to be aired on commercial television. For these services, the
Registrant is to receive a monthly fee of $10,000.00 of which $2,500.00 monthly
is an accumulating investment by Reliant in the Registrant's equipment. The
Registrant also accrues a royalty of one quarter of one percent of Reliant's
gross sales, less shipping, handling, returns and taxes on all infomercials for
which the Registrant provides services.
FUTURE PROSPECTS. The Registrant is unable to predict the ultimate
direction of its future prospects. It is to be hoped that its arrangement with
Reliant would generate introductions and referrals of new business for the
Registrant's editing services. The extent to which this Registrant can project
itself as a true going concern for the future, beyond the scope of its
single-customer base, will depend upon this eventuality.
(C) REVERSE ACQUISITION CANDIDATE. A mature and businesslike evaluation of the
affairs of this Registrant require the consideration of certain possible
eventuality, which, although uncertain, and which may not occur, are none the
less the kind of events which must be considered sufficiently foreseeable to
require consideration, discussion and disclosure. It is possible that this
Registrant will attract sufficient referrals from its service arrangement with
Reliant to provide an incentive to continue with its present business plan, to
acquire additional equipment and possibly establish a new and different location
for its operations. It is also reasonable to consider that a continuing
relationship with Reliant would result in Reliant's becoming the substantial
owner of all or most all of the Registrant's equipment, and that this Registrant
may not acquire additional equipment and continue to seek customers for it
services as presently described. In that case it would continue to own the
diminishing assets of royalties from Reliant, but would not be engaged in
generating new revenues.
The logical outcome of the second eventuality would be to seek a profitable
business opportunity. The acquisition of such an opportunity could and likely
would result in some change in control of the Registrant at such time. This
would likely take the form of a reverse acquisition. That means that this
Registrant would likely acquire businesses and assets for stock in an amount
that would effectively transfer control of this Registrant to the acquisition
target company or ownership group. It is called a reverse-acquisition because it
would be an acquisition by this Registrant in form, but would be an acquisition
of this Registrant in substance. Capital formation issues for the future of this
Registrant would arise only when targeted businesses or assets have been
identified. Until such time, this Registrant has no basis upon which to propose
any substantial infusion of capital from sources outside of its circle of
affiliates.
<PAGE>
the remainder of this page left intentionally blank
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PART II: OTHER INFORMATION
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<PAGE>
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ITEM 1. LEGAL PROCEEDINGS
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None
<PAGE>
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ITEM 2. CHANGE IN SECURITIES
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None
<PAGE>
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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None
<PAGE>
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ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
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None
<PAGE>
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ITEM 5. OTHER INFORMATION
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None
<PAGE>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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None
<PAGE>
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EXHIBIT INDEX
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FINANCIAL STATEMENTS AND DOCUMENTS
FURNISHED AS A PART OF THIS REGISTRATION STATEMENT
Exhibit F2Q-00: Financial Statements (Un-Audited) January 31, 2000
the remainder of this page left intentionally blank
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-Q Report for the Quarter ended January 31, 2000, has been signed below
by the following person on behalf of the Registrant and in the capacity and on
the date indicated.
EDITWORKS, LTD.
Dated: January 31, 2000
By
<TABLE>
<CAPTION>
<S> <C>
Table On
/s/ /s/
J. Dan Sifford Jena M. Harry
president/director secretary/director
================== ==================
</TABLE>
<PAGE>
17
17
<PAGE>
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EXHIBIT F2Q-2000
UN-AUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 2000
- --------------------------------------------------------------------------------
EDITWORKS, LTD.
BALANCE SHEET (UNAUDITED)
For the fiscal year ended July 31, 1999
And the six months ended January 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
January 31, July 31,
2000 1999
CURRENT ASSETS
Cash 765 165
Accounts Receivable 46,685 37,886
-------------- -------------
TOTAL CURRENT ASSETS 47,450 38,051
OTHER ASSETS
Organizational Costs 0 4,913
Editing Equipment 186,045 176,372
Depreciation (40,099) (22,831)
-------------- -------------
TOAL OTHER ASSETS 145,946 158,454
TOTAL ASSETS 193,396 196,505
============== =============
LIABILITIES & STOCKHOLDERS EQUITY
LIABILITIES
Accounts Payable 41,788 21,513
-------------- -------------
STOCKHOLDERS EQUITY
Common Stock, $.001 par value;
authorized 50,000,000 shares
issued and outstanding,
7,104,200 shares and
7,312,200 shares respectively 7,312 7,104
Additional Paid-In Capital 290,230 264,438
Accumulated Equity (Deficit) (145,934) (96,550)
Total Stockholders Equity 151,608 174,992
-------------- -------------
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY 193,396 196,505
============== =============
</TABLE>
The accompanying notes are an integral part
Of these financial statements.
Page F-2
<PAGE>
EDITWORKS, LTD.
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT (UNAUDITED)
For the fiscal year ended July 31, 1999
And the six months ended January 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
January 31, July 31,
2000 1999
------------ ----------
Revenues 34,900 72,663
General and Administrative exp. 84,284 169,213
Net Loss from Operations (49,384) (96,550)
Net Income (Loss) (49,384) (96,550)
============ ==========
Loss per Share (0.00690) (0.01449)
============ ==========
Weighted Average
Shares Outstanding 7,158,200 6,661,700
============ ==========
</TABLE>
The accompanying notes are an integral part
Of these financial statements
Page F-3
<PAGE>
EDITWORKS, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)(UNAUDITED)
For the period from inception of the Development Stage
On August 20, 1998, through July 31, 1999
And the six months ended January 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Accumulated Total Stock-
Common Par Paid-In Equity holders' Equity
Stock Value Capital (Deficit) (Deficit)
--------- ----- ---------- ------------ ----------------
Common Stock issued at inception 6,042,200 6,042 0 0 6,042
Sale of Common Stock 1,062,000 1,062 264,438 0 0
Net (loss) during period 0 0 0 (96,550) 0
------------------------------------------------------------
Balance at September 30, 1999 7,104,200 7,104 264,438 (96,550) 174,992
Sale of Common Stock 208,000 208 25,792 0 0
Net (loss) during period 0 0 0 (49,384) 0
------------------------------------------------------------
Balance at January 31, 2000 7,312,200 7,312 290,230 (145,934) 151,608
</TABLE>
The accompanying notes are an integral part
Of these financial statements
Page F-4
<PAGE>
EDITWORKS, LTD.
STATEMENTS OF CASH FLOW (UNAUDITED)
For the fiscal year ended July 31, 1999
And the six months ended January 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
January 31, July 31,
Operating Activities 2000 1999
------------ ---------
Net Income (Loss) (49,384) (96,550)
Less items not effecting cash 0 23,960
(amortization)
Less items not effecting cash
(organizational expenses) 4,913 0
------------ ---------
Net Cash from Operations (44,471) (72,590)
Cash Increase (Decrease)
Sale of Stock 26,000 265,500
Cash Increase (Decrease)
Investment in (9,673) (176,372)
Cash Increase (Decrease)
Accounts Payable 20,275 21,513
Cash Increase (Decrease)
Accounts Receivable 8,799 (37,886)
------------ ---------
Beginning Cash 165 -0-
Ending Cash 765 165
============ =========
</TABLE>
The accompanying notes are an integral part
Of these financial statements
Page F-5
<PAGE>
EDITWORKS, LTD.
NOTES TO FINANCIAL STATEMENTS
for the fiscal year ended July 31, 1999
and for the six months ended January 31, 2000
1-FORMATION AND OPERATIONS OF THE COMPANY
EditWorks, Ltd. (the Company) was incorporated in the state of Nevada on
August 20, 1998. The Company operates a computer aided, post-production editing
service for the TV, video and movie business using 3D capable computer equipment
developed by the AVID 9000 Digital Editing System.The Company is authorized to
issue 50,000,000 Common Shares each with a par value of $0.001. During the
fiscal year ended July 31, 1999 the Board of Directors and Shareholders of the
Company authorized the issuance of a minimum of 900,000, and a maximum of
1,200,000 of its Common Shares in a Regulation D, 504 offering. As of the
date of these statements 1,062,000 shares have been sold pursuant to that
offering. During the period ended January 31, 2000 the Company sold 208,000 of
its Common Shares.
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF ACCOUNTING
Accounting records of the Company and financial statements are maintained
and prepared on an accrual basis.
(b) FISCAL YEAR
The Company's proposed fiscal year end for accounting and tax purposes is
July 31.
(c) ORGANIZATION COSTS
The Company incurred $6,042 of organization costs in 1998. These costs,
which were paid by shareholders of the Company and which were exchanged for
6,042,200 shares of common stock having a par value of $6,042, were being
amortized on a straight line method over a 60 month period through the end of
the fiscal year ended July 31, 1999. The remaining organization costs in the
amount of $4,913 were expensed in the fiscal year beginning August 1, 1999 due
to a change in accounting principals which became effective on January 1, 1999.
(d) CASH EQUIVALENTS
For Financial Accounting Standards purposes, the Statement of Cash Flows,
Cash Equivalents include time deposits, certificates of deposit, and all highly
liquid debt instruments with original maturities of three months or less.
Whatever cash amount included on the Company's Statements of Cash Flow, however,
will be comprised exclusively of cash.
page F-6
<PAGE>
EditWorks, Ltd.
Notes to Financial Statements
for the fiscal year ended July 31, 1999
and for the six months ended January 31, 2000
continued
3-PROPERTY AND EXECUTIVE COMPENSATION
(a) PROPERTY:
The Company's offices and all of its records are located at 24843 Del
Prado, Suite 318, Dana Point, California 92629.
(b) EXECUTIVE COMPENSATION:
From inception through February 1999, the Company paid no cash compensation
to its officers or directors. Officers of the Company were reimbursed for
out-of-pocket expenses. Beginning in October 1999, and continuing to the date
of these financial statements, the Company's President has been receiving
compensation in the amount of $5,000 per month. In addition, other Officers may
receive compensation for services performed on behalf of the Company. The terms
of any such compensation will be determined on the basis of the nature and
extent of the services which may be required and will be no less favorable to
the Company than the charges for similar services made by independent third
parties who are similarly qualified. No officer or director, other than the
President, is required to make any specific amount or percentage of his business
time available to the Company.
5-STOCKHOLDERS' EQUITY.
The Company is authorized to issue 50,000,000 shares of common stock having a
par value of $0.001. In August 1998, 6,042,200 shares of Common Stock, were
issued in exchange for organizational costs which were valued by management at a
total of $6,042. In January 1999, 1,062,000 shares of Common Stock, were issued
in exchange for $265,500 in cash. In November and December 1999, 208,000 shares
of Common Stock, were issued in exchange for $26,000 in cash.
page F-7
<PAGE>
