SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
July 31, 2000 0-14200
COMPUSONICS VIDEO CORPORATION
(Exact name of Company as specified in its charter)
Colorado 84-1001336
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
32751 Middlebelt Road, Suite B
Farmington Hills, MI 48334
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code:
(248) 851-5651
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and, (2) has been subject to such filing
requirements for the past 90 days: Yes X No
As of October 1, 2000, a total of 160,006,250 shares of common stock,
$.001 par value, were outstanding and the aggregate market value of the voting
stock held by non-affiliates of the Company was approximately $2,973,087 based
on the average of the bid and asked prices as of September 29, 2000 of $0.037 as
reported by the Over-The-Counter Bulletin Board (OTCBB).
<PAGE>
COMPUSONICS VIDEO CORPORATION
FORM 10-K
PART I
ITEM 1. BUSINESS
(a) General Development of Business.
CompuSonics Video Corporation ("Company") was organized under the laws of the
State of Colorado on August 14, 1985. The Company's principal activities since
inception have been devoted to obtaining equity capital for the development of a
digital video recording and playback system with a view towards its manufacture,
marketing or licensing. The Company's current operations are limited to the
licensing of its patent portfolio related to an audio digital recording and
playback system and an audio and video digital recording and playback system or
parts thereof, that are covered by the company's patents..
On December 13, 1985, the Company concluded a public offering of 30,000,000
Units, each Unit consisting of one share of its common stock and one Class A
Warrant, and received net proceeds of $727,971. On November 16, 1987, the
Company acquired The Tyler-Shaw Corporation, a New York corporation
("Tyler-Shaw"), which was engaged in the business of direct mail marketing.
Effective July 31, 1992, Tyler-Shaw was considered inactive. Tyler-Shaw has no
operations, research and development, earnings, cash flows, product development
or sources of financing.
In August, 1998, the Company hired a manager experienced in Internet programming
to investigate the possibility of implementing a new business activity for the
Company known as website development and maintenance. The rapid development of
the Internet and its graphical element, the World Wide Web, has made the use of
the Internet commonplace among many companies and individuals around the world.
The Company's management concluded that opportunities existed in this emerging
market and developed a business model where the Company would seek programming
contracts to do this type of work on a consulting and project basis. The manager
hired to do the business investigation was named the Director of Technology
Development and the Company began its consulting work in the fourth calendar
quarter of 1998, when the Company established its operations in Chicago and
hired additional staff. Due to the inability to obtain a regular flow of
programming and consulting contracts, the Company discontinued this activity in
May 2000.
On April 28, 2000, the company announced that it would begin pursuing companies
who might have an interest in licensing its technology covered by the Company's
patents. On August 11, 2000, the Company announced that it had signed a
licensing agreement with Interactive Digital Media Corporation (IDMC) for the
use of technology related to the company's patent portfolio. This was the
company's first licensing agreement since announcing in April 2000 that it would
focus its business activities on the licensing of the technology represented in
the patents. Under the licensing agreement, the Company granted a non-exclusive,
royalty bearing license for the Company's patented audio and video digital
recording and playback system technology to IDMC for the System 7 and other
products that IDMC may produce now and in the future. Terms of the license were
structured so as to provide for an upfront payment, a note payable to the
Company for the remainder of the licensing fee, and an ongoing royalty payments
based on the sales of units covered by the license.
<PAGE>
(b) Financial Information about Industry Segments.
During the year ended July 31, 2000, the Company was engaged in two
business activities: (1) the licensing of the technology related to its patent
portfolio, and (2) website development and maintenance contract work. The
Company had no revenues for the past fiscal year from licensing its patent
portfolio, nor did it have any revenue in the two years before that. Subsequent
to the fiscal year ended July 31, 2000, the Company signed its first licensing
agreement related to this business activity. The remainder of the Company's
revenues in the fiscal year ended July 31, 2000 were related primarily to
consulting contracts for its website development and maintenance business
activity, which was discontinued in May 2000.
(c) Narrative Description of Business.
(c) (1) (i):
The CompuSonics Video System
In the late 1980s and early 1990s, the Company had developed a system, based on
patents in which it had an interest, to make video recordings, digitize video
images and playback digital data on a monitor. At that time, digitizing and
random access capabilities represented significant improvements over
conventional analog recorders. Conventional analog video recorders convert
electrical impulses representing visual images into waveforms, which were then
stored on magnetic tape or disk. On playback, waveforms were converted back into
electrical impulses, which were converted to visual images through a television
monitor or similar device. In an analog system, the accuracy of the reproduced
image is dependent upon the quality of the recording medium, as well as the
quality of the playback system itself. Further, the noise generated by the
surface defects on the tape or disk was apparent when the image was played back.
Advances in computer technology, particularly in digital memory devices, have
been applied in the development of both audio and video digital recording and
playback systems. CompuSonics Corporation, owner of 7.1% of the Common Stock of
the Company, had produced audio digital systems that utilize microcomputer chips
to record and reproduce audio signals using its proprietary digital audio
technology, known as CSX. The Company had exclusive license to utilize the CSX
technology in the development and production of its products. In the Company's
system that it had developed, video signals would be converted into numerical
data representing video images. Data would then be stored in a temporary buffer
memory. Each video frame image would be processed, through licensed CSX
technology, to reduce the amount of data to the minimum required to produce an
image for playback closely resembling the image as initially recorded. Data
representing the video image would be stored on a computer information storage
medium. Playback of the digital data would occur on a monitor with a compatible
signal receiving capability. The accompanying audio signal could be routed to a
suitably equipped receiver set or through a conventional stereo system adjacent
to the monitor.
<PAGE>
The Company has filed and kept current the renewal payments on its principal
patents in the belief that these technologies, which were originally developed
ten years ago, may represent a technology upon which some of the data
compression and audio and video streaming technologies of today may be based. If
this is the case, then a number of companies in today's market may be candidates
for a license from the Company if their technology has a basis in the Company's
technologies and patents. The Company has not yet determined that there is a
connection between the technology of the Company and those in use today by
others, but one of its business activities is to attempt to determine this
connection and seek licenses from those who have built their technology, in
total or in part, on those of the Company.
Proposed Products
The Company has no developed products at this time and does not plan to develop
any of its own products due the high cost and risk associated with this
activity. The Company will most likely attempt to sublicense manufacturing
rights to its technology and patents.
Marketing
The Company has had no product marketing activities since 1990, other than the
marketing of its Internet consulting services from August 1998 to May 2000. Its
marketing efforts will be confined to the licensing of its technology.
(c) (1) (ii) Except for its licensing agreement announced on August 11,
2000, there has been no public announcement of, and the Company has not
otherwise made public, information about a new product or industry segment that
would require the investment of a material amount of the assets of the Company
or that otherwise is material.
(c) (1) (iii) The Company anticipates that any production of new products
will be organized by second-party marketers and manufacturers, therefore the
sources and availability of raw materials is not material concerns.
(c) (l)(iv) The Company holds rights to United States and certain foreign
patent and patent applications for a digital video recording and playback
system. On July 21, 1987, patent number 4,682,248 was issued to the Company with
three claims of the Company being allowed. On July 5, 1988, patent number
4,755,889 was issued to the Company with four claims being allowed. The Japanese
patent number 2,053,230 was issued on May 10, 1996 for an "Audio Digital
Recording & Playback System" and will remain in effect until April 19, 2014,
providing all renewals are paid. This patent is the Japanese counterpart of U.S.
Patent No. 4,636,876 and 4,472,747. The Japanese patent number 2,596,420 was
issued on January 9, 1997 for an "Audio Digital Recording & Playback System" and
will remain in effect until September 17, 2006 providing all renewals are paid.
This patent is the Japanese counterpart of U.S. Patent No. 4,755,889. There can
be no assurance that patents will be issued in connection with the remaining
applications. If future patents are granted and any of them are tested in
litigation, such patents may not afford protection as broad as the claims made
in the patent applications. Furthermore, expense required to enforce patent
rights against infringers would be costly. However, the Company believes the
patent protection obtained, and any further issuances, will greatly assist
efforts to protect its technology from being copied.
<PAGE>
The Company had been granted a limited license by CompuSonics Corporation
to utilize its proprietary digital audio technology, CSX, for the limited
purpose of incorporating that technology into its proposed video system to
process the audio portions of recorded material. CompuSonics Corporation, a
Colorado corporation, and a shareholder of the Company, had been engaged in
marketing and promoting its CSX Technology licensing and engineering consulting
services on a reduced and limited basis, but the Company believes, to the best
of its knowledge, that CompuSonics Corporation is no longer performing this
function.
(c)(l)(v) The Company's business is not seasonally affected.
(c) (1) (vi) The Company has no marketable product and as such is not
required to carry significant amounts of inventory.
(c) (l) (vii) The Company has attempted to market its technology.
Therefore the success of the Company is dependent upon the ability of the
Company to locate customers who will license the proposed technology offered by
the Company. There can be no guarantee that such customers can be located or
that further licenses can be obtained.
(c) (1) (viii) There is no backlog at this time, given the nature of the
Company's licensing activities.
(c) (1) (ix) No material portion of the Company's business is subject to
renegotiations of profits or termination of contracts or subcontracts at the
election of the government.
(c) (l)(x) The Company competes with all companies engaged in design,
manufacture and marketing of digital video recording and playback systems and
those that license underlying technology for such products. In August, 1998, the
Company hired a manager experienced in Internet programming to investigate the
possibility of implementing a new business activity for the Company known as
website development and maintenance. The rapid development of the Internet and
its graphical element, the World Wide Web, had made the use of the Internet
commonplace among many companies and individuals around the world. The Company's
management concluded that opportunities existed in this emerging market and
developed a business model where the Company would seek programming contracts
with related and outside companies to do this type of work on a consulting and
project basis. The manager hired to do the business investigation was named the
Director of Technology Development and the Company began its consulting work in
the fourth calendar quarter of 1998, when the Company established its operations
in Chicago and hired additional staff. Due to the inability to obtain a regular
flow of programming and consulting contracts, the Company discontinued this
activity in May 2000.
<PAGE>
(c)(l)(xi) During the period from August 1, 1993 through July 31, 2000,
the Company did not expend any funds on research and development, other than
expenses and equipment related to its website development maintenance business.
(c) (l)(xii) The Company is not materially affected by the federal, state
and local provisions that have been enacted or adopted regulating the discharge
of materials into the environment or otherwise relating to the protection of the
environment.
(c)(l) (xiii) As of July 31, 2000, the Company had one employee. As of
October 31, 2000, the Company had one employee.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales.
The Company has no material international operations or direct export
sales.
ITEM 2. PROPERTIES
The Company has been using space, at no charge, in the office of a related
entity for the purposes of administration and development.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a present party to any material pending legal
proceedings and no such proceedings were known as of the end of the fiscal year.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter ended July 31, 2000.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The principal market on which the Company's common stock, $.001 par value
(the "Common Stock"), is traded is the over-the-counter market under the symbol
"CPVD". Prices for the Common Stock have been reported in the National Daily
Quotation Service "Pink Sheets" published by the National Quotation Bureau, Inc.
since December 16, 1985 and the Over-The-Counter Bulletin Board (OTCBB) since
January 1999.
<PAGE>
The range of high and low bid quotations for the Company's Common Stock
since the quarter ended July 31, 1998 are as follows. The OTC electronic
bulletin board pricing information reflects inter-dealer prices, without retail
mark-up or mark-down or commissions and may not necessarily represent actual
transactions.
HIGH BID LOW BID
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Fiscal 1999 - Quarters Ended:
October 31, 1998 $0.0050 $0.0050
January 31, 1999 $0.0050 $0.0050
April 30, 1999 $0.0050 $0.0050
July 31, 1999 $0.0469 $0.0050
Fiscal 2000 - Quarters Ended:
October 31, 1999 $0.0127 $0.0064
January 31, 2000 $0.0064 $0.0070
April 30, 2000 $0.1700 $0.0313
July 31, 2000 $0.1700 $0.0400
(b) Holders.
As of July 31, 2000, the number of record holders of the Company's Common
Stock was approximately 5,200.
(c) Dividends.
The Company has never paid a dividend with respect to its Common Stock and
does not intend to pay a dividend in the foreseeable future. The shares of
Series A Preferred Stock are entitled to a $1.00 per share annual preference,
which must be paid before any dividends are payable on the Common Stock. There
are no preferred shares outstanding at this time.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ITEM 6. SELECTED FINANCIAL DATA
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July 31,
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2000 1999 1998 1997 1996
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Working Capital (942,970) (627,070) (651,204) (604,401) (552,276)
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Cash 274 48,563 77 153 266
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Total Assets 204,176 326,404 80,163 67,781 71,454
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Total Liabilities 987,288 947,088 731,368 672,182 623,730
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Shareholders' Deficit (783,112) (620,684) (651,204) (604,401) (552,276)
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Operating Revenue 149,099 212,210 0 0 0
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Gross Profit 149,099 212,210 0 0 0
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Total Gen'l & Admin
Expenses 211,444 147,058 16,334 7,026 22,617
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Research & Development 0 0 0 0 0
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Net other income/ (expense) (52,178) (43,532) (42,927) (41,540) (40,959)
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Net Gain/ (Loss) (114,524) 21,621 (59,261) (48,566) (63,576)
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Net loss per common share *** *** *** *** ***
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*** -- less than $.01 per share.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital decreased by $315,900 for the period from August 1, 1999
through July 31, 2000. This was mainly caused by the conversion of a Note
Receivable from Related Party into common equity of that related party, a
reduction in the value of Marketable Equity Securities Available for Sale, and
an increase in Accounts Payable to Related Entities.
<PAGE>
Net loss from operations was $62,346, which consisted mostly of $149,099
in consulting income offset by $118,425 staff salaries, patent fees of $10,349;
management fees of $5,740 to a related company, professional fees of $14,864 for
auditing services, stock transfer fees and other professional fees, and $50,566
of bad debt expense from related companies.
In accordance with SFAS 115, the Company reported the 28,475 shares of
Williams Controls, Inc. common stock (Nasdaq "WMCO") at fair market value at
closing price on July 31, 2000 of $43,601. The stock is classified as
available-for-sale securities and originally cost $25,035.
In the past the Company has, from time to time, relied on a related
company to provide the working funds it has required but there is no assurance
that this will continue in future years. The Company received fees in a
licensing agreement signed in August 2000, and expects that similar agreements,
if they can be completed, will be the Company's primary source of working
capital in the future.
On June 22, 1999, the Company loaned $150,000 to Pro Golf International,
Inc. ("PGI"), a subsidiary of Ajay Sports, Inc., and a website development
consulting client of the Company at the time. The Company received a promissory
note that was subordinated to PGI's primary lender. The unpaid principal balance
had an interest rate of 10% and was due and payable in full on July 22, 2000. On
February 29, 2000, the Company converted the principal and interest due under
its promissory note into common stock of PGI. The conversion was made at the
rate of $60 per common share, the price at which PGI then was offering equity
capital for sale in a private offering.
.
Results of Operations
Year ended July 31, 2000
Compared to July 31, 1999
Operating revenue for the years ended July 31, 2000 and 1999 were $149,099 and
$212,210, respectively. The Company has discontinued its consulting agreements
with two affiliated companies to do website development and maintenance
programming work. They are Williams Controls, Inc. ("Williams") and Ajay Sports,
Inc. ("Ajay"). The work product included redesigns of the companies' websites,
the development of intranet products, and ongoing maintenance of the sites as
new features are added.
The subsidiary that had provided revenues, in the years prior to 1992, has been
inactive during the last seven years and the Company does not expect income from
this operation in future years. Revenues during these two years were primarily
from the Company's website development and maintenance business. The Company
exited this business activity as of May 5, 2000.
General and administrative expenses were $211,444 for the year ended July 31,
2000 compared to $147,058 for the year ended July 31, 1999. As discussed above,
the expenses incurred for 2000 were $118,425 for staff salaries, patent fees of
$10,349; management fees of $5,740 to a related company; professional fees of
$14,864 for auditing services, stock transfer fees and other professional fees;
other general and administrative expenses of $20,915; and $50,566 of bad debt
expense from related companies. During the year ended July 31, 2000, other
income and expense consisted of interest expense of $59,576 on notes payable.
The Company replaced its most significant computer programs with new updates
that were warranted to be Year 2000 compliant. Installation of these updates was
completed on September 8, 1999. The Company had no computer or systems issues
related to the changeover to the Year 2000 date.
<PAGE>
Year ended July 31, 1999
Compared to July 31, 1998
Operating revenue for the years ended July 31, 1999 and 1998 were $212,210
and $0, respectively. The subsidiary that had provided revenues, in the years
prior to 1992, has been inactive during the last five years and the Company does
not expect income from this operation in future years. Revenues during these two
years were primarily from the Company's website development and maintenance
business. The Company exited this business activity as of May 5, 2000.
General and administrative expenses were $147,058 for the year ended July 31,
1999 compared to $16,334 for the year ended July 31, 1998. The expenses incurred
for 1999 were for staff salaries $101,817, the extension of currently held
patents $7,156; professional fees of $7,231; management fees of $4,150 to a
related party for services including accounting and SEC report preparation;
travel and entertainment of $6,121; and other general and administrative
expenses of $20,582. During the year ended July 31, 1999, other income and
expense consisted of interest expense of $45,134 on notes payable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data immediately follow the
signature page of this document and are listed under Item 14 of Part IV of this
Annual Report on the Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) and (b) Identification of Directors and Executive Officers.
Name Age Position
Robert R Hebard 47 Chairman of the Board, Chief
Executive Officer, President and
Treasurer
Robert J. Flynn 65 Vice President, Director, and
Secretary
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. Officers of the Company are elected by the Board of
Directors and hold office until their successors are elected and qualified.
<PAGE>
(c) Identification of Certain Significant Employees.
The Company is subject to Section 13(a) of the Securities Exchange Act of
1934 and is therefore not required to identify or disclose information
concerning its significant employees.
(d) Family Relationships.
There are no family relationships between any director, executive officer
or person nominated or chosen by the Company to become a director or executive
officer.
(e) Business Experience.
(e) (1) Background.
Robert R. Hebard has served as Chairman of the Board, Chief Executive
-----------------
Officer, President, Treasurer and Director of the Company since 1995. He
received a Bachelors Degree from Cornell University in 1975 and an MBA from
Canisius College in 1982. Mr. Hebard also serves as President and CEO of
Enercorp, Inc., a shareholder in the Company. Mr. Hebard also has served as
a Director of Ajay Sports, Inc. since June 1989, and as Ajay's Secretary
since September 1990. In June 1999, Mr. Hebard was appointed the corporate
secretary and a member of the boards of directors of Pro Golf International,
Inc., a majority owned subsidiaries of Ajay Sports.
Robert J. Flynn has been Chairman of the Board of Funding Enterprises, a
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Southfield, Michigan based marketing company for 20 years. He has been
active in the securities and insurance fields since 1963 and in the marketing
of Real Estate securities since 1968. Mr. Flynn is licensed as a registered
security representative and insurance agent. Since 1981, he has been
Chairman of the Act 78 Southfield Police and Fire Commission. Mr. Flynn
received a B.S. degree from Cornell University in 1958.
(e) (2) Directorships.
Mr. Hebard is a director of Woodward Partners, Inc., Pro Golf International,
Inc., Enercorp, Inc., and Ajay Sports, Inc., the latter two of which are
publicly-held companies. Mr. Flynn is Chairman of the Board of Funding
Enterprises.
(f) Involvement in Certain Legal Proceedings.
(f) (1) During the past five years, there have been no filings of
petitions under the federal bankruptcy laws or any state insolvency laws, nor
has there been appointed by any court a receiver, fiscal agent or similar
officer by or against any director or executive officer of the Company or any
partnership in which such person was a general partner or any corporation or
business association of which he was an executive officer within two years
before the time of such a filing, except as stated in Item 10 (e) (1), above.
<PAGE>
(f)(2) No director or executive officer of the Company has, during the
past five years, been convicted in a criminal proceeding or is the named subject
of a pending criminal proceeding.
(f)(3) During the past five years, no director or executive officer of the
Company has been the subject of any order, judgment or decree not subsequently
reversed, suspended or vacated by any court of competent jurisdiction
permanently or temporarily enjoining him from or otherwise limiting the
following activities: (i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the foregoing, or
an investment advisor, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity; (ii) engaging in any type
of business practice; or (iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities law.
(f)(4) During the past five years no director or executive officer of the
Company has been the subject of any order, judgment or decree not subsequently
reversed, suspended or vacated by any federal or state authority barring,
suspending or otherwise limiting for more than 60 days the right of such person
to engage in any activity described in paragraph (f) (3) (i) of this Item or to
be associated with persons engaged in any such activity.
(f)(5) During the past five years no director or executive officer of the
Company has been found by a court of competent jurisdiction in a civil action or
by the Securities and Exchange Commission to have violated any federal or state
securities law.
(f)(6) During the past five years no director or executive officer of the
Company was found by a court of competent jurisdiction in a civil action or by
the Commodity Futures Trading Commission to have violated any federal
commodities law, which judgment or finding has not been subsequently reversed,
suspended or vacated.
ITEM 11. EXECUTIVE COMPENSATION
(a) (1) Cash Compensation.
The following sets forth all remuneration paid in the fiscal year ended
July 31, 2000, to all officers of the Company and the total amount of
remuneration paid to the officers and directors as a group:
Number of persons Capacities in Cash
in group (1) which served compensation
---------------- ------------- ------------
All executive officers Various None
as a group
No officers or directors received remuneration exceeding $100,000 during
the fiscal year ended
July 31, 2000.
<PAGE>
(b) (1) Compensation Pursuant to Plans.
Incentive Stock Option Plan
The Board of Directors of the Company, in October 1985, adopted an
Incentive Stock Option Plan (the "Plan") for key employees. Options covering a
total of 7,000,000 shares of Common Stock are available for grant under the
Plan. The Plan is administered by the Board of Directors, who is responsible for
establishing the criteria to be applied in administering the Plan. The Board of
Directors is empowered to determine the total number of options to be granted to
any one optionee, provided that the maximum fair market value of the stock for
which any employee may be granted options during a single calendar year may not
exceed $100,000 plus one-half of the excess of $100,000 over the aggregate fair
market value of stock for which an employee was granted options in each of the
three preceding calendar years. The exercise price of the options cannot be less
than the market value of the Common Stock on the date of grant (110% of market
value in the case of options to an employee who owns ten percent or more of the
Company's voting stock) and no option can have a term in excess of ten years. In
the event of certain changes or transactions such as a stock split, stock
dividend or merger, the Board of Directors has the discretion to make such
adjustments in the number and class of shares covered by an option or the option
price as they deem appropriate. Options granted under the Plan are
nontransferable during the life of the optionee and terminate within three
months upon the cessation of the optionee's employment, unless employment is
terminated for cause in which case the option terminates immediately. Only one
option has been granted under the plan and it has lapsed.
(b) (2) Pension Table.
The Company has no defined benefit and actuarial plan providing for
payments to employees upon retirement.
(b) (3) Alternative Pension Plan Disclosure.
The Company has no defined benefit and actuarial plan providing for
payments to employees upon retirement.
(b) (4) Stock Option and Stock Appreciation Rights Plans.
During the period from August 1, 1999, through July 31, 2000, no stock
options were granted.
<PAGE>
(c) Other Compensation.
No other compensation having a value of the lesser of $100,000 or ten
percent of the compensation reported in the table in paragraph (a) (1) of this
Item was paid or distributed to all executive officers as a group during the
period from August 1, 1999, through July 31, 2000.
(d) Compensation of Directors.
(d) (1) Standard Arrangements.
The Company reimburses its directors for expenses incurred by them in
connection with business performed on the Company's behalf, including expenses
incurred in attending meetings. No such reimbursements were made for the period
from August 1, 1999 through July 31, 1999. The Company does not pay any
director's fees.
(d) (2) Other Arrangements.
There are no other arrangements pursuant to which any director of the
Company was compensated during the period from August 1, 1989, through July 31,
2000, for services as a director other than as listed above in (d) (1).
(e) Termination of Employment and Change of Control Arrangement.
The Company has no formal plan or arrangement with respect to any such
persons, which will result from a change in control of the Company or a change
in the individual's responsibilities following a change in control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a)(b) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the number of shares of the Company's
common stock, its only class of voting securities, owned by executive officers
and directors, individually, and beneficial owners of more than five percent of
the Company's Common Stock, and executive officers as a group, as of October 31,
2000.
<PAGE>
Number of Shares
and Nature
of Beneficial Percent
Name and address Ownership (1) of Class
CompuSonics Corporation 11,300,000 (2) 7.1%
2345 Yale Street
Palo Alto, California 94306
TICO, Inc. 30,000,000 18.7%
32751 Middlebelt Road
Suite B
Farmington Hills, Michigan 48334
Acrodyne Profit Sharing Trust 9,617,594 6.0%
32751 Middlebelt Road
Suite B
Farmington Hills, Michigan 48334
Thomas W. Itin 64,652,594 (3) 40.4%
32751 Middlebelt Road
Suite B
Farmington Hills, Michigan 48334
Robert R. Hebard 15,000,000 (4) 9.4%
32751 Middlebelt Road
Suite B
Farmington Hills, Michigan 48334
Officer and directors 15,000,000 (5) 9.4%
as a group (one person)
(1) All shares are beneficially owned of record unless otherwise
indicated.
(2) A transfer of 18,700,000 shares from CompuSonics Corporation to
Equitex had not been recorded by the Company's stock transfer agent as of
October 1, 2000 but has been reflected in the above numbers. The shares have
subsequently been transferred from Equitex to other parties.
(3) Mr. Itin has held in his name zero shares of the Company. Mr. Itin
has beneficial ownership of the following:
TICO, Inc. 30,000,000
TICO 35,000
SICO 5,000,000
Acrodyne Profit
Sharing Trust 9,617,594
Other Trusts 20,000,000
----------
64,652,594
<PAGE>
Mr. Itin is a controlling person in TICO, Inc. Mr. Itin is controlling partner
in TICO and a general partner in SICO. Shares in TICO Inc.'s name, are held as
nominee for Thomas W. Itin. Mr. Itin is the trustee and beneficiary of Acrodyne
Profit Sharing Trust. Therefore, he can be considered as having beneficial
ownership of the shares of these entities. Mr. Itin's wife is a trustee of
certain other trusts holding a total of 20,000,000 shares. Mr. Itin is not a
beneficiary of the above mentioned trusts in which his wife is trustee and
disclaims any beneficial ownership.
(4) Includes 5,000,000 shares owned directly and 10,000,000 shares held in
trust for his children. Mr. Hebard is not a trustee or beneficiary of the
trust and disclaims any beneficial interest in them.
(5) Includes only active management as of October 31, 2000.
(c) Changes in Control.
On August 19, 1993 Equitex transferred all its interest in the Company
including stocks, notes and accounts receivable to Thomas W. Itin or his
assigns. No other significant changes in ownership have occurred, to the best of
the knowledge of the Company, since that time.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others.
License Agreement
On August 11, 2000, the Company announced in a news release that it had signed a
licensing agreement with Interactive Digital Media Corporation (IDMC) for
technology related to the Company's patent portfolio. This was CompuSonics
Video's first licensing agreement since announcing in April 2000 that it would
focus its business activities on the licensing of the patents. IDMC, based in
Scottsdale, Arizona, manufactures a product called the PC-DEC(TM) IDM(TM) System
7. The System 7 is an easy-to-use interactive home entertainment and information
control center that represents the ultimate in multi-media entertainment and
personal computing for the home. The System 7 combines a multimedia computer,
internet browser, video phone, virtual VCR, AM/FM tuner, DVD, video gaming
device and home security system into one powerful unit. Under the licensing
agreement, CompuSonics Video granted a non-exclusive, royalty bearing license
for the Company's patented audio and video digital recording and playback system
technology to IDMC for the System 7 and other products that IDMC may produce now
and in the future. The license was structured so as to provide for an upfront
payment of $10,000, a note receivable of $90,000, and an ongoing royalty based
on the sales of units covered by the license.
The Company also indicated in the news release that it has continued to renew
and maintain its patents in the U.S. and key foreign countries in the belief
that the foreign patents may contribute additional value to the patent portfolio
that the Company intends to offer for license. These foreign patent rights may
be especially important where prospective licensees have significant
manufacturing or sales operations in foreign countries where the Company enjoys
patent protection. The Company is hopeful that licensing its foreign patent
rights along with the U.S. rights will enhance the royalty-generated revenue
stream to the Company in the event that the Company is successful in its
licensing program.
<PAGE>
On June 22, 1999, the Company loaned $150,000 to Pro Golf International, Inc.
("PGI"), a subsidiary of Ajay Sports, Inc., and a website development consulting
client of the Company at the time. The Company received a promissory note that
was subordinated to PGI's primary lender. The unpaid principal balance had an
interest rate of 10% and was due and payable in full on July 22, 2000. On
February 29, 2000, the Company converted the principal and interest due under
its promissory note into common stock of PGI. The conversion was made at the
rate of $60 per common share, the price at which PGI then was offering equity
capital for sale in a private offering.
On September 17, 1985, the Company and CompuSonics Corporation, a shareholder of
the Company, entered into a license agreement pursuant to which the Company
received an exclusive license to the digital audio technology, CSX, owned by
CompuSonics Corporation for the limited purpose of integrating the audio
technology into the Company's proposed digital recording and playback system.
The agreement limited the licensed rights for use only in connection with the
video system. No continuing royalty payments or fees are to be paid. The Company
is not in violation of any of the license restrictions, to the best of its
knowledge. The license may not be transferred by the Company. The technology
licensed allows the Company to utilize digital audio in its system rather than
an analog-based audio. CompuSonics Corporation has been developing the licensed
digital audio technology since its inception and has engaged in marketing and
promoting its CSX Technology licensing and engineering consulting services on a
limited basis in the past, but the Company believes that it no longer does so.
Assignment Agreement and Issuance of Preferred Stock
The Company issued 300,000 shares of Series A Preferred Stock to
CompuSonics Corporation which were converted in September 1988 into 30,000,000
shares of Common Stock in return for the assignment by CompuSonics Corporation
of its rights under United States and certain foreign patent applications, and
all rights to a digital video recording and playback system. The assignment of
patent application and all other rights to the digital video system gives the
Company the right to develop or license the technology assigned. CompuSonics
Corporation has relinquished the right to develop this video technology.
Loans
The Company and its subsidiary Tyler-Shaw together, have outstanding notes
and accounts payable to an affiliated party totaling $860,290 with interest as
of July 31, 2000. The loans are at 10.50% & 10.25% interest, respectively. These
loans are collateralized by all the assets of Tyler-Shaw and the Company. The
Company also has an outstanding note payable to a non-affiliated party in the
amount of $24,000, with interest of 10.50%.
<PAGE>
From August 1, 1999, through July 31, 2000, the Company did not purchase
any equipment of material value.
(b) Certain Business Relationships.
(b) (1) During the Company's most recently completed fiscal year, none of
its directors or nominees for election as directors have owned, of record or
beneficially, in excess of ten percent of the equity interest in any business or
professional entity that made during that year, or proposes to make during the
Company's current year, payments to the Company for property or services in
excess of five percent of: (i) the Company's consolidated gross revenues for its
last full fiscal year or (ii) the other entity's consolidated gross revenues for
its last full fiscal year.
(b) (2) No nominee or director of the Company is, or during the last full
fiscal year has been, an executive of or owns, or during the last full fiscal
year has owned, of record or beneficially, in excess of a ten percent equity
interest in any business of professional entity to which the Company has made
during the Company's last full fiscal year or proposes to make during the
Company's current fiscal year, payments for property or services in excess of
five percent of (i) the Company's consolidated gross revenues for its last full
fiscal year, or (ii) the other entity's consolidated revenues for its last full
fiscal year.
(b) (3) No nominee or director, except as disclosed under Item 13(a) Loan
section of this report, of the Company is, or during the last full fiscal year
has been, an executive of or owns, or during the last full fiscal year has
owned, of record or beneficially in excess of ten percent equity interest in any
business or professional entity to which the Company was indebted at the end of
the Company's last full fiscal year in an aggregate amount in excess of five
percent of the Company's total consolidated assets at the end of such fiscal
year.
(b) (4) No nominee or director of the Company is, or during the last
fiscal year has been, a member of or of counsel to a law firm that the Company
has retained during the last fiscal year or proposes to retain during the
current fiscal year.
(b) (5) No nominee for or director of the Company is, or during the last
fiscal year has been, a partner or executive officer of any investment banking
firm that has performed services for the Company, other than as a participating
underwriter in a syndicate, during the last fiscal year or that the Company
proposes to have performed services during the current year.
(b) (6) The Company is not aware of any other relationship between
nominees for election as directors or its directors and the Company that are
similar in nature and scope to those relationships listed in paragraphs (b) (1)
through (5) of this Item 13.
(c) Indebtedness of Management.
No director, executive, officer, nominee for election as a director, any
member, except as disclosed under Item 13(a) Loan section of this report, of the
immediate family of any of the foregoing, or any corporation or organization of
which any of the foregoing persons is an executive officer, partner or
beneficial holder of ten percent or more of any class of equity securities, or
any trust or other estate in which any such person has a substantial beneficial
interest or as to which such person serves as a trustee or in a similar
capacity, was indebted to the Company in an amount in excess of $100,000 at any
time since August 14, 1985.
(d) Transactions with Promoters.
This filing is not on a Form S-1 or Form 10 and therefore the Company is
not required to report any information concerning transactions with promoters.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report Form 10-K
immediately following the signature page.
1. Financial Statements and Supplementary Data.
Page
Independent Auditor's Report F-1
Consolidated Balance Sheets at July 31, 2000 and 1999 F-2
Consolidated Statements of Operations
for the years ended July 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Changes in Stockholders' Deficit
for the years ended July 31, 2000, 1999 and 1998 F-4
Statements of Cash Flows
for the years ended July 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6 to F-14
Schedules of Investments
at July 31, 2000 and 1999 F-15
2. Financial statement schedules required to be filed are
listed below and may be found at the page indicated.
Schedules have been omitted because they are not required or
the information is included in the financial statements and
notes thereto.
3. Exhibits.
Licensing Agreement with Interactive Digital Media Corporation
dated August 11, 2000
<PAGE>
(b) Reports on Form 8-K
A Form 8-K was filed on May 11, 2000 to announce the extension of Class A
and Class B Warrants from May 15, 2000 to July 31, 2000. A Form 8-K was filed
on July 25, 2000 to announce the extension of Class A and Class B Warrants
from July 31, 2000 to December 31, 2000.
(c) Exhibits required by Item 601 of Regulation S-K
Exhibit 3.1 Articles of Incorporation................................. *
Exhibit 3.2 Bylaws.................................................... *
Exhibit 3.3 Designation of Series A Preferred Stock................... -
Exhibit 11 Statement of Computation of Per Share Earnings (Loss)..... F-4
Exhibit 16 Letter re: Change in Certifying Accountant................ *
Exhibit 27 Financial Date Schedule................................... *
Exhibit 28 Licensing Agreement with Interactive Digital Media
Corporation dated August 11, 2000 (FILED HEREWITH)
* Incorporated by reference from the Company's Registration Statement on Form
S-18, No. 1-14200, and effective November 27, 1985 and prior SEC filings.
Required exhibits are listed in Item 14 (a) (3) of this Annual Report on Form
10-K.
(d) Financial Statement Schedules.
Required financial statement schedules are attached hereto and are listed
in Item 14(a) (2) of this Annual Report on Form 10-K
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registration has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized.
COMPUSONICS VIDEO CORPORATION
(Company)
By: /s/ Robert R. Hebard
----------------------------------
Robert R. Hebard,President
Date: November 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated on the 13th day of November, 2000.
Signature Title
By: /s/ Robert R. Hebard
----------------------------------
Robert R. Hebard Chairman of the Board of Directors
Chief Executive Officer and Treasurer
By: /s/ Robert J. Flynn
---------------------------------
Robert J. Flynn Vice President, Secretary
and Director
The foregoing constitute all of the Board of Directors.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
CompuSonics Video Corporation and Subsidiaries
We have audited the accompanying balance sheet of CompuSonics Video Corporation
and Subsidiaries as of July 31, 2000 and 1999, and the related statement of
operations, changes in stockholders' deficit, and cash flows for the years ended
July 31, 2000 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of the
Company as of July 31, 1998 were audited by other auditors whose reports dated
October 26, 1998 included an explanatory paragraph that described going concern
uncertainties.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CompuSonics Video Corporation
and Subsidiaries as of July 31, 2000 and 1999 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as whole. The schedule on F-15 is presented for purposes of
complying with the rules of the Securities and Exchange Commission and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as whole.
J L Stephan Co PC
Traverse City, Michigan
September 30, 2000
F-1
<PAGE>
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31,
-------------------------
2000 1999
---------- ----------
Current Assets
Cash $ 274 $ 48,563
Accounts Receivable - Related Parties 225 30,254
Interest Receivable 0 1,603
Notes Receivable - Related Party 0 150,000
Prepaid Assets 219 614
Marketable Equity Securities Available For Sale 43,601 88,984
---------- ----------
Total Current Assets 44,318 320,018
Other Assets
Investments - Related Party 159,000 -0-
Equipment 1,509 45,896
Less Accumulated Depreciation (650) (39,510)
---------- ----------
Total Other Assets 159,858 6,386
Total Assets $ 204,176 $ 326,404
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Notes Payable to Related Entities $ 547,240 $ 552,440
Notes Payable - Other 24,000 20,100
Accounts Payable and Accrued Liabilities 48,786 66,807
Accounts Payable - Related Entities 367,262 307,741
---------- ----------
Total Liabilities 987,288 947,088
---------- ----------
Stockholders' Deficit
Preferred Stock - Series A Convertible Stock
$.001 Par Value, 75,000,000 Shares
Authorized, -0- Shares Issued and Outstanding -0- -0-
Common Stock $.001 Par Value, 300,000,000
Shares Authorized, 160,006,250 Shares
Issued and Outstanding in 2000 and 1999 160,006 160,006
Additional Paid-In Capital 680,880 680,880
Retained Earnings
Other Comprehensive Income 16,045 63,949
Accumulated Deficit (1,640,043) (1,525,519)
---------- ----------
Total Stockholders' Deficit (783,112) (620,684)
---------- ----------
Total Liabilities and Stockholders' Deficit $ 204,176 $ 326,404
========== ==========
The accompanying notes are an integral
part of this financial statement.
F-2
<PAGE>
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended July 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- ----------
Commission Income $ 147,332 $ 212,210 $ -0-
Gain (Loss) on Fixed Assets (754) -0- -0-
Miscellaneous Income 2,521 -0- -0-
----------- ----------- ----------
Total Revenue 149,099 212,210 0
----------- ----------- ----------
General and Administrative Expenses
Staff Salaries 108,425 101,817 -0-
Professional Fees 14,864 7,231 6,714
Management Fees - Related Party 5,740 4,150 1,200
Patent Fees 10,349 7,156 8,229
Travel and Entertainment 586 6,121 -0-
Bad Debts Expense 50,566 -0- -0-
All Other General and Administrative
Expense 20,915 20,582 191
----------- ----------- ----------
Total General and Administrative Expenses 211,444 147,058 16,334
----------- ----------- ----------
Gain (Loss) From Operations (62,346) 65,152 (16,334)
----------- ----------- ----------
Interest Income 7,397 1,603 -0-
Interest Expense (59,576) (45,134) (42,927)
----------- ----------- ----------
Total Other Income (Expense) (52,178) (43,532) (42,927)
----------- ----------- ----------
Net Income Before Income Taxes (114,524) 21,621 (59,261)
Income Tax Benefit -0- -0- -0-
----------- ----------- ----------
Net Income (Loss) $ (114,524) $ 21,621 $ (102,189)
=========== =========== ==========
Weighted Average Number of Common Shares 160,006,250 160,006,250 160,006,250
=========== =========== ===========
Net Income Per Common Share $ (0.00) $ (0.00) $ (0.00)
=========== =========== ===========
The accompanying notes are an integral
part of this financial statement.
F-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended July 31, 2000, 1999 and 1998
Additional Other Total
Convertible Paid-In Comprehensive Accumulated Stockholders'
Preferred Stock Common Stock Capital Income Deficit Deficit
------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
--------------------------------------------------
Balance at July 31, 1997 0 $0 160,006,250 $ 160,006 $ 680,880 $ 42,593 $ (1,487,880) $ (604,401)
Net Loss for the Year (59,261) (59,261)
Unrealized Gain (Loss) on Investmts 0 0 -0- -0- -0- 12,458 -0- 12,458
------------------------------------------------------------------------------------------------------
Balance at July 31, 1998 0 0 160,006,250 160,006 680,880 55,051 (1,547,141) (651,204)
Net Income for the Year 21,621 21,621
Unrealized Gain (Loss) on Investmts 0 0 -0- -0- -0- 8,898 -0- 8,898
------------------------------------------------------------------------------------------------------
Balance at July 31, 1999 0 $0 160,006,250 $ 160,006 $ 680,880 $ 63,949 $ (1,525,520) $ (620,685)
Net Loss for the Year (114,524) (114,524)
Unrealized Gain (Loss) on Investmts 0 0 -0- -0- -0- (47,904) -0- (47,904)
------------------------------------------------------------------------------------------------------
Balance at July 31, 2000 0 $0 160,006,250 $ 160,006 $ 680,880 $ 16,045 $ (1,640,044) $ (783,113)
======================================================================================================
The accompanying notes are an integral part of this financial statement
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended July 31, 2000, 1999 and 1998
2000 1999 1998
-------- --------- --------
Cash Flows From Operating Activities
Net Loss $ (114,524) $ 21,621 $ (59,261)
-------- --------- --------
Adjustments to Reconcile Net Loss to Net
Cash Used by Operating Activities
Depreciation 2,374 735 -0-
Loss on Disposal of Assets 754 -0- -0-
Accrued Interest Income (9,000) -0- -0-
(Increase) Decrease In:
Accounts Receivable and Accrued Assets 32,026 (32,470) -0-
Increase (Decrease) In:
Accounts Payable and Accrued Liabilities (18,021) 18,797 10,219
Accounts Payable - Related Entities 59,522 42,924 41,116
-------- --------- --------
Total Adjustments 67,655 29,986 51,335
-------- --------- --------
Net Cash (Used For) Operations (46,868) 51,607 (7,926)
-------- --------- --------
Cash Provided by Investing Activities
Proceeds from Sale of Equipment 2,400 (7,121) -0-
Investments (2,521) (150,000) -0-
-------- --------- --------
Net Cash (Used For) Investing Activities (121) (157,121) -0-
-------- --------- --------
Cash Provided by Financing Activities
Proceeds from Notes Payable 3,900 -0- -0-
Proceeds From Notes Payable - Related (5,200) 154,000 7,850
-------- --------- --------
Net Cash Provided by Financing Activities (1,300) 154,000 7,850
-------- --------- --------
Increase (Decrease) in Cash (48,289) 48,486 (76)
Balance at Beginning of Year 48,563 77 153
-------- --------- --------
Balance at End of Year $ 274 $ 48,563 $ 77
======== ========= ========
Supplemental Disclosure of NonCash Investing and
Financing Activities:
Note Receivable and Accrued Interest Converted to Stock $ 159,000 $ 0 $ 0
======== ========= ========
The accompanying notes are an integral part of this financial statement
F-5
</TABLE>
<PAGE>
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000
Note 1. Significant Accounting Policies
A. Business History
CompuSonics Video Corporation (the "Company") was incorporated
under the laws of the State of Colorado on August 14, 1985, for
the purpose of developing, manufacturing and marketing a digital
video recording and playback system. On December 13, 1985, the
Company concluded a public offering of 30,000,000 Units, each
Unit consisting of one share of its common stock and one Class A
Warrant, and received net proceeds of $727,971. On November 16,
1987, the Company acquired The Tyler-Shaw Corporation, a New York
corporation ("Tyler-Shaw"), which was engaged in the business of
direct mail marketing. Effective July 31, 1992, Tyler-Shaw was
considered inactive. Tyler-Shaw has no operations, research and
development, earnings, cash flows, product development or sources
of financing. On January 20, 1988, the Company acquired all the
outstanding stock of TS Industries, Inc. ("TSI") in a transaction
accounted for as a pooling of interests. (See Note 2). TSI was
incorporated in the State of Colorado on July 28, 1987, but did
not commence operations until the acquisition of The Tyler-Shaw
Corporation, a New York Corporation ("TSC"). TSI acquired TSC
from Edward B. Rubin, its sole shareholder, under an agreement
dated July 23, 1987 (the "Agreement") between Mr. Rubin,
Equitex, Inc. ("Equitex") and TICO, Inc. ("TICO"). On November
1, 1987, Equitex and TICO assigned all their rights under the
Agreement to TSI. Equitex and TICO each owned 50% of the issued
and outstanding capital stock of TSI, prior to the exchange of
TSI stock for the Company's stock. This acquisition was
accounted for under the purchase method of accounting (See Note
2). TSC acted as a syndicator of consumer products through
direct mail marketing programs. As of July 31, 1992, TSC was
considered inactive and all relating assets were written off
along with the reversal of its prior accruals. CompuSonics Video
Corporation has no proven products or operations in the digital
equipment area. At this time, Tyler Shaw is without any
operations.
In August, 1998, the Company hired a manager experienced in
Internet programming to investigate the possibility of
implementing a new business activity for the Company known as
website development and maintenance. The rapid development of
the Internet and its graphical element, the World Wide Web, has
made the use of the Internet commonplace among many companies and
individuals around the world. The Company's management concluded
that opportunities existed in this emerging market and developed
a business model where the Company would seek programming
contracts to do this type of work on a consulting and project
basis. The manager hired to do the business investigation was
named the Director of Technology Development and the Company
began its consulting work in the fourth calendar quarter of 1998,
when the Company established its operations in Chicago and hired
additional staff. Due to the inability to obtain a regular flow
of programming and consulting contracts, the Company discontinued
this activity in May 2000.
F-6
<PAGE>
On April 28, 2000, the company announced that it would begin
pursuing companies who might have an interest in licensing its
technology covered by the Company's patents. On August 11, 2000,
the Company announced that it had signed a licensing agreement
with Interactive Digital Media Corporation (IDMC) for the use of
technology related to the company's patent portfolio. This was
the company's first licensing agreement since announcing in April
2000 that it would focus its business activities on the licensing
of the technology represented in the patents. Under the
licensing agreement, the Company granted a non-exclusive,
royalty-bearing license for the Company's patented audio and
video digital recording and playback system technology to IDMC
for the System 7 and other products that IDMC may produce now and
in the future. Terms of the license were structured so as to
provide for an upfront payment, a note payable to the Company for
the remainder of the licensing fee, and an ongoing royalty
payments based on the sales of units covered by the license.
On May 10, 2000, the Registrant announced in a news release that
it had paid the renewal fees required to maintain its data
compression patents in effect in the United Kingdom, France,
Germany, Belgium, Luxembourg and Switzerland. These foreign
patents, as well as the Registrant's Japanese patent, are
counterparts of the corresponding U.S. Patents in which the
Registrant holds an interest. The foreign patents are expected
to be offered for license along with the Registrant's U.S.
patents.
The Company's current operations are limited to the licensing of
its patent portfolio related to an audio digital recording and
playback system and an audio and video digital recording and
playback system or parts thereof, that are covered by the
compan's patents.
B. Consolidation
The consolidated financial statements include the consolidated
financial information of TSI since that entity's inception. This
consolidated financial information of TSI includes the operations
of its wholly owned subsidiary, TSC, since its acquisition on
November 16, 1987. All significant inter company balances and
transactions have been eliminated in consolidation.
C. Patents
Patent costs for the years ended July 31, 1991 and prior were
amortized on the straight-line method over the estimated useful
life of the patents of 17 years. Due to the lack of a marketable
product, research and marketing development, and the lack of
adequate capital to protect and take advantage of these patents,
effective with the year ended July 31, 1992, all unamortized
patent costs were fully amortized. All patent maintenance costs
are expensed when incurred. Patents were issued on July 21, 1987
and July 5, 1988. During the year ended July 31, 2000 the cost
to maintain these patents and record them in foreign countries
was $10,349 which was recorded as patent fees expense.
F-7
<PAGE>
D. Income Taxes
The Company and it's wholly owned subsidiaries file a
consolidated federal income tax return. Due to the Company's net
operating losses there is no provision for federal income taxes
in these financial statements.
Tax credits will be reflected in the income statement under the
flow-through method as a deduction of income taxes in the year in
which they are used. At July 31, 2000, the Company's
carryforwards are as follows:
Net General
Year of Net Operating Loss Capital Business
Expiration Book Tax Loss Credits
2001 -0- -0- -0- 11,763
2002 302,543 306,786 -0- 18,390
2003 329,338 223,481 -0- -0-
2004 66,722 110,507 -0- -0-
2005 155,215 143,453 -0- -0-
2006 80,080 55,410 730 -0-
2007 236,002 228,734 -0- -0-
2008 84,714 99,931 22,500 -0-
2009 55,673 55,664 -0- -0-
2010 57,605 57,499 -0- -0-
2011 63,576 63,576 -0- -0-
2012 48,566 48,566 -0- -0-
2013 59,261 59,261 -0- -0-
2019 114,524 114,524 -0- -0-
The primary difference between the book and tax net operating
loss carryforwards result from differences in depreciation and
amortization methods and the treatment of unrealized loss of
market value of certain investments.
E. Net Loss (Gain) Per Common Share
The net loss (gain) per common share is computed by dividing the
net loss (gain) for the period by the weighted average number of
shares outstanding. All "cheap stock" issued prior to the public
offering is included in the computation as if it were outstanding
from inception.
F. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less cash equivalents.
F-8
<PAGE>
G. Equipment and Depreciation
Equipment was stated at cost. Depreciation was computed for
financial reporting purposes on a straight-line basis over an
estimated life. Depreciation expense for the years ended July
31, 2000, 1999 and 1998 was $2,374, $735 and $0 respectively.
Note 2. Marketable Securities
During the years ended July 31, 2000 and 1999 the Company held common
stock in Williams Controls, Inc. (Nasdaq: WMCO) in which a major
shareholder and former officer/director of the Company is an officer.
The stock had a cost of $25,035 and a fair market value at July 31,
2000 and 1999 of $43,601 and $88,984 respectively.
In accordance with SFAS 115, the Company has classified the WMCO stock
as an available-for-sale security and has reported it at its fair
market value effective July 31, 2000.
These securities are collateral for loans from a related party.
Note 3. Notes Payable and Notes Receivable
A. Related Entity Notes Payable
Since the inception of the Company to October 2000, related
companies have provided loans to meet the operating cash flow
need. These notes are rewritten as the loan amount increases.
Notes payable to related entities bear interest at 10 to 12
percent per annum, and are due and payable within 180 days or on
demand and are dated as follows:
July 31,
2000 1999
------ --------
June 21, 1988 (3) 12% 600 600
August 30, 1989 (3) 12% 6,500 6,500
January 14, 1993 (3) 10% 5,000 5,000
January 11, 2001 (1) 10.25% 376,017 381,217
March 5, 2001 (2) 10.25% 159,123 159,123
(1) Owed to Acrodyne Corporation ("Acrodyne"). Collateralized
by all assets of CompuSonics Video Corporation.
(2) Owed to Acrodyne. Collateralized by all of the assets of
Tyler-Shaw.
(3) Owed to Acrodyne, unsecured, and transferred from Equitex,
Inc. (see note 8).
F-9
<PAGE>
B. Non - Related Entity Notes Payable
July 31,
2000 1999
February 9, 2001 (1) 10.50% 24,000 20,100
(1) Owed to First Equity Corporation. Collateralized by all assets of
CompuSonics Video Corporation.
C. Notes Receivable - Related
On June 22, 1999, the Company loaned $150,000 to Pro Golf
International, Inc. ("PGI"), a subsidiary of Ajay Sports, Inc.
The Company received a promissory note that is subordinated to
PGI's primary lender. On February 29, 2000, the Company
converted its note receivable from PGI, and the interest accrued
but not paid on such note receivable, into common stock of PGI.
(See Note 10). The balance of the notes receivable as of July
31, 2000 & July 31, 1999 was $0 and $150,000 respectively.
Note 4. Stockholders' Equity
A. Preferred Stock
Under the Company's Certificate of Incorporation, up to
75,000,000 shares of preferred stock, with classes and terms as
designated by the Company, may be issued and outstanding at any
point in time. The Company had 300,000 authorized shares of
Series A Convertible Preferred Stock ($.001 par value)
outstanding at July 31, 1988. In September 1988, all the
outstanding shares were converted at $.001 per share, at the
holder's option, into 30,000,000 shares of common stock.
B. Public Offering of Common Stock
In December 1985 the Company completed a public offering of
30,000,000 units, each consisting of one share of the Company's
common stock, $.001 par value, and one Class A purchase warrant.
One Class A warrant entitles the holder to purchase one share of
common stock plus a Class B warrant for $.05 during the twelve
month period originally ending November 27, 1986 and currently
extended to December 31, 2000. The Company may redeem the Class
A warrants at $.001 per warrant if certain conditions are met.
One Class B warrant entitles the holder to purchase one share of
the Company's common stock for $.08 per share for a twelve-month
period originally ended November 27, 1987 and currently extended
to December 31, 2000. The offering was made pursuant to an
underwriting agreement whereby the units were sold by the
Underwriter on a "best efforts, all or none" basis at a price of
$.03 per unit. The Underwriter received a commission of $.003
per unit and a nonaccountable expense allowance of $27,000.
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<PAGE>
The public offering was successfully completed on December 13,
1985 and the Company received $727,971 as the net offering
proceeds for the 30,000,000 units sold. As of July 31, 1999,
6,250 Class A warrants have been exercised for total proceeds of
$313.
Also pursuant to the underwriting agreement, the Company sold to
the Underwriter, for $100, warrants to purchase 3,000,000 shares
of the Company's common stock at a price of $.036 per share.
These warrants were exercisable for a period of four years
beginning December 13, 1986. These warrants were not exercised
and have expired.
C. Incentive Stock Option Plan
On October 4, 1985, the Company's board of directors authorized
an Incentive Stock Option Plan covering up to 7,000,000 shares of
the Company's common stock for key employees. The board of
directors is authorized to determine the exercise price, the time
period, the number of shares subject to the option and the
identity of those receiving the options.
Note 5. Related Party Transactions
The Company currently occupies office space, at no charge, in the
office of Acrodyne, a related entity. TSC also utilizes space in a
related entity at no charge for the purposes of accounting and
administration. The Company believes its current facilities are
sufficient for its presently intended business activity. The accounts
payable, as of July 31, 2000 and 1999, include management fees owed to
Acrodyne of $210 and $500 respectively (see note 6(b)).
The Company also has an unsecured advance payable, to Acrodyne of
$26,016 as of July 31, 2000. This payable was transferred from
Equitex, Inc. to Acrodyne Corporation in August, 1993 (see note 8).
The accrued interest payable at July 31, 2000 and 1999 to Acrodyne was
$338,498 and $281,226 respectively.
See Note 3, herein, regarding loans made to the Company by a related
entity.
During the years ended July 31, 2000 and 1999 the Company held common
stock in a company in which the Company's major shareholder and former
officer/director (see Note 7) is an officer and director (see Note 2).
In August 1990 the Company entered into a management fee agreement with
the related entity, at the time, whereby the Company will pay direct
labor cost plus overhead for management services rendered. Management
fees expense totaled $5,740, $4,150, and $1,200 for the years ended
July 31, 2000, 1999, and 1998.
In September 1999, the Company entered into a management agreement with
Enercorp, Inc., a stockholder in the Company, whereby Enercorp, through
its president, Robert R. Hebard, provides managerial assistance to the
Company at a fee of $2,000 per month, payable to Enercorp. Mr. Hebard
is also the president of the Company, but is not paid a salary by the
Company. As of July 31, 2000, the consulting fees owed to Enercorp
were $18,000.
F-11
<PAGE>
Note 6. Cash Flows Disclosure
Interest and income taxes paid for the years ended July 31, 2000, 1999
and 1998 were as follows:
2000 1999 1998
Income Taxes $ -0- $ -0- $ -0-
Interest $ -0- $ -0- $ -0-
Note 7. Transfer of Interest
On August 19, 1993, Equitex transferred all its interest in the Company
including stocks, notes and accounts receivable to Thomas W. Itin or
his assigns. Mr. Itin is the former President and Chairman of the
Board of the Company. Thomas W. Itin is Chairman of the Board and
President of Acrodyne and WMCO.
Note 8. Change in Control
Effective November 10, 1993, the President and Chairman of the Board of
Directors of the Company resigned due to commitments to other companies
in which he is an officer and director. Robert R. Hebard was elected
as director and chairman of the board and president. Mr. Hebard is
assistant secretary of WMCO.
Note 9. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Note 10. Investments
On June 22, 1999, the Registrant had loaned $150,000 to Pro Golf
International, Inc., a subsidiary of Ajay Sports, Inc., partly in the
belief that it would have the opportunity to provide significant
e-commerce development services to PGI and another Ajay subsidiary,
ProGolf.com, in the future, for which it would be paid development
fees. The proceeds for making the loan were provided by a related
party. At the time, the Registrant received a promissory note that was
subordinated to PGI's primary lender. On February 29, 2000, the
Registrant converted its note receivable from PGI, and the interest
accrued but unpaid on such note receivable, into common stock of PGI.
The conversion was made at the rate of $60 per common share, the price
at which PGI was raising equity capital at the time under a
Confidential Private Placement Memorandum dated February 4, 2000. The
Registrant had held the note from PGI from that June 22, 1999 until the
time of this conversion of the note into PGI common stock. In exchange
for converting the $150,000 note, and $9,000 of interest accrued on the
note, the Registrant received 2,650 shares of PGI's common stock.
F-12
<PAGE>
Note 11. Other Subsequent Events
On August 11, 2000, the Company announced in a news release that it had
signed a licensing agreement with Interactive Digital Media Corporation
(IDMC) for technology related to the Company's patent portfolio. This
was CompuSonics Video's first licensing agreement since announcing in
April 2000 that it would focus its business activities on the licensing
of the patents. IDMC, based in Scottsdale, Arizona, manufactures a
product called the PC-DEC IDM System 7. The System 7 is an
easy-to-use interactive home entertainment and information control
center that represents the ultimate in multi-media entertainment and
personal computing for the home. The System 7 combines a multimedia
computer, internet browser, video phone, virtual VCR, AM/FM tuner, DVD,
video gaming device and home security system into one powerful unit.
Under the licensing agreement, CompuSonics Video granted a
non-exclusive, royalty bearing license for the Company's patented audio
and video digital recording and playback system technology to IDMC for
the System 7 and other products that IDMC may produce now and in the
future. The license was structured so as to provide for an upfront
payment of $10,000, a note receivable of $90,000, and an ongoing
royalty based on the sales of units covered by the license.
Note 12. Contingencies
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the
financial statements, the Company has a net loss of $114,524 for the
year ended July 31, 2000 and as of July 31, 2000 had a working capital
deficiency of $942,921 and net stockholders' deficiency of $783,112.
The Company earned commission income of $147,332, $212,210 and $0
during the years ended July 31, 2000, 1999 and 1998 and was mainly
dependent upon a related party to fund its working capital prior to the
current year. Management decided to phase out its business activities
related to its website development and maintenance work and adopted a
plan in April 2000 to focus its resources on licensing its patent
portfolio. The Company has signed one license, in August 2000, and the
Company's ability to continue as a going concern is partially dependent
on the addition of more licenses and the revenue stream it could
provide to fund its operation. In addition, the Company's Class A and
B warrants represent an additional source of capital for the Company
should it common stock price rise significantly and consistently remain
above the warrant exercise prices, but at this time the stock price is
below the exercise price and there is no effective registration
statement, for the common stock underlying the warrants, on file with
the Securities and Exchange Commission, making it unlikely that the
warrants would be exercised so that the Company would have access to
this source of capital. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
F-13
<PAGE>
Note 13. Write Off of Bad Debts
As part of its website development and maintenance consulting work, the
Company had provided its services to two related parties. The Company
was paid on a monthly retainer basis to do this work. In the final few
months that the Company provided its services to these consulting
clients, disputes arose between these clients and the Company such that
work was performed was not acceptable to the clients or the clients
were unable to pay for such services. Despite efforts to collect these
outstanding billings, as of May 5, 2000, management of the Company
determined that the outstanding billings for these disputed services
were unlikely to be collected, especially due to the Company's decision
to discontinue its website development and maintenance business, and
made the decision to write them off at that time.
F-14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES
Schedules of Investments
At July 31, 2000 and 1999
Amount at Which
Each Portfolio of
Market Value of Equity Security Issues
Each Issue at and Each Other
Name of Issuer and Number of Cost of Balance Sheet Security Issue Carried
Title of Each Issue Shares or Unit Each Issue Date in the Balance Sheet
--------------------- ------------ ------------ ------------- ------------------
July 31, 2000
Common Stocks
Williams Controls, Inc. * 28,475 $25,035 $43,601 $43,601
July 31, 1999
Common Stocks
Williams Controls, Inc. * 28,475 $25,035 $88,984 $88,984
* See Note 2
The accompanying notes are an integral
part of this financial statement.
F-15
</TABLE>
<PAGE>
