UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarter ended December 31, 1999 Commission File No. 133-16736
eContent, Inc. (formerly Media Vision Productions, Inc.
- -------------------------------------------------------
(formerly Gulfstar Industries, Inc.)
- -------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2442288
- ------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
105 S. Narcissos Ave. #701, West Palm Beach, FL 33401
- ------------------------------------------------ -----------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (561) 835 - 0094
--- -------- ------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
---
Transitional Small Business Disclosure Format:
Yes: X No:
---
The number of shares outstanding of each of the registrant's classes of common
stock as of December 31, 1999 is 10,472,709 shares all of one class of $.08 par
value common stock and no shares of convertible preferred stock with a $10.00
par value.
<PAGE>
eCONTENT, INC.
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
(FORMERLY GULFSTAR INDUSTRIES, INC.)
INDEX
PAGE
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - December 31, 1999 1
Consolidated Statements of Operations - Three
Months Ended December 31, 1999 2
Consolidated Statement of Cash Flows - Three Months
Ended December 31, 1999 3
Notes to the Consolidated Financial Statements 4-7
Management's Discussion and Analysis of financial
conditions and results of operations 8-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of 15
Security Holders
Item 5. Other Information 15
Item 6. Exhibits on Reports on Form 8-K 15
Signature Page 16
<PAGE>
eCONTENT, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(Unaudited)
Assets
Current Assets
Cash $ 1,148
---------
Total Current Assets 1,148
---------
Advance on production rights 375,000
---------
Property and equipment, net of $4,442 accumulated
depreciation 17,742
---------
Other Assets
Organization costs, net of accumulated amortization
of $18,096 72,385
Deposits 4,200
---------
Total Other Assets 76,585
---------
Total Assets $ 470,475
=========
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable and accrued expenses $ 240,170
Accrued settlement 182,600
Due to officers' 147,209
Due to stockholder 15,000
---------
Total Current Liabilities 584,979
Stockholders' Deficit
Common stock, par value $.08 per share; authorized
50,000,000 shares, 10,472,709 issued and outstanding 837,817
Convertible preferred stock, authorized 1,000,000
shares, par value $10.00; no shares issued
and outstanding -
Additional paid in capital 4,317,430
Deficit accumulated during development stage (5,087,151)
Treasury stock, 200,000 shares at settlement value (182,600)
---------
Total Stockholders' Deficit (114,504)
---------
Total Liabilities and Stockholders' Deficit $ 470,475
=========
See notes to the consolidated financial statements.
1
<PAGE>
eCONTENT, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
STATEMENT OF OPERATIONS
(Unaudited)
From
April 1,
1998
(Date of
For the Inception)
Three Months Ended to
December 31, December 31,
1998 1999 1999
-------- -------- ------
Total Revenues $ -- $ -- $ --
------- --------- ---------
Costs and Expenses
Research and development - 4,524 48,411
Syndication and production costs 45,000 368,750 452,250
General and administrative 194,731 259,658 1,127,636
Depreciation and amortization 3,393 5,633 22,538
Stock based compensation - 360,313 3,403,980
------- --------- ---------
Total Costs and Expenses 243,124 998,878 5,054,815
------- --------- ---------
Net Loss From Operations 243,124 998,878 5,054,815
Other Income (Expense):
Settlement expense -- (4,0000) (14,556)
Interest expense -- (280) (17,780)
------- --------- ---------
Total Other Expense -- (4,280) (32,336)
------- --------- ----------
Net Loss $(243,124) $(1,003,158)$(5,087,151)
======= ========= =========
Loss per common share, basic
and diluted $(.048) $(.097)
==== ====
Weighted average common shares
outstanding, basic and diluted 5,021,459 10,334,557
========= ==========
See notes to the consolidated financial statements.
2
<PAGE>
eCONTENT, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
STATEMENTS OF CASH FLOWS
(unaudited)
From
April 1,
1998
(Date of
For the Inception)
Three Months Ended to
December 31, December 31,
1998 1999 1999
-------- -------- ------
Operating Activities:
Cash Flows From Operating
Activities: $(242,124) $(1,003,158) $(5,087,151)
Net Loss
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization 3,898 5,633 22,538
Interest expense via stock -- -- 17,500
Loan fees via stock -- -- 25,000
Non Cash Common Stock, Common
Stock Option and Warrant Expense -- 729,063 3,772,730
Changes in assets and liabilities:
Accounts payable and accrued
expenses 103,120 160,805 240,170
Deposits -- -- (4,200)
--------- -------- ---------
Net Cash Used In Operating
Activities (136,106) (107,657) (1,013,413)
Cash Flows From Investing Activities:
Investment in organizational costs (90,481) -- (90,481)
Investment in property and equipment (12,000) -- (22,184)
Advance on production rights -- -- (375,000)
--------- -------- ---------
Net Cash Used In Investing (102,481) -- (487,665)
Activities
Cash Flows From Financing Activities:
Proceeds from the issuance of
common stock 480,028 -- 1,090,017
Proceeds on loans -- -- 298,713
Advances from officers' -- 108,225 147,209
Advance from stockholder -- -- 15,000
Repayment of loans (48,713) -- (48,713)
--------- -------- ----------
Net Cash Provided By
Financing Activities 431,315 108,255 1,502,666
--------- -------- ---------
Net increase (decrease) in cash and
cash equivalents 192,728 598 1,148
Cash and cash equivalents, beginning
of period 167,241 550 --
--------- -------- ---------
Cash and cash equivalents, end of
period $ 359,969 $ 1,148 $ 1,148
========= ======== =========
See notes to the consolidated financial statements.
3
<PAGE>
eCONTENT, Inc.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
(FORMERLY GULFSTAR INDUSTRIES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the year
ended September 30, 2000.
The Company accounts for net loss per common share in accordance with the
provisions of Statements of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" ("EPS"). SFAS No. 128 reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Common equivalent shares have been excluded from the computation of
diluted EPS since their effect is antidilutive. The 1998 earnings per
share were restated to reflect the 1 for 25 split pursuant to the plan of
re-organization, and the 4,000,000 shares issued in the merger accounted
for as a reorganization were treated as outstanding effective from the
date of inception.
For further information, refer to the financial statements and footnotes
thereto included in the Registrant Company's annual report on form
10-KSB/A for the year ended September 30, 1999.
SUPPLEMENTAL INFORMATION
For the Three Months
Ended
December 31,
1998 1999
---- ----
Interest Paid $ 0 $ 0
== ==
Income Taxes Paid $ 0 $ 0
== ==
B. REORGANIZATION AND SUBSEQUENT RECAPITALIZATION
In July 1997, the Company filed a petition under Chapter 11 of the
Bankruptcy laws. The Company's petition was confirmed by the Bankruptcy
Court on September 2, 1998 and became effective on January 4, 1999. The
Plan of Reorganization and confirmation of the same included the
acceptance of the agreement and merger plan between eContent Inc.
(formerly Media Vision Productions, Inc.) (the Company) and Media Vision
Properties, Inc., whereby holders of existing voting shares immediately
before the confirmation retain less that 50% of the voting shares of the
4
<PAGE>
eCONTENT, Inc.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
(FORMERLY GULFSTAR INDUSTRIES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
surviving entity and the post petition liabilities allowed and claims
exceed the carrying value of assets. On January 4, 1999, pursuant to the
plan of reorganization and plan of merger the Company changed its name to
Media Vision Productions, Inc. On October 1, 1999, the Company changed its
name to eContent, Inc.
C. RESTATEMENT AND RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
For accounting purposes the acquisition has been treated as an acquisition
of eContent, Inc. (formerly Media Vision Productions, Inc) by Media Vision
Properties, Inc. and therefore a recapitalization of Media Vision
Properties, Inc. The historical financial statements prior to January 4,
1999 are those of Media Vision Properties, which was incorporated on June
17, 1997 but did not issue stock, have assets, or commence operations
until April 1, 1998. Additionally, proforma information is not presented
since the transaction is treated as a recapitalization.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated balance sheet as of December 31, 1999
includes the accounts of the Company and its wholly owned subsidiary,
Media Vision Properties, Inc., which commenced operations on April 1,
1998.
All significant intercompany accounts and transactions have been
eliminated.
Due to the recapitalization, historical stockholders' equity of the
acquirer (Media Vision Properties, Inc.) prior to the merger is
retroactively restated for the equivalent number of shares received in the
merger after giving effect to any difference in par value of the issuer's
and acquirer's stock with an offset to paid-in-capital. Retained deficit
of the acquirer has been carried forward after the acquisition.
Certain reclassifications have been made to the 1998 financial statements
to conform with the 1999 financial statement presentation.
D. RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
E. COMMITMENTS AND CONTINGENCIES
The Company's predecessor's subsidiaries were involved in various
litigation in connection with their prior operations which were eliminated
by the reorganization under bankruptcy.
In connection with the predecessor's acquisition and operation of its
former operating subsidiary PTS, the Company had terminated and commenced
an action against the former president of the PTS subsidiary. In turn,
5
<PAGE>
eCONTENT, Inc.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
(FORMERLY GULFSTAR INDUSTRIES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the former president had commenced an action for wrongful termination
against the Company. These actions were dismissed in the bankruptcy
proceedings and the former president has appealed this decision. The
Company has placed 200,000 shares in escrow and recorded the shares as
treasury stock pending the acceptance or lack thereof of the offer. The
offer value was based upon 58,833 shares reserved at the time of the plan
of reorganization at $.105 and 141,167 shares valued at $1.25, the market
price on the date the shares were put in escrow. The Company will record a
charge to additional paid in capital if the offer is accepted.
On September 24, 1999 the Company entered into employment agreements with
its president and two executive officers. The general terms of the
agreements provide for the three officers to receive annual salaries
totaling $515,000 for fiscal 2000, $566,500 for fiscal 2001 and $623,150
for fiscal 2002. Additionally, the agreements provide for stock options
and grants of shares.
On July 31, 1999, the Company entered into an agreement to acquire up to
100% of the issued and outstanding shares of Iclas, Inc., a privately held
New Jersey corporation, subject to due diligence, for 1,000,000 shares of
the Company's stock and a working capital infusion of $500,000. The
parties have extended this agreement to January 31, 2000.
On October 5, 1999, the Company entered into a licensing agreement with an
individual and Spartan Sporting Goods and Fashions, Inc. ("Spartan") a
privately held New York Corporation for the exclusive master license of
certain logos, trademarks and copyrights. The agreement provides that the
Company pay 30% of all royalty income received from the producers under
this agreement to the Licensor, or "Spartan". Additionally, the agreement
provides for a minimum annual non-refundable license fee for up to nine
years as follows:
Calendar Year Amount
------------- ------
2000 $25,000
2001 $25,000
2002 $25,000
2003 $30,000
2004 $36,000
2005 $43,200
2006 $51,850
2007 $62,200
2008 $74,650
6
<PAGE>
eCONTENT, Inc.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY MEDIA VISION PRODUCTIONS, INC.)
(FORMERLY GULFSTAR INDUSTRIES, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On December 12, 1999 the Company agreed to acquire up to 100% of the
issued and outstanding shares of Media Productions International, Inc.,
("MPI") a privately held New York Corporation which primarily operates as
a television production company. The terms provide the Company will pay
$1,150,000 by January 31, 2000, $2,800,000 by June 1, 2000 and the
issuance of 1,135,000 shares of the Company's common stock. Additionally,
the Company is to provide up to $550,000 working capital and agreed to
enter into an employment agreement with MPI's president.
On January 13, 2000 the Company agreed to assign certain licenses and
sublicenses, to Littlefield, Adams & Company in addition to assist them in
certain marketing efforts. The Company also agreed to, on a best efforts
basis, assist Littlefield, Adams & Company "FUNW", a publicly traded
company, in the raising of equity capital. In consideration for the above
the Company will receive 42% of the fully diluted outstanding shares of
"FUNW".
F. INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assetsand liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using currently enacted tax rates. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of
operations in the period that includes the enactment date. Because of the
uncertainty regarding the Company's future profitability, the future tax
benefits of its losses has been fully reserved for. Therefore, no benefit
for the net operating loss has been recorded in the accompanying
consolidated financial statements.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying financial statements as
well as information relating to the plans of the Company's current management.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 VS. THREE MONTHS ENDED DECEMBER 31, 1998
The Company has not yet recorded any revenue. The Company recorded a net loss of
$1,003,158 for the three months ended December 31, 1999 as compared to a loss in
the prior period ended December 31, 1998 of $ 243,124. This represents a loss
per common share of $(.097) for the three months ended December 31, 1999 as
compared to a loss per common share of $(.048) for the period ended December 31,
1998. Research and development expenses were $4,524 for fiscal 1999 compared to
none in fiscal 1998 and syndication and production costs were $368,750 in the
current period vs. $45,000 for the prior period. General and administrative
expenses rose to $259,658 in fiscal 1999 from $194,731 for the same period in
fiscal 1998. The increase in these costs primarily relate to the hiring of full
time employees, market making expenses relating to investor relations and an
increase in the Company's overall marketing efforts as the Company co-produced
its initial Public Television Syndicated Program. Additionally, the Company
recorded non-cash charges of $729,063 for stock options and stock grants, which
represents $360,313 in stock awards to employees and consultants during the
quarter ended December 31, 1999, and $368,750 for the value of options awarded
the to the production company in which the Company has entered into an agreement
to acquire, "MPI" , and its president.
PLAN OF OPERATIONS
The Company has a five-year contract to produce network quality programming for
syndication to 351 Public Television Stations nationwide. The Company will
develop Internet Communities related to each show, offering exciting
information, chat lines, auctions, buyers clubs and other exclusive WEB
Membership Benefits. In connection with our strategic alliance with Media
Productions International, Inc. ("MPI"), a privately owned New York corporation,
Bob Marty has become the Company's Executive Director of Productions. Bob Marty
has produced 25 highly acclaimed Public Television specials in the past seven
years. The 101,000,000 loyal weekly viewers of Public Television have a proven
appetite for televised concerts, antique/collectible auctions, self-improvement
programs and children's entertainment.
On January 31, 2000 the Company agreed to acquire 42% of Littlefield, Adams &
Company "FUNW", a publicly held Company on the OTC Bulletin Board, in exchange
for the assignment of certain licenses, sublicenses and marketing efforts. The
Company also agreed on a best-efforts basis to assist Littlefield & Adams in
obtaining $1,000,000 of equity capital.
8
<PAGE>
YEAR 2000 ISSUES
Many computer systems and software programs, including several used by the
Company may require modification and conversion to allow date code fields to
accept dates beginning with the year 2000. Major system failures or erroneous
calculations can result if computer system failures are not year 2000 compliant.
The Company is in the process of evaluating the computer systems they now have
in use and does not anticipate a major undertaking to be compliant.
All costs associated with year 2000 compliance that have been incurred by the
Company have been expensed and have not been capitalized. The overall cost to
the Company of modifications and conversion for year 0200 compliance was not
material. The Company believes it has no material year 2000 issues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit at December 31, 1999 was $583,831.
Since the reorganization, the Company has funded its operations from the
issuance of common stock and loans. The accountant's report on the financial
statements included in the Company's Annual Report on Form 10KSB/A includes a
going concern qualification based on the Company's lack of capital and losses
since inception.
The Company plans to raise between $1,875,000 and $3,000,000 through the
issuance of the Company's common stock during the quarter ending March 31, 2000
and an additional $5,000,000 to $10,000,000 during the quarter ending June 30,
2000 in private placement transactions with accredited investors that are
intended to be exempt from registration pursuant to 506 of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933. Based upon the success of the private offerings, the Company expects to
utilize a minimum of approximately $1,150,000 cash and 1,135,000 shares of
common stock to close the scheduled merger and acquisition of Media Productions
International, Inc. ("MPI") in the quarter ending March 31, 2000 and $2,800,000
to complete the "MPI" transaction in the quarter ending June 30, 2000.
Should the Company not complete the merger and acquisition of MPI, the strategic
alliance and production schedules will continue.
The Company will utilize a minimum of $500,000 cash and up to 1,000,000 shares
of common stock should it close the proposed acquisition of ICLAS, Inc.
The Company intends upon ;first acquiring MPI and will evaluate the potential
closing of ICLAS, Inc. depending upon the Company's working capital.
9
<PAGE>
INFLATION
The rate of inflation has had little impact on the Company's results of
operations and is not expected to have a significant impact on continuing
operations.
FORWARD LOOKING AND OTHER STATEMENTS
We have made statements in this document that are forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read these statements that contain these words carefully because they: (1)
discuss our future expectations; (2) contain projections of our future results
of operations or on our fiscal conditions, or (3) state other "forward-looking"
information.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or which we do not fully control. Important factors that could cause
actual results to differ materially from these expressed or implied by our
forward-looking statement, include, but are not limited to those risks,
uncertainties and other factors discussed in this document.
RISK FACTORS WHICH MAY AFFECT OUR BUSINESS
WE MAY NEED ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS IF WE DO NOT GENERATE
ENOUGH REVENUE
We require substantial working capital to fund our business and may need more in
the future. We will likely experience negative cash flow from operations for the
foreseeable future. If we need to raise additional funds through the issuance of
equity, equity-related or debt securities, your rights may be subordinate to
other investors and your stock ownership percentage may be diluted. We cannot be
certain that additional financing will be available to us.
OUR MANAGEMENT'S EXPERIENCE IN THE E-COMMERCE INDUSTRY IS LIMITED AND WE MAY
FAIL TO HIRE, RETAIN AND INTEGRATE KEY PERSONNEL
Our success depends on the expertise of our key technical, sales and senior
management personnel. The Company's senior management has limited experience
operating and managing online stores engaged in the sale of various merchandise.
We depend heavily on the continuing service of our management and on their
ability to quickly develop an expertise in the e-commerce aspects of our
business. Loss of the services of John Sgarlat, our chairman and chief executive
10
<PAGE>
officer, William Campbell, our chief financial officer, Gary Goodell, our chief
operating officer, or other key employees would hurt our business.
Our success depends on our ability to continue to attract, retain and motivate
skilled employees who can effectively manage an online business. Competition for
qualified e-commerce employees is intense. We may be unable to retain our
present key employees or to attract, assimilate or retain other qualified
employees in the future. We may experience difficulty in hiring and retaining
skilled employees with appropriate qualifications. Our business will be harmed
if we fail to attract and retain key employees.
WE MAY NOT CLOSE PENDING TRANSACTIONS WHICH ARE INTEGRAL TO OUR SUCCESS.
We are in the process of negotiating the acquisition of MPI Productions
International, Inc. ("MPI") with MPI's president and sole shareholder, Bob
Marty. MPI is a full-service video production and post-production company for
broadcast television, corporate and industrial clients, and the home video
market. We are in the process of seeking and negotiating other agreements,
including acquisition, production and syndication agreements, which are integral
to our success. We cannot guarantee that the Company will acquire MPI or close
any other pending transactions which are integral to our success. A failure to
acquire MPI or close any other integral transactions may harm our business.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number or ability to produce quality programming of factors.
Many of these factors are outside our control and include:
- our ability to produce quality programming;
- timing of production and broadcasting of our programs;
- fluctuations in consumer purchasing patterns and advertising
spending;
- changes in the growth rate of Internet usage and online user traffic
levels;
- actions of our competitors;
- the timing and amount of costs relating to the expansion of our
operations and acquisitions of technology or businesses;
and
- general economic and market conditions.
Because we have a limited operating history , our future revenues are
difficult to forecast . A shortfall in revenues will damage our business
and would likely affect the market price of our common stock. Our limited
operating history and the new and rapidly evolving Internet market make it
difficult to ascertain the effects of seasonality on our business. If
seasonal and cyclical patterns emerge in Internet purchasing, our results
of operations from quarter to quarter may vary greatly and may cause our
business to suffer.
11
<PAGE>
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE AS WE FACE INTENSE COMPETITION
FROM INTERNET-BASED AND RETAIL-BASED BUSINESSES.
We cannot assure you that we will be able to compete successfully or that
competitive pressures will not damage our business. Our competition
includes:
- television production companies;
- traditional retailers;
- Web sites maintained by online retailers of similar merchandise;
and
- Internet portals and online service providers that feature shopping
services, such as America Online, Yahoo!, Excite and Lycos.
We believe that our ability to compete depends on many factors, including:
- The quality of our programming;
- The market acceptance of our programming, products, Web sites and
online services; and
- the success of our sales and marketing efforts.
Our competitors may be larger than us and may have substantially greater
financial, distribution and marketing resources. In addition, our competitors
may be able to secure products from vendors on more favorable terms, fulfill
customer orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can.
WE MAY BE UNABLE TO SUPPORT INCREASED VOLUME ON OUR WEB SITES.
A key element of our strategy is to generate a high volume of traffic on
our Web sites. However, growth in the number of users of our online stores may
strain or exceed the capacity of our computer systems and lead to declines in
performance or systems failure.
We must also introduce additional or enhanced features and services to
attract new users to our online stores. These new services or features may not
function well and we may need to significantly modify the design of these
services to correct errors. If users encounter difficulty with or do not accept
our services or features, our business would be damaged.
WE NEED TO EFFECTIVELY MANAGE GROWTH OF OUR OPERATIONS.
Our success depends upon effective planning and growth management.
Excluding part-time employees, at December 31, 1999 we had a total of six
employees. We intend to continue to increase the scope of our operations and the
number of our employees. We also face challenges associated with upgrading and
maintaining our information systems and internal controls, particularly those
related to our purchase and receipt of inventory. If we do not successfully
implement and integrate these new systems or fail to scale these systems with
our growth, we may not have adequate, accurate and timely forecasting and
financial information.
WE MAY BE LIABLE FOR BREACHES OF ONLINE SECURITY.
Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. We will rely on encryption and authentication technology
licensed from third parties to securely transmit confidential information, such
as customer credit card numbers. A compromise or breach of our technology used
to protect customer transaction data may occur. Furthermore, our servers may be
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions.
We may need to expend significant additional capital and other resources
to protect against a security breach or to alleviate problems caused by any
breaches. Our business and your investment may be harmed if security measures do
not prevent security breaches. We cannot assure prevention against all security
breaches. This is a risk in e-commerce. Under current credit card practices, a
merchant is liable for fraudulent credit card transactions where, as is our
case, merchant does not obtain a cardholder's signature. A failure to adequately
control fraudulent credit card transactions would injure our business.
12
<PAGE>
WE MAY BE SUED REGARDING PRIVACY CONCERNS.
Any penetration of our network security or misappropriation of our users'
personal or credit card information could subject us to liability. We may be
liable for claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Claims could also be based on other
misuses of personal information, such as for unauthorized marketing purposes.
These claims could result in litigation.
In addition, the Federal Trade Commission and several states have
investigated the use by Internet companies of personal information. In 1998, the
U.S. congress enacted the Children's Online Privacy Protection Act of 1998. The
Federal Trade Commission has not yet promulgated regulations interpreting this
act. We depend upon collecting personal information from our customers and we
believe that the promulgation of regulations under this act will make it more
difficult for us to collect personal information from some of our customers. We
could incur expenses if new regulations regarding the use of personal
information are introduced or if our privacy practices were investigated.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD BURDEN OUR BUSINESS.
The adoption or modification of laws or regulations applicable to the
Internet could harm our business. The U.S. Congress recently passed laws
regarding online children's privacy, copyrights and taxation. The law governing
the Internet, however, remains largely unsettled. New laws may impose burdens on
companies conducting business over the Internet. It may take years to determine
whether and how existing laws governing intellectual property, privacy, libel
and taxation apply to the Internet and online advertising. In addition, the
growth and development of online commerce may prompt calls for more stringent
consumer protection laws, both in the United States and abroad. We also may be
subject to regulation not specifically related to the Internet, including laws
affecting direct marketers.
WEB SECURITY CONCERNS MAY HINDER ONLINE E-COMMERCE AND ADVERTISING.
The need to securely transmit confidential information such as credit card
and other personal information over the Internet has been a significant barrier
to e-commerce and communications. Any publicized compromise of security could
deter people from accessing the Web or from using it to transmit confidential
information. Furthermore, decreased online traffic and sales as a result of
general security concerns could cause advertisers to reduce their amount of
online spending. Such security concerns could reduce our market for e-commerce.
13
<PAGE>
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE, AS IS TYPICAL OF INTERNET-RELATED
COMPANIES.
Our stock price has been volatile and is likely to continue to be
volatile. The stock market has experienced significant price and volume
fluctuations, and the market prices of securities of technology companies,
particularly Internet-related companies, have been highly volatile.
The market price for eContent's common stock is likely to be highly
volatile and subject to wide fluctuations in response to the following factors:
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations or new products or
services by us or our competitors;
- changes in financial estimated by securities analysts;
- conditions or trends in e-commerce;
- changes in the economic performance or market valuations of other
media, Internet, e-commerce or retail companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnership, joint ventures or capital commitments;
- additions or departures of key personnel;
- release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common
stock; and
- potential litigation.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. The institution of such litigation against us
could result in substantial costs to us and a diversion of our management's
attention and resources.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
eContent, Inc.'s predecessor had commenced an action against its former
president of its MBT subsidiary. On May 16, 1996 we terminated the
President of the former PTS subsidiary. The former president of the PTS
subsidiary has commenced an action for wrongful termination and the
Company has defended its position and has commenced a countersuit alleging
misrepresentation in connection with the acquisition of PTS. The Company
filed for reorganization under Chapter 11 of the bankruptcy laws, which
has been approved by the court and which has been deemed effective on
January 4, 1999. The above claims against the Company have been dismissed
as a result of the reorganization. The former president of the PTS
subsidiary has appealed this decision and the Company's counsel has
advised them it is unlikely he will prevail on any or all of his claims.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
eContent Inc.
(Formerly Media Vision Productions,Inc.)
Dated: February 10, 2000
By: /s/ John P. Sgarlat
-----------------------------
John P. Sgarlat, Chairman, CEO
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
By: /s/ John P. Sgarlat February 10, 2000
------------------------------
John P. Sgarlat, Chairman, CEO
By: /s/ William H. Campbell February 10, 2000
------------------------------
William H. Campbell, CFO
By: /s/ Gary A. Goodell February 10, 2000
------------------------------
Gary A. Goodell, COO
16
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