UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended December 31, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______ to ___________.
Commission file number 0-29651
USA VIDEO INTERACTIVE CORP.
(Exact name of registrant as specified in its charter)
WYOMING 06-1576391
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation of Organization)
70 Essex Street, Mystic, Connecticut 06355
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, included area code: (860) 526-1560
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Shares,
no par value
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 as required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No | |
2
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at March 26, 2002 (computed by reference to
average of the bid and asked price on the NASD OTC Bulletin Board of the common
shares on such date): $21,596,067. Number of common shares outstanding at
March 26, 2002: 91,745,088.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
PART I
ITEM 1. BUSINESS.
Certain statements contained in this Annual Report on Form 10-K ("Report"),
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," and words of similar import, constitute
"forward-looking statements." Readers should not place undue reliance on these
forward-looking statements. USA Video's actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including risks described in this Report, including the "Risk Factors" section
contained in this Item 1, and the other documents USA Video files with the
Securities and Exchange Commission ("SEC").
INTRODUCTION
USA Video Interactive Corp. ("USA Video" or the "Company") designs and markets
to business customers streaming video and VoD systems, services and
source-to-destination digital media delivery solutions that allow live or
recorded digitized and compressed video to be transmitted through Internet,
intranet, satellite or wireless connectivity. The Company's systems, services
and delivery solutions include video content production, content encoding, media
asset management, media and application hosting, multi-mode content
distribution, transaction data capture and reporting, e-commerce, specialized
engineering services, and Internet streaming hardware.
The Company's products and services are based on its proprietary rich media
delivery infrastructure and software and its Store and Forward Video-on-Demand
("VoD") patent. These technologies, together with video compression technology,
facilitate the delivery of video to an end user in a timely and interactive
fashion.
USA Video has developed a number of specific products and services based on
these technologies. These include StreamHQ(TM), a collection of
source-to-destination media delivery services marketed to businesses;
EncodeHQ(TM), a service that digitizes and compresses analog-source video;
hardware server and encoder system applications under the brand name Hurricane
Mediacaster(TM); ZMail(TM), a service that delivers web and rich media content
to targeted audiences, and mediaClix(TM), a service that delivers content
similar to Zmail but originating from an existing web presence.
The Company was incorporated on April 18, 1986, as First Commercial Financial
Group Inc. in the Province of Alberta, Canada. In 1989, its name was changed to
Micron Metals Canada Corp., which purchased 100% of the outstanding shares of
USA Video Inc., a Texas corporation, in order to focus on the digital media
business. In 1995, the Company changed its name to USA Video Interactive Corp.
and continued its corporate existence in the State of Wyoming. The Company has
four wholly-owned subsidiaries: USA Video (California) Corp., USA Video Corp.,
USA Video Productions Inc., and USA Video Technologies, Inc. USA Video's
executive and corporate offices are located in Mystic, Connecticut, and its
Canadian offices are located in Vancouver, British Columbia.
3
BUSINESS ENVIRONMENT
The cost of bandwidth and supporting equipment, such as cable modems and other
broadband connectivity to homes and businesses, is expected to continue to
decrease over the next several years, bringing expanded use of high bandwidth
applications for video transmission to the general market. Meanwhile,
compression technologies continue to improve, allowing delivery of higher
quality content using existing connectivity.
USA Video believes that market conditions are favorable for continued acceptance
of mainstream VoD services. In published highlights of its 14th annual
Communications Industry Forecast, industry merchant bank Veronis Suhler notes
that per-person daily use of all forms of media continues to increase and is
expected to pass 10 hours per day by 2004. In addition, Veronis Suhler forecasts
that Internet advertising will more than quadruple to $24.4 billion by 2004,
surpassing cable, network TV and consumer magazines, as total advertising
spending grows 8.6% yearly through 2004. Total U.S. spending on media is
expected to reach $663.3 billion by 2003. The 7.5% combined annual growth rate
will make communications the second fastest-growing industry (behind
telecommunications) among the top 12 U.S. industries.
USA Video believes its source-to-destination streaming media delivery services
hold significant potential for the on-line advertising and other industries.
According to Arbitron/Edison Media Research's Internet VI Study released on
February 7, 2001, streaming media usage has increased in the past year. As of
January 2001, 13% of Americans (more than 30 million people) use Internet audio
or video each month, compared to 10% in January 2000. More than one-quarter
(27%) of Americans (more than 61 million people) have used Internet audio or
video while 6%, over 13 million people, use streaming media each week, according
to the Internet VI study. USA Video's streaming media delivery services are
designed to be highly functional, cost-effective and easily implemented for
advertisers targeting specific demographic groups.
STRATEGIC PLAN
USA Video's principal, near term, strategic objective is to expand its
StreamHQ(TM) services business, while pursuing opportunities to sell replicated
StreamHQ(TM) systems to corporations and organizations that prefer systems
solutions to services solutions. To this end, the Company intends to:
- - Continue StreamHQ(TM) functionality development, particularly the
automation of processes and client account management, which allows more
efficient delivery of services and expansion of the services client base;
- - Scale the StreamHQ(TM) infrastructure in modular fashion as necessary to
support an increasing number and size of Zmail and mediaClix(TM) campaigns;
- - Establish multiple marketing and distribution channels, particularly in the
form of alliances with third parties, including some of the Company's
product and service suppliers; and
- - Expand and enable the organic sales and marketing team, to support
increased direct marketing to various markets, including advertising,
corporate communications, customer service, entertainment, and education.
With regard to its patent, USA Video believes that the expected substantial
increases in bandwidth capacity, accompanying decreases in bandwidth cost,
increases in consumer computer and video appliance storage capacity, and the
proliferation of fast video file transfer techniques will result in an industry
focus on downloading as an alternative to streaming as a content delivery
mechanism. To position itself to take advantage of this anticipated shift, USA
Video is placing increased emphasis on aggressively protecting its technology
ownership rights, including licensing arrangements and other forms of
enforcement.
PROPRIETARY TECHNOLOGIES
USA Video's proprietary technologies include its (1) StreamHQ(TM)
infrastructure, software, and service delivery processes; (2) Store and Forward
4
VoD patent, and (3) Digital fingerprinting piracy deterrence technology.
The ability for StreamHQ(TM) to deliver services to clients with market-specific
value propositions stems from its scalable, streaming-enabled web
infrastructure, the software functionality that resides on this infrastructure
(such as innovative asset management and user transaction data capture and
reporting), and the processes developed for delivering media campaigns to
clients. By delivering features unique to individual markets, such as
advertising, corporate communications, and customer service, StreamHQ(TM)
services are differentiated from the generic services delivered by competitors.
USA Video's Store and Forward VoD Patent (#5,130,792) explicitly covers the rich
media delivery model that is becoming more widely accepted as a means of
delivering content for education, training, and entertainment; that is,
faster-than-real-time download to computer and set-top box hard drives for
subsequent content viewing without quality limitations resulting from
insufficient or variable bandwidth. The impact of this patent becomes more
significant as content owners and those that facilitate content delivery adopt
this model.
The objective of USA Video's patent-pending digital fingerprinting technology is
to deter digital video piracy once a user has been authorized to view the video.
This is one of the major concerns preventing content owners from committing more
of their content to the digital medium. Digital fingerprinting augments
traditional digital rights management techniques, which primarily focus on
encrypted video delivery and authorization to view. The digital fingerprint is
rendered at the player as part of an authorized video stream and contains
sufficient data to track a specific streaming event should the content be
pirated and distributed.
PRODUCTS AND SERVICES
Streaming media delivery services
In 2000, USA Video identified an emerging market for global media streaming
services, which the Company developed under the brand "StreamHQ(TM)".
StreamHQ(TM) allows corporate, educational, entertainment, and other types of
business or institutional customers to use the Internet or an intranet to
deliver rich media content to target audiences without having to buy, operate,
and maintain a hardware system. StreamHQ(TM) is a customized, turnkey, streaming
media support service. By offering business and other customers a complete
source-to-destination service that consolidates web, streaming, and data
management functionalities, StreamHQ(TM) eliminates the need for customers to
deal with multiple service providers.
StreamHQ(TM) services range from source to viewing and include:
- - content production;
- - content encoding;
- - media asset management, including streaming schedules and viewing
entitlements;
- - media and application hosting, multi-mode content distribution
("centralized streaming") using existing Internet services to route video
to the user;
- - "edge streaming" through video file transfers to a content distribution
network ("CDN");
- - "inside streaming" that places video files on cache and streaming servers
located within a corporate or institutional LAN; and
- - transaction data capture and reporting.
5
In order to provide StreamHQ(TM) customers with a high level of service
availability and reliability, together with an efficient and cost-effective
media streaming process, USA Video has entered into arrangements with top ranked
providers of data storage (EMC Corp.), a Tier 1 Internet data center (AT&T), and
a CDN (Speedera Networks). Furthermore, redundancy, fail over, and security are
important system design components that provide added value to clients.
A key service differentiator is user transaction data management, which consists
of capture, analysis, and reporting of statistical data that enables the content
owner to obtain important feedback on the effectiveness of campaigns. This data
includes network performance and utilization statistics, including bandwidth
utilization, number of streaming sessions, streaming rates, video quality and
packets lost; total number of times the video was viewed; distribution of users
who viewed various portions of the video; information on times of media access,
length of time media was viewed, and actions taken during viewing (pause, stop,
rewind, etc.). The same data can be used by USA Video to monitor the performance
of the StreamHQ(TM) system and delivery network. Additional StreamHQ(TM)
features include the ability to analyze usage by location; the percentage of
users who forwarded the video to other people; the percentage of users who
received and viewed the forwarded video email; and categorization of users by
operating system, browser type, and connection speed. Additional functionality
can be customized to meet specific customer requirements.
The StreamHQ(TM) infrastructure is hosted at AT&T's midtown-Manhattan Internet
data center ("IDC"). USA Video publishes content and monitors operations from
its operations center in Mystic, Connecticut, allowing services to be delivered
and maintenance to be performed without excessive travel requirements.
Aside from quality streaming, USA Video's overriding goal in its StreamHQ(TM)
development and deployment has been to give customers media asset management
features, tools, and information that provide accountability for their streaming
expenditures. To that end, the Company has developed and is currently selling
products that provide such a return on the customer's investment. Zmail is a
rich media email tool that allows businesses, institutions, and organizations to
communicate multi-media messages to targeted audiences via the Internet and to
receive prompt, valuable feedback on the effectiveness of their communication
campaigns. Zmail is an opt-in communication method, whereby the recipient is
directed to a web-landing page containing an embedded media player and links to
amplifying information about the media subject. All user actions within the
page are captured, aggregated, and provided to the customer as intuitive
statistical and trend reports. Similar to Zmail, mediaClix(TM) offers a similar
landing page and media content; however, access is from a client's existing web
presence rather than an opt-in email.
Many of USVO's competitors are burdened with huge infrastructures for content
delivery and, with the recent economic downturn, are having difficulty finding
customers to utilize it. On the other hand, USA Video has taken a very austere
approach to system deployment, focusing exclusively on the head-end portion of
the rich media delivery architecture. Also, as a highly modular infrastructure
that uses appliance-like, functionally specific components, StreamHQ(TM) is
highly scalable. The system has been initially scaled to accommodate a day-one
client base, in terms of storage, streaming, web, database, and bandwidth
components. As this client base increases, StreamHQ(TM) can be scaled with ease
and efficiency by simply adding one or more functional components. To minimize
the amount of system support that is required, USA Video has built redundancy,
fail-over, and security into the StreamHQ(TM) infrastructure to facilitate a
straightforward maintenance approach.
Media distribution systems
As a unique system and service that integrates web, database, and streaming
components within a single homogeneous system, the proprietary architecture,
software, and processes for delivering service represent significant
intellectual property for USA Video. StreamHQ(TM), as a system and collection
of intellectual property, can offer the same advantages to other corporations,
infrastructure providers, or managed Internet service providers. The meticulous
documentation of every step in building the system allows the entire
infrastructure, with all its capabilities, to be replicated expeditiously and
with precision. USA Video is actively seeking qualified customers, such as
Fortune 500 companies, governments, and educational institutions, as clients for
6
custom StreamHQ(TM) systems. Such sales would include hardware and assembly,
software customization, licensing of intellectual property, deployment, and
ongoing support.
CUSTOMERS AND MARKETS
USA Video's customer and market focus is the business-to-business sector, rather
than the consumer sector, because of the financial wherewithal of businesses to
purchase value-added StreamHQ(TM) services and/or systems. USA Video has first
targeted corporations and institutions that can derive a marketing advantage
from the Zmail or mediaClix(TM) service, specifically companies that can benefit
from a strong call to action embedded in an engaging rich media and web
presentation directed at a target audience. Such a call to action can be to:
o Attend a movie,
o Register for a conference,
o Contribute to a non-profit organization,
o Buy a product,
o Sign up for premium services, or
o Vote for a particular outcome in an election.
Correspondingly, USA Video's customers for these services have included:
o Film companies,
o Event promoters,
o Ministries,
o Travel companies,
o Sports entertainment centers, and
o Political candidates.
USA Video's customers for these services can also be any business or
organization that is dissatisfied with response rates from traditional email
campaigns or who have no idea what the response rate is. Additionally, any
client who wants to increase brand or product awareness in a more cost effective
manner than television advertising would be an appropriate candidate for these
services.
The Company is currently expanding the email component of these services to
provide a comprehensive on-line marketing management capability so that
customers will consider USA Video their sole source for meeting email marketing
requirements. This system will deliver an integrated set of services for
gathering email addresses, initiating, monitoring, and reporting on multiple
campaigns, and managing and building client email lists.
As USA Video expands the customer base in the advertising and marketing sector,
the Company is expanding its products and capabilities to market its services in
the following additional business areas:
Target Market Segment Business Activity Supported
--------------------- ----------------------------
Corporate Communications Customer relations
Employee communications
Investor relations
Public relations
Customer Service Targeted customer support
As StreamHQ(TM) is developed to add other levels of functionality and to support
additional business activities, the Company anticipates marketing its media
delivery services to the following market segments as follows:
7
Education - includes colleges, universities, and elementary and high schools
where video can be delivered to classrooms or offices and viewed on desktop
computers or television. With instant digital access to enormous libraries of
content, which may be located on or off site, instructors will be able to create
specialized video programs that students may access at their convenience. The
current, less efficient method of copying, mailing and logging videotapes can be
replaced. StreamHQ(TM)'s inside streaming functionality will enable education
customers to stream large files without interfering with the ordinary use of
their Internet connections.
Entertainment - includes movies, live and archived events, broadcast news,
weather and home consumer programming that can be accessed at the user's
convenience, thus eliminating the time restrictions and limited choices of cable
television and pay-per-view television. StreamHQ(TM)'s meta data and transaction
data management and reporting functionalities can provide content owners with
detailed information regarding their customers' viewing habits, as well as
providing security against unauthorized viewing.
Training - includes corporate and motivational training procedures and other
instructional materials used in various fields, including medicine, architecture
and design, and construction. Corporations and government entities will be able
to track and verify that training materials have been viewed by the appropriate
employees, while allowing employees to access training materials at their
convenience and at remote locations (e.g., from home).
USA Video's marketing plan involves partnering with major solutions and services
providers in the industry in order to augment the offerings of these companies
with USA Video's unique services and solutions and to leverage their sales and
distribution channels.
The Company is expanding its in-house and external sales forces for direct
marketing to potential customers. The Company relies primarily on electronic
on-line marketing collateral, not-cost media exposure, customer testimonials,
and its own Zmail campaigns to increase awareness of its services and products.
COMPETITION
USA Video competes in the streaming media delivery market. This market is
characterized by rapid growth, converging technologies, and frequent upgrades to
new solutions that offer superior advantages. There are numerous vendors in each
product and service category, but USA Video believes that only a relatively
small number of competitors currently offer a package of consolidated
"source-to-destination" services for delivering digital media and few, if any,
provide unique value propositions to individual markets. USA Video expects that
the overall number of competitors providing niche product solutions will
increase due to the market's attractive growth potential. On the other hand, the
Company expects the number of vendors supplying end-to-end networking solutions
will not significantly increase for the foreseeable future due to the
technological difficulties and costs in developing complete systems. The market
is currently dominated by a small number of larger companies including Real
Networks, Microsoft (via its Windows Media Player), Yahoo, Akamai, and several
others, some of which offer end-to-end streaming media solutions.
USA Video believes that the principal competitive factors in the markets in
which the Company presently competes and may compete in the future are:
o Price;
o Product performance;
o Time to market;
o The ability to tailor end-to-end streaming solutions for specific business
vertical markets;
8
o The ability to provide value-added features such as security and
reliability; and
o Market presence.
Most of USA Video's current competitors have, and most potential competitors are
expected to have, greater financial, marketing, and technical resources than the
Company. The Company also faces competition from customers to whom it is seeking
to license its technology, and from suppliers of some of its technology. The
Company must cooperate and at the same time compete with these companies. The
Company's inability to effectively manage these complicated relationships with
customers and suppliers could have a material adverse effect on the Company's
business, operating results, and financial condition.
ASSEMBLY
The Company assembles its hardware systems - whether the system is for sale to a
customer or for the purpose of supporting streaming media delivery services -
from components manufactured by others. The Company's technical staff specifies,
procures, assembles, tests and deploys the various system components according
to a precisely developed set of procedures. The Company also consults, on an
as-needed basis, with companies that supply the major components of its systems.
USA Video's in-house software development team creates programs and configures
products to meet a wide variety of individual customer requirements.
RESEARCH AND DEVELOPMENT
Prior to 1999, USA Video conducted seven years of research and development of
its proprietary VoD technology. In 1999, USA Video's focus shifted to marketing
and sales of its products and services, with research and development directed
primarily at supporting sales and development of Wavelet compression technology.
In 2000, the Company devoted substantial resources to development of its
StreamHQ(TM) services and began development of its proprietary still and motion
Wavelet technology, which has been completed as mathematical processes. In
2001, the Company redirected the Wavelet development effort toward the invention
of a content protection technology that is grounded in similar science as
Wavelet compression. The result is the Company's patent-pending digital
fingerprinting technology for piracy deterrence.
The industry in which USA Video competes is subject to rapid technological
developments, evolving industry standards, changes in customer requirements, and
frequent new product introductions and enhancements. As a result, the Company's
success, in part, depends upon its ability, on a cost-effective and timely
basis, to continue to enhance its existing solutions and to develop and
introduce new solutions that improve performance. In order to achieve these
objectives, the Company's management and engineering personnel work closely with
customers to identify and respond to customer needs, as well as with other
innovators of inter-networking products. Despite USA Video's efforts, there can
be no assurance that it will be able to successfully develop new products to
address new customer requirements and technological changes, or that such
products will achieve market acceptance.
In fiscal 2001, 2000, and1999, the Company's research and development
expenditures were approximately $999,000, $620,000,and $93,000, respectively.
INTELLECTUAL PROPERTY
USA Video's success is dependent, in part, upon its proprietary technology. The
Company generally relies upon patents, trademarks, and trade secret laws to
establish and maintain its proprietary rights in its technology products and
services.
USA Video applied for a U.S. patent for its Store and Forward VoD technology on
February 1, 1990. Corresponding overseas applications were filed in several
countries in 1992. USA Video was granted U.S. Patent #5,130,792 in July 1992. In
June 2000, the U.S. Patent Office reinstated the patent, which had expired
9
because of an administrative oversight that led to late payment of fees due in
1995.
On February 10, 1999, USA Video was granted patents on its Store and Forward VoD
technology in five European countries: England, France, Germany, Italy and
Spain. The technological characteristics of the European Patents are based on
the U.S. Patent, covering systems for transmitting video programs to remote
locations over a switched telephone network, and are similar in scope to the
U.S. patent claims.
On June 12, 2000 USA Video was granted a patent by the Canadian Intellectual
Property office - Canadian Patent No. 2,064,111 Video Communication System. The
technological characteristics of the Canadian patent covering systems for
transmitting video programs from a first location to remote locations providing
for communication of the programs over selected commercial telephone networks.
An additional patent application is pending in Japan.
On June 19, 2001, United States Patent Application No. 09/884,787, Method and
Apparatus for Digitally Fingerprinting Videos, was officially filed with the
U.S. Patent and Trademark Office.
There can be no assurance that USA Video's current or future patents, if any,
will not be challenged, invalidated, or circumvented, or that any rights granted
thereunder will provide competitive advantages to the Company. In addition,
there can be no assurance that patents will be issued from pending applications,
or that claims allowed on any future patents will be sufficiently broad to
protect USA Video's technology. In addition, the laws of some foreign countries
may not permit the protection of USA Video's proprietary rights to the same
extent as do the laws of the United States. USA Video intends to enforce its
proprietary rights through the use of licensing agreements and, when necessary,
litigation. Although USA Video believes the protection afforded by its patents,
patent applications, and trademarks has value, the rapidly changing technology
in the video transmission industry makes the Company's future success dependent
primarily on the innovative skills, technological expertise, and management
abilities of its employees rather than on patent and trademark protection.
EMPLOYEES
As of March 26, 2002, the Company employed twenty people, including its two
senior executive officers, eight technology personnel, three finance and
administration personnel, and seven sales and marketing personnel. The Company
considers the relationships with its employees to be good. The Company has not
experienced any work stoppages.
Competition for technical personnel in the industry that USA Video competes is
intense. The Company's future success will depend, in part, on its continued
ability to hire, assimilate, and retain qualified personnel. To date, USA Video
believes it has been successful in recruiting qualified employees, but there is
no assurance that the Company will continue to do so in the future.
RISK FACTORS
Set forth below and elsewhere in this Report are risks and uncertainties that
could cause actual results to differ materially from the results contemplated by
the forward-looking statements contained in this Report.
THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE ITS
BUSINESS AND PROSPECTS.
USA Video has a very limited operating history. The Company has made only
limited sales of its products and services and was in the development stage
through December 31, 1999. USA Video's business and prospects must be considered
in light of the risks encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets such as
streaming media. Some of these risks relate to the Company's ability to:
o maintain or develop relationships with suppliers and marketing partners;
o continue to expand its customer base and generate repeat business from
existing customers;
o continue to develop and upgrade its technology, products and services;
o provide superior customer service;
10
o respond to competitive developments; and
o retain and motivate qualified personnel.
THE COMPANY HAS INCURRED SUBSTANTIAL LOSSES; IT EXPECTS TO INCUR LOSSES IN THE
FUTURE, AND MAY NEVER ACHIEVE PROFITABILITY.
To date, USA Video has not been profitable, has not generated significant
revenue from operations, and has incurred substantial losses. For the year ended
December 31, 2001, USA Video had a net loss of $3,760,821. As of December 31,
2001, the Company had an accumulated deficit of $29,063,303 and a working
capital deficit of $828,530. The Company intends to continue to expend
significant financial and management resources on the development of its
proposed products and services, and other aspects of its business. As a result,
the Company expects operating losses and negative cash flows to increase for the
foreseeable future. Consequently, USA Video will need to significantly increase
its revenues to achieve and maintain profitability. The Company may be unable to
do so. If USA Video's revenues grow more slowly than anticipated or if operating
expenses increase more than expected, or are not reduced sufficiently, it may
never achieve profitability. Because of factors discussed in this paragraph, USA
Video's auditors, in their report on the Company's financial statements, have
expressed substantial doubt concerning the Company's ability to continue as a
going concern.
IF USA VIDEO IS UNABLE TO OBTAIN SUBSTANTIAL ADDITIONAL FINANCING IT MAY NOT BE
ABLE TO REMAIN IN BUSINESS.
USA Video requires substantial working capital to fund its business. The Company
has had significant operating losses and negative cash flow from operations
since inception of its current business and expects to continue to do so for the
foreseeable future. The Company's capital requirements will depend on several
factors, including the rate of market acceptance of its products and services,
the ability to establish and expand a client base and the growth and
effectiveness of its sales and marketing efforts. USA Video estimates it will
require from $3.0 to $3.5 million in financing to meet its working capital needs
over the remainder of 2002 and substantial additional financing thereafter.
Further, if capital requirements vary materially from those currently planned,
the Company may require additional financing. The Company has no arrangements or
commitments for any financing. Financing may not be available when needed on
terms favorable to the Company, or at all. If adequate funds are not available
or are not available on acceptable terms, the Company may be unable to further
develop or enhance its products and services, take advantage of future
opportunities or respond to competitive pressures, or ultimately, to continue in
business.
THE COMPANY'S OPERATING RESULTS IN FUTURE PERIODS ARE EXPECTED TO BE SUBJECT TO
SIGNIFICANT FLUCTUATIONS, WHICH WOULD LIKELY AFFECT THE TRADING PRICE OF ITS
COMMON SHARES.
USA Video's quarterly and annual operating results are likely to fluctuate
significantly in the future due to a variety of factors, many of which are
outside of its control. Some of these factors include:
o its ability to attract and retain customers;
o the introduction of new video transmission services or products by others;
o price competition;
o the continued development of and changes in the streaming media market;
o its ability to remain competitive in its product and service offerings;
o its ability to attract new personnel; and
11
o U.S. and foreign regulations relating to the Internet.
As a result of the factors listed above, and others, period-to-period
comparisons of USA Video's operating results may not be meaningful in predicting
its future performance. It is possible that the Company's operating results will
not meet market expectations in some future quarter or quarters, which would
likely result in a significant decline in its stock price.
THE STREAMING MEDIA BUSINESS IS HIGHLY COMPETITIVE, AND USA VIDEO'S FAILURE TO
COMPETE SUCCESSFULLY WOULD LIMIT ITS ABILITY TO RETAIN AND INCREASE ITS MARKET
SHARE.
The streaming media market is new, rapidly evolving and extremely competitive.
The Company expects competition to intensify in the future. The Company competes
with companies that provide all or certain aspects of the Company's services,
including other streaming media providers, content encoders, video production
companies, Internet data management companies, and others, and expects that
additional competition in the future will be provided by those types of
providers and others. The Company's current market share is insignificant.
The video streaming market is currently dominated by a small number of larger
companies, including Real Networks, Microsoft, Yahoo, Akamai and several others,
some of which offer source-to-destination streaming media solutions. Most of USA
Video's current and potential competitors have longer operating histories,
larger customer bases, greater name recognition and significantly greater
financial, marketing and other resources than the Company. In addition, larger,
well-established and well-financed entities may acquire, invest in or form joint
ventures with online competitors as the use of the Internet and other online
services increases. In addition, new technologies and the expansion of existing
technologies are expected to result in additional competition.
USA Video may not be able to compete successfully against current and future
competitors, and any inability to do so could decrease its revenues, contribute
to the Company not achieving profitability and adversely affect is ability to
establish, maintain and increase its market share.
THE MARKET FOR USA VIDEO'S PRODUCTS AND SERVICES IS RELATIVELY NEW AND IS
EVOLVING, AND THE COMPANY'S SUCCESS WILL DEPEND ON ITS ABILITY TO ADAPT TO
CHANGING MARKET CONDITIONS.
USA Video's future financial performance will depend in large part on the growth
in demand for its streaming media services and products. This market is new and
emerging, is rapidly evolving, is characterized by an increasing number of
market entrants and will be subject to frequent and continuing changes in
customer preferences and technology. As is typical in new and evolving markets,
demand and market acceptance for the Company's products and services is subject
to a high level of uncertainty. Because the market for the Company's products is
evolving, it is difficult to assess or predict with any assurance the size or
growth rate, if any, of this market. There can be no assurance that a
significant market for the Company's products will develop, or that it will
develop at an acceptable rate or that new competitors will not enter the market.
In addition, even if a significant market develops for such products, there can
be no assurance that the Company's products will be successful in such market.
If a significant market fails to develop, develops more slowly than expected or
attracts new competitors, or if USA Video's products do not achieve market
acceptance, the Company's business prospects, financial condition and results of
operations will be materially adversely affected.
USA VIDEO IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD RENDER THE
COMPANY'S PRODUCTS AND SERVICES OBSOLETE.
USA Video's future success will depend in part on its ability to offer products
and services that incorporate leading technology and address the increasingly
sophisticated and varied needs of its current and prospective customers. The
Company's market is characterized by rapidly changing and unproven technology,
evolving industry standards, changes in customer needs, emerging competition and
12
frequent new service introductions. Future advances in technology may not be
beneficial to or compatible with USA Video's business. In addition, the Company
may not be able to incorporate technological advances into its products and
services in a cost-effective and timely basis. Keeping pace with the
technological advances may require substantial expenditures and lead time,
particularly with respect to acquiring updated hardware and infrastructure
components of its systems. The Company may require additional financing to fund
such acquisitions. Any such financing may not be available on commercially
reasonably terms, if at all, when needed.
USA VIDEO IS DEPENDENT UPON VENDORS AND OTHER THIRD PARTY SERVICE PROVIDERS, AND
WILL BE COMPETING WITH SOME OF THESE COMPANIES.
USA Video is, and will continue to be dependent on vendors and other providers
to supply the hardware, software and co-location resources that comprise the
Company's products and services. The Company has no long-term or exclusive
contracts or arrangements with any of these vendors or providers. The Company
cannot be certain that its current and proposed vendors and service providers
will continue to do business with the Company, or that it will be able to
establish relationships with new vendors and service providers, if necessary. If
the Company is unable to establish and maintain satisfactory relationships and
arrangements with these third parties, the Company's business could be harmed.
In addition, USA Video will be dependent upon its third party vendors and other
suppliers to adequately test their products before release, and to provide
support for the products after delivery. The failure of any of these third party
providers to do so could have a material adverse effect on USA Video's business.
Further, USA Video currently competes with, and expects to compete with in the
future, providers of some of its technology or system components. USA Video's
inability to, at the same time, effectively cooperate and compete with these
companies could harm its business.
IF USA VIDEO DOES NOT CONTINUOUSLY IMPROVE ITS TECHNOLOGY IN A TIMELY MANNER,
ITS PRODUCTS COULD BE RENDERED OBSOLETE.
The markets for USA Video products and services are characterized by:
o rapidly changing technology;
o evolving industry standards;
o frequent new product and service introductions; and
o changing customer demands.
These changes and developments may render the Company's products and
technologies obsolete in the future. As a result, the Company's success depends
on its ability to adapt to these changes, particularly to develop or adapt
products and services or to acquire new products and services that can compete
successfully. There can be no assurance that USA Video will be successful in
these efforts.
USA VIDEO'S SERVICES ARE COMPLEX AND THE COMPANY MAY NOT BE ABLE TO PREVENT
DEFECTS THAT COULD DECREASE THEIR MARKET ACCEPTANCE, RESULT IN PRODUCT LIABILITY
OR HARM ITS REPUTATION.
USA Video's streaming media products services are complex, and the steps the
Company takes to ensure that they are free of errors or defects, particularly
when first introduced or when new versions or enhancements are released, may not
be successful. USA Video cannot guarantee that current versions or enhanced
versions or its products will be free of significant software defects or bugs.
Despite the Company's testing, and testing by its third-party vendors and
providers, current or future products may contain serious defects. Serious
defects or errors could result in lost revenue or a delay in market acceptance
of the Company's products and could seriously harm its business and operating
results. Errors in its products may be caused by defects in third-party hardware
13
or software incorporated into its products. If so, the Company may be unable to
fix these defects without the cooperation of these third-party providers.
Because these defects may not be as significant to these providers as they are
to USA Video, the Company may not receive the rapid cooperation that it may
require. Errors, defects or other performance problems with the Company's
products could also harm its customers' businesses or result in potential
product liability claims. Even if unsuccessful, a product liability claim
brought against USA Video would likely be time-consuming, costly and harmful to
its reputation. Nor can there be any assurance that the Company's product
liability insurance coverage will be sufficient to satisfy any successful claim.
USA VIDEO'S BUSINESS WILL BE HARMED IF IT FAILS TO MANAGE ITS GROWTH AND
EXPANSION.
USA Video must manage its growth effectively in order to successfully sell its
products and services and achieve revenue growth and profitability in a rapidly
evolving market. USA Video has expanded its operations substantially since
inception of its current business. The Company anticipates continued expansion
of its operations to pursue existing and potential market opportunities. USA
Video's rapid growth has placed and will continue to place significant demands
on its management and operational resources. To be successful, the Company will
need to:
o implement additional management information systems;
o improve its operational, financial and management controls;
o hire, train and retain new employees; and
o coordinate its executive, engineering, professional services, accounting,
finance, marketing, sales and operations organizations.
USA Video's growth has resulted, and any future growth will result, in increased
responsibilities for management personnel, some of whom have been employed by
the Company for relatively short periods of time.
In addition, USA Video may not adequately anticipate all the demands that growth
may impose on its systems, procedures and organizational structure. Any failure
to anticipate and respond adequately to these demands or manage its growth
effectively would harm its business.
ANY LOSS OF THE COMPANY'S PERSONNEL OR INABILITY TO ADD NEW PERSONNEL COULD HARM
THE COMPANY'S BUSINESS.
USA Video's future success depends significantly on the continued services and
performance of its senior management. The Company's performance also depends on
its ability to retain and motivate its other key personnel. The loss of the
services of any member of USA Video's senior management team or other key
employees could cause significant disruption in the Company's business. USA
Video has no long-term employment agreements with senior management and does not
currently maintain any "key person" life insurance. The Company's future success
also depends on its ability to identify, attract, hire, train, retain and
motivate other highly skilled technical, managerial, operations, sales and
marketing and customer service personnel. Competition for such personnel is
intense, and USA Video may not successfully attract, assimilate or retain
sufficiently qualified personnel. The failure to retain and attract the
necessary personnel could impede the Company's future success.
14
BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF USA
VIDEO'S REVENUE, IF IT LOSES A MAJOR CUSTOMER, ITS REVENUE COULD SUFFER.
One customer accounted for approximately 61% of USA Video's revenue for the year
ended December 31, 2001. The Company expects a small number of customers will
continue to account for a substantial portion of its revenue for the foreseeable
future. USA Video's inability to increase the number of its customers or the
loss of any one major customer could limit the Company's ability to maintain or
increase its market share, or could cause revenue to drop quickly and
unexpectedly.
USA VIDEO'S BUSINESS MAY SUFFER IF IT CANNOT PROTECT ITS INTELLECTUAL PROPERTY.
USA Video seeks to protect its proprietary rights through a combination of
patents, trade secret and trademark laws, confidentiality procedures and
contractual provisions with employees and third parties. Despite its efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or obtain and use information that it considers as
proprietary. Litigation may be necessary to enforce USA Video's intellectual
property rights, to protect its trade secrets and to determine the validity and
scope of the proprietary rights of others. Any litigation could result in
substantial costs and diversion of management and other resources with no
assurance of success and could seriously harm USA Video's business and operating
results.
USA VIDEO'S PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS,
CAUSE IT TO INCUR SIGNIFICANT COSTS OR PREVENT IT FROM LICENSING ITS PRODUCTS.
Other companies, including USA Video's competitors, may have or obtain patents
or other proprietary rights that would prevent, limit or interfere with the
Company's ability to make, use or license its products. The Company cannot be
certain that its products do not and will not infringe patents or other
proprietary rights of others. USA Video may be subject to legal proceedings,
including claims of alleged infringement by it of the intellectual property
rights of third parties. If a successful claim of infringement is brought
against USA Video and it fails to or is unable to license the infringed
technology on commercially reasonable terms, the Company's business and
operating results could be significantly harmed. Companies in the technology
market are increasingly bringing suits alleging infringement of their
proprietary rights, particularly patent rights. Although USA Video is not
currently subject to any litigation or claims, any future claims, whether or not
valid, could result in substantial costs and diversion of resources with no
assurance of success. Intellectual property litigation or claims could force USA
Video to do one or more of the following:
o cease selling, incorporating or using products or services that incorporate
the challenged intellectual property;
o obtain a license from the holder of the infringed intellectual property
right, which license may not be available on commercially reasonable terms,
or at all; or
o redesign it products or services.
If USA Video is forced to take any of these actions, its business could be
substantially harmed.
USA VIDEO'S INFRASTRUCTURE AND SYSTEMS ARE SUSCEPTIBLE TO NATURAL DISASTERS AND
OTHER UNEXPECTED EVENTS, AND THE OCCURRENCE OF ANY OF THESE EVENTS COULD AFFECT
ITS ABILITY TO OPERATE ITS BUSINESS.
USA Video's video streaming services will be provided, in large part, from its
offices located in southeastern Connecticut. A major equipment failure or a
natural disaster affecting this location could impair the Company's ability to
15
operate its business, which could also severely disrupt its operations. USA
Video currently does not have a formal disaster recovery plan or an alternative
provider of services. Additionally, the Company currently does not carry
business interruption insurance to compensate it for any losses that it may
sustain.
USA VIDEO'S SHARE OWNERSHIP IS CONCENTRATED IN CERTAIN SHAREHOLDERS, WHICH COULD
MAKE MORE DIFFICULT OR PREVENT A CHANGE IN CONTROL OR OTHER TRANSACTIONS.
The interest of management could conflict with the interest of USA Video's other
shareholders. USA Video's executive officers, directors and principal
shareholders beneficially own, assuming the exercise of all options and warrants
held by them, an aggregate of 18.58% of the Company's outstanding common shares.
As a result, these shareholders will be able to exercise greater control over
all matters requiring shareholder approval than other shareholders, including
the election of directors and approval of significant corporate transactions.
This could have the effect of delaying or preventing a change of control of USA
Video, and make some transactions more difficult or impossible without the
support of these shareholders, including proxy contests, mergers, tender offers,
and open-market share purchase programs that could give the Company's
shareholders the opportunity to realize a premium over the then-prevailing
market price for the common shares, which in turn could reduce the market price
of the Company's shares.
USA VIDEO'S SUCCESS DEPENDS ON THE CONTINUED GROWTH IN DEMAND FOR E-BUSINESS
APPLICATIONS.
USA Video's primary business strategy involves the development of products and
services that enable users to transmit video over the Internet. As a result, its
future sales and any future profits will be substantially dependent upon the
widespread acceptance and use of the Internet as an effective medium of business
by consumers and businesses. To be successful, consumers and businesses that
historically have used traditional means of commerce to transact business must
continue to accept and utilize the Internet as a medium for conducting business
and exchanging information. Consumers and businesses may reject the Internet as
a viable commercial medium for a number of reasons, including potentially
inadequate network infrastructure, slow development of enabling technologies,
insufficient commercial support and privacy concerns. In addition, delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity or increased government regulation could
cause the Internet to lose its viability as a commercial medium. If the demand
for e-business applications does not grow or grows more slowly than expected,
demand for USA Video's products and services would be reduced and its revenue
would suffer.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS AND
RISKS TO DOING BUSINESS ON THE INTERNET AND COULD HARM THE COMPANY'S BUSINESS.
USA Video is not currently subject to direct regulation by any governmental
agency, other than regulations applicable to businesses generally, export
control laws and laws or regulations directly applicable to electronic commerce.
However, due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet covering issues such as: user privacy, pricing, content,
copyrights, distribution, and characteristics and quality of products and
services.
Furthermore, the growth and development of the market for electronic commerce
may prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of additional laws or regulations may decrease the growth of the Internet or
other online services, which could, in turn, decrease the demand for the
Company's products and services and increase its cost of doing business.
The applicability to the Internet of existing laws governing issues such as
property ownership, copyrights, encryption and other intellectual property
issues, taxation, libel, export or import matters, obscenity and personal
privacy is uncertain. The vast majority of such laws were adopted prior to the
16
advent of the Internet and related technologies. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes to such laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the Internet
marketplace. Such uncertainty could reduce demand for the Company's products and
services or increase the cost of doing business due to increased costs of
litigation or increased service delivery costs.
THE COMPANY'S SHARE PRICE HAS BEEN AND COULD BE HIGHLY VOLATILE, WHICH COULD
RESULT IN SUBSTANTIAL LOSSES TO INVESTORS.
The trading price of the Company's common shares has been and is likely to
continue to be highly volatile and could be subject to wide fluctuations in
response to a number of factors including: variations in quarterly operating
results; new products or services offered by the Company or its competitors;
conditions or trends in the Internet and online commerce industries; changes in
the economic performance and/or market valuations of other Internet and online
service companies; and other events or factors, many of which are beyond the
Company's control. In addition, the stock market in general, and the market for
Internet-related and technology companies in particular, has experienced extreme
price and volume fluctuations, including large price drops in 2000 and 2001,
that have often been unrelated or disproportionate to the operating performance
of such companies. These broad market and industry factors may materially
adversely affect the market price of the Company's common shares, regardless of
the Company's actual operating performance. 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 companies. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources.
ANTI-TAKEOVER PROVISIONS IN USA VIDEO'S CHARTER DOCUMENTS COULD PREVENT OR DELAY
A CHANGE IN CONTROL OF THE COMPANY.
USA Video's Articles of Continuance and bylaws contain anti-takeover provisions
that could discourage, delay or even prevent an acquisition of the Company at a
premium price or at all. Any of these provisions might prevent the market price
of the USA Video common shares from increasing in response to takeover attempts,
and could prevent the Company's shareholders from realizing a premium over the
then-prevailing market price for the common shares.
USA VIDEO INTENDS TO ISSUE ADDITIONAL EQUITY SECURITIES, WHICH MAY DILUTE THE
INTERESTS OF CURRENT SHAREHOLDERS OR CARRY RIGHTS OR PREFERENCES SENIOR TO THE
COMMON SHARES.
USA Video intends to issue additional equity securities in order to raise
working capital. Accordingly, existing shareholders may experience additional
dilution of their percentage ownership interest in the Company. In addition, the
new equity securities may have rights, preferences or privileges senior to those
of existing holders of the Company's common shares.
LIMITED LIABILITY OF EXECUTIVE OFFICERS AND DIRECTORS MAY DISCOURAGE
SHAREHOLDERS FROM BRINGING A LAWSUIT AGAINST THEM.
USA Video's bylaws contain provisions that limit the liability of directors for
monetary damages and provide for indemnification of officers and directors.
These provisions may discourage shareholders from bringing a lawsuit against
officers and directors for breaches of fiduciary duty and may also reduce the
likelihood of derivative litigation against officers and directors even though
such action, if successful, might otherwise have benefited the shareholders. In
addition, a shareholder's investment in USA Video may be adversely affected to
the extent that costs of settlement and damage awards against officers or
directors are paid by USA Video pursuant to the indemnification provisions of
the bylaws.
17
REQUIREMENTS OF THE SEC WITH REGARD TO LOW-PRICED "PENNY STOCKS" MAY ADVERSELY
AFFECT THE ABILITY OF SHAREHOLDERS TO SELL THEIR SHARES IN THE SECONDARY MARKET.
"Penny stocks" are low-priced, and usually highly speculative, stock selling at
less than $5.00 per share. USA Video's securities are subject to Rule 15g-9
under the Securities Exchange Act of 1934, which imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and "accredited investors" (generally, an
individual with a net worth in excess of $1,000,000 or an annual income
exceeding $200,000, or $300,000 together with his or her spouse). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. The rule also requires the
delivery, prior to the transaction, of a risk disclosure document mandated by
the SEC relating to the penny stock market. The broker-dealer must also disclose
the commissions payable for the transaction, current quotations for the stock,
and, if applicable, the fact that it is the sole market maker in the stock.
Consequently, the rule may adversely affect the ability of broker-dealers to
sell USA Video's securities and may adversely affect the ability of shareholders
to sell their shares in the secondary market.
USA VIDEO DOES NOT ANTICIPATE PAYING DIVIDENDS TO SHAREHOLDERS IN THE
FORESEEABLE FUTURE.
USA Video has not paid dividends on its common shares and intends, for the
foreseeable future, to invest any earnings in the further development of its
business. Accordingly, shareholders should not expect to receive any dividends
on their shares.
ITEM 2. PROPERTIES.
USA Video headquarters and executive offices are located in Mystic, Connecticut.
USA Video leases 1,116 square feet for an annual base rent of $20,400. The lease
expired in 2000, and the Company occupies the facility on a month-to-month
basis.
USA Video leases an additional 1,547 square feet of office space in Mystic,
Connecticut at an annual base rent of $18,108. The lease expired in 2000, and
the Company occupies the facility on a month-to-month basis.
USA Video also leases 600 square feet of office space located in Mystic,
Connecticut, on a month-to-month basis at a monthly rent of $800.
USA Video also leases 147 square feet of office space located in Mystic,
Connecticut, on a month-to-month basis at a monthly rent of $320.
USA Video also leases 800 square feet of office space located in Vancouver,
British Columbia, on a month-to-month basis at a monthly rent of $1,780.
USA Video believes that it will require additional space to accommodate its
expanding operations. The Company is currently seeking to lease new facilities
in the southeastern Connecticut area in which to consolidate the activities of
its two present offices in Mystic, Connecticut. The Company believes that
adequate space is available in this area at commercially reasonable rates.
ITEM 3. LEGAL PROCEEDINGS.
USA Video is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year covered by this report.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is a limited public market for the common shares of the Company. The
common shares trade on the Canadian Venture Exchange (the "CDNX") (under the
symbol "US"), and on the NASD OTC Bulletin Board (under the symbol "USVO"). From
May 3, 2000 through August 28, 2000, the common shares were traded in the pink
sheets published by the National Quotation Bureau.
The following table shows the high and low sales prices (in Canadian dollars) of
the common shares as reported by the CDNX for the periods indicated.
Canadian Venture Exchange
(Symbol "US")
Quarter High Low
- ------- ---- ---
($CAN) ($CAN)
First Quarter 2000 15.00 1.25
Second Quarter 2000 6.90 2.06
Third Quarter 2000 5.20 3.52
Fourth Quarter 2000 4.25 0.72
First Quarter 2001 2.60 0.70
Second Quarter 2001 1.19 0.62
Third Quarter 2001 0.85 0.35
Fourth Quarter 2001 0.67 0.33
The following table shows the high and low prices of the common shares on the
NASD OTC Bulletin Board (and in the pink sheets for the period May 3, 2000 to
August 28, 2000). The following quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions:
OTC Bulletin Board/Pink Sheets
(Symbol "USVO")
Period High Low
- ------ ---- ---
($US) ($US)
First Quarter 2000 10.25 0.85
Second Quarter 2000 4.969 1.315
Third Quarter 2000 4.35 2.06
Fourth Quarter 2000 2.844 0.375
First Quarter 2001 7.74 0.47
Second Quarter 2001 0.77 0.38
Third Quarter 2001 0.60 0.22
Fourth Quarter 2001 0.4125 0.21
19
As of March 26, 2002, there were 91,745,088 common shares outstanding, held by
1,270 shareholders of record.
To date, the Company has not paid any dividends on its common shares and does
not expect to declare or pay any dividends on such common shares in the
foreseeable future. Payment of any dividends will depend upon future earnings,
if any, the financial condition of the Company, and other factors as deemed
relevant by the Company's Board of Directors.
All sales of securities made by USA Video during the year ended December 31,
2001 that were not registered under the Securities Act have been disclosed in
USA Video's reports on Form 10-Q for the periods ended March 30, 2001, June 30,
2001 and September 30, 2001. The sales did not involve the use of an underwriter
and no commissions were paid in connection with the sale of any of these
securities.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected historical financial data. The
consolidated statement of operations data for the years ended December 31, 1999,
2000 and 2001, and the balance sheet data as of December 31, 2000 and 2001 are
derived from USA Video's consolidated financial statements included elsewhere in
this report, which have been audited by Amisano Hanson (1999) and Goldstein
Golub Kessler LLP (2000 and 2001), independent auditors. The selected financial
data should be read in conjunction with USA Video's consolidated financial
statements, including the related notes, and the information in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
December 31,
Item 2001 2000 1999 1998 1997
Revenue $124,006 $638,592 $20,500 -- --
Net loss ($3,760,821) ($4,661,652) ($1,684,468) ($981,598) ($678,156)
Loss per share ($.04) ($.06) ($.03) ($.02) ($0.02)
Total assets $1,382,178 $1,744,071 $995,351 $435,232 $418,354
Long-term obligations -- -- -- -- --
Cash dividends per share -- -- -- -- --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATION.
OVERVIEW OF THE COMPANY
USA Video was a development-stage company from January 1, 1992 to December 31,
1999, during which time it engaged primarily in the development of its
end-to-end hardware systems and proprietary VoD and Wavelet compression
technologies, and had very limited sales. In 2000, the Company made the first
substantial sales of its end-to-end systems, and invested heavily in further
development of its StreamHQ(TM) streaming media services. USA Video is
transitioning its business from hardware sales to the providing of streaming
media services and expects that the design and development of the first phase of
its StreamHQ(TM) services will be completed during the second or third quarter
of 2001. The development of StreamHQ(TM) has involved technology development,
hardware and software selection and integration, and the cultivation of
partnerships with suppliers and providers of services. The continued development
and expansion of the Company's business will require ongoing investment in
back-office systems, affiliations with network service providers and others, and
increasing technical and sales/marketing staffs.
As more fully discussed below, in this Management's Discussion section of this
Report, the Company has not been profitable, and has not had significant
20
revenues. USA Video cannot predict its revenue levels for the next 12 months, or
thereafter, nor when, or if, its operations will become profitable. The
Company's expenses will continue to increase as it further develops its
technology and StreamHQ(TM) services, and increases its marketing and sales
efforts. USA Video will require additional financing, both for the remainder of
fiscal 2001 and thereafter, to continue to operate and expand its business.
There is no assurance that such financing will be available on commercially
reasonable terms, if at all.
RESULTS OF OPERATIONS
REVENUES
Revenues for the year ended December 31, 2001 ("fiscal 2001") were $124,006,
compared with $638,592 for the year ended December 31, 2000 ("fiscal 2000"). The
Company had revenues of $20,500 for the year ended December 31, 1999 ("fiscal
1999"). Approximately forty percent (40%) of revenues for fiscal 2001 were
derived from sales of the Company's hardware and software systems and
approximately sixty percent (60%) were from provision of engineering services.
The Company had one major customer who accounted for 61% of total revenues in
fiscal 2001, and three major customers who, in the aggregate, accounted for 82%
of total revenues in fiscal 2000, and one customer who accounted for all revenue
in fiscal 1999.
EXPENSES
Total expenses for fiscal 2001 were $3,892,845, compared with $5,291,663 for
fiscal 2000 and $1,598,826 for fiscal 1999. For fiscal 2001, cost of sales was
$66,770, as compared with $393,496 for fiscal 2000 and $19,199 for fiscal 1999.
Research and development costs for fiscal 2001 were $999,058, as compared to
$620,212 for fiscal 2000 and $93,337 for 1999. The increase in fiscal 2001 and
2000 was due primarily to development work on the Company's new services-based
multi-mode rich media streaming solution, StreamHQ(TM), which required
increased expenditures for manpower, equipment and software.
Selling, general and administrative expenses were $1,833,440 for fiscal 2001, as
compared with $2,599,591 for fiscal 2000, and $1,372,928 for fiscal 1999.
Selling, general and administrative expenses consisted of marketing expenses,
consulting fees, office, professional fees, and other expenses to execute the
Company's business plan and for day-to-day operations. The decreases resulted
from the Company's focus on developing products (StreamHQ(TM)). The primary
components of the decreases from fiscal 2000 to fiscal 2001 were:
- - a $284,911 decrease in fiscal 2001 in marketing expenses, as the Company
revamped marketing objectives and strategies to isolate on the release of
StreamHQ(TM) late in the third quarter. The marketing staff continues to
identify and assess appropriate market segments, develop business arrangements
with prospective partners, create awareness of new products and services, and
communicate to the industry and potential customers;
- - a decrease of $236,458 (fiscal 2001) for administrative wages and salaries and
other office expenses; and
- - a $81,203 decrease in advertising in fiscal 2001, as the Company, replaced
media advertising with an increased sales force.
Selling, general and administrative expenses consisted of marketing expenses,
consulting fees, office, professional fees, and other expenses to execute the
Company's business plan and for day-to-day operations. The substantial
year-to-year increases resulted from the Company's increased efforts to bring
products to market. The primary components of the increases fiscal 2000 to
fiscal 1999 were:
o a $496,743 increase in fiscal 2000, and a $212,590 increase in fiscal 1999, in
marketing expenses, as the Company hired additional staff and engaged in
marketing activities to identify and assess appropriate market segments, develop
21
business arrangements with prospective partners, create awareness of new
products and services, and communicate to the industry and potential customers;
o increases of $326,098 (fiscal 2000) and $239,644 (fiscal 1999) for
administrative wages and salaries and other office expenses; and
o a $221,231 increase in professional fees in fiscal 2000, as the Company, in
connection with becoming a reporting issuer in the United States, required
increased levels of accounting and legal services.
Additional expenses included depreciation and amortization of $407,880 for
fiscal 2001, compared to $224,581 for fiscal 2000 and $113,362 for fiscal 1999,
as the Company added machinery and equipment necessary for the development of
new products and services. Non-cash compensation charges for fiscal 2001 were $
585,697 and fiscal 2000 were $1,453,783, due mostly to issuance of common shares
and common share warrants to the Company's officers, directors and employees at
a price or exercise price below the market price of the common shares at the
time of issuance. Because the rules of the Canadian Venture Exchange require
that the offering price for privately placed securities of listed companies be
set when the offering is first announced rather than upon closing, the sale
price of the common shares and the exercise price of the warrants were below the
market price of the common shares on the date of issuance.
Other decreases in expenses included printing, as materials were produced
in-house, and website related expenses were performed by in-house staff.
With the release of StreamHQ(TM) the Company will expand its business, its
product development, sales and marketing, and general and administrative
expenses will continue to increase. Product development expenses will increase
as the Company adds engineering personnel to its technology and Web development
teams, and as its new technologies are integrated into its product line. Sales
and marketing expenses will increase as the Company adds business development,
sales, and marketing personnel to build business relationships and brand
awareness. Advertising and public relations expenses also will increase as the
Company grows its business. General and administrative expenses will increase as
the Company continues to build its management infrastructure, including
additional personnel, office space and internal information systems.
NET LOSSES
To date, the Company has not achieved profitability and expects to incur
substantial losses for the foreseeable future. The Company's net loss for fiscal
2001 was $3,760,821, compared with a net loss of $4,661,652 for fiscal 2000, and
$1,657,078 for fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, the Company's cash position was $104,238, a decrease of
$126,959 from December 31, 2000. The Company had a working capital deficit of
$828,530 and an accumulated deficit of $29,063,303 at December 31, 2001.
The Company's principal source of cash during fiscal 2001 was proceeds of
$3,140,303 received upon exercise of warrants and from private placements of its
equity securities. This was offset by $2,707,658 of cash used in operating
activities and $559,604 for purchase of equipment.
The Company has historically satisfied its capital needs primarily by issuing
equity securities to its officers, directors, employees and a small group of
investors, and from short-term bridge loans from members of management. During
fiscal 2001, the Company completed three private placements, resulting in gross
proceeds to the Company of $3,067,391.
In the first offering, the Company sold 2,500,000 units, each consisting of one
common share and one warrant to acquire an additional share at $0.66 per share
by March 12, 2003, at $0.54 per unit, for total proceeds of $1,333,260. In the
second offering, the Company sold 4,000,000 units at $0.27 per unit for
$1,074,131 in proceeds. Each unit consisted of one (1) common share and one (1)
22
share purchase warrant to purchase one (1) common share at $0.35 per share,
exercisable until September 28, 2003. In the third offering, the Company sold
3,300,000 units, each consisting of one common share and one warrant to acquire
an additional share at $0.26 per share by December 31, 2003, at $0.20 per unit,
for total proceeds of $660,000.
The Company also received proceeds of $72,912 from the exercise of outstanding
warrants in fiscal 2001.
The Company's independent accountants, in their report accompanying the
Company's audited financial statements at and for the year ended December 31,
2001, have stated that there is substantial doubt about the Company's ability to
continue as a going concern. As of December 31, 2001, the Company had $104,238
in cash. The Company will require an additional $3.0 million to $3.5 million to
finance operations for the fiscal 2002 and intends to obtain such financing
through sales of its equity securities. The threat to the Company's ability to
continue as a going concern will be removed only when revenues have reached a
level that sustains the Company's business operations.
Assuming the aforementioned $3.0 million to $3.5 million in financing is
obtained, continuing operations for the longer-term will be supported through
anticipated growth in revenues and through additional sales of the Company's
securities. Although longer-term financing requirements may vary depending upon
the Company's sales performance, management expects that the Company will
require additional financing of $5.0 million to $6.0 million for fiscal 2003.
The Company has no binding commitments or arrangements for additional financing,
and there is no assurance that management will be able to obtain any additional
financing on terms acceptable to the Company, if at all.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
USA Video believes its exposure to overall foreign currency risk is not
material. USA Video does not manage or maintain market risk sensitive
instruments for trading or other purposes and is not exposed to the effects of
interest rate fluctuations as it does not carry any long-term debt.
USA Video reports its operations in US dollars and its currency exposure,
although considered by USA Video as immaterial, is primarily between the US and
Canadian dollars. Exposure to other currency risks is also not material as
international transactions are settled in US dollars. Any future financing
undertaken by USA Video will be denominated in US dollars. As USA Video
increases its marketing efforts, the related expenses will be primarily in US
dollars. In addition, 90% of USA Video's bank deposits are maintained in U.S.
dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial information required to be
filed under this item are presented on pages F-1 through F-19 of this Report and
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In a current report on Form 8-K dated February 2, 2001, USA Video reported that
on February 2, 2001, it engaged Goldstein Golub Kessler LLP to replace Amisano
Hanson as the Company's auditors. There have been no transactions or events
required to be reported pursuant to Item 304 (b) of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the name, age, position, and period of service in
his present position of each director and executive officer of USA Video:
23
Name Age Position Period of Service
Edwin Molina 46 Director, Chief Executive Officer and President Since 1998
Anton J. Drescher (1) 45 Director, Chief Financial Officer and Secretary Since 1994
Robert D. Smith Jr. (1) 51 Director and Chief Operating Officer Since 2000
Kent Norton 42 Chief Information/Chief Technical Officer Since 2000
Matthew W. Kinnaman (2) 41 Vice President, Strategic Innovation Since 2000
Daniel E. Kinnaman 45 Senior Vice President, Sales and Marketing Since 2001
(1) Member of the Audit Committee
(2) Resigned as an officer effective December 31, 2001
Anton Drescher, Edwin Molina, and Anthony Castagno were elected directors of USA
Video in June 2001. Mr. Castagno resigned as an officer and director on August
31, 2001, and Robert D. Smith was appointed director to replace Mr. Castagno.
Each director will serve until the next annual meeting of shareholders and his
successor is elected and qualified.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY:
EDWIN MOLINA - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Molina served as a Senior Administrator with USA Video from June 1992 to
June 30, 1998, when he was appointed President, Chief Executive Officer and a
director. Mr. Molina was also a Senior Administrator with Adnet USA LLC, a
private California company involved in Internet advertising, from May 1996 to
June 1998.
ANTON J. DRESCHER - CHIEF FINANCIAL OFFICER, SECRETARY AND DIRECTOR
Mr. Drescher has been Chief Financial Officer of USA Video since December 1994.
He has also been a director and Secretary/ Treasurer of Cal-Star, Inc. (formerly
Future Link Systems Inc.) a public company listed on the Canadian Venture
Exchange, which has been designated as an inactive issuer; Director and
Secretary/Treasurer of IQuest Networks Inc. (formerly Interlink Systems Inc. and
Glassmaster Industries, Inc.), a public company listed on The Canadian Venture
Exchange ("CDNX") involved in digital audio distribution since 1996; President
of Westpoint Management Consultants Limited, a private company engaged in tax
and accounting consulting for business reorganizations since 1979; President of
Harbour Pacific Capital Corp., a private British Columbia company involved in
regulatory filings for businesses in Canada, since 1998; and, since 1991, a
director and President of International Tower Hill Mines Limited, a public
British Columbia company listed on the CDNX and involved in mineral exploration.
Mr. Drescher has been a Certified Management Accountant since 1981.
ROBERT D. SMITH, JR. - CHIEF OPERATING OFFICER AND DIRECTOR
Mr. Smith joined USA Video in August 2000 as Chief Operating Officer. Mr. Smith
was formerly a vice president at Sonalysts Inc., of Waterford, Connecticut,
where, for 22 years, he helped build the company into a $50 million, nearly
500-person international e-business, multimedia, software and engineering
corporation. Mr. Smith graduated with distinction from the U.S. Naval Academy,
where he was a Trident Scholar and earned a B.S. degree in oceanography and
engineering. He served in a variety of officer positions in the nuclear
submarine Navy prior to leaving active duty. Concurrent with his employment at
Sonalysts, Inc. he continued to serve in the Naval Reserve, having recently
retired with the rank of Captain.
24
KENT NORTON - CHIEF INFORMATION/CHIEF TECHNICAL OFFICER
Mr. Norton joined USA Video in May 2000 as Chief Information Officer, and in
addition, was appointed Chief Technical Officer in September 2000. From January
2000 to June 2000, Mr. Norton was Director of Technology and Information Systems
with beenz.com, which was creating a universal, incentive-based currency for
on-line merchants. Mr. Norton was employed by Computer Sciences Corporation from
1996 to January 2000, and from 1991 to 1994. His last position at Computer
Sciences Corporation was senior manager, where he was responsible for the design
of a global technical support infrastructure for the company's "help desks"
around the world. From 1994 to 1996, Mr. Norton held a senior technology
position with Sonalysts, Inc. Mr. Norton holds a Bachelor of Science degree in
Civil & Structural Engineering from the University of Cincinnati.
MATTHEW W. KINNAMAN - VICE PRESIDENT, STRATEGIC INNOVATION
Mr. Kinnaman joined USA Video in May 2000 as Vice President of Strategic
Innovation. From April 1998 to March 2000, Mr. Kinnaman was employed at Gilder
Technology Group, which, with Forbes Magazine, co-publishes George Gilder's
investment strategy newsletter, the Gilder Technology Report. While at Gilder
Technology Group, Mr. Kinnaman was Editorial Director of Conferences, Director
of Research and Communication, Director of Business Development and Associate
Editor. From 1990 to 1998, Mr. Kinnaman was Director of Development and
ProgramDirector for New England Keswich, Inc., a non-denominational Christian
camp.
DANIEL E. KINNAMAN - SENIOR VICE PRESIDENT, SALES AND MARKETING
Mr. Kinniman joined USA Video in October 2001 as Senior Vice President of Sales
and Marketing. Mr. Kinnaman was the Executive Vice President and Group
Publisher for Professional Media Group LLC. In this position, he was responsible
for the publication of two nationally circulated technology and education
magazines and directed the advertising sales, editorial content, and overall
business direction of these publications. For the past fifteen years, Mr.
Kinnaman has been a prominent speaker, writer, and independent advisor
specializing in the business and education opportunities presented by emerging
computer and networking technologies. He was instrumental in guiding the
marketing strategy of Compaq Computer Corporation's education Division during a
three-year period during which the division's sales grew considerably. Mr.
Kinnaman holds a Bachelor of Science degree in Marketing from The University of
Connecticut and a Master of Arts in Education from The University of
Connecticut.
Mathew W. Kinnaman and Daniel Kinnaman are brothers. There are no other family
relationship among any of the Company's executive officers and directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended ("Section 16"),
requires that reports of beneficial ownership of capital stock and changes in
such ownership be filed with the Securities and Exchange Commission (the "SEC")
by Section 16 "reporting persons," including directors, certain officers, and
holders of more than 10% of the outstanding common shares. The Company is
required to disclose in this Annual Report on Form 10-K each reporting person
whom it knows to have failed to file any required reports under Section 16 on a
timely basis during the fiscal year ended December 31, 2001.
To the Company's knowledge, based solely on a review of copies of Forms 3, 4 and
5 furnished to it and written representations that no other reports were
required, during the fiscal year ended December 31, 2001, the Company's
officers, directors and 10% shareholders complied with all Section 16(a) filing
requirements applicable to them except as follows:
1. Mr. Molina failed to file a Form 4 with respect to: (i) his disposition of
15,000 common shares in eight transactions in May 2000; (ii) his
disposition of 35,000 common shares in 11 transactions in June 2000; (iii)
his acquisition from the Company of 200,000 common shares and of warrants
to purchase 200,000 common shares in August 2000; (iv) his disposition of
10,000 common shares in two transactions, and his acquisition of 875,000
common shares upon the exercise of warrants, in September 2000; and (v) his
acquisition of 650,000 common shares upon the exercise of warrants in
October 2000. Mr. Molina failed to file a timely Form 5 with respect to the
transactions described above. Mr. Molina filed a Form 5 in March 2001 with
respect to such transactions.
25
2. Mr. Smith failed to file a timely Form 3 with respect to his ownership of
securities of the Company in August 2000, upon becoming an executive
officer. Mr. Smith failed to file a timely Form 5 with respect to his
acquisition in December 2000, of options to purchase 200,000 common shares
at $1.00 per share. Mr. Smith filed a Form 3 and a Form 5 in March 2001,
and an amended Form 5 in March 2001, with respect to his initial ownership
and the acquisition transaction.
3. Mr. Norton failed to file a timely Form 5 with respect to: (i) his
acquisition in September 2000 of options to purchase 25,000 common shares
at $3.35 per share; (ii) his acquisition in December 2000 of options to
purchase 100,000 common shares at $1.00 per share; and (iii) the repricing,
in December 2000 of options to purchase 100,000 common shares from $2.00 to
$1.00 per share. In addition, Mr. Norton failed to file a Form 4 with
respect to his acquisition in September 2000 of 25,000 common shares
pursuant to the exercise of a previously granted stock option. Mr. Norton
filed a Form 5 and an amended Form 5 in March 2001 with respect to these
transactions.
4. Mr. Matt Kinnaman failed to file a Form 4 with respect to: (i) his
acquisition by gift of 10,000 common shares in May 2000; (ii) his sales of
2,000 common shares in one transaction in June 2000; and (iii) his sales of
8,000 common shares in two transactions in September 2000, and a timely
Form 5 with respect to the repricing in December 2000 of options to
purchase 100,000 common shares from $2.00 to $1.00 per share. Mr. Kinnaman
filed a Form 5 in March 2001 with respect to these transactions.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth compensation awarded to, earned by or paid to USA
Video's Chief Executive Officer (CEO), and to other persons serving as executive
officers of the Company as of December 31, 2001, whose salary and bonus for such
year exceeded $100,000 (collectively, the "Named Executive Officers") for the
last three completed fiscal years.
Long-Term Compensation
--------------------------------------------------
Summary Compensation Table Awards Payouts
Annual Compensation ----------------------------------
- ---------------------
Name and ------------------------------------------------ Restricted Securities
Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
--------- ------ -------- ---------- ------------- --------- ------------- ------- ------------
$ $ $ $ $ $ $
------------------------------------------------------------------------------------------
Molina, 2001 $124,910 -0- $125,000(4) -0- -0- -0- -0-
Edwin 2000 $128,361 -0- $500,000(5) -0- -0- -0- -0-
(CEO) 1999 $120,999(1) -0- $200,665(6) -0- 1,200,000 -0- -0-
Drescher 2001 $120,000(2) -0- $200,000(7) -0- 200,000 -0- -0-
Anton, 2000 $120,000(2) -0- $500,000(8) -0- 200,000 -0- -0-
(CFO) 1999 $120,000(2) -0- $159,665(9) -0- 1,000,000 -0- -0-
Castagno, 2001 $82,496 v -0- $25,000(10) -0- 1,100,000 -0- -0-
Anthony (EVP) 2000 $125,722 -0- $125,000(11) -0- 1,100,000 -0- -0-
1999 $120,000(3) -0- $194,300(12) -0- 250,000 -0- -0-
Smith, 2001 $89,412 v -0- $22,900(13-15) -0- -0- -0- -0-
(1) Represents consulting fees paid to Mr. Molina for his services as an
executive officer of the company.
26
(2) Represents consulting fees paid to Mr. Drescher through Harbour Pacific
Capital Corp., a consulting firm wholly-owned by him, for his services as
an executive officer of the Company.
(3) Represents consulting fees paid to Mr. Castagno for his services as an
executive officer of the Company.
(4) In March 2001, Mr. Molina purchased 250,000 units (each comprised of one
common share and one warrant to acquire one common share at $0.66 per
share) at $0.54 per unit. This compensation resulted from the difference
between the $0.54 purchase price and the $0.66 warrant exercise price and
the fair market price of $0.84 of the common shares on the date of issuance
of the units.
(5) In July 2000, Mr. Molina purchased 200,000 units (each comprised of one
common share and one warrant to acquire one common share at $1.50 per
share) at $1.50 per unit. This compensation resulted from the difference
between the $1.50 purchase price and the $1.50 warrant exercise price and
the fair market price of $2.75 of the common shares on the date of issuance
of the units.
(6) From February through May, 1999, Mr. Molina exercised stock options for an
aggregate of 800,000 shares at an exercise price of $.067 per share,
resulting in compensation of $200,665.
(7) In March 2001, Mr. Drescher purchased 400,000 units (each comprised of one
common share and one warrant to acquire one common share at $0.66 per
share) at $0.54 per unit. This compensation resulted from the difference
between the $0.54 purchase price and the $0.66 warrant exercise price and
the fair market price of $0.84 of the common shares on the date of issuance
of the units.
(8) In July 2000, Mr. Drescher purchased 200,000 units (each comprised of one
common share and one warrant to acquire one common share at $1.50 per
share) at $1.50 per unit. This compensation resulted from the difference
between the $1.50 purchase price and the $1.50 warrant exercise price and
the fair market price of $2.75 of the common shares on the date of issuance
of the units.
(9) From February through June 1999, Mr. Drescher exercised stock options for
an aggregate of 1,000,000 common shares at an exercise price of $.067 per
share, resulting in compensation of $147,800. In 1999, Mr. Drescher
received interest totalling $12,965 on loans made to USA Video.
(9) In January 1998, Mr. Drescher exercised stock options for 500,000 common
shares at an exercise price of $.067 per share, resulting in compensation
of $10,050. In 1998, Mr. Drescher received interest totalling $24,379 on
loans made to USA Video.
(10) In March 2001, Mr. Castagno purchased 50,000 units (each comprised of one
common share and one warrant to acquire one common share at $0.66 per
share) at $0.54 per unit. This compensation resulted from the difference
between the $0.54 purchase price and the $0.66 warrant exercise price and
the fair market price of $0.84 of the common shares on the date of issuance
of the units.
(11) In July 2000, Mr. Castagno purchased 50,000 units (each comprised of one
common share and one warrant to acquire one common share at $1.50 per
share) at $1.50 per unit. This compensation resulted from the difference
between the $1.50 purchase price and the $1.50 warrant exercise price and
the fair market price of $2.75 of the common shares on the date of issuance
of the units.
(12) In July 1999, Mr. Castagno exercised stock options for 250,000 common
shares at an exercise price of $.067 per share, resulting in compensation
of $194,300.
(13) In March 2001, Mr. Smith purchased 40,000 units (each comprised of one
common share and one warrant to acquire one common share at $0.66 per
share) at $0.54 per unit. This compensation resulted from the difference
between the $0.54 purchase price and the $0.66 warrant exercise price and
the fair market price of $0.84 of the common shares on the date of issuance
of the units.
27
(14) In September 2001, Mr. Smith purchased 45,000 units (each comprised of one
common share and one warrant to acquire one common share at $0.35 per
share) at $0.27 per unit. This compensation resulted from the difference
between the $0.27 purchase price and the fair market price of $0.29 of the
common shares on the date of issuance of the units.
(15) In December 2001, Mr. Smith purchased 100,000 units (each comprised of one
common share and one warrant to acquire one common share at $0.26 per
share) at $0.20 per unit. This compensation resulted from the difference
between the $0.20 purchase price and the fair market price of $0.22 of the
common shares on the date of issuance of the units.
The following table sets forth certain information concerning grants of stock
options to the Named Executive Officers during the year ended December 31, 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rate of Stock
Individual Grants Price Appreciation for Option Term
--------------------------------------------------------------------------------------
Number of % of Total Market
Securities Options/SARs Price on
Underlying Granted to Exercise Date of
Options/ SARs Employees in Price Grant Expiration 0% 5% 10%
Granted Fiscal Year(1) ($/Share) ($/Share) Date ($) ($) ($)
-----------------------------------------------------------------------------------------------
Molina, Edwin -0- -0- -0- -0- -0- -0- -0- -0-
Drescher, Anton -0- -0- -0- -0- -0- -0- -0- -0-
Castagno, Anthony -0- -0- -0- -0- -0- -0- -0- -0-
Smith, Robert -0- -0- -0- -0- -0- -0- -0- -0-
(1) A total of 250,000 stock options were granted to employees and consultants
in 2001.
The following table sets forth certain information concerning exercises of stock
options by the Named Executive Officers during the year ended December 31, 2001
and stock options held at year end.
Aggregated Option / SAR Exercises in Last Fiscal Year and FY-End Option / SAR
Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options / SARs Options / SARs
at FY-End (#) At FY-End ($)-
- --------------------------------------------------------------------------------------------------------------------
Shares Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable(1)
- --------------------------------------------------------------------------------------------------------------------
Molina, Edwin -0- -0- 0 / 0 N/A / $0
Drescher, Anton -0- -0- 200,000 / 0 N/A(2) / $0
Castagno, Anthony -0- -0- 1,100,000 / 0 N/A(3) / $0
Smith, Robert -0- -0- 325,000 / 0 N/A(4) / $0
(1) On December 31, 2001, the average of the high and low bid prices of the
common shares on the OTC BB was $0.22 (the "December 31, 2001 OTC BB bid
price").
(2) Mr. Drescher's 200,000 options, with an exercise price of $1.00, were not
in the money based on the December 31, 2001 OTC BB bid price.
28
(3) Mr. Castagno's 1,100,000 options with an exercise prices of (300,000 @
$5.00, 100,000 @ $2.00 and 700,000 @ $1.00) were not in the money based on
the December 31, 2001 OTC BB bid price.
(4) Mr. Smith's 325,000 options with an exercise prices of (125,000 @ $2.00 and
200,000 @ $1.00) were not in the money based on the December 31, 2001 OTC
BB bid price.
COMPENSATION OF DIRECTORS
Directors receive no compensation for their service as such.
EMPLOYMENT CONTRACTS
The Company entered into Management Agreements with the following directors and
officers as of August 7th, 2001 for a term of one year from January 1, 2001 to
December 31, 2001. All of the Agreements were subsequently renewed for one year
terms.
o Edwin Molina - President and Chief Executive Officer
o Robert D. Smith, Jr. - Chief Operating Officer
o Kent Norton - Chief Information Officer and Chief Technical Officer
o Matt Kinnaman - Vice-President, Strategic Innovation
o Harbour Pacific Capital Corp. - financial services (owned by Anton J.
Drescher)
USA Video does not have an employment contract with Mr. Molina or any other
Named Executive Officer. The Company has no obligation to provide any
compensation to Mr. Molina or any other Named Executive Officer in the event of
his resignation, retirement or termination, or a change in control of the
Company, or a change in any Named Executive Officers' responsibilities following
a change in control.
USA Video may in the future create retirement, pension, profit sharing,
insurance and medical reimbursement plans covering its Executive Officers and
Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 26, 2001, the number of outstanding
common shares of USA Video beneficially owned by (i) each person known to USA
Video to beneficially own more than 5% of its outstanding common shares, (ii)
each director, (iii) each Named Executive Officer, and (iv) all officers and
directors as a group.
Name Shares Owned Percentage of Class
- ------------------------------------------------------------------------------------------
Edwin Molina 4,824,424 (1) 5.18%
Anton J. Drescher 5,681,855 (2) 6.09%
Robert D. Smith 1,595,000 (3) 1.72%
All Executive Officers & Directors
as a Group [six persons] 14,616,279 (4) 15.00%
(1) Includes 900,000 shares underlying options and 450,000 shares underlying
warrants that are currently exercisable. Mr. Molina's address is 70 Essex
Street, Mystic, Connecticut.
(2) Includes 950,000 shares underlying options and 600,000 shares underlying
warrants that are currently exercisable. Mr. Drescher's address is 70 Essex
Street, Mystic, Connecticut.
(3) Includes 825,000 shares underlying options and 185,000 shares underlying
warrants. Mr. Smith's address is 70 Essex Street, Mystic, Connecticut.
(4) Includes 4,050,000 shares underlying options and 1,642,500 shares
underlying warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 2001, the Company paid consulting fees of $120,000 to Harbour Pacific Capital
Corp., a company controlled by Anton J. Drescher, in consideration of Mr.
Drescher's services as an executive officer of the Company.
29
In March 2001, USA Video completed a private placement of 2,500,000 units (each
unit consisting of one common share and one warrant to purchase an additional
common share at $.66 per share) for $.54 per unit, of which 1,585,000 units were
sold to outside investors and 915,000 units were sold to officers, directors,
and employees of the Company. Because the rules of the Canadian Venture Exchange
require that the offering price for privately placed securities of listed
companies be set when the offering is first announced rather than upon closing,
the sale price of the units and the exercise price of the warrants were below
the market price of $.84 of the common shares on the date of issuance. Units
were sold to the following officers and directors of the Company, in the amounts
indicated: Edwin Molina (250,000 units); Anton J. Drescher (400,000 units);
Anthony J. Castagno (50,000 units); and Robert Smith (40,000 units).
In September 2001, USA Video completed a private placement of 4,000,000 units
(each unit consisting of one common share and one warrant to purchase an
additional common share at $0.35 per share) for $0.27 per unit, of which
3,512,500 units were sold to outside investors and 487,500 units were sold to
officers, directors, and employees of the Company and their affiliates. Because
the rules of the Canadian Venture Exchange require that the offering price for
privately placed securities of listed companies be set when the offering is
first announced rather than upon closing, the sale price of the units and the
exercise price of the warrants were below the market price of $0.29 of the
common shares on the date of issuance. Units were sold to the following officers
and directors of the Company, and their affiliates, in the amounts indicated:
Robert Smith (45,000 units); and Daniel Kinnaman (200,000 units).
In December 2001, USA Video completed a private placement of 3,300,000 units
(each unit consisting of one common share and one warrant to purchase an
additional common share at $0.26 per share) for $0.20 per unit, of which
2,782,500 units were sold to outside investors and 517,500 units were sold to
officers, directors, and employees of the Company. Because the rules of the
Canadian Venture Exchange require that the offering price for privately placed
securities of listed companies be set when the offering is first announced
rather than upon closing, the sale price of the units and the exercise price of
the warrants were below the market price of $0.22 of the common shares on the
date of issuance. Units were sold to the following officers and directors of the
Company, in the amounts indicated: Robert Smith (100,000 units); Kent Norton
(75,000 units); Daniel Kinnaman (70,000 units); and Matthew Kinnaman (62,500
units).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS TO SHAREHOLDERS AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements Independent Auditors' Reports Consolidated Balance
Sheets Consolidated Statements of Operations Consolidated Statements of
Comprehensive Operations Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
(a)(2) All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or the notes thereto included
in this Report.
(b) Reports on Form 8-K
During the last quarter of the fiscal year covered by this Report, the
registrant filed the filing reports on Form 8-K:
(i) On October 12, 2001 the registrant filed a report on Form 8-K wherein
the registrant reported that its StreamHQ(TM) suite of rich media
delivery services had satisfactorily completed operational beta
testing and that the StreamHQ(TM) architecture was fully ready to
support client services.
(ii) On October 12, 2001, the registrant filed a report on Form 8-K wherein
the registrant reported that the registrant was been approved for
listing on the Frankfurt Stock Exchange and began trading on October
3, 2001 under the symbol USF.
30
(iii) On October 30, 2001, the registrant filed a report on Form 8-K
wherein the registrant reported that The Fleet Center, New England's
premier sports arena, has signed a contract with the registrant to use
the registrant's Zmail solution as part of its current promotional
campaigns.
(iv) On November 5, 2001, the registrant filed a report on Form 8-K wherein
the registrant reported that the Anthony Robbins Companies had elected
to use Zmail from the registrant for an upcoming promotional campaign.
(v) On December 10, 2001, the registrant filed a report on Form 8-K
wherein the registrant reported - that the registrant and CEO
Solutions, Inc., the nation's premier business opportunity consulting
firm, had formed a strategic sales and marketing partnership.
(vi) On December 11, 2001, the registrant filed a report on Form 8-K
wherein the registrant reported that Gilder Publishing, LLC, publisher
of the Gilder Technology Report, the Digital Power Report, the Gilder
Biotech Report, and Dynamic Silicon, had selected the registrant to
promote the upcoming Storewidth Conference with the registrant's
Zmail.
(vii) On December 11, 2001, the registrant filed a report on Form 8-K
wherein the registrant reported that Phenomedia AG
(www.phenomedia-usa.com), a leading company in the interactive
entertainment market, has signed a contract with the registrant to
stream four promotional videos showing footage from the up-coming New
Line Cinema hit film The Lord of the Rings.
(viii) On December 12, 2001, the registrant filed a report on Form 8-K
wherein the registrant reported that EMC Corporation (NYSE: EMC), the
world leader in information storage, recognized the registrant as an
EMC Proven(TM) E-Infostructure(TM) certified company.
(ix) On December 21, 2001, the registrant filed a report on Form 8-K
wherein the registrant reported that it had joined the AT&T Ecosystem
for Media program, a network services platform with a comprehensive
co-marketing and distribution program that enables companies to
create, manage and deliver digital media applications.
c) Exhibits
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
USA VIDEO INTERACTIVE CORP.
By: /s/ Edwin Molina
--------------------------------
Date: March 26, 2002 Edwin Molina
Chief Executive Officer
31
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 registrant and
in the capacities and on the dates indicated.
Signature Title Date
- ----------------------- ---------------------------------- ---------
/s/ Edwin Molina Chief Executive Officer, Director March 26, 2001
- -----------------------
Edwin Molina
/s/ Anton J. Drescher Chief Financial Officer, (principal March 26, 2001
- ----------------------- financial officer and principal
Anton J. Drescher accounting officer), Director
/s/ Anthony J. Castagno Director March 26, 2001
- -----------------------
Anthony J. Castagno
USA VIDEO INTERACTIVE CORP.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
INDEPENDENT AUDITOR'S REPORTS F-2 - F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets F-4
Statements of Operations F-5
Statements of Comprehensive Operations F-6
Statements of Stockholders' Equity F-7
Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 - F-19
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
USA Video Interactive Corp.
We have audited the accompanying consolidated balance sheets of USA Video
Interactive Corp. and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, comprehensive operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit 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 provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USA Video
Interactive Corp. and Subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
has not generated significant revenue from operations and has a net working
capital deficiency that raise substantial doubt about its ability to continue as
a going concern. Management's plan in regard to these matters is also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 31, 2002
INDEPENDENT AUDITOR'S REPORT
To the Stockholders,
USA Video Interactive Corp.
We have audited the accompanying consolidated statement of operations,
comprehensive operations, stockholders' equity and cash flows of USA Video
Interactive Corp. and subsidiaries for the year ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of their
operations and their cash flows for the year ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements referred to above have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the original December 31, 1999 financial statements, as
originally prepared during 2000, the Company was in the development stage, and
had no established source of revenue and was dependent on its ability to raise
capital from shareholders or other sources to sustain operations. These
factors, along with other matters as set forth in Note 1 to the original
December 31, 1999 financial statements, raise substantial doubt that the Company
would be able to continue as a going concern. The financial statements did not
include any adjustments that might result from the outcome of this uncertainty.
AMISANO HANSON
Chartered Accountants
Vancouver, Canada
March 13, 2000
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 2000
ASSETS
Current Assets:
Cash and cash equivalents $ 104,238 $ 231,197
Marketable securities - related parties 42,616 202,826
Accounts receivable, net of allowance for doubtful accounts of $-0-
and $7,000, respectively 30,900 122,813
Inventory 12,000 145,911
Prepaid expenses and other current assets 21,613 99,368
------------- -------------
TOTAL CURRENT ASSETS 211,367 802,115
Property and Equipment - at cost, net of accumulated depreciation of $573,015
and $194,871, respectively 1,100,339 873,544
Other Assets, net of accumulated amortization of $8,016 and $22,170, respectively 70,472 68,412
Deferred Tax Assets, net of valuation allowance of $7,215,000 and
$6,168,000, respectively - -
------------- -------------
TOTAL ASSETS $ 1,382,178 $ 1,744,071
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 948,417 $ 1,110,033
Accounts payable and accrued expenses - related parties - 20,830
Due to related parties 91,480 75,896
------------- -------------
TOTAL CURRENT LIABILITIES 1,039,897 1,206,759
------------- -------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - no par value; authorized 250,000,000 shares,
none issued
Common stock and additional paid-in capital - no par value; authorized 250,000,000
shares, issued and outstanding 91,745,088 and 81,700,088 shares, respectively 29,492,071 25,766,071
Accumulated other comprehensive income (loss) (86,487) 73,723
Accumulated deficit (29,063,303) (25,302,482)
------------- -------------
STOCKHOLDERS' EQUITY 342,281 537,312
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,382,178 $ 1,744,071
============= =============
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements.
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 2000 1999
- -------------------------------------------------------- ------------ ------------ ------------
Revenue $ 124,006 $ 638,592 $ 20,500
------------ ------------ ------------
Expenses:
Cost of sales 66,770 393,496 19,199
Research and development (includes $-0-, $- 0 -, and 999,058 620,212 93,337
$82,500, respectively, to related parties)
Selling, general and administrative (includes $-0-, 1,833,440 2,599,591 1,372,928
$37,758 and $479,480, respectively, to related parties)
Depreciation and amortization 407,880 224,581 113,362
Noncash compensation charges 585,697 1,453,783 -
------------ ------------ ------------
Total expenses 3,892,845 5,291,663 1,598,826
------------ ------------ ------------
Loss from operations (3,768,839) (4,653,071) (1,578,326)
------------ ------------ ------------
Other income (expense), net (includes $- 0 -, $-0- and
$164,393, respectively, to related parties):
Interest income (expense) (net of interest
income of $5,173, $26,231and $11,715, respectively) 4,903 26,231 (1,250)
Other 3,115 (34,812) (77,502)
------------ ------------ ------------
8,018 (8,581) (78,752)
------------ ------------ ------------
Net loss before cumulative effect of accounting change (3,760,821) (4,661,652) (1,657,078)
Cumulative effect of accounting change - - (27,390)
------------ ------------ ------------
Net loss $(3,760,821) $(4,661,652) $(1,684,468)
============ ============ ============
Earnings per share - basic and diluted:
Loss per common share before cumulative effect of
accounting change $ (.04) $ (.06) $ (.03)
Cumulative effect of accounting change - - -
------------ ------------ ------------
Net loss per share - basic and diluted $ (.04) $ (.06) $ (.03)
============ ============ ============
Weighted-average number of common
shares outstanding - basic and diluted 84,946,199 76,700,723 66,766,504
============ ============ ============
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements.
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
YEAR ENDED DECEMBER 31, 2001 2000 1999
- ------------------------------------------------- ------------ ------------ ------------
Net loss $(3,760,821) $(4,661,652) $(1,684,468)
Other comprehensive income (loss):
Change in unrealized gain (loss) on investments (160,210) 73,723 -
------------ ------------ ------------
Comprehensive loss $(3,921,031) $(4,587,929) $(1,684,468)
============ ============ ============
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements.
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ACCUMULATED
AND ADDITIONAL PAID-IN CAPITAL COMMON OTHER
STOCK COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SUBSCRIPTIONS INCOME (LOSS) DEFICIT EQUITY
---------- ----------- -------------- -------------- ------------- ------------
Balance at January 1, 1999 58,756,088 $18,722,966 - - $(18,956,362) $ (233,396)
Issuance of common stock and
common stock warrants for cash 4,250,000 1,195,267 - - - 1,195,267
Issuance of common stock upon
exercise of options 4,881,000 405,895 - - - 405,895
Issuance of common stock upon
exercise of warrants 5,095,000 626,024 - - - 626,024
Net loss - - - - (1,684,468) (1,684,468)
---------- ----------- -------------- -------------- ----------- -----------
Balance at December 31, 1999 72,982,088 20,950,152 - - (20,640,830) 309,322
Issuance of common stock and
common stock warrants for cash 1,190,000 2,260,000 - - - 2,260,000
Issuance of common stock upon
exercise of options 2,383,000 602,074 - - - 602,074
Issuance of common stock upon
exercise of warrants 5,145,000 500,062 - - - 500,062
Noncash compensation charges - 1,453,783 - - - 1,453,783
Change in unrealized gains (loss) - -
on investments - - - $ 73,723 - 73,723
Net loss - - - - (4,661,652) (4,661,652)
---------- ----------- -------------- -------------- ------------- ------------
Balance at December 31, 2000 81,700,088 25,766,071 - 73,723 (25,302,482) 537,312
Issuance of common stock and
common stock warrants for cash 9,800,000 3,067,391 - - - 3,067,391
Issuance of common stock upon
exercise of warrants 245,000 72,912 - - - 72,912
Noncash compensation charges - 585,697 - - - 585,697
Change in unrealized gains (loss)
on investments - - - (160,210) - (160,210)
Net loss - - - - (3,760,821) (3,760,821)
---------- ----------- -------------- -------------- ------------- ------------
Balance at December 31, 2001 91,745,088 $29,492,071 - $ (86,487) $(29,063,303) $ 342,281
========== =========== ============== ============== ============= ============
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements.
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001 2000 1999
- --------------------------------------------------------------------------- ------------ ------------ ------------
Cash flows from operating activities:
Net loss $(3,760,821) $(4,661,652) $(1,684,468)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 407,880 224,581 113,362
Noncash compensation charge 585,697 1,453,783 -
Foreign exchange - - 1,657
Loss on sale of investments - related parties - - 35,788
Loss on disposal of property and equipment 18,299 - -
Gain on write-off of accounts payable - - (73,926)
Bad debt recovery - (108,403) -
Write-down of investments in securities - - 102,465
Allowance for doubtful accounts (7,000) - -
Write-down of advances - related party - - 14,375
Write-down of advances - other - - 7,000
Write-down of property and equipment - 33,122
Write-down of inventory 76,481
Cumulative effect on prior years' amortization of changing
to a different amortization method - - 27,390
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 98,913 (109,515) 3,388
Increase in inventory (12,000) (145,911) -
(Increase) decrease in prepaid expenses and other current assets 77,755 (51,164) 28,065
Increase in other assets (26,000) (14,187) (33,737)
(Decrease) increase in accounts payable and accrued expenses (161,616) 624,462 72,588
(Decrease) increase in accounts payable and accrued expenses -
related parties (20,830) 9,238 -
Increase (decrease) in due to related parties 15,584 (112,970) 14,838
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (2,707,658) (2,858,616) (1,371,215)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds on sale of investments - related parties - - 4,867
Purchases of marketable securities - related party - - (88,700)
Advances - related party - - (14,375)
Advances - other - - (7,000)
Purchases of property and equipment (559,604) (689,989) (335,715)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (559,604) (689,989) (440,923)
------------ ------------ ------------
Cash flows from financing activity - proceeds from the issuance of
common stock 3,140,303 3,362,136 2,227,186
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (126,959) (186,469) 415,048
Cash and cash equivalents at beginning of year 231,197 417,666 2,618
------------ ------------ ------------
Cash and cash equivalents at end of year $ 104,238 $ 231,197 $ 417,666
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ - $ 12,965 $ -
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Marketable securities received for settlement of amounts
previously written off as bad debt $ - $ 108,403 $ -
============ ============ ============
Inventory originally purchased for resale reclassified to property and
equipment $ 69,430 $ - $ -
============ ============ ============
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements.
USA VIDEO INTERACTIVE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS: USA Video Interactive Corp. (the "Company") is a designer of
high-tech Internet streaming video-on-demand systems, services and
solutions. At December 31, 2001 and for the three-year period then ended,
substantially all of the Company's assets and substantially all its
operations are located and conducted in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying consolidated
financial statements have been prepared assuming the Company will continue
as a going concern. As shown in the financial statements, the Company has
incurred losses of $3,760,821, $4,661,652 and $1,684,468 for the years
ended December 31, 2001, 2000 and 1999, respectively. These conditions
raise doubt about the Company's ability to continue as a going concern. The
Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations as they
come due, which management believes it will be able to do. To date, the
Company has funded operations primarily through the issuance of common
stock and warrants to outside investors and the Company's management. The
Company believes that its operations will generate additional funds and
that additional funding from outside investors and the Company's management
will continue to be available to the Company when needed. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and classifications
of liabilities that might be necessary in the event the Company cannot
continue as a going concern.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
The Company maintains cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses
on these accounts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
The Company has classified its investments in marketable securities as
available-for-sale securities. These securities are carried at fair value
with any unrealized gain or loss recorded as a component of stockholders'
equity. The fair value of marketable securities was determined based on the
quoted market prices for those instruments. At December 31, 2001, the
marketable securities consisted of common stock.
Inventory, which consists of computer equipment, is stated at the lower of
cost or market using the specific-identification method.
Property and equipment is stated at cost. Maintenance and repairs are
expensed as incurred. When property is retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized in operations. Depreciation is
computed on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the estimated useful
lives of the improvements or the terms of the related lease, whichever is
shorter.
Depreciation of property and equipment acquired prior to 1999 was
previously calculated using an accelerated depreciation method over seven
years for all asset classes. During 1999 the Company adopted the
straight-line method for all classes using varying estimated useful lives
to reflect the rapid pace of technological change. The cumulative effect on
years prior to 1999 is included in the statement of operations for the year
ended December 31, 1999 and is treated as a change in accounting principle.
Other assets consist of patents and patents pending owned by the Company
for the Store and Forward Video System. The patents and patents pending are
recorded at cost and are being amortized on a straight-line basis over 17
years.
At each balance sheet date, the Company evaluates the period of
amortization of intangible assets. The factors used in evaluating the
period of amortization include: (i) current operating results, (ii)
projected future operating results, and (iii) other material factors that
affect the continuity of the business.
Revenue from hardware product sales is recognized when the product has been
shipped and collectibility is reasonably assured. Revenue recognized from
these sales is net of applicable provisions for refunds, discounts and
allowances. Engineering services sales are recognized upon the service
having been provided.
Revenue from software sales is recognized when the product has been
delivered. Revenue from multiple element contracts (hardware, software and
engineering) is allocated to the various elements based on fair value. If
objective evidence of fair value is not available, revenue from these
contracts is deferred until the earlier of when objective evidence of fair
value does exist or all elements of the contract have been delivered.
Discounts will be applied to each element on a proportionate basis. No
portion of the revenue will be recognized if the portion of the revenue
allocable to delivered elements is subject to forfeiture, refund or other
concession.
Research and development costs are expensed as incurred.
Advertising costs are expensed when incurred. Advertising expense for the
years ended December 31, 2001, 2000 and 1999 was approximately $16,000,
$97,000 and $47,000, respectively.
Income taxes are accounted for under the liability method. Under this
method, deferred tax assets and liabilities are recorded based on the
temporary differences between the financial statement and the tax bases of
assets and liabilities and for operating loss carryforwards measured using
the enacted tax rates in effect for the year in which the differences are
expected to reverse. The Company periodically evaluates the reliability of
its net deferred tax assets and records a valuation allowance if, based on
the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at current exchange rates, and revenue and
expenses are translated at average rates of exchange prevailing during the
period. The aggregate effect of translation adjustments is immaterial at
December 31, 2001 and 2000.
Basic loss per common share ("EPS") is computed as net loss divided by the
weighted-average number of common shares outstanding during the period.
Diluted EPS includes the impact of common stock potentially issuable upon
the exercise of options and warrants. Potential common stock has been
excluded from the computation of diluted net loss per share as their
inclusion would be antidilutive.
Management does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
3. MAJOR CUSTOMERS: During the year ended December 31, 2001, one customer
accounted for approximately 61% of total revenue, during the year ended
December 31, 2000, three customers accounted for approximately 26%, 44% and
12% of total revenue and during the year ended December 31, 1999, one
customer accounted for 100% of total revenue.
4. MARKETABLE SECURITIES: Marketable securities consist of the following:
December 31, 2001 2000
--------------------------------------------------------------------------
Available-for-sale equity securities:
Cost $129,103 $129,103
Unrealized gains (losses) (86,487) 73,723
--------- --------
$ 42,616 $202,826
========= ========
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS: Prepaid expenses and other
current assets consist of the following:
December 31, 2001 2000
--------------------------------------------------------------------------
Refundable security deposits $ - 0 $75,000
Other (none in excess of 5% of current assets) 21,613 24,368
--------- --------
$21,613 $99,368
========= ========
6. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of the
following:
Estimated
December 31, 2001 2000 Useful Life
- ----------------------------- ---------- ---------- -----------
Office equipment $ 139,200 $ 120,974 5 years
Computer equipment 1,504,771 918,058 3 years
Leasehold improvements 29,383 29,383 5 years
---------- ---------- -----------
1,673,354 1,068,415
Less accumulated depreciation 573,015 194,871
---------- ---------
$1,100,339 $ 873,544
========== ==========
Depreciation and amortization expense amounted to $383,940, $219,740 and
$108,869 for the years ended December 31, 2001, 2000 and 1999,
respectively.
7. ACCOUNTS PAYABLE AND ACCRUED Accounts payable and accrued expenses consist
of the following:
December 31 2001 2000
- ------------------------------------------ ------- -------
Accounts payable $189,702 $ 209,988
Accrued professional fees 77,164 60,580
Accrued payroll and related tax withholdings 455,374 411,795
Amounts due for purchased computer equipment 226,177 427,670
- -------------------------------------------- -------- ----------
$948,417 $1,110,033
======== ==========
8. COMMITMENTS AND CONTINGENCIES: The Company leases its office and warehouse
facilities under various leasing agreements. The leases expired during the
prior year and the Company opted not to renew the leases and instead opted
to rent the facilities on a month-to-month basis. Rent expense amounted to
$79,481, $73,521 and $41,212 for the years ended December 31, 2001, 2000
and 1999, respectively.
The Company is party to a default judgment entered against one of the
Company's subsidiaries. During the year ended December 31, 1995, a claim
was made to the Company for the total amount payable under the terms of the
lease with one of the Company's subsidiaries for office space in Dallas,
Texas through 2002. The Company's management is of the opinion that the
amount payable under the terms of this judgment is not estimable or
determinable at this time and may be substantially mitigated by the
landlords renting the property to another party. The range of possible loss
is from $-0- to approximately $500,000. Any settlement resulting from the
resolution of this contingency will be accounted for in the period of
settlement when such amounts are estimable or determinable.
9. STOCKHOLDERS' EQUITY: On February 24, 1999, the Company issued 2,000,000
units to investors at $.07 per unit. Each unit consisted of one share of
common stock and one warrant to purchase an additional share of common
stock at $.07 per share.
On April 17, 1999, the Company issued 1,000,000 units to investors at $.11
per unit. Each unit consisted of one share of common stock and one warrant
to purchase an additional share of common stock at $.11 per share.
On June 28, 1999, the Company issued 500,000 units to investors at $.40 per
unit. Each unit consisted of one share of common stock and one warrant to
purchase an additional share of common stock at $.40 per share.
On September 1, 1999, the Company issued 750,000 units to investors at
$1.00 per unit. Each unit consisted of one share of common stock and one
warrant to purchase an additional share of common stock at $1.10 per share.
From January 1, 1999 to December 31, 1999, the Company issued 4,881,000
shares of common stock upon the exercising of options with exercise prices
ranging from $.07 to $1.00 per common share.
From January 1, 1999 to December 31, 1999, the Company issued 5,095,000
shares of common stock upon the exercising of warrants with exercise prices
ranging from $.07 to $.29 per common share.
On April 10, 2000, the Company issued 190,000 units to officers of the
Company at $4.00 per unit. Each unit consisted of one share of common stock
and one warrant to purchase an additional share of common stock at $4.00
per share.
On July 20, 2000, the Company issued 430,301 units to investors at $1.50
per unit. Each unit consisted of one share of common stock and one warrant
to purchase an additional share of common stock at $1.50 per share.
On July 20, 2000, the Company issued 569,699 units to employees at $1.50
per unit. Each unit consisted of one share of common stock and one warrant
to purchase an additional share of common stock at $1.50 per share. The
Company charged operations for approximately $712,000 representing the
differential between the fair value and the purchase price of the common
stock and for approximately $712,000 representing the differential between
the fair value of the underlying common stock and the exercise price of the
warrants.
From January 1, 2000 to December 31, 2000, the Company issued 2,383,000
shares of common stock upon the exercising of options with exercise prices
ranging from $.06 to $1.00 per common share.
From January 1, 2000 to December 31, 2000, the Company issued 5,145,000
shares of common stock upon the exercising of warrants with exercise prices
ranging from $.06 to $.49 per common share.
On March 12, 2001, the Company issued 1,585,000 units to investors at $.54
per unit. Each unit consisted of one share of common stock and one warrant
to purchase an additional share of common stock at $.66 per share.
On March 12, 2001, the Company issued 915,000 units to employees at $.54
per unit. Each unit consisted of one share of common stock and one warrant
to purchase an additional share of common stock at $.66 per share. The
Company charged operations for approximately $294,000 representing the
differential between the fair value and the purchase price of the common
stock and for approximately $168,000 representing the differential between
the fair value of the underlying common stock and the exercise price of the
warrants.
On September 28, 2001, the Company issued 3,512,500 units to investors at
$.27 per unit. Each unit consisted of one share of common stock and one
warrant to purchase an additional share of common stock at $.35 per share.
On September 28, 2001, the Company issued 487,500 units to employees at
$.27 per unit. Each unit consisted of one share of common stock and one
warrant to purchase an additional share of common stock at $.35 per share.
The Company charged operations for approximately $10,000 representing the
differential between the fair value and the purchase price of the common
stock.
On December 31, 2001, the Company issued 2,782,500 units to investors at
$.20 per unit. Each unit consisted of one share of common stock and one
warrant to purchase an additional share of common stock at $.26 per share.
On December 31, 2001, the Company issued 517,500 units to employees at $.20
per unit. Each unit consisted of one share of common stock and one warrant
to purchase an additional share of common stock at $.26 per share. The
Company charged operations for approximately $10,000 representing the
differential between the fair value and the purchase price of the common
stock.
From January 1, 2001 to December 31, 2001, the Company issued 245,000
shares of common stock upon the exercising of warrants with exercise prices
ranging from $.12 to $.49 per common share.
10. STOCK OPTIONS AND STOCK WARRANTS: The Company has a stock option plan under
which options to purchase shares of common stock may be granted to certain
officers, directors and service providers.
In June 2001, the Company adopted a new Stock Option Plan (the "2001
Plan"). The 2001 Plan authorizes the issuance of up to 8,400,000 of the
Company's common shares, subject to adjustment under certain circumstances.
The Company is listed on the Canadian Venture Exchange ("CDNX") and is
subject to a limitation on the number of options a company may have. The
2001 Plan provides for the issuance of both incentive stock options and
nonqualified options as those terms are defined in the Internal Revenue
Code of 1986, as amended (the "Code"). As of December 31, 2001, no stock
options have been granted under the 2001 Plan. The Company's previous
option plan will remain in effect until all granted stock options are
exercised, expired or canceled.
A summary of the status of the Company's options and changes during the
years is presented below:
Year ended December 31, 2001 2000 1999
- ----------------------- ------------ ---------- ------------
Weighted- Weighted- Weighted-
average average average
Number Exercise Number Exercise Number of Exercise
of Shares Price of Shares Price of Shares Price
- ----------------------- ------------ ---------- ------------ ---------- -----------
Outstanding at
beginning of year 6,957,000 $0.69 6,329,000 $0.81 4,335,000 $0.07
Granted 250,000 $1.00 4,360,000 $2.27 7,375,000 $0.64
Exercised -0- $0.00 (2,383,000) $0.25 (4,881,000) $0.08
Canceled/expired (3,647,000) $1.11 (1,349,000) $2.13 (500,000) $0.07
- ----------------------- ------------ ------ ------------ ------ ----------- -----
OUTSTANDING AT
END OF YEAR 3,560,000 $2.18 6,957,000 $0.69 6,329,000 $0.81
=========== ===== ========= ===== ========= =====
Options exercis-
able at year-end 3,560,000 6,957,000 6,329,000
============ ========== ==========
Weighted-average fair
value of options
granted during the
year $0.75 $1.05 $0.51
====== ====== =====
The following table summarizes information about fixed stock options
outstanding at December 31, 2001:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
average Weighted Weighted
Range of Remaining average average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Price Price Exercisable Price
- ------------ ------------ ---------- --------- --------- ---------
1.00 - $1.99 2,395,000 0.9 $1.00 2,395,000 $1.00
2.00 - $2.99 580,000 0.4 $2.06 580,000 $2.06
3.00 - $3.99 285,000 0.7 $3.14 285,000 $3.14
4.00 - $5.00 300,000 0.1 $5.00 300,000 $5.00
- ------------- ----------- ------------------- --------- ----------- ---------
1.00 - $5.00 3,560,000 3,560,000
============= ========= ==========
The Company has elected to apply APB Opinion No. 25, Accounting for Stock
Issued to Employees ("APB Opinion No. 25"), and related interpretations in
accounting for its stock options and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. If the Company had elected to
recognize compensation cost based on the fair value of the options granted
at the grant date as prescribed by SFAS No. 123, the Company's net loss and
net loss per common share for the years ended December 31, 2001, 2000 and
1999 would have been as follows:
Year ended
December 31, 2001 2000 1999
- ----------------------- ------------ ------------ ------------
Net loss:
As reported $(3,760,821) $(4,661,652) $(1,684,468)
- ----------------------- ------------ ------------ ------------
Pro forma $(3,835,821) $(9,425,070) $(5,420,133)
======================= ============ ============ ============
Loss per common share -
basic and diluted:
As reported $ (0.04) $ (0.06) $ (0.03)
======================= ============ ============ ============
Pro forma $ (0.05) $ (0.12) $ (0.08)
======================= ============ ============ ============
The fair value of each option grant was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions:
Year ended December 31, 2001 2000 1999
- ------------------------ ------ ------ ------
Expected dividend yield - 0 - - 0 - - 0 -
Risk-free interest rate 4.8% 6.37% 5.46%
Volatility 1.43% 1.43% 2.50%
Expected life (years) 2 2 1
Certain options were granted to key employees and consultants at option
prices below market price. In accordance with APB Opinion No. 25,
compensation expense has been recorded based on the difference between the
option price and the market price on the date of the option. The total
amount of such compensation for 2001 was approximately $104,000.
Warrants to purchase shares of common stock are as follows:
Year ended December 31, 2001 2000 1999
Range Range Range
Number of Number of Number of
of Exercise of Exercise of Exercise
Warrants Price Warrants Price Warrants Price
Outstanding at
beginning of year 2,295,000 $0.13 - $4.00 6,250,000 $0.07 - $1.10 7,095,000 $0.07 - $1.10
Issued 9,800,000 $0.26 - $0.80 1,190,000 $1.50 - $4.00 4,250,000 $0.07 - $1.00
Exercised (245,000) $ 0.30 (5,145,000) $0.07 - $1.28 (5,095,000) $0.07 - $0.29
Expired (860,000) $0.58 - $1.10 -0- 0.00 -0- $ 0.00
OUTSTANDING AT
END OF YEAR 10,990,000 $0.26 - $4.00 2,295,000 $0.13 - $4.00 6,250,000 $0.07 - $1.10
- ----------------- =========== ============= =========== ============= =========== =============
11. INCOME TAXES: As of December 31, 2001, the Company had deferred tax assets
resulting primarily from net operating loss carryforwards of approximately
$21,000,000, which are available to offset future taxable income, if any,
through 2021. As utilization of the net operating loss carryforwards is not
assured, a 100% valuation allowance has been provided.
The components of the net deferred tax assets are as follows:
December 31, 2001 2000
- -------------- ----- -----
Deferred tax assets:
Net operating loss carryforwards $ 7,211,000 $ 6,157,000
Allowance for doubtful accounts 34,000 36,000
Unrealized gains (losses) on
investments (30,000) (25,000)
Depreciation and amortization - -
Valuation allowance (7,215,000) (6,168,000)
- ---------------------------------- ------------ ------------
NET DEFERRED TAX ASSETS $ -0- $ -0-
================================== ============ ============
The reconciliation of the effective income tax rate to the federal
statutory rate are as follows:
Year ended December 31, 2001 2000
- ------------------------------------ ----- -----
Federal statutory tax rate 34% 34%
Valuation allowance on net operating
carryforwards (34) (34)
- ------------------------------------ ----- -----
EFFECTIVE INCOME TAX RATE -0-% -0-%
========================= ===== =====
12. RELATED PARTY TRANSACTIONS: Accounts payable and accrued expenses - related
parties at December 31, 2000 include expenses incurred by the Company's
officers on behalf of the Company and amounts due for product marketing
services provided by an entity controlled by one of the Company's officers.
Due to related parties at December 31, 2001 and 2000 of $91,480 and
$75,896, respectively, primarily consist of advances made from officers of
the Company that accrue interest at 1.25% per month and amounts due to
directors for services which are noninterest-bearing and are due on demand.
The estimated fair value of the amounts payable approximates the carrying
amount based on rates available for similar loans.
Included in research and development expenses for the year ended December
31, 1999 was $82,500 paid to an entity controlled by an officer of the
Company.
Included in selling, general and administrative expenses for the years
ended December 31, 2000 and 1999 was $37,758 and $479,480, respectively, of
expenses incurred consisting primarily of product marketing expenses,
office expenses and professional services provided to the Company by
entities owned or controlled by officers and directors of the Company.
Included in other expenses for the year ended December 31, 1999 was
$164,393 of expenses incurred in connection with transactions involving
investments in related entities, write-off of advances to related parties
and interest expense paid to related parties.
13. SUBSEQUENT EVENTS: In January 2002, the Company issued 5,700,000 stock
options to certain officers, employees and consultants of the Company under
the 2001 Plan. The stock options are exercisable at a price of $0.50 (U.S.)
per share for a term of two years from the date of granting.
14. VALUATION AND QUALIFYING ACCOUNTS:
Allowance for
Doubtful Accounts
Year ended December 31, 1999 $7,000
Additions -
Deductions -
- ------------------------------- ------
Year ended December 31, 2000 7,000
Additions -
Deductions 7,000
- ------------------------------- ------
Year ended December 31, 2001 $ -
=============================== ======
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED): The following table summarizes
selected quarterly data for the years ended December 31, 2001 and 2000:
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------------ ---------- ------------ ------------ ------------
2001:
- ------
Revenue $ 1,060 $ 33,175 $ 67,626 $ 22,145 $ 124,006
Expenses (1,304,608) (954,137) (823,380) (810,720) (3,892,845)
Net loss (1,298,068) (919,808) (753,999) (788,946) (3,760,821)
Net loss per
common share:
Basic and
diluted $ (0.02) $ (0.01) $ (0.01) $ (0.01) $ (0.04)
2000:
- ------
Revenue $ 163,600 $ 75,000 $ 307,464 $ 92,528 $ 638,592
Expenses (686,754) (965,615) (1,233,377) (2,405,917) (5,291,663)
Net loss (523,154) (890,615) (925,913) (2,321,970) (4,661,652)
Net loss per
common share:
Basic and
diluted $ (0.01) $ (0.01) $ (0.01) $ (0.03) $ (0.06)
- -------------- ------------ ---------- ------------ ------------ ------------