-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QUaRRkYlZt+UDfAzerSpw6P6ccvy49VzHLP+r5azQl6ejSH33VeG4WEaMcbOEYYY 4WOteGiWvYq//K48cudx6A== 0000777844-01-500006.txt : 20020410 0000777844-01-500006.hdr.sgml : 20020410 ACCESSION NUMBER: 0000777844-01-500006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010731 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUSONICS VIDEO CORP CENTRAL INDEX KEY: 0000777844 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-NONSTORE RETAILERS [5960] IRS NUMBER: 841001336 STATE OF INCORPORATION: CO FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14200 FILM NUMBER: 1784866 BUSINESS ADDRESS: STREET 1: 32751 MIDDLEBELT RD STE B CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 BUSINESS PHONE: 2488515651 MAIL ADDRESS: STREET 1: 32751 MIDDLEBELT RD STE B CITY: FARMINGTON HILLS STATE: MI ZIP: 48334 10-K 1 b10kcv31g.txt COMPUSONICS VIDEO CORPORATION'S 10K FOR 7-31-2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: Commission file number: July 31, 2001 0-14200 - ------------------------------ ---------------------------- COMPUSONICS VIDEO CORPORATION (Exact name of Company as specified in its charter) Colorado 84-1001336 - -------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 32751 Middlebelt Road, Suite B Farmington Hills, MI 48334 - ---------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Company's telephone number, including area code: (248) 851-5651 ---------------------- Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.001 Par Value ------------------------ (Title of Class) Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and, (2) has been subject to such filing requirements for the past 90 days: Yes X No As of October 1, 2001, a total of 160,006,250 shares of common stock, $.001 par value, were outstanding and the aggregate market value of the voting stock held by non-affiliates of the Company was approximately 2,973,087 based on the average of the bid and asked prices as of October 31, 2001 of $0.02 as reported by the Over-The-Counter Bulletin Board (OTCBB). COMPUSONICS VIDEO CORPORATION FORM 10-K PART I ITEM 1. BUSINESS (a) General Development of Business. CompuSonics Video Corporation ("Company") was organized under the laws of the State of Colorado on August 14, 1985. The Company's principal activities since inception have been devoted to obtaining equity capital for the development of a digital video recording and playback system with a view towards its manufacture, marketing or licensing. The Company's current operations are limited to the licensing of its patent portfolio related to an audio digital recording and playback system and an audio and video digital recording and playback system or parts thereof, that are covered by the company's patents. On December 13, 1985, the Company concluded a public offering of 30,000,000 Units, each Unit consisting of one share of its common stock and one Class A Warrant, and received net proceeds of $727,971. On November 16, 1987, the Company acquired The Tyler-Shaw Corporation, a New York corporation ("Tyler- Shaw"), which was engaged in the business of direct mail marketing. Effective July 31, 1992, Tyler-Shaw was considered inactive. Tyler-Shaw has no operations, research and development, earnings, cash flows, product development or sources of financing. In August, 1998, the Company hired a manager experienced in Internet programming to investigate the possibility of implementing a new business activity for the Company known as website development and maintenance. The rapid development of the Internet and its graphical element, the World Wide Web, has made the use of the Internet commonplace among many companies and individuals around the world. The Company's management concluded that opportunities existed in this emerging market and developed a business model where the Company would seek programming contracts to do this type of work on a consulting and project basis. The manager hired to do the business investigation was named the Director of Technology Development and the Company began its consulting work in the fourth calendar quarter of 1998, when the Company established its operations in Chicago and hired additional staff. Due to the inability to obtain a regular flow of programming and consulting contracts, the Company discontinued this activity in May 2000. On April 28, 2000, the company announced that it would begin pursuing companies who might have an interest in licensing its technology covered by the Company's patents. On August 11, 2000, the Company announced that it had signed a licensing agreement with Interactive Digital Media Corporation (IDMC) for the use of technology related to the company's patent portfolio. This was the company's first licensing agreement since announcing in April 2000 that it would focus its business activities on the licensing of the technology represented in the patents. Under the licensing agreement, the Company granted a non-exclusive, royalty bearing license for the Company's patented audio and video digital recording and playback system technology to IDMC for the System 7 and other products that IDMC may produce now and in the future. Terms of the license were structured so as to provide for an upfront payment, a note payable to the Company for the remainder of the licensing fee, and an ongoing royalty payment based on the sales of units covered by the license. Effective April 30, 2001, the Registrant acquired the assets of the Delta product line of ScanLine Technologies. Those assets are principally the character generator (CG) technology of ScanLine. The Registrant will retain and utilize the ScanLine Technologies and Quanta names. The Delta CG product line assets represent a business line with over 600 established customers within the TV broadcast and video production industry. Delta CG products are based upon proprietary hardware and software. approximately 1700 Delta CG systems are in use today worldwide. The estimated installed base value of these Delta CG systems is over $43 Million. Delta CG systems are capable of both analog and Digital input/output support. As market trends dictate, many of these Delta CG systems must be upgraded or exchanged for newer systems that support HDTV resolutions and formats. The company is positioning itself to take advantage of very powerful technology and market trends by developing the next generation of HDTV-ready systems. These will be backward compatible with older Delta CG systems and file formats For these and other reasons, current customers have a strong interest in the next generation of Delta CG. Total open quotations for Delta CG systems upgrades and new equipment exceed $10 Million. (b) Financial Information about Industry Segments. During the year ended July 31, 2001, the Company was engaged in two business activities: (1) the licensing of the technology related to its patent portfolio, and (2) the manufacture, service, and supply of Delta CG character generators to the TV broadcast and video post production industry. The Company had $10,000 in revenues for the past fiscal year from licensing its patent portfolio. Subsequent to the fiscal year ended July 31, 2001, the Company signed its first licensing agreement related to this business activity. The remainder of the Company's revenues in the fiscal year ended July 31, 2001 were related primarily to the manufacture, service, and supply of Delta CG character generators to the TV broadcast and video post production industry. The TV broadcast and video post-production industry is transitioning to Digital and later on to HDTV in several key markets around the world. This transition will cause many in the industry to purchase new equipment that is capable of Digital I/O support as well as HDTV resolution support. Some Delta CG customers have taken a "wait and see" attitude before engaging in any new equipment procurement as the changes now underway in the industry represent significant challenges to many existing business models. New equipment can be very costly. Although regulations now mandate that many (particularly in the U.S. market) must make the transition, it is still unclear how firmly these regulations will be enforced. (c) Narrative Description of Business. (c) (1) (i): The CompuSonics Video System - ------------------------------ In the late 1980s and early 1990s, the Company had developed a system, based on patents in which it had an interest, to make video recordings, digitize video images and playback digital data on a monitor. At that time, digitizing and random access capabilities represented significant improvements over conventional analog recorders. Conventional analog video recorders convert electrical impulses representing visual images into waveforms, which were then stored on magnetic tape or disk. On playback, waveforms were converted back into electrical impulses, which were converted to visual images through a television monitor or similar device. In an analog system, the accuracy of the reproduced image is dependent upon the quality of the recording medium, as well as the quality of the playback system itself. Further, the noise generated by the surface defects on the tape or disk was apparent when the image was played back. Advances in computer technology, particularly in digital memory devices, have been applied in the development of both audio and video digital recording and playback systems. CompuSonics Corporation, owner of 7.1% of the Common Stock of the Company, had produced audio digital systems that utilize microcomputer chips to record and reproduce audio signals using its proprietary digital audio technology, known as CSX. The Company had exclusive license to utilize the CSX technology in the development and production of its products. In the Company's system that it had developed, video signals would be converted into numerical data representing video images. Data would then be stored in a temporary buffer memory. Each video frame image would be processed, through licensed CSX technology, to reduce the amount of data to the minimum required to produce an image for playback closely resembling the image as initially recorded. Data representing the video image would be stored on a computer information storage medium. Playback of the digital data would occur on a monitor with a compatible signal receiving capability. The accompanying audio signal could be routed to a suitably equipped receiver set or through a conventional stereo system adjacent to the monitor. The Company has filed and kept current the renewal payments on its principal patents in the belief that these technologies, which were originally developed ten years ago, may represent a technology upon which some of the data compression and audio and video streaming technologies of today may be based. If this is the case, then a number of companies in today's market may be candidates for a license from the Company if their technology has a basis in the Company's technologies and patents. The Company has not yet determined that there is a connection between the technology of the Company and those in use today by others, but one of its business activities is to attempt to determine this connection and seek licenses from those who have built their technology, in total or in part, on those of the Company. Delta CG Product(s) - -------------------- The Delta CG product line assets represent a business line with over 600 established customers within the TV broadcast and video production industry. Customers include major TV network broadcasters, cable operators, local and regional TV stations, corporations, universities, post production studios, government departments, and so on. Delta CG products are based upon proprietary hardware and software supporting both the Analog and Digital operating environments and input / output specifications. Approximately 1700 Delta CG systems are in use today worldwide. The estimated installed base value of these Delta CG systems is over $43 Million. As market trends dictate, many of these Delta CG systems must be upgraded or exchanged for newer systems that support HDTV resolutions and formats. The company is positioning itself to take advantage of very powerful technology and market trends by developing the next generation of HDTV-ready systems. These will be backward compatible with older Delta CG systems and file formats. For these and other reasons, current customers have a strong interest in the next generation of Delta CG. Total open quotations for Delta CG systems upgrades and new equipment exceed $10 Million. Proposed Products - ----------------- The Company actively manufactures, markets and sells several models of its Delta CG product line. These products include primarily the Delta Classic, Concorde, and Traveler models. The Delta CG models are capable of supporting both Analog and Digital operation environments. The Company is involved in he development of its next generation HDTV ready Character Generator system. The Company will also continue to attempt to sublicense manufacturing rights to its audio, data, and video compression technology and patents. Marketing - ------------ The Company actively markets its Delta CG products in a variety of ways including direct mail, internet advertising, and planned trade show attendance The Company will continue to seek to seek ways in which its patented technology can be licensed to third parties. (c) (1) (ii) In addition to its licensing agreement announced on August 11, 2000, the Company has made several public announcements related to the acquisition of the Delta CG product line assets. (c) (1) (iii) Production of existing Delta CG products will be managed though internal manufacture ring capacities and utilize existing inventories, therefore the sources and availability of raw materials is not of any material concern. (c) (l)(iv) The Company holds rights to United States and certain foreign patent and patent applications for a digital video recording and playback system. On July 21, 1987, patent number 4,682,248 was issued to the Company with three claims of the Company being allowed. On July 5, 1988, patent number 4,755,889 was issued to the Company with four claims being allowed. The Japanese patent number 2,053,230 was issued on May 10, 1996 for an "Audio Digital Recording & Playback System" and will remain in effect until April 19, 2014, providing all renewals are paid. This patent is the Japanese counterpart of U.S. Patent No. 4,636,876 and 4,472,747. The Japanese patent number 2,596,420 was issued on January 9, 1997 for an "Audio Digital Recording & Playback System" and will remain in effect until September 17, 2006 providing all renewals are paid. This patent is the Japanese counterpart of U.S. Patent No. 4,755,889. There can be no assurance that patents will be issued in connection with the remaining applications. If future patents are granted and any of them are tested in litigation, such patents may not afford protection as broad as the claims made in the patent applications. Furthermore, expense required to enforce patent rights against infringers would be costly. However, the Company believes the patent protection obtained, and any further issuances, will greatly assist efforts to protect its technology from being copied. The Company had been granted a limited license by CompuSonics Corporation to utilize its proprietary digital audio technology, CSX, for the limited purpose of incorporating that technology into its proposed video system to process the audio portions of recorded material. CompuSonics Corporation, a Colorado corporation, and a shareholder of the Company, had been engaged in marketing and promoting its CSX Technology licensing and engineering consulting services on a reduced and limited basis, but the Company believes, to the best of its knowledge, that CompuSonics Corporation is no longer performing this function. (c)(l)(v) The Company's business is not seasonally affected. (c) (1) (vi) The Company has a marketable product in the Delta CG product line and as such carries significant amounts of inventory. (c) (l) (vii) The Company market its new equipment, service, support related to the Delta CG product line as well as its patented technology. Therefore the success of the Company is dependent upon the ability of the Company to continue to its manufacturing capability, repair service, upgrade support, software and hardware development, and locate customers who will license the proposed patented technology offered by the Company. There can be no guarantee that such customers can be located or that further licenses can be obtained. (c) (1) (viii) There is no backlog at this time, given the nature of the Company's ability to readily manufacture or service Delta CG customers and the technology licensing activities. (c) (1) (ix) No material portion of the Company's business is subject to renegotiations of profits or termination of contracts or subcontracts at the election of the government. (c) (l)(x) The Company competes with all companies engaged in design, manufacture and marketing of Character Generators and digital video recording and playback systems and those that license underlying technology for such products. In August, 1998, the Company hired a manager experienced in Internet programming to investigate the possibility of implementing a new business activity for the Company known as website development and maintenance. The rapid development of the Internet and its graphical element, the World Wide Web, had made the use of the Internet commonplace among many companies and individuals around the world. The Company's management concluded that opportunities existed in this emerging market and developed a business model where the Company would seek programming contracts with related and outside companies to do this type of work on a consulting and project basis. The manager hired to do the business investigation was named the Director of Technology Development and the Company began its consulting work in the fourth calendar quarter of 1998, when the Company established its operations in Chicago and hired additional staff. Due to the inability to obtain a regular flow of programming and consulting contracts, the Company discontinued this activity in May 2000. (c)(l)(xi) During the period from August 1, 2000 through July 31, 2001, the Company did not expend any funds on research and development, other than expenses and equipment related to its website development maintenance business The Delta CG product line assets represent approximately $1.2 Million in R&D funds expenditures over the past five years. (c) (l)(xii) The Company is not materially affected by the federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. (c)(l) (xiii) As of July 31, 2001, the Company had one employee (d) Financial Information about Foreign and Domestic Operations and Export Sales. The Company has no material international operations, however it works with system integrators and specialty several service providers in Europe, Asia, Africa, and Latin America. The Company lists a network of over 70 dealers and service providers worldwide for the Delta CG product line. Traditionally over 50% of Delta CG product line revenues have come from export sales. ITEM 2. PROPERTIES The Company has been using space, at no charge, in two different offices of related entities for the purposes of administration and development. ITEM 3. LEGAL PROCEEDINGS The Company is not a present party to any material pending legal proceedings and no such proceedings were known as of the end of the fiscal year. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's shareholders during the fourth quarter ended July 31, 2001. PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information The principal market on which the Company's common stock, $.001 par value (the "Common Stock"), is traded is the over-the-counter market under the symbol "CPVD". Prices for the Common Stock have been reported in the National Daily Quotation Service "Pink Sheets" published by the National Quotation Bureau, Inc. since December 16, 1985 and the Over-The-Counter Bulletin Board (OTCBB) since January 1999. The range of high and low bid quotations for the Company's Common Stock since the quarter ended July 31, 1998 are as follows. The OTC electronic bulletin board pricing information reflects inter-dealer prices, without retail mark-up or mark-down or commissions and may not necessarily represent actual transactions. HIGH BID LOW BID -------- ------- Fiscal 2000 - Quarters Ended: October 31, 1999 $0.0127 $0.0064 January 31, 2000 $0.0064 $0.0070 April 30, 2000 $0.1700 $0.0313 July 31, 2000 $0.1700 $0.0400 Fiscal 2001 - Quarters Ended: October 31, 2000 $0.025 $0.025 January 31, 2001 $0.03 $0.025 April 30, 2001 $0.031 $0.03 July 31, 2001 $0.029 $0.029 (b) Holders. As of July 31, 2001, the number of record holders of the Company's Common Stock was approximately 5,200. (c) Dividends. The Company has never paid a dividend with respect to its Common Stock and does not intend to pay a dividend in the foreseeable future. The shares of Series A Preferred Stock are entitled to a $1.00 per share annual preference, which must be paid before any dividends are payable on the Common Stock. There are no preferred shares outstanding at this time. ITEM 6. SELECTED FINANCIAL DATA July 31, 2001 2000 1999 1998 1997 ------- -------- ------- ------- ------- Working Capital 409,861 (942,970) (627,070) (651,204) (604,401) Cash 61 274 48,563 77 153 Total Assets 1,132,044 204,176 326,404 80,163 67,781 Total Liabilities 208,487 987,288 947,088 731,368 672,182 Shareholders' Equity 923,557 (783,112) (620,684) (651,204) (604,401) Operating Revenue 23,317 149,099 212,210 0 0 Gross Profit 23,317 149,099 212,210 0 0 Total Gen'l & Admin Expenses 46,152 211,444 147,058 16,334 7,026 Research & Development 360 0 0 0 0 Net other income/ (expense) 379,111 (52,178) (43,532) (42,927) (41,540) Net Gain/ (Loss) 355,916 (114,524) 21,621 (59,261) (48,566) Net loss per common share *** *** *** *** *** *** -- less than $.01 per share. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Working capital increased by $1,352,830 from sale or proceeds from preferred stock conversion for the period from August 1, 2000 through July 31, 2001. Net income from operations was $402,200, which consisted mostly of conversion for preferred stock. Acrodyne forgave $430,534 in interest, wrote off $100,000 consulting fees to Enercorp, Inc. plus $14,240 in offset by staff salaries of $13,994, patent Delta sale fees of $4,073 and other general expense of $27,550. In accordance with SFAS 115, the Company reported the 28,475 shares of Williams Controls, Inc. common stock (Nasdaq "WMCO") at fair market value at closing price on July 31, 2001 of $28,731. The stock is classified as available-for-sale securities and originally cost $25,035. In the past the Company has, from time to time, relied on a related company to provide the working funds it has required but there is no assurance that this will continue in future years. The Company received fees in a licensing agreement signed in August 2000, and expects that similar agreements, if they can be completed, will be the Company's primary source of working capital in the future. On June 22, 1999, the Company loaned $150,000 to Pro Golf International, Inc. ("PGI"), a subsidiary of Ajay Sports, Inc., and a website development consulting client of the Company at the time. The Company received a promissory note that was subordinated to PGI's primary lender. The unpaid principal balance had an interest rate of 10% and was due and payable in full on July 22, 2000. On February 29, 2000, the Company converted the principal and interest due under its promissory note into common stock of PGI. The conversion was made at the rate of $60 per common share, the price at which PGI then was offering equity capital for sale in a private offering. Results of Operations - ---------------------- Year ended July 31, 2001 Compared to July 31, 2000 Operating revenue for the years ended July 31, 2001 and 2000 were $29,391, and $149,099 respectively. The Company has discontinued its consulting agreements with two affiliated companies to do website development and maintenance programming work. They are Williams Controls, Inc. ( "Williams") and Ajay Sports, Inc. ("Ajay"). The work product included redesigns of the companies' websites, the development of intranet products, and ongoing maintenance of the sites as new features are added. The subsidiary that had provided revenues, in the years prior to 1992, has been inactive during the last seven years and the Company does not expect income from this operation in future years. Revenues during these two years were primarily from the Company's website development and maintenance business. he Company exited this business activity as of May 5, 2000. General and administrative expenses were $46,512 for the year ended July 31, 2001 compared to $211,444 for the year ended July 31, 2000. As discussed above, the expenses incurred for 2001 were $13,994 for staff salaries, patent fees of $4,776; management fees of $1,100 to a related company; professional fees of $3,292 for auditing services, stock transfer fees and other professional fees; other general and administrative expenses of $21,477. During the year ended July 31,2001, other income and expense consisted of interest expense of $46,331 on notes payable. The Company replaced its most significant computer programs with new updates that were warranted to be Year 2000 compliant. Installation of these updates was completed on September 8, 1999. The Company had no computer or systems issues related to the changeover to the Year 2000 date. Year ended July 31, 2000 Compared to July 31, 1999 Operating revenue for the years ended July 31, 2000 and 1999 were $212,210 and $0, respectively. The subsidiary that had provided revenues, in the years p prior to 1992, has been inactive during the last five years and the Company does not expect income from this operation in future years. Revenues during these two years were primarily from the Company's website development and maintenance business. The Company exited this business activity as of May 5, 2000. General and administrative expenses were $46,512 for the year ended July 31, 2001 compared to $211,444 for the year ended July 31, 2000. The expenses incurred for 2001 were for staff salaries $13,994, the extension of currently held patents $4,776; professional fees of $3,292; management fees of $1,100 to a related party for services including accounting and SEC report preparation; travel and entertainment of $4,073; and other general and administrative expenses of $21,477. During the year ended July 31, 2001, other income and expense consisted of interest expense of $46,331 on notes payable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data immediately follow the signature page of this document and are listed under Item 14 of Part IV of this Annual Report on the Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (a) and (b) Identification of Directors and Executive Officers. Name Age Position - ------------------------ ---- ----------------------------- Thomas W. Itin 67 Chairman of the Board and Treasurer Robert J. Flynn 66 Vice President, Director, and Secretary David Scull 48 President and Chief Executive Officer The directors of the Company are elected to hold office until the next annual meeting of shareholders and until their respective successors have been elected and qualified. Officers of the Company are elected by the Board of Directors and hold office until their successors are elected and qualified. (c) Identification of Certain Significant Employees. The Company is subject to Section 13(a) of the Securities Exchange Act of 1934 and is therefore not required to identify or disclose information concerning its significant employees. (d) Family Relationships. There are no family relationships between any director, executive officer or person nominated or chosen by the Company to become a director or executive officer. (e) Business Experience. (e) (1) Background. Thomas W. Itin was elected a director of the Board of the Company in April of 2001. Mr. Itin has been a director of Williams Controls, Inc., a publicly held company since its inception in November 1988. He also served as Chairman of the Board and Chief Executive Officer of Williams from March 1989 until January 2001 and also as President and Treasurer from June 1993 until January 001. He has served as Chairman of the Board, Chief Executive Officer and Chief Operating Officer of LBO Capital Corp. since its inception. Mr. Itin has been Chairman, President and Owner of TWI International, Inc. since he founded the firm in 1967. TWI International acts as a consultant for mergers, acquisitions, financial structuring, new ventures and asset management. .Mr. Itin also has been Owner and Principal Officer of Acrodyne Corporation since 1962. In May 2001, Mr. Itin became a director of Enercorp, Inc., a publicly held company. He received a Bachelor of Science degree from Cornell University and an MBA from New York University. Mr. Itin served on he Cornell University Council and was Chairman of the Technology Transfer Committee. Robert J. Flynn has been Chairman of the Board of Funding Enterprises, a Southfield, Michigan based marketing company for 20 years. He has been active in the securities and insurance fields since 1963 and in the marketing of Real Estate securities since 1968. Mr. Flynn is licensed as a registered security representative and insurance agent. Since 1981, he has been Chairman of the Act 78 Southfield Police and Fire Commission. Mr. Flynn received a B.S. degree from Cornell University in 1958. David Scull was appointed President and Chief Executive Officer and serves as a member of the Board of the Company following the acquisition of the Delta product line assets by the Company from ScanLine Technologies in April of 2001. Prior to joining the Company in May, 2001, Mr. Scull served as President and CEO of ScanLine Technologies of Salt Lake City, Utah for three (3) years. Over the previous twelve (12) years, Mr. Scull has held executive level management positions in various high technology related firms. He served as President and CEO of IPC Technologies, an Austin, Texas based company involved in personal computer systems and peripherals manufacturing and global direct sales. He also served as Executive Director of Seagate Technology, Inc. for the Asia Pacific region. Mr. Scull received a Bachelor of Business Administration degree from Oklahoma University and a Masters degree in International Finance from the American Graduate School of International Management (also known as "Thunderbird"). (e) (2) Directorships. Mr. Itin is a director of Woodward Partners, Inc., Pro Golf International, Inc., Enercorp, Inc., Williams Controls, inc. and Ajay Sports, Inc., the latter three of which are publicly-held companies. Mr. Flynn is Chairman of the Board of Funding Enterprises. (f) Involvement in Certain Legal Proceedings. (f) (1) During the past five years, there have been no filings of petitions under the federal bankruptcy laws or any state insolvency laws, nor has there been appointed by any court a receiver, fiscal agent or similar officer by or against any director or executive officer of the Company or any partnership in which such person was a general partner or any corporation or business association of which he was an executive officer within two years before the time of such a filing, except as stated in Item 10 (e) (1), above. (f)(2) No director or executive officer of the Company has, during the past five years, been convicted in a criminal proceeding or is the named subject of a pending criminal proceeding. (f)(3) During the past five years, no director or executive officer of the Company has been the subject of any order, judgment or decree not subsequently reversed, suspended or vacated by any court of competent jurisdiction permanently or temporarily enjoining him from or otherwise limiting the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of business practice; or (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities law. (f)(4) During the past five years no director or executive officer of the Company has been the subject of any order, judgment or decree not subsequently reversed, suspended or vacated by any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f) (3) (i) of this Item or to be associated with persons engaged in any such activity. (f)(5) During the past five years no director or executive officer of the Company has been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law. (f)(6) During the past five years no director or executive officer of the Company was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, which judgment or finding has not been subsequently reversed, suspended or vacated. ITEM 11. EXECUTIVE COMPENSATION (a) (1) Cash Compensation. The following sets forth all remuneration paid in the fiscal year ended July 31, 2001, to all officers of the Company and the total amount of remuneration paid to the officers and directors as a group: Number of persons Capacities in Cash in group (1) which served compensation - ------------------------- -------------------- -------------------- All executive officers Various None as a group No officers or directors received remuneration exceeding $100,000 during the fiscal year ended July 31, 2001. (b) (1) Compensation Pursuant to Plans. Incentive Stock Option Plan The Board of Directors of the Company, in October 1985, adopted an Incentive Stock Option Plan (the "Plan") for key employees. Options covering a total of 7,000,000 shares of Common Stock are available for grant under the Plan. The Plan is administered by the Board of Directors, who is responsible for establishing the criteria to be applied in administering the Plan. The Board of Directors is empowered to determine the total number of options to be granted to any one optionee, provided that the maximum fair market value of the stock for which any employee may be granted options during a single calendar year may not exceed $100,000 plus one-half of the excess of $100,000 over the aggregate fair market value of stock for which an employee was granted options in each of the three preceding calendar years. The exercise price of the options cannot be less than the market value of the Common Stock on the date of grant (110% of market value in the case of options to an employee who owns ten percent or more of the Company's voting stock) and no option can have a term in excess of ten years. In the event of certain changes or transactions such as a stock split, stock dividend or merger, the Board of Directors has the discretion to make such adjustments in the number and class of shares covered by an option or the option price as they deem appropriate. Options granted under the Plan are nontransferable during the life of the optionee and terminate within three months upon the cessation of the optionee's employment, unless employment is terminated for cause in which case the option terminates immediately. Only one option has been granted under the plan and it has lapsed. (b) (2) Pension Table. The Company has no defined benefit and actuarial plan providing for payments to employees upon retirement. (b) (3) Alternative Pension Plan Disclosure. The Company has no defined benefit and actuarial plan providing for payments to employees upon retirement. (b) (4) Stock Option and Stock Appreciation Rights Plans. During the period from August 1, 2000, through July 31, 2001, no stock options were granted. (c) Other Compensation. No other compensation having a value of the lesser of $100,000 or ten percent of the compensation reported in the table in paragraph (a) (1) of this Item was paid or distributed to all executive officers as a group during the period from August 1, 2000, through July 31, 2001. (d) Compensation of Directors. (d) (1) Standard Arrangements. The Company reimburses its directors for expenses incurred by them in connection with business performed on the Company's behalf, including expenses incurred in attending meetings. No such reimbursements were made for the period from August 1, 2000 through July 31, 2001 The Company does not pay any director's fees. (d) (2) Other Arrangements. There are no other arrangements pursuant to which any director of the Company was compensated during the period from August 1, 2000, through July 31, 2001, for services as a director other than as listed above in (d) (1). (e) Termination of Employment and Change of Control Arrangement. The Company has no formal plan or arrangement with respect to any such persons, which will result from a change in control of the Company or a change in the individual's responsibilities following a change in control. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a)(b) Security Ownership of Certain Beneficial Owners and Management. The following table sets forth the number of shares of the Company's common stock, its only class of voting securities, owned by executive officers and directors, individually, and beneficial owners of more than five percent of the Company's Common Stock, and executive officers as a group, as of October 31, 2001. Number of Shares and Nature of Beneficial Percent Name and address Ownership (1) of Class - ----------------------------- ---------------------- ---------- TICO, Inc. 30,000,000 18.7% 32751 Middlebelt Road Suite B Farmington Hills, Michigan 48334 Acrodyne Profit Sharing Trust 9,617,594 6.0% 32751 Middlebelt Road Suite B Farmington Hills, Michigan 48334 Thomas W. Itin 64,652,594 (3) 40.4% 32751 Middlebelt Road Suite B Farmington Hills, Michigan 48334 David Scull No common stock at this time Officer and directors 15,000,000 (5) 9.4% as a group (one person) (1) All shares are beneficially owned of record unless otherwise indicated. (2) A transfer of 20,000,000 shares from CompuSonics Corporation to Equitex had not been recorded by the Company's stock transfer agent as of October 1, 2000 but has been reflected in the above numbers. The shares have subsequently been transferred from Equitex to other parties. (3) Mr. Itin has held in his name no shares of the Company. Mr. Itin may have beneficial ownership of the following: TICO, Inc. 30,000,000 TICO 35,000 SICO 5,000,000 Acrodyne Profit Sharing Trust 9,617,594 Other Trusts 20,000,000 ----------- 64,652,594 ========== Mr. Itin is a controlling person in TICO, Inc. Mr. Itin is controlling partner in TICO and a general partner with no equity ownership in SICO. Shares in TICO Inc.'s name, are held as nominee for Thomas W. Itin or assigns. Mr. Itin is the trustee and beneficiary of Acrodyne Profit Sharing Trust. Therefore, he can be considered as having beneficial ownership of the shares of these entities. Mr. Itin's wife is a trustee of certain other trusts holding a total of 20,000,000 shares. Mr. Itin is not a beneficiary of the above mentioned trusts in which his wife is trustee and disclaims any beneficial ownership. (4) Includes 15,000,000 shares held in rust for his children. Mr. Hebard is not a trustee or beneficiary of the trust and disclaims any beneficial interest in them. (5) Includes only active management as of October 31, 2001. (c) Changes in Control. On August 19, 1993 Equitex transferred all its interest in the Company including stocks, notes and accounts receivable to Thomas W. Itin or his assigns. No other significant changes in ownership have occurred, to the best of the knowledge of the Company, since that time. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others. License Agreement Effective April 30, 2001, the Registrant acquired the assets of the Delta product line of ScanLine Technologies. Those assets are principally the character generator (CG) technology of ScanLine. The Registrant will retain and utilize the ScanLine Technologies and Quanta names. The Delta CG product line assets represent a business line with over 600 established customers within the TV broadcast and video production industry. Delta CG products are based upon proprietary hardware and software. Approximately 1700 Delta CG systems are in use today worldwide. The estimated installed base value of these Delta CG systems is over $43 Million. Delta CG systems are capable of both analog and Digital input/output support. As market trends dictate, many of these Delta CG systems must be upgraded or exchanged for newer systems that support HDTV resolutions and formats. The company is positioning itself to take advantage of very powerful technology and market trends by developing the next generation of HDTV-ready systems. These will be backward compatible with older Delta CG systems and file formats. For these and other reasons, current customers have a strong interest in the next generation of Delta CG. Total open quotations for Delta CG systems upgrades and new equipment exceed $10 Million. On August 11, 2000, the Company announced in a news release that it had signed a licensing agreement with Interactive Digital Media Corporation (IDMC) for technology related to the Company's patent portfolio. This was CompuSonics Video's first licensing agreement since announcing in April 2000 that it would focus its business activities on the licensing of the patents. IDMC, based in Scottsdale, Arizona, manufactures a product called the PC-DEC? IDM? System 7. The System 7 is an easy-to-use interactive home entertainment and information control center that represents the ultimate in multi-media entertainment and personal computing for the home. The System 7 combines a multimedia computer, internet browser, video phone, virtual VCR, AM/FM tuner, DVD, video gaming device and home security system into one powerful unit. Under the licensing agreement, CompuSonics Video granted a non-exclusive, royalty bearing license for the Company's patented audio and video digital recording and playback system technology to IDMC for the System 7 and other products that IDMC may produce now and in the future. The license was structured so as to provide for an upfront payment of $10,000, a note receivable of $90,000, and an ongoing royalty based on the sales of units covered by the license. The Company also indicated in the news release that it has continued to renew and maintain its patents in the U.S. and key foreign countries in the belief that the foreign patents may contribute additional value to the patent portfolio that the Company intends to offer for license. These foreign patent rights may be especially important where prospective licensees have significant manufacturing or sales operations in foreign countries where the Company enjoys patent protection. The Company is hopeful that licensing its foreign patent rights along with the U.S. rights will enhance the royalty-generated revenue stream to the Company in the event that the Company is successful in its licensing program. On June 22, 1999, the Company loaned $150,000 to Pro Golf International, Inc. ("PGI"), a subsidiary of Ajay Sports, Inc., and a website development consulting client of the Company at the time. The Company received a promissory note that was subordinated to PGI's primary lender. The unpaid principal balance had an interest rate of 10% and was due and payable in full on July 22, 2000. On February 29, 2000, the Company converted the principal and interest due under its promissory note into common stock of PGI. The conversion was made at the rate of $60 per common share, the price at which PGI then was offering equity capital for sale in a private offering. On September 17, 1985, the Company and CompuSonics Corporation, a shareholder of the Company, entered into a license agreement pursuant to which the Company received an exclusive license to the digital audio technology, CSX, owned by CompuSonics Corporation for the limited purpose of integrating the audio technology into the Company's proposed digital recording and playback system. The agreement limited the licensed rights for use only in connection with the video system. No continuing royalty payments or fees are to be paid. The Company is not in violation of any of the license restrictions, to the best of its knowledge. The license may not be transferred by the Company. The technology licensed allows the Company to utilize digital audio in its system rather than an analog-based audio. CompuSonics Corporation has been developing the licensed digital audio technology since its inception and has engaged in marketing and promoting its CSX Technology licensing and engineering consulting services on a limited basis in the past, but the Company believes that it no longer does so. Assignment Agreement and Issuance of Preferred Stock The Company issued 300,000 shares of Series A Preferred Stock to CompuSonics Corporation which were converted in September 1988 into 30,000,000 shares of Common Stock in return for the assignment by CompuSonics Corporation of its rights under United States and certain foreign patent applications, and all rights to a digital video recording and playback system. The assignment of patent application and all other rights to the digital video system gives the Company the right to develop or license the technology assigned. CompuSonics Corporation has relinquished the right to develop this video technology. From the acquisition of Delta DG product line, D.Scull was issued 40 Million shares preferred Class B stock convertible at 2 to 1 (80,000,000) to be exercised sometime in the future. For the conversion of notes and forgiveness of interest, Dearborn Wheels, Inc. and First Equity Corporation were each issued 2,000,000 shares preferred Class A stock convertible at 20 to 1 (8,000,000) shares to be exercised sometime in the future. Loans The Company and its subsidiary Tyler-Shaw together, have outstanding notes and accounts payable to an affiliated party totaling $159,122.97 with interest as of July 31, 2000. The Company acquired the assets of the Delta CG product line. These assets had a material value / book value as stated on the balance sheet of $63,462. (b) Certain Business Relationships. (b) (1) During the Company's most recently completed fiscal year, none of its directors or nominees for election as directors have owned, of record or beneficially, in excess of ten percent of the equity interest in any business or professional entity that made during that year, or proposes to make during the Company's current year, payments to the Company for property or services in excess of five percent of: (i) the Company's consolidated gross revenues for its last full fiscal year or (ii) the other entity's consolidated gross revenues for its last full fiscal year. (b) (2) No nominee or director of the Company is, or during the last full fiscal year has been, an executive of or owns, or during the last full fiscal year has owned, of record or beneficially, in excess of a ten percent equity interest in any business of professional entity to which the Company has made during the Company's last full fiscal year or proposes to make during the Company's current fiscal year, payments for property or services in excess of five percent of (i) the Company's consolidated gross revenues for its last full fiscal year, or (ii) the other entity's consolidated revenues for its last full fiscal year. (b) (3) No nominee or director, except as disclosed under Item 13(a) Loan section of this report, of the Company is, or during the last full fiscal year has been, an executive of or owns, or during the last full fiscal year has owned, of record or beneficially in excess of ten percent equity interest in any business or professional entity to which the Company was indebted at the end of the Company's last full fiscal year in an aggregate amount in excess of five percent of the Company's total consolidated assets at the end of such fiscal year. (b) (4) No nominee or director of the Company is, or during the last fiscal year has been, a member of or of counsel to a law firm that the Company has retained during the last fiscal year or proposes to retain during the current fiscal year. (b) (5) No nominee for or director of the Company is, or during the last fiscal year has been, a partner or executive officer of any investment banking firm that has performed services for the Company, other than as a participating underwriter in a syndicate, during the last fiscal year or that the Company proposes to have performed services during the current year. (b) (6) The Company is not aware of any other relationship between nominees for election as directors or its directors and the Company that are similar in nature and scope to those relationships listed in paragraphs (b) (1) through (5) of this Item 13. (c) Indebtedness of Management. No director, executive, officer, nominee for election as a director, any member, except as disclosed under Item 13(a) Loan section of this report, of the immediate family of any of the foregoing, or any corporation or organization of which any of the foregoing persons is an executive officer, partner or beneficial holder of ten percent or more of any class of equity securities, or any trust or other estate in which any such person has a substantial beneficial interest or as to which such person serves as a trustee or in a similar capacity, was indebted to the Company in an amount in excess of $100,000 at any time since August 14, 1985. (d) Transactions with Promoters. This filing is not on a Form S-1 or Form 10 and therefore the Company is not required to report any information concerning transactions with promoters. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report Form 10-K (b) immediately following the signature page. 1. Financial Statements and Supplementary Data. Page Independent Auditor's Report F-1 Consolidated Balance Sheets at July 31, 2001 and 2000 F-2 Consolidated Statements of Operations for the years ended July 31, 2001, 2000 and 1999 F-3 Consolidated Statements of Changes in Stockholders' Deficit for the years ended July 31, 2001, 2000 and 1999 F-4 Statements of Cash Flows for the years ended July 31, 2001, 2000 and 1999 F-5 Notes to Consolidated Financial Statements F-6 to F-14 Schedules of Investments at July 31, 2001 and 2000 F-15 2. Financial statement schedules required to be filed are listed below and may be found at the page indicated. Schedules have been omitted because they are not required or the information is included in the financial statements and notes thereto. 3. Exhibits. None (b) Reports on Form 8-K A Form 8-K was filed on December 14, 2000 to announce the extension of Class A and Class B Warrants from December 31, 2000 to December 31, 2001. (c) Exhibits required by Item 601 of Regulation S-K Exhibit 3.1 Articles of Incorporation * Exhibit 3.2 Bylaws * Exhibit 3.3 Designation of Series A Preferred Stock - Exhibit 11 Statement of Computation of Per Share Earnings (Loss) F-4 Exhibit 16 Letter re: Change in Certifying Accountant.. ..........* Exhibit 27 Financial Date Schedule * Exhibit 28 Licensing Agreement with Interactive Digital Media Corporation dated August 11, 2000 *Incorporated by reference from the Company's Registration Statement on Form S-18, No. 1-14200, and effective November 27, 1985 and prior SEC filings. Required exhibits are listed in Item 14 (a) (3) of this Annual Report on Form 10-K. (d) Financial Statement Schedules. Required financial statement schedules are attached hereto and are listed in Item 14(a) (2) of this Annual Report on Form 10-K SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registration has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. COMPUSONICS VIDEO CORPORATION (Company) By: s/s David Scull --------------------------- David Scull, President Date: November 13, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on the 13th day of November, 2001. Signature s/s Thomas W. Itin ------------------- Thomas W. Itin Title: Chairman of the Board of Directors Signature s/s Robert J. Flynn -------------------- Robert J. Flynn Title: Director Signature s/s Dave Scull ----------------------- Dave Scull Title: Director, President and CEO The foregoing constitute all of the Board of Directors. INDEPENDENT AUDITOR'S REPORT Board of Directors CompuSonics Video Corporation and Subsidiaries We have audited the accompanying balance sheet of CompuSonics Video Corporation and Subsidiaries as of July 31, 2001 and 2000, and the related statement of operations, changes in stockholders' deficit, and cash flows for the years ended July 31, 2001, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CompuSonics Video Corporation and Subsidiaries as of July 31, 2001 and 2000 and the results of its operations and its cash flows for the years ended July 31, 2001, 2000 and 1999 in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as whole. The schedule on F-15 is presented for purposes of complying with the rules of the Securities and Exchange Commission and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as whole. J L Stephan Co PC J L Stephan Co PC Traverse City, Michigan November 12, 2001 Independent Auditors Letter to the Board F-1 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS July 31, 2001 2000 --------- --------- Current Assets Cash 61 274 Accounts Receivable - Related Parties 426 225 Interest Receivable 0 0 Inventory 589,129 0 Notes Receivable - Related Party 0 0 Prepaid Assets 0 219 Marketable Equity Securities Available for Sale 28,731 43,601 ------- ------ Total Current Assets 618,348 44,318 Other Assets Investments 158,000 159,000 Patents 300,000 0 Less Amortization (5,000) 0 Leasehold Improvements 1,875 0 Less Accumulated Depreciation (63) 0 Equipment 63,462 1,509 Less Accumulated Depreciation (5,579) (650) ---------- ---------- Total Other Assets 512,696 159,858 Total Assets $1,132,044 $204,176 ========== ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Notes Payable to Related Entities $ 181,241 $ 547,240 Notes Payable - Other 1,300 24,000 Accounts Payable and accrued Liabilities 19,016 48,786 Accounts Payable - Related Entities 2,384 367,262 ---------- ---------- Total Liabilities 203,940 987,288 ---------- ---------- Stockholders' Deficit Preferred Stock - Series A. Convertible Stock 20,000,000 Shares Authorized, 4,000,000 Shares Issued and Outstanding 400,000 0 Preferred Stock - Series B Convertible Stock 550,000,000 Shares Authorized, 40,000,000 Shares Issued and Outstanding 400,000 0 Common Stock $.001 Par Value, 300,000,000 Shares Authorized, 160,006,250 Shares Issued and Outstanding in 2001 and 2000 160,006 160,006 Additional Paid-in Capital 1,247,981 680,880 Paid in Surplus 0 0 Retained Earnings Other Comprehensive Income 1,175 16,045 Accumulated Deficit (1,282,059) (1,640,043) -------- ----------- Total Stockholders' Deficit 927,104 (783,112) -------- ----------- Total Liabilities and Stockholders' deficit $1,131,044 $ 204,176 ========= =========== The accompanying notes are an integral part of this financial statement F-2 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended July 31, 2001, 2000 and 1999 2001 2000 1999 ------- ---------- ---------- Commission Income -0- $147,332 $212,210 Gain (Loss) on Fixed Assets -0- (754) -0- Consulting Income 5,150 -0- -0- Licensing Income 10,000 -0- -0- Sales of Delta 14,241 -0- -0- Miscellaneous Income -0- 2,521 -0- --------- -------- -------- Total Revenue 29,391 149,099 212,210 -------- -------- -------- Cost of Goods Sold 4,427 0 0 -------- ------- ------- Gross Profit 24,964 149,099 212,210 -------- ------- ------- General and Administrative Expense Staff Salaries 9,587 108,425 101,871 Professional fees 4,122 14,864 7,231 Management Fees - Related Party (1,100) 5,740 4,150 PatenT Fees 4,776 10,349 7,156 Travel and Entertainment 3,258 586 6,121 Bab Debts Expense -0- 50,566 -0- All Other General and Administrative Expenses 24,448 20,915 20,582 -------- -------- ------- Total General and Administrative Expenses 45,091 211,444 147,058 Gain (Loss) From Operations (20,127) (62,346) 65,152 Forgiveness of Debts 425,394 -0- -0- Interest income (951) 7,397 1,603 Interest Expense (46,331) (59,576) (45,134) ------- ------- ------- Total Other Income (Expense) 378,113 (52,178) (43,532) ------- ------- ------- Net Income Before Income Taxes 357,987 (114,524) 21,621 Income Tax Benefit 0 0 0 ------- ------- ------- Net Income (Loss) $357,987 $(114,524) $ 21,621 ======= ========= ======== Weighted Average Number of Common Shares 160,006,250 160,006,250 160,006,250 =========== =========== =========== Net Income Per Common Share 0.00 $ (0.00) $ (0.00) ========== =========== ========= The accompanying notes are an integral part of this financial statement F-3 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATE STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT For the Years Ended July 31, 2001, 2000 and 1999 Convertible Addit'l Other Total Preferred Common Paid-in Compre- Accum' Stockhdrs Stock Stock Capital hensive Income Deficit Deficit ------------------------------------------------------------------ Shares Amount Shares Amount -------------------------------- Balance at July 1998 0 0 160,006,250 160,006 $680,880 $55,051$(1,547,141)$(651,204) Net Income for the Year 21,621 21,621 Unrealized Gain (Loss) on Investments 0 0 0 0 0 8,898 0 8,898 ------------------------------------------------------------------------ Balance at July 31, 1999 0 $0 160,006,250 160,006 $680,880 63,949 $(1,525,520)$(620,685) Net Loss for the Year (114,524) (114,524) Unrealized Gain (Loss on Investments 0 0 0 0 0 (47,904) 0 47,904) ------------------------------------------------------------------------ Balance at July 31, 2000 0 0 160,006,250 $160,006 $680,880$16,045$(1,640,044)$(783,113) ======================================================================== Issuance of Preferred Stock 44,000,000 Net Income for the Year 44,000,000 $800,000 $567,101 357,986 1,725,087 Unrealized Gain (Loss) on investments 44,000,000 0 0 0 0 (14,870) 0 (14,870) ------------------------------------------------------------------------ Balance at July 31, 2001 44,000,000 $8,000 160,006,250 $160,006 $1,247,981 $1,175 $(1,282,058)$927,104
The accompanying notes are an integral part of this financial statement F-4 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended July 31, 2001, 2000 and 1999 2001 2000 1999 -------- ----------- ---------- Cash Flows from Operating Activities Net Loss $355,916 $ (114,524) $ 21,621 Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities Depreciation 9,991 2,374 735 Loss on Disposal of Assets 0 754 0 Accrued Interest Income 0 (9,000) 0 (Increase) Decrease In Inventory (589,129) 0 0 (Increase) Decrease In: Accounts Receivable and Accrued Assets (1,460) 32,026 (32,470) Increase (Decrease) in: Accounts Payable and Accrued Liabilities (29,770) (18,021) 18,797 Accounts Payable Related Entities (362,458) 59,522 42,924 --------- ------- -------- Total Adjustments (972,826) 67,655 29,986 --------- ------- -------- Net Cash (Used For) Operations (616,910) (46,869) 51,607 --------- -------- -------- Cash Provided by Investing Activities Purchase of Equipment (63,829) 0 0 Purchase of Patents (300,000) 0 0 Proceeds from Sale of Equipment 0 2,400 (7,121) Investments 0 (2,521) (150,000) -------- -------- --------- Net Cash (Used for) Investing Activities (363,829) (121) (157,121) -------- -------- --------- Cash Provided by Financing Activities Proceeds from Stock Sold 1,367,102 0 0 Proceeds From Notes Payable (22,700) 3,900 0 Proceeds From Notes Payable-Related (363,875) (5,200) 154,000 -------- -------- -------- Net Cash Provided by Financing Activities 980,527 1,300 154,000 Increase (Decrease) in Cash (212) (48,290) 48,486 Balance at Beginning of year 273 48,563 77 -------- --------- --------- Balance at End of Year $ 61 $ 273 $ 48,563 ======== ======== ======== Supplemental Disclosure of Non-Cash Investing and Financing Activities: Note Receivable and Accrued Interest Converted to Stock $ 0 $ 159,000 0 ========= ========== ========= The accompanying notes are an integral party of this financial statement F-5 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 2001 Note 1. Significant Accounting Policies A. Business History CompuSonics Video Corporation (the "Company") was incorporated under the laws of the State of Colorado on August 14, 1985, for the purpose of developing, manufacturing and marketing a digital video recording and playback system. On December 13, 1985, the Company concluded a public offering of 30,000,000 Units, each Unit consisting of one share of its common stock and one Class A Warrant, and received net proceeds of $727,971. On November 16, 1987, the Company acquired The Tyler-Shaw Corporation, a New York corporation ("Tyler-Shaw"), which was engaged in the business of direct mail marketing. Effective July 31, 1992, Tyler- Shaw was considered inactive. Tyler-Shaw has no operations, research and development, earnings, cash flows, product development or sources of financing. On January 20, 1988, the Company acquired all the outstanding stock of TS Industries, Inc. ("TSI") in a transaction accounted for as a pooling of interests. (See Note 2). TSI was incorporated in the State of Colorado on July 28, 1987, but did not commence operations until the acquisition of The Tyler-Shaw Corporation, a New York Corporation ("TSC"). TSI acquired TSC from Edward B. Rubin, its sole shareholder, under an agreement dated July 23, 1987 (the "Agreement") between Mr. Rubin, Equitex, Inc. ("Equitex") and TICO, Inc. ("TICO"). On November 1, 1987, Equitex and TICO assigned all their rights under the Agreement to TSI. Equitex and TICO each owned 50% of the issued and outstanding capital stock of TSI, prior to the exchange of TSI stock for the Company's stock. This acquisition was accounted for under the purchase method of accounting (See Note 2). TSC acted as a syndicator of consumer products through direct mail marketing programs. As of July 31, 1992, TSC was considered inactive and all relating assets were written off along with the reversal of its prior accruals. CompuSonics Video Corporation has no proven products or operations in the digital equipment area. At this time, Tyler Shaw is without any operations. In August, 1998, the Company hired a manager experienced in Internet programming to investigate the possibility of implementing a new business activity for the Company known as website development and maintenance. The rapid development of the Internet and its graphical element, the World Wide Web, has made the use of the Internet commonplace among many companies and individuals around the world. The Company's management concluded that opportunities existed in this emerging market and developed a business model where the Company would seek programming contracts to do this type of work on a consulting and project basis. The manager hired to do the business investigation was named the Director of Technology Development and the Company began its consulting work in the fourth calendar quarter of 1998, when the Company established its operations in Chicago and hired additional staff. Due to the inability to obtain a regular flow of programming and consulting contracts, the Company discontinued this activity in May 2000. F-6 On April 28, 2000, the company announced that it would begin pursuing companies who might have an interest in licensing its technology covered by the Company's patents. On August 11, 2000, the Company announced that it had signed a licensing agreement with Interactive Digital Media Corporation (IDMC) for the use of technology related to the company's patent portfolio. This was the company's first licensing agreement since announcing in April 2000 that it would focus its business activities on the licensing of the technology represented in the patents. Under the licensing agreement, the Company granted a non-exclusive, royalty- bearing license for the Company's patented audio and video digital recording and playback system technology to IDMC for the System 7 and other products that IDMC may produce now and in the future. Terms of the license were structured so as to provide for an upfront payment, a note payable to the Company for the remainder of the licensing fee, and an ongoing royalty payments based on the sales of units covered by the license. On May 10, 2000, the Registrant announced in a news release that it had paid the renewal fees required to maintain its data compression patents in effect in the United Kingdom, France, Germany, Belgium, Luxembourg and Switzerland. These foreign patents, as well as the Registrant's Japanese patent, are counterparts of the corresponding U.S. Patents in which the Registrant holds an interest. The foreign patents are expected to be offered for license along with the Registrant's U.S. patents. On April 19, 2001, negotiations began with Scanline Technologies, Inc. As Part of the negotiations, Scanline required that notes of the Company be Converted and interest forgiven to 4,000,000 shares of preferred Class A convertible stock, convertible at 20 to 1 (80,000,000) shares to be converted sometime in the future. On April 30, 2001, Robert R. Hebard resigned from his positions as chairman President, Treasurer, and CFO of the Company. Effective April 30, 2001, the Registrant acquired the assets of the Delta product line of ScanLine Technologies. Those assets are principally the character generator (CG) technology of ScanLine. The Registrant will retain and utilize the ScanLine Technologies and Quanta names. As part of the acquisition, Dave Scull was to be issued 40,000,000 shares of preferred Class B convertible shares, convertible at 2 to 1 (80,000,000) shares, to be converted sometime in the future. The Delta CG product line assets represent a business line with over 600 established customers within the TV broadcast and video production industry. Delta CG products are based upon proprietary hardware and software. Approximately 1700 Delta CG systems are in use today worldwide. The estimated installed base value of these Delta CG systems is over $43 Million. F-7 Delta CG systems are capable of both analog and Digital input/output support. As market trends dictate, many of these Delta CG systems must be upgraded or exchanged for newer systems that support HDTV resolutions and formats. The company is positioning itself to take advantage of very powerful technology and market trends by developing the next generation of HDTV-ready systems. These will be backward compatible with older Delta CG systems and file formats. For these and other reasons, current customers have a strong interest in the next generation of Delta CG. Total open quotations for Delta CG systems upgrades and new equipment exceed $10 Million. CompuSonics Video seeks to establish itself, its products, and patented technologies within the TV broadcast, post production, and broader video industries. This transaction will give CompuSonics Video that opportunity. In addition to the merger effects, recent reorganization of the Company's balance sheet provides for a stronger asset position and higher value proposition. B. Consolidation The consolidated financial statements include the consolidated financial information of TSI since that entity's inception. This consolidated financial information of TSI includes the operations of its wholly owned subsidiary, TSC, since its acquisition on November 16, 1987. All significant inter company balances and transactions have been eliminated in consolidation. C. Patents Patent costs for the years ended July 31, 1991 and prior were amortized on the straight-line method over the estimated useful life of the patents of 17 years. Due to the lack of a marketable product, research and marketing development, and the lack of adequate capital to protect and take advantage of these patents, effective with the year ended July 31, 1992, all unamortized patent costs were fully amortized. All patent maintenance costs are expensed when incurred. Patents were issued on July 21, 1987 and July 5, 1988. During the year ended July 31, 2001 and 2000 the cost to maintain these patents and record them in foreign countries was $4,776 and $10,349 respectfully, which were recorded as patent fees expense. D. Income Taxes The Company and it's wholly owned subsidiaries file a consolidated federal income tax return. Due to the Company's net operating losses there is no provision for federal income taxes in these financial statements. F-8 Tax credits will be reflected in the income statement under the flow- through method as a deduction of income taxes in the year in which they are used. At July 31, 2001, the Company's carryforwards are as follows: Net General Year of Net Operating Loss Capital Business Expiration Book Tax Loss Credits - ----- ---------- ---------- ---------- -------- 2001 -0- -0- -0- 11,763 2002 302,543 306,786 -0- 18,390 2003 329,338 223,481 -0- -0- 2004 66,722 110,507 -0- -0- 2005 155,215 143,453 -0- -0- 2006 80,080 55,410 730 -0- 2007 236,002 228,734 -0- -0- 2008 84,714 99,931 22,500 -0- 2009 55,673 55,664 -0- -0- 2010 57,605 57,499 -0- -0- 2011 63,576 63,576 -0- -0- 2012 48,566 48,566 -0- -0- 2013 59,261 59,261 -0- -0- 2019 114,524 114,524 -0- -0- he primary difference between the book and tax net operating loss carryforwards result from differences in depreciation and amortization methods and the treatment of unrealized loss of market value of certain investments. E. Net Loss (Gain) Per Common Share The net loss (gain) per common share is computed by dividing the net loss (gain) for the period by the weighted average number of shares outstanding. All "cheap stock" issued prior to the public offering is included in the computation as if it were outstanding from inception. F. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less cash equivalents. F-9 G. Equipment and Depreciation Equipment was stated at cost. Depreciation was computed for financial reporting purposes on a straight-line basis over an estimated life. Depreciation expense for the years ended July 31, 2001, 2000 and 1999 was $4,991 and $735 respectively. H. Inventory Inventory is stated at cost, using the first-in, first-out method of inventory valuation. Inventory consists primarily of the following: 2001 --------- Raw Materials $352,117 Parts 14,012 Work-in-Process 39,000 Finished Goods 184,000 --------- Total Inventory $589,129 I. Intangible Assets and Amortization Intangible assets includes fonts and intellectual property obtained from ScanLine in April 2001. Being amortized over an estimated useful life at 15 years. Note 2. Marketable Securities During the years ended July 31, 2001 and 2000 the Company held common stock in Williams Controls, Inc. (Nasdaq: WMCO) in which a major shareholder and former officer/director of the Company is an officer. The stock had a cost of $25,035 and a fair market value at July 31, 2001 and 2000 of $28,731 and $43,601 respectively. In accordance with SFAS 115, the Company has classified the WMCO stock as an available-for-sale security and has reported it at its fair market value effective July 31, 2001. These securities are collateral for loans from a related party. Note 3. Notes Payable and Notes Receivable A. Related Entity Notes Payable Since the inception of the Company to October 2001, related companies have provided loans to meet the operating cash flow need. These notes are rewritten as the loan amount increases. Notes payable to related entities bear interest at 10 to 12 percent per annum, and are due and payable within 180 days or on demand and are dated as follows: July 31, 2001 2000 ------ -------- June 21, 1988 (3) 12% 0 600 August 30, 1989 (3) 12% 0 6,500 January 14, 1993 (3) 10% 0 5,000 May 15, 2001 (1) 10.75% 3,500 376,017 March 5, 2001 (2) 159,123 159,123 -------- -------- Total 162, 623 542,240 (1) Owed to Acrodyne Corporation ("Acrodyne"). Collateralized by all assets of CompuSonics Video Corporation. (2) owed to Acrodyne. Collateralized by all of the assets of Tyler- Shaw. F-10 B. Non - Related Entity Notes Payable July 31, 2001 2000 February 9, 2001 (1) 10.50% 1,300 24,000 (1) Owed to First Equity Corporation. Collateralized by all assets of CompuSonics Video Corporation. C. Notes Receivable - Related On June 22, 1999, the Company loaned $150,000 to Pro Golf International, Inc. ("PGI"), a subsidiary of Ajay Sports, Inc. The Company received a promissory note that is subordinated to PGI's primary lender. On February 29, 2000, the Company converted its note receivable from PGI, and the interest accrued but not paid on such note receivable, into common stock of PGI. (See Note 10). The balance of the notes receivable as of July 31, 2001 & July 31, 2000 was $0 and $0 respectively. Note 4. Stockholders' Equity A. Preferred Stock Under the Company's Certificate of Incorporation, up to 75,000,000 shares of preferred stock, with classes and terms as designated by the Company, may be issued and outstanding at any point in time. The Company had 300,000 authorized shares of Series A Convertible Preferred Stock ($.001 par value) outstanding at July 31, 1988. In September 1988, all the outstanding shares were converted at $.001 per share, at the holder's option, into 30,000,000 shares of common stock. Class A preferred stock. Issued 4,000,000 shares Class A preferred convertible stock issued to Dearborn Wheels, Inc. and First Equity Corporation, convertible at 20 to 1 into 80,000,000 shares common in exchange for notes held by these companies totaling $412,117. Class B preferred stock . Issued 40,000,000 shares Class B preferred convertible stock convertible at 2 to 1 into 80,000,000 shares common to Dave Scull in exchange for assets purchased from ScanLine's Delta Division valued at $954,985. B. Public Offering of Common Stock In December 1985 the Company completed a public offering of 30,000,000 units, each consisting of one share of the Company's common stock, $.001 par value, and one Class A purchase warrant. One Class A warrant entitles the holder to purchase one share of common stock plus a Class B warrant for $.05 during the twelve month period originally ending November 27, 1986 and currently extended to December 31, 2000. The Company may redeem the Class A warrants at $.001 per warrant if certain conditions are met. One Class B warrant entitles the holder to purchase one share of the Company's common stock for $.08 per share for a twelve-month period originally ended November 27, 1987 and currently extended to December 31, 2001. The offering was made pursuant to an underwriting agreement whereby the units were sold by the Underwriter on a "best efforts, all or none" basis at a price of $.03 per unit. The Underwriter received a commission of $.003 per unit and a nonaccountable expense allowance of $27,000. The public offering was successfully completed on December 13, 1985 and the Company received $727,971 as the net offering proceeds for the 30,000,000 units sold. As of July 31, 1999, 6,250 Class A warrants have been exercised for total proceeds of $313. F-11 C. Incentive Stock Option Plan On October 4, 1985, the Company's board of directors authorized an Incentive Stock Option Plan covering up to 7,000,000 shares of the Company's common stock for key employees. The board of directors is authorized to determine the exercise price, the time period, the number of shares subject to the option and the identity of those receiving the options. Note 5. Related Party Transactions The Company currently occupies office space, at no charge, in Salt Lake City, Utah and in the office of Acrodyne, a related entity. TSC also utilizes space in a related entity at no charge for the purposes of accounting and administration. The Company believes its current facilities are sufficient for its presently intended business activity. The accounts payable, as of July 31, 2001 and 2000, include management fees owed to Acrodyne of $1,100 and $210 respectively (see note 6(b)). During the years ended July 31, 2001 and 2000 the Company held common stock in a company in which the Company's major shareholder and former officer/director (see Note 7) is an officer and director (see Note 2). In August 1990 the Company entered into a management fee agreement with the related entity, at the time, whereby the Company will pay direct labor cost plus overhead for management services rendered. Management fees expense totaled $1,100, $5,740, and $4,150 for the years ended July 31, 2001, 2000, and 1999. F-12 Note 6. Cash Flows Disclosure Interest and income taxes paid for the years ended July 31, 2001, 2000 and 1999 were as follows: 2001 2000 1999 Income Taxes $ -0- $ -0- $ -0- Interest $ -0- $ -0- $ -0- Note 7. Transfer of Interest None Note 8. Change in Control Effective April 30, 2001, the President and Chairman of the Board of Directors of the Company resigned due other commitments. Thomas W. Itin was elected to fill the positions vacated by Mr. Hebard. Note 9. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 10. Investments On June 22, 1999, the Registrant had loaned $150,000 to Pro Golf International, Inc., a subsidiary of Ajay Sports, Inc., partly in the belief that it would have the opportunity to provide significant e-commerce development services to PGI and another Ajay subsidiary, ProGolf.com, in the future, for which it would be paid development fees. The proceeds for making the loan were provided by a related party. At the time, the Registrant received a promissory note that was subordinated to PGI's primary lender. On February 29, 2000, the Registrant converted its note receivable from PGI, and the interest accrued but unpaid on such note receivable, into common stock of PGI. The conversion was made at the rate of $60 per common share, the price at which PGI was raising equity capital at the time under a Confidential Private Placement Memorandum dated February 4, 2000. The Registrant had held the note from PGI from that June 22, 1999 until the time of this conversion of the note into PGI common stock. In exchange for converting the $150,000 note, and $9,000 of interest accrued on the note, the Registrant received 2,650 shares of PGI's common stock (split 10-1 in 2000) and 107,143 shares of ProGolf.com, Inc.'s common stock. F-13 Note 11. Other Subsequent Events None Note 12. Contingencies The Company's stock transfer agent shows that the amount owed to them is approximately $42,000, greater than the amount recorded on the company's books. The amount of an adjustment agreed to by the transfer agent in 2000 is in question. At this time, the Company believes they have reported the amount due correctly and that the transfer agent did not apply the agreed upon credit properly. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has a net loss from operations of $(20,667) for the year ended July 31, 2001, but as of July 31, 2001 had a net working capital of $408,408 as a result of preferred stock issued and forgiveness of interest payable by a related party in 2001and net stockholders' equity of $923,557. The Company had total earned income of $29,391, $147,332 and $212,210 during the years ended July 31, 2001, 2000 and 1999 and was mainly dependent upon a related party to fund its working capital prior to the current year. Management decided to phase out its business activities related to its website development and maintenance work and adopted a plan in April 2000 to focus its resources on manufacturing and sales of the Delta product line acquired from Scanline Technologies. In addition, the Company anticipates additional capital from new investors in 2001/2002. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Note 13. Write Off of Bad Debts As part of its website development and maintenance consulting work, the Company had provided its services to two related parties. The Company was paid on a monthly retainer basis to do this work. In the final few months that the Company provided its services to these consulting clients, disputes arose between these clients and the Company such that work was performed was not acceptable to the clients or the clients were unable to pay for such services. Despite efforts to collect these outstanding billings, as of May 5, 2000, management of the Company determined that the outstanding billings for these disputed services were unlikely to be collected, especially due to the Company's decision to discontinue its website development and maintenance business, and made the decision to write them off at that time. F-14 COMPUSONICS VIDEO CORPORATION AND SUBSIDIARIES Schedules of Investments At July 31, 2001 and 2000 Amount at Which Each Portfolio of Market Value of Equity Security Issues Name of Issuer Number of Cost of Each Issue at And Each Other Title of Each Shares or Each Balance Sheet Security Issue Carried Issue Units Issue Date In the Balance Sheet - -------------- ---------- ---------- ---------------- ----------------------- July 31, 1001 Common Stocks - ------------- Williams Controls, Inc. * 28,475 $25,035 $28,731 $28,731 ====== ======= ======= ======== July 31, 2000 Common Stocks - -------------- Williams Controls, Inc. * 28,475 $25,035 $43,601 $43,601 ====== ======= ======= ======= *See Note 2 The accompanying notes are an integral part of this financial statement F-15 -----END PRIVACY-ENHANCED MESSAGE-----