-----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, IKX+HQJB6cp6pd8vSW/CNm0c9kNJYT4IbjG01iKZsOQkAvDUrWjxmZy0Bhj+JYZX JLyABlBMcsNSmBW0HBYDzA== 0000777844-02-000018.txt : 20021213 0000777844-02-000018.hdr.sgml : 20021213 20021213092309 ACCESSION NUMBER: 0000777844-02-000018 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020731 FILED AS OF DATE: 20021213 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14200 FILM NUMBER: 02856281 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/A 1 c10kacv31g.txt COMPUSONICS VIDEO CORPORATION'S 10K/A FOR 07-31-2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KA 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, 2002 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 28, 2002, 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 2,400,094 based on the average of the bid and asked prices as of, October 28, 2002 of $0.015 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. 2 Effective April 30, 2001, the Registrant acquired the assets of the Delta product line of ScanLine Technologies. Those assets were principally the character generator (CG) technology of ScanLine. The Registrant was to retain and utilize the ScanLine Technologies and Quanta names. The Delta CG product line assets represented 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 are over $43 Million. Delta CG systems are capable of both analog and Digital input/output support. As market trends dictated, many of these Delta CG systems must have been 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 would be backward compatible with older Delta CG systems and file formats. Dave Scull, former president of the Registrant did not provide the financial information regarding Scanline activity for the 10Q report for the quarter ending April 30, 2002 and for the rest of the fiscal year. He resigned on June 14, 2002 as a president of the Registrant. Dave Scull and the company that he represents, ScanLine Technologies, Inc is currently in the litigation process with the Registrant. (b) Financial Information about Industry Segments. During the year ended July 31, 2002, 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. Subsequent to the fiscal year ended July 31,2001, the Company signed its first Licensing agreement related to this business activity. The Company had no revenues from any of its businesses during fiscal year 2002. 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. 3 (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. 4 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 was to position itself to take advantage of very powerful technology and market trends by developing the next generation of HDTV-ready systems. These would have been backward compatible with older Delta CG systems and file formats. Total open quotations for Delta CG systems upgrades and new equipment exceeded $10 Million in 2001. The Company did not have any success with Delta CG Products during 2002 because the Company is in the litigation process with ScanLine Technologies Inc. Proposed Products - ------------------ The Company attempted to actively manufactures, markets and sells several models of its Delta CG product line. These products included 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. There is no assurance, however, that the Registrant will succeed bringing to market updated CG technology acceptable to its existing customer base or prospective new customers. In the CG-HDTV market segment, there are many competitors more highly capitalized and widely recognized. Because of recent developments contributing to significant advances in reliability and ease of use of computer hardware and software systems, there may be less demand in the future for dedicated CG workstations. Marketing - ----------- The Company actively marketed 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 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. 5 (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 infringes would be costly. However, the Company believes the patent protection obtained, and any further issuance, 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. The Company is not representing inventory in the financial statement of net assets because of the reserve taken against it. The Company was not given sufficient information from ScanLine Technologies Inc. represented by Mr. Dave Scull, with respect to inventory held by ScanLine Technologies, Inc. (c) (l) (vii) The Company marketed its new equipment, service, support related to the Delta CG product line as well as its patented technology. Therefore the success of the Company was 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. (c) (1) (viii) There was no backlog at that 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. 6 (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, 2001 through July 31, 2002, 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, 2002, the Company had no employees. (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 offices of related entities for the purposes of administration and development. ITEM 3. LEGAL PROCEEDINGS The Company is currently in litigation with ScanLine Technologies, Inc./Dave Scull. 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, 2002. 7 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 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 Fiscal 2002 - Quarters Ended: October 31, 2001 $0.028 $0.017 January 31, 2002 $0.05 $0.017 April 30, 2002 $0.037 $0.016 July 31, 2002 $0.059 $0.025 (b) Holders. As of July 31, 2002, 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. 8 ITEM 6. SELECTED FINANCIAL DATA July 31, 2002 2001 2000 1999 1998 ------------------------------------------- Working Capital (230,895) 261,407 (942,970) (627,070)(651,204) Cash 25 61 274 48,563 77 Total Assets 163,409 1,131,044 204,176 326,404 80,163 Total Liabilities 244,872 203,940 987,288 947,088 731,368 Shareholders' Equity (81,463) 927,104 (783,112) (620,684)(651,204) Operating Revenue 0 29,391 149,099 212,210 0 Gross Profit 0 24,964 149,099 212,210 0 Total Gen'l & Admin Expenses 38,914 45,091 211,444 147,058 16,334 Research & Development 0 360 0 0 0 Total other income/ (expense) (30,925) 378,113 (52,178) (43,532) (42,927) Net Income/ (Loss) (69,118) 357,987 (114,524) 21,621 (59,261) 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 decreased by $492,302 from reversing net delta assets due to pending litigation with ScanLine Technologies Inc. Net loss from operations was $(36,194) which consisted mostly of professional fees. Patent Delta sale fees were $799 and other general expense of $1,503. 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, 2002 of $13,953. The stock is classified as available-for- sale securities and originally cost $27,558. 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 on the Company's primary source of working capital in the future. No assurance can be given that any of such agreements will be signed. 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. 9 Results of Operations - --------------------- Year ended July 31, 2002 Compared to July 31, 2001 Operating revenue for the years ended July 31, 2002 and 2001 were $0 and $29,391 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 had 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 nine years and the Company does not expect income from this operation in future years. General and administrative expenses were $38,194 for the year ended July 31, 2002 compared to $45,091 for the year ended July 31, 2001. As discussed above, the expenses incurred for 2002 were $0 for staff salaries, patent fees of $799; management fees of $950 to a related company; professional fees of $35,891 for auditing services, stock transfer fees and other professional fees; other general and administrative expenses of $553. During the year ended July 1, 2002, other income and expense consisted of interest expense of $22,355 on notes payable and loss from investment in Williams stock of $8,569. 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 subsidiary that had provided revenues, in the years prior to 1992, has been inactive during the eight years and the Company does not expect income from this operation in future years. General and administrative expenses were $45,091 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 $9,587, the extension of currently held patents $4,776; professional fees of $4,122; management fees of $(1,100) to a related party for services including accounting and SEC report preparation; travel and entertainment of $3,258; and other general and administrative expenses of $24,448. During the year ended July 31, 2001, other income and expense consisted of interest expense of $46,331 on notes payable. 10 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 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. Dave Scull held the position of the president in the Company from April 2001 until June 14, 2002, when he resigned from the Company. CompuSonics Video is currently in the litigation process with ScanLine Technologies, Inc, and Dave Scull. (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. 11 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 2001. 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 during the years 1994-2000. 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. (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. 12 (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. f(7) Currently the Registrant is involved in the litigation with ScanLine Technologies, Inc. ScanLine Technologies, Inc. ("ScanLine") was in disagreement regarding a contract with CPVD, under which Dave Scull, owner of ScanLine and CPVD contracted to buy the Delta assets, owned by ScanLine, on the basis that said assets were worth $1,500,000 - a representation of Dave Scull, who became president of CPVD and owner and president of ScanLine. Stock of CPVD, in value of at least $1,500,000, was promised Scull. In fact, the assets of Delta were worth less than one-half of said figure. The CPVD board has been unwilling and unprepared to transfer to the owner of ScanLine more than what said property was worth - and apparently specially not so much as $750,000 worth of stock. Scull has been insistent on stock of the value of $1,500,000. Litigation was initiated by ScanLine. The degree of exposure to CPVD is considerable, but the defenses are reported as sound and valid. Presently, a motion is before the Federal Court in Salt Lake City to transfer the case to Detroit. Outcome of the motion is very uncertain. ITEM 11 EXECUTIVE COMPENSATION (a) (1) Cash Compensation. The following sets forth all remuneration paid in the fiscal year ended July 31, 2002, 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 13 No officers or directors received remuneration exceeding $100,000 during the fiscal year ended July 31, 2002. (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, 2001, through July 31, 2002, 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, 2001, through July 31, 2002. 14 (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, 2001 through July 31, 2002. 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, 2001, through July 31, 2002, for services as a director other than as listed above in (d) (1). (e) Termination of Employment and Change of Control Arrangement. The Company received the resignation of Dave Scull on June 17, 2002 from his Positions with the Company as President, CEO, COO and CFO. Thomas W. Itin was named to fill those positions until they can be filled by a new person. 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 November 13, 2002. 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 44,652,594 (2) 27.9% 32751 Middlebelt Road Suite B Farmington Hills, Michigan 48334 Officer and directors 15,000,000 (3) 9.4% as a group (one person) 15 (1) All shares are beneficially owned of record unless otherwise indicated. (2) 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 ----------- 44,652,594 ========== 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. (3) Includes only active management as of October 31, 2002. (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. 16 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 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 up front payment of $10,000, a note receivable of $90,000, and an ongoing royalty based on the sales of units covered by the license. IDMC has failed to make timely payments on its note. 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. 17 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, ScanLine was to be issued 40 Million shares preferred Class A stock convertible at 2 to 1 (80,000,000) to be exercised sometime in the future. As of today no shares of class A preferred stock were issued to ScanLine, and the Company is holding the stock certificates, that were to be sent to Dave Scull. The Company is pending on the outcome of the litigation. 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 B stock convertible at 20 to 1 (80,000,000) 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 $ 165,423 with interest as of July 31, 2002. (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. 18 (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. 19 (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, 2002 and 2001 F-2-F3 Consolidated Statements of Operations for the years ended July 31, 2002, 2001 and 2000 F-4 Consolidated Statements of Changes in Stockholders' Deficit for the years ended July 31, 2002, 2001 and 2000 F-5 Statements of Cash Flows for the years ended July 31, 2002, 2001 and 2000 F-6 Notes to Consolidated Financial Statements F-7 to F-14 2. Financial statement schedules required to be filed are listed below and may be found at the page indicated. Schedules of Investments at July 31, 2002 and 2001 F-15 Schedule of valuation and reserve accounts. F-16 3 Exhibits. None (b) Reports on Form 8-K A Form 8-K was filed on January 30, 2002 to announce the extension of Class A and Class B Warrants from January 31, 2002 to February 28, 2002. A Form 8-K was filed on February 28, 2002 to announce the extension of Class A and Class B Warrants from February 28, 2002 to April 30, 2002. 20 A Form 8-K was filed on April 23, 2002 to announce the extension of Class A and Class B Warrants from April 30, 2002 to June 30, 2002. A Form 8-K was filed on June 20, 2002 to announce the extension of Class A and Class B Warrants from June 30, 2002 to August 31, 2002. (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) (Loss) 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 21 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 Thomas W. Itin ------------------------------- Thomas W. Itin, President Date: December 10, 2002 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, 2002. Signature s/s Thomas W. Itin ----------------------- Thomas W. Itin Title: Chairman of the Board of Directors President, CEO, COO Signature s/s Robert J. Flynn --------------------- Robert J. Flynn Title: Director The foregoing constitute all of the Board of Directors. 22 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, 2002 and 2001, and the related statement of operations, changes in stockholders' deficit, and cash flows for the years ended July 31, 2002, 2001 and 2000. 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 he 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, 2002 and 2001 and the results of its operations and its cash flows for the years ended July 31, 2002, 2001 and 2000 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 schedules on F-15 and F-16 are 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 November 1, 2002 (Except for Statements of Cash Flows and note 10 which are dated December 2, 2002) F-1 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS July 31, 2002 July 31,2001 ---------------------------------- Current Assets Cash $24 $61 Accounts Receivable- Related Parties net of reserve for Delta net assets 0 426 Interest Receivable 0 0 Inventory net of reserve for Delta Net Assets 0 436,129 Marketable Equity Securities Available for Sale 13,953 28,731 ---------- ----------- Total Current Assets 13,977 465,347 Other Assets Investments 149,432 158,000 Patents 300,000 300,000 Less Amortization (5,000) (5,000) Leasehold Improvements 1,875 1,875 Less Accumulated Depreciation (63) (63) Equipment 61,954 63,462 Less Accumulated Depreciation (4,425) (5,579) Good Will 153,000 153,000 Reserve Other Assets for Delta Net Assets (507,351) 0 --------- ---------- Total Other Assets 149,432 665,696 --------- ---------- Total Assets $163,409 $1,131,044 ========= ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Notes Payable to Related Entities $190,341 $ 182,541 Reserve Note Payable for Delta Net Assets (18,618) 0 Accounts Payable and accrued Liabilities 48,047 19,016 Accounts Payable - Related Entities 25,710 2,384 Reserve for Accounts Payable - Related for Delta Net Assets (607) 0 --------- ---------- Total Liabilities 244,872 203,940 Stockholders' Deficit Preferred Stock - Series A. Convertible Stock 20,000,000 Shares Authorized, 4,000,000 Shares Issued and Outstanding 400,000 400,000 Preferred Stock - Series B Convertible Stock 550,000,000 Shares Authorized, 40,000,000 Shares Issued and Outstanding 400,000 400,000 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 1,247,981 Reserve Equity for Delta Net Assets (924,671) 0 F-2 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) Retained Earnings Other Comprehensive Income (13,604) 1,175 Accumulated Deficit (1,351,176) (1,282,059) ----------- ------------ Total Stockholders' Deficit (81,463) 927,104 ----------- ----------- Total Liabilities and Stockholders' Deficit $163,409 $1,131,044 ========== =========== The accompanying notes are an integral part of this financial statement F-3 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended July 31, 2002, 2001 and 2000 2002 2001 2000 -------------------------------------- Commission Income $-0- $-0- $147,332 Gain (Loss) on Fixed Assets -0- -0- (754) Consulting Income -0- 5,150 -0- Licensing Income -0- 10,000 -0- Sales of Delta -0- 14,241 -0- Miscellaneous Income -0- 0- 2,521 -------- --------- ---------- Total Revenues -0- 29,391 149,099 Cost of Goods Sold -0- 4,427 -0- -------- --------- --------- Gross Profit -0- 24,964 149,099 General and Administrative Expense Staff Salaries -0- 9,587 108,425 Professional fees 35,891 4,122 14,864 Management Fees - Related Party 950 (1,100) 5,740 Patent Fees 799 4,776 10,349 Travel and Entertainment -0- 3,258 586 Bad Debts Expense -0- -0- 50,566 All Other General and Administrative Expenses 553 24,448 20,915 ------ ------- --------- Total General and Administrative Expenses 38,194 45,091 211,444 --------- --------- -------- Gain (Loss) From Operations (38,194) (20,127) (62,346) Forgiveness of Debts -0- 425,394 -0- Interest income -0- 48 7,397 Interest Expense (22,355) (46,331) (59,576) Loss from Investments (8,569) (999) -0- --------- ----------- --------- Total Other Income (Expense) (30,925) 378,113 (52,178) -------- ----------- ---------- Net Income Before Income Taxes (69,118) 357,987 (114,524) Income Tax Benefit -0- -0- -0- --------- --------- ----------- Net Income (Loss) $(69,118) $357,987 $(114,524) =========== ========== ========== 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-4 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLER'S DEFICIT For the Years Ended July 31, 2002 , 2001, 2000 Convertible Preferred Common Addit'l Other Compre Total Stock Stock Paid In hensive Accum' Reserve Stockhdrs Shares Amount Shares Amount Capital Income Deficit Equity Deficit - ----------------------------------------------------------------------------- - ----------------------------------------------------------- Balance at July 31, 1999 0 $ 0 160,006,250 160,006 $680,880 63,949 $(1,525,520) 0 $(620,685) Net Loss for the Year (114,524) (114,524) Unrealized Gain (Loss on Investments) 0 0 0 0 (47,904) 0 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 0 1,725,087 Unrealized Gain (Loss) on investments 44,000,000 0 0 0 0 (14,870) 0 0 (14,870) Balance at July 31, 2001 44,000,000 $8,000 160,006,250 $160,006 $1,247,981 $1,175 $(1,282,059) 0 $927,103 - ----------------------------------------------------------------------------- - --------------------------------------------------------- Additional Paid in Capital Net Income for the Year (69,118) 0 (69,118) Reserve Equity for Delta Net Assets (924,617) (924,617) Unrealized Gain (Loss) on Investments (14,779) 0 (14,779) Balance at July 31, 2002 44,000,000 $8,000,000 160,006,250 $160,006 $1,247,981 $(13,604) $(1,351,176) (924,671) (81,463) - ----------------------------------------------------------------------------- - ---------------------------------------------------------
The accompanying notes are an integral part of this financial statement F-5 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended July 31, 2002, 2001 and 2000 2002 2001 2000 -------------------------------- Cash Flows from Operating Activities Net Loss $(69,118) $357,986 $ (114,524) Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities Depreciation 355 9,991 2,374 Loss from Investments 8,569 999 Loss on Disposal of Assets 0 0 754 Accrued Interest Income 0 0 (9,000) (Increase) Decrease In Inventory 0 2,027 0 (Increase) Decrease In: Accrued other expenses Accounts Receivable and Accrued Assets 426 18 32,026 Increase (Decrease) in Accounts Payable and Accrued Liabilities 29,031 (29,770) (18,021) Accounts Payable Related Entities 22,900 (361,380) 59,522 ---------- --------- -------- Total Adjustments 61,282 (378,116) 67,655 --------- --------- -------- Net Cash (Used For) Operations (7,836) (20,130) (46,869) --------- --------- --------- Cash Provided by Investing Activities Purchase of Equipment 0 0 0 Purchase of Patents 0 0 0 Proceeds from Sale of Equipment 0 0 2,400 Investments 0 0 (2,521) --------- -------- --------- Net Cash (Used for) Investing Activities 0 0 (121) --------- --------- --------- Cash Provided by Financing Activities Proceeds from Stock Sold 0 0 0 Proceeds From Notes Payable 5,000 1,300 3,900 Proceeds From Notes Payable-Related 2,800 18,618 (5,200) -------- ------- ------- Net Cash Provided by Financing Activities 7,800 19,918 (1,300) Increase (Decrease) in Cash (36) (212) (48,290) Balance at Beginning of year 61 273 48,563 ------ ------- -------- Balance at End of Year $ 25 $ 61 $ 273 ======== ======== ========= Supplemental Disclosure of Non-Cash Investing and Financing Activities: Note Receivable and Accrued Interest Converted to Stock $0 $ 0 $ 159,000 Stock issued for Scanline assets $0 $954,985 $0 Stock issued for N/R related party $0 $412,117 $0 The accompanying notes are an integral party of this financial statement F-6 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 2002 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. 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 F-7 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. 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. 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. The company is currently in litigation with Scanline Technologies, Inc. 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, 2002 and 2001 the cost to maintain these patents and record them in foreign countries was $799 and $4,776 respectfully, which were recorded as patent fees expense. F-8 D. Income Taxes -------------- The Company and it's wholly owned subsidiaries file a consolidated federal income tax return. Due to the Company's net operating losses there is no provision for federal income taxes in these financial statements. Tax credits will be reflected in the income statement under the flow-through method as a deduction of income taxes in the year in which they are used. At July 31, 2002, the Company's carryforwards are as follows: Net General Year of Net Operating Loss Capital Business Expiration Book Tax Loss Credits ------------------------------------------------------------------- 2002 302,543 140,148 -0- 8,390 2003 329,338 326,211 -0- -0- 2004 66,722 110,507 -0- 0- 2005 55,215 137,222 -0- -0- 2006 80,080 60,911 730 -0- 2007 236,002 99,856 -0- -0- 2008 84,714 99,898 22,500 -0- 2009 55,673 55,664 -0- -0- 2010 57,605 57,495 -0- -0- 2011 63,576 63,577 -0- -0- 2012 48,566 48,566 -0- -0- 2013 59,261 59,261 -0- -0- 2019 114,360 114,360 -0- -0- 2020 69,118 69,118 The primary difference between the book and tax net operating loss carryforwards result from differences in depreciation and amortization methods and the treatment of unrealized loss of market value of certain investments. E. Net Loss (Gain) Per Common Share --------------------------------- The net loss (gain) per common share is computed by dividing the net loss (gain) for the period by the weighted average number of shares outstanding. All "cheap stock" issued prior to the public offering is included in the computation as if it were outstanding from inception. F. Cash Equivalents ------------------- The Company considers all highly liquid investments with a maturity of three months or less cash equivalents. G. Equipment and Depreciation -------------------------- Equipment is stated at cost. Depreciation is computed for financial reporting purposes on a straight-line basis over an estimated life. Depreciation expense for the years ended July 31, 2002, 2001 was $ 355 and $4,991 respectively. The Registrant wrote off the depreciation expense for the current year because of the Reserve for Net Assets Delta account recorded for each of Delta Assets. F-9 H. Inventory ----------- During 2001 inventory was stated at cost, using the first-in, first-out method of inventory valuation. Inventory consisted primarily of the following: 2001 ----------- Raw Materials $352,117 Parts 14,012 Work-in-Process 12,000 Finished Goods 58,000 ---------- Total Inventory $436,129 The value of the inventory was decreased in 2001 by $ 153,000 to bring it to the real fair value. The Registrant recorded a "Reserve Inventory for Delta Net Asset" account in 2002 for $436,129. There is no sale or purchase of the inventory by Scanline Technologies, Inc. during year ending July 31, 2002. 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. The Registrant recorded the "Reserve Patents for Delta Net Assets" account in 2002, in the amount of $ 295,000. Note 2. Marketable Securities --------------------- During the years ended July 31, 2002 and 2001 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 $27,558 and a fair market value at July 31, 2002 and 2001 of $13,953 and $28,731 respectively. In accordance with SFAS 115, the Company has classified the WMCO stock as an available-for-sale security and has reported it at its fair market value effective July 31, 2002. These securities are collateral for loans from a related party. Note 3. Notes Payable and Notes Receivable ----------------------------------- A. Related Entity Notes Payable Since the inception of the Company to October 2002, related companies have provided loans to meet the operating cash flow need. These notes are rewritten as the loan amount increases. Notes payable to related entities bear interest at 10 to 12 percent per annum, and are due and payable within 180 days or on demand and are dated as follows: F-10 July 31, July 31, 2002 2001 --------- --------- May 15, 2001 (1) 10.75% 6,300 3,500 March 5, 2001 (2) 10.75% 159,123 159,123 February 9, 2001 (3) 10.5% 6,300 (4) 18,618 19,918 ---------- --------- Total 190,341 182,541 (1) Owed to Acrodyne Corporation ("Acrodyne"). Collateralized by all assets of CompuSonics Video Corporation. (2) Owed to Acrodyne. Collateralized by all of the assets of Tyler- Shaw. (3) Owed to First Equity Corporation. Collateralized by all assets of CompuSonics Video Corporation. (4) Owed to ScanLine Technologies Inc. The Registrant is taking a reserve against it. Note 4. Stockholders' Equity -------------------- A. Preferred Stock Under the Company's Certificate of Incorporation, up to 75,000,000 shares of preferred stock, with classes and terms as designated by the Company, may be issued and outstanding at any point in time. The Company had 300,000 authorized shares of Series A Convertible Preferred Stock ($.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. The Registrant was to issue 40,000,000 shares Class A preferred convertible stock convertible at 2 to 1 into 80,000,000 shares common to ScanLine Technologies, Inc. in exchange for assets purchased from ScanLine's Delta Division valued at $954,985. Stock certificates are not signed by the Registrant and they were not delivered to ScanLine. The Registrant is recording "Reserve Equity for Delta Net Assets" which includes the value of Class A preferred convertible stock. (See Note 5) Class B preferred stock. Issued 4,000,000 shares Class B 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. 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, 2002. The Company may redeem the Class A warrants at $.001 per warrant if certain conditions are met. F-11 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, 2002. 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 non- accountable 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, 2002, 6,250 Class A warrants have been exercised for total proceeds of $313. D. 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. "Reserve Equity for Delta Net Assets". ----------------------------------- The Registrant is recording a Reserve account in the amount of $924,,671 against all of ScanLine's net assets previously acquired. The " Reserve Equity for Delta Net Assets" includes $400,000 of reserve against the Class A Preferred Stock that was to be issued to ScanLine Technologies, Inc, and $ 524,671 of reserve against Paid in Capital. The Company is currently in litigation with ScanLine Technologies, Inc. Note 6. Related Party Transactions --------------------------- In August 1990 the Company entered into a management fee agreement with Acrodyne Corporation, a related entity, at the time, whereby the Company will pay direct labor cost plus overhead for management services rendered. Management fees expense totaled $ 950, $(1,100) and $5,740 for the years ended July 31, 2002, 2001, and 2000. The Company currently occupies office space, at no charge, in the office of Acrodyne, a related entity. TSC also utilizes space in a related entity at no charge for the purposes of accounting and administration. The Company believes its current facilities are sufficient for its presently intended business activity. The accounts payable, as of July 31, 2002 and 2001 include management fees owed to Acrodyne of $2,600 and $1,100 respectively. F-12 During the years ended July 31, 2002 and 2001 the Registrant held common stock in a company in which the Company's major shareholder and former officer/director is an officer and director of the Registrant (see Note 2). Note 7. Cash Flows Disclosure ---------------------- Interest and income taxes paid for the years ended July 31, 2002, 2001 and 2000 were as follows: 2002 2001 2000 ----------------------------------- Income Taxes $-0- $ -0- $ -0- Interest $-0- $ -0- $ -0- 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. Effective June 14, 2002, the President, CEO, COO and CFO, Dave Scull resigned from his positions as officer and director. Thomas W. Itin was elected to fill the positions vacated by Mr. Scull. 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. The Company used the equity method of account for these investments. F-13 Note 11. Contingencies ------------------ The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has a net loss from operations of $(38,194) for the year ended July 31, 2002, and as of July 31, 2002 had a net working capital deficit of $(230,985) and net stockholders' equity of $(81,463). The Company had total earned income of $(69,118), $357,987 and $(114,524) during the years ended July 31, 2002, 2001 and 2000 and was mainly dependent upon a related party to fund its working capital for the current year. In addition, the Company anticipates additional capital from new investors in 2002/2003. The Company's ability to continue as a going concern is partially dependent on the success, management of implementing these plans. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Note 12. 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, 2002 and 2001 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, 2002 Common Stocks - ------------------- Williams Controls, Inc. 27,558 $25,035 $13,953 $13,953 July 31, 2001 Common Stocks - -------------------- Williams Controls, Inc. * 27,558 $25,035 $28,731 $28,731 *See Note 2 F-15 CompuSonics Video Corporation Valuation and Qualifying accounts and Reserves Balance at the Balance at Beginning of Year Changes the End of Year -------------------------------------------- For the year ending July 31, 2002 Reserve A/R for Delta Net Assets $-0- $ 426 $ 426 Reserve Inventory for Delta net Assets -0- 436,129 436,129 Reserve Net Patents for Delta Net Assets -0- 295,000 295,000 Reserve Net Leasehold Improvements for Delta Net Assets -0- 1,813 1,813 Reserve Net Equipment for Delta Net Assets -0- 57,528 57,528 Reserve Good Will for Delta Net Assets -0- 153,000 153,000 Reserve N/P Delta for Delta Net Assets -0- (18,618) 18,618 Reserve A/P Delta for Delta Net Assets -0- (607) 607 Reserve Equity for Delta Net Assets -0- (924,671) 924,671 F-16 -----END PRIVACY-ENHANCED MESSAGE-----