-----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, GMftwGhXJK0RuDn94loXbvfJwKuESqXsHVb6xzGWJWbGFuztt+H+JB6yUJV+BNKt mvX2BZb5f5TkD9Zx6lhS+Q== 0000777844-99-000013.txt : 19991117 0000777844-99-000013.hdr.sgml : 19991117 ACCESSION NUMBER: 0000777844-99-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19991115 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: SEC FILE NUMBER: 000-14200 FILM NUMBER: 99754729 BUSINESS ADDRESS: STREET 1: 7001 ORCHARD LAKE RD STE 424 CITY: W. BLOOMFIELD STATE: MI ZIP: 48322 BUSINESS PHONE: 8108515651 MAIL ADDRESS: STREET 1: 7001 ORCHARD LAKE ROAD STREET 2: SUITE 424 CITY: WEST BLOOMFIELD STATE: MI ZIP: 48322 10-K 1 COMPUSONICS VIDEO CORPORATION Y/E 7-31-99 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, 1999 0-14200 - -------------------------- ------------------------ COMPUSONICS VIDEO CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Colorado 84-1001336 - ------------------------------- ------------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 7001 Orchard Lake Road - Suite 424 West Bloomfield, MI 48322-3608 - ---------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) Registrant'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 Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and, (2) has been subject to such filing requirements for the past 90 days: Yes X No ------ ------ As of October 1, 1999, 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 nonaffiliates of the Registrant was approximately $ 1,044,598 based on the average of the bid and asked prices as of September 30, 1999 of $.013 as reported by the National Quotation Bureau, Inc. 1 COMPUSONICS VIDEO CORPORATION FORM 10-K PART I ITEM 1. BUSINESS (a) General Development of Business. CompuSonics Video Corporation ("Registrant") was organized under the laws of the State of Colorado on August 14, 1985. The Registrant'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 and marketing. The Registrant has no substantial operations, research and development, earnings, cash flows, product development or sources of financing. On December 13, 1985, the Registrant 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 Registrant 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 substantial 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 around the world. The Company's management concluded that significant opportunities existed in this emerging technology 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. 2 The Company focuses its efforts on the development of commercial sites on the World Wide Web. The Company develops e-commerce applications, where a manufacturer or distributor would sell its products on the Internet, internal coordination sites called Intranets, that are used by employees of a company to communicate with each other and share information, and Extranets, used by companies to communicate and share information with outside groups such as suppliers and major customers. The technical management of the Company has significant experience in this type of work and has two current clients for these type of projects, while currently prospecting for additional business in this area. The ability of the Company to generate additional business is directly related to staffing levels of employees. As such, the Company expects to hire additional employees as the level of business grows. 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. The unpaid principal balance will bear an interest rate of 10% and will be due and payable in full on July 22, 2000. The Company has made a proposal to PGI to do website development and maintenance work for PGI and its related companies. (b) Financial Information about Industry Segments. Prior to the year ended July 31, 1992, the Registrant engaged in two business segments: (1) Development and marketing of a digital video recording and playback system, and (2) Direct mail marketing. All of the Registrant's revenues for the past four fiscal years have been from the direct mail marketing segment. The Registrant had no revenues for the current year or for the two immediately preceding years and considers its direct mail marketing segment inactive. (c) Narrative Description of Business. (c) (1) (i): THE COMPUSONICS VIDEO SYSTEM - ---------------------------- The Registrant has developed a system to make video recordings, digitilize video images and playback digital data on a television monitor. Digitizing and random access capabilities represent significant improvements over conventional analog recorders. Conventional analog video recorders convert electrical impulses representing visual images into waveforms, which are then stored on magnetic tape or disk. On playback, waveforms are converted back into electrical impulses, which are converted to visual images through a television picture tube or similar device. In an analog system, the accuracy of the reproduced image is dependent upon the quality of the tape or disk, as well as the quality of the playback system itself. Further, the noise generated by the surface defects on the tape or disk is apparent when the image is played back. 3 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 Registrant, has produced audio digital systems that utilize advanced microcomputer chips to record and reproduce audio signals using its proprietary digital audio technology, known as "CSX". The Registrant has exclusive license to utilize the CSX technology in the development and production of its products. The motion picture industry currently uses digital image processors for the creation of special effects and picture enhancements. These image processors use small digital memories to store and manipulate images that have been digitized and transferred from analog sources. In the Registrant's proposed system, 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 floppy disk or other computer information storage disk. Playback of the digital data would occur on a television monitor with a compatible signal receiving capability. The accompanying high fidelity audio signal could be routed to a suitably equipped stereo television set or through a conventional stereo system adjacent to the monitor. Proposed Products The Registrant has no developed products at this time. The digital video system that the Registrant was developing consisted of a group of proposed products that would record, playback, edit and transmit video data and audio data in connection with the video. The Registrant will most likely attempt to sublicense manufacturing rights or enter into production contracts with non-affiliated parties. There are no current prospects for such sublicenses or contracts and the prospects of success cannot be determined. Marketing The Registrant has had no marketing activities since 1990, other than the marketing of its Internet consulting services in August 1998. 4 DIRECT MAIL MARKETING - --------------------- Tyler-Shaw's business consisted of offering specialized products to direct mail list owners through a process called syndication. Tyler-Shaw's president terminated employment in March, 1991, and it's Pennsylvania office was closed. A short-term arrangement with a consultant lapsed in July, 1991 and hasn't been renewed. Since that time the company has been inactive. (c) (1) (ii) Except for its proposed products listed above, there has been no public announcement of, and the Registrant has not otherwise made public, information about a new product or industry segment that would require the investment of a material amount of the assets of the Registrant or that otherwise is material. (c) (1) (iii) The Registrant anticipates that any production of new products will be organized by second-party marketers and manufacturers, therefore the sources and availability of raw materials is not material concerns. (c) (l)(iv) The Registrant holds all 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 were issued to the Registrant with three claims of the Registrant being allowed. On July 5, 1988, patent number 4,755,889 was issued to the Registrant 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 Registrant believes the patent protection obtained, and any further issuances, will greatly assist efforts to protect its technology from being copied. The Registrant has also been granted a limited exclusive 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 Registrant, has been engaged in marketing and promoting its CSX Technology licensing and engineering consulting services on a reduced and limited basis. 5 (c)(l)(v) The Registrant's business is not seasonally affected. (c) (1) (vi) The Registrant has no marketable product and as such is not required to carry significant amounts of inventory. (c) (l) (vii) The Registrant has attempted to market its technology. Therefore the success of the Registrant is dependent upon the ability of the Registrant to locate customers who will purchase the proposed products or technology offered by the Registrant. There can be no guarantee that such customers can be located. The subsidiary, Tyler-Shaw, acted as a sales representative and syndicator of consumer products through direct mail marketing programs principally in conjunction with major credit card companies. Tyler-Shaw is currently inactive and the success of the subsidiary is doubtful. (c) (1) (viii) There is no backlog at this time. (c) (1) (ix) No material portion of the Registrant's business is subject to renegotiations of profits or termination of contracts or subcontracts at the election of the government. (c) (l)(x) The Registrant competes with all companies engaged in design, manufacture and marketing of digital video recording and playback systems. The Registrant's primary competition in the home entertainment market will be the VideoCassette Recorder ("VCR") and related recording technologies. VCRs and related equipment are manufactured and sold by numerous large, well-financed companies with established distribution channels. Rental and sale of videocassettes is also well established and there are numerous outlets for pre-produced and blank videocassettes. Costs for purchasing new VCRs have been decreasing since their market introduction and VCRs are readily available for rent. It is anticipated that the Registrant's DVR will be significantly more expensive to purchase than a VCR. The Registrant anticipates that its system would compete with the VCR on the basis of the high quality of its video and audio on playback and because of the ability to more precisely index and locate selected material for playback. The Registrant is aware of the development of systems similar to its own. There can be no assurance that such systems will not soon be marketed by competitors. It can be expected that most of the Registrant's competitors will have extensive experience and possess financial, technological and personnel resources substantially greater than that of the Registrant. The Registrant's subsidiary, Tyler-Shaw, which is currently inactive, was in competition with all companies engaged in direct mail marketing. It can be expected that most of the Registrant's direct mail marketing competitors will have extensive experience and possess financial, technological and personnel resources substantially greater than the Registrant's. 6 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 around the world. The Company's management concluded that significant opportunities existed in this emerging technology 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. The Company focuses its efforts on the development of commercial sites on the World Wide Web. The Company develops e-commerce applications, where a manufacturer or distributor would sell its products on the Internet, internal coordination sites called Intranets, that are used by employees of a company to communicate with each other and share information, and Extranets, used by companies to communicate and share information with outside groups such as suppliers and major customers. The technical management of the Company has significant experience in this type of work and has two current clients for these type of projects, while currently prospecting for additional business in this area. The ability of the Company to generate additional business is directly related to staffing levels of employees. As such, the Company expects to hire additional employees as the level of business grows. (c)(l)(xi) During the period from August 1, 1989, through July 31, 1999, the Registrant did not expend any funds on research and development. (c) (l)(xii) The Registrant is not materially affected by the federal, state and local provisions which 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, 1999, the Registrant had three employees. As of October 16, 1999, the Registrant has two employees. (d) Financial Information about Foreign and Domestic Operations and Export Sales. The Registrant has no material international operations or direct export sales. 7 ITEM 2. PROPERTIES The Registrant has been using space, at no charge, in the office of a related entity for the purposes of administration and development. ITEM 3. LEGAL PROCEEDINGS The Registrant 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 matter was submitted to a vote of the Registrant's shareholders during the fourth quarter ended July 31, 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information The principal market on which the Registrant'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. The range of high and low bid quotations for the Registrant's Common Stock since the quarter ended October 31, 1996 is as follows: High Bid* Low Bid* October 31, 1996 ** ** January 31, 1997 ** ** April 30, 1997 ** ** July 31, 1997 ** ** October 31, 1997 ** ** January 31, 1998 ** ** April 30, 1998 ** ** July 31, 1998 ** ** October 31, 1998 .0001 .0001 January 31, 1999 .0001 .0001 April 30, 1999 .0001 .0001 July 31, 1999 .0125 .010 ** No Bid reported for Common Stock 8 On July 31, 1999, the respective bid and ask prices reported for the Common Stock were $.0125* and $ .01*. *Prices are inter-dealer quotations as reported by the National Quotation Bureau, Inc., New York, New York, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. (b) Holders. As of July 31, 1999, the number of record holders of the Registrant's Common Stock was approximately 5,284. (c) Dividends. The Registrant 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. ITEM 6. SELECTED FINANCIAL DATA
- ----------------------------------------------------------------------------------------- July 31, - ----------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Working Capital (627,070) (651,204) (604,401) (552,276) (465,635) Cash 48,563 77 153 266 36 Total Assets 320,018 80,163 67,781 71,454 94,288 Total Liabilities 947,088 731,368 672,182 623,730 559,923 Shareholders' Deficit (627,070) (651,204) (604,401) (552,276) (465,635) Operating Revenue -0- -0- -0- -0- -0- Gross Profit -0- -0- -0- -0- -0- Total General & Administrative Expenses 147,058 16,334 7,026 22,617 20,848 Research & Development -0- -0- -0- -0- -0- Net other income (expense) (43,532) (42,927) (41,540) (40,959) (36,757) Net Gain (Loss) 21,621 (59,261) (48,566) (63,576) (57,605) Net loss * * * * * per common share - -----------------------------------------------------------------------------------------
Note: * 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 $24,134 for the period from August 1, 1998 through July 31, 1999. This was mainly caused by the net income for the year of $21,261. Net income from operations was $65,152 which consisted mostly of $212,210 in consulting income offset by $101,817 staff salaries, patent fees of $7,156; management fees of $4,150 to a related company and professional fees of $7,231 for auditing services, stock transfer fees and other professional fees. In accordance with SFAS 115, the Registrant reported the 28,475 shares of Williams Controls, Inc. common stock (Nasdaq "WMCO") at fair market value at closing price on July 31, 1999 of $88,984. The stock is classified as available-for-sale securities and originally cost $25,035. In the past the Registrant has 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. 9 Results of Operations - ---------------------- Year ended July 31, 1999 Compared to July 31, 1998 Operating revenue for the years ended July 31, 1999 and 1998 were $212,210 and $-0- respectively. The Company currently has consulting agreements with two affiliated companies to do website development and maintenance consulting work. They are Williams Controls, Inc. ("Williams") and Ajay Sports, Inc. ("Ajay"). The work product includes 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 Registrant does not expect income from this operation in future years. General and administrative expenses were $147,058 for the year ended July 31, 1999 compared to $16,334 for the year ended July 31, 1998. As discussed above, the expenses incurred were for the staff salaries of $101,817 extension of currently held patents, $7,156; Professional fees of $7,231; and Management fees of $4,150 to a related party for services including accounting and SEC report preparation. During the year ended July 31, 1999, other income and expense consisted of interest expense of $45,134 on notes payable. The Registrant has initiated replacement of the Registrant's most significant computer programs with new updates that are warranted to be year 2000 compliant. Installation of these updates was completed on September 8, 1999. All other programs subject to year 2000 concerns will be evaluated utilizing internal and external resources to reprogram, replace or test each of them. Year ended July 31, 1998 Compared to July 31, 1997 Operating revenue for the years ended July 31, 1998 and 1997 were $-0-. The subsidiary that had provided revenues, in the years prior to 1992, has been inactive during the last five years and the Registrant does not expect income from this operation in future years. General and administrative expenses were $16,334 for the year ended July 31, 1998 compared to $7,026 for the year ended July 31, 1997. As discussed above, the expenses incurred were for the extension of currently held patents, $8,229; Professional fees of $6,714: and Management fees of $1,200 to a related party for services including accounting and SEC report preparation. Legal fees and patent fees decreased substantially from prior years. During the year ended July 31, 1998, other income and expense consisted of interest expense of $42,927 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 REGISTRANT (a) and (b) Identification of Directors and Executive Officers. Name Age Position ----- ---- ----------- Robert R Hebard 46 Chairman of the Board, Chief Executive Officer, President and Treasurer Robert J. Flynn 64 Vice President, Director, and Secretary The directors of the Registrant 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 Registrant are elected by the Board of Directors and hold office until their successors are elected and qualified. (c) Identification of Certain Significant Employees. The Registrant 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 Registrant to become a director or executive officer. (e) Business Experience. (e) (1) Background. 11 Robert R. Hebard. Mr. Hebard has received his Bachelors Degree in Marketing/Management from Cornell University in 1975 and an MBA from Canisus College in 1982. Mr. Hebard is the currently the Chairman and President of the Registrant. Mr. Hebard is also currently President and Chairman of Enercorp, Inc., a publicly held business development company. He is also a director, Vice President and Secretary of Woodward Partners, Inc. Mr. Hebard is corporate Secretary and is on the Board of Directors for Ajay Sports, Inc. since September, 1990. In June, 1999 Mr. Hebard was appointed as the corporate Secretary and a member of the Board of Directors of Pro Golf International, Inc. and Pro Golf Online, Inc., two majority owned subsidiaries of Ajay. Robert J. Flynn. Mr. 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. Hebard is a director of Woodward Partners, Inc., Enercorp, Inc., and Ajay Sports, Inc.; latter two of which are publicly-held companies. Mr. Flynn is Chairman of the Board of Funding Enterprises. (f) Involvement in Certain Legal Proceedings. (f) (1) During the past five years, there have been no filings of petitions under the federal bankruptcy laws or any state insolvency laws, nor has there been appointed by any court a receiver, fiscal agent or similar officer by or against any director or executive officer of the Registrant 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. 12 (f)(2) No director or executive officer of the Registrant 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 Registrant has been the subject of any order, judgement 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 Registrant 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 Registrant 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 Registrant 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. 13 ITEM 11. EXECUTIVE COMPENSATION (a) (1) Cash Compensation. The following sets forth all remuneration paid in the fiscal year ended July 31, 1999, to all officers of the Registrant 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 ----------------- ------------- ------------ Registrant: All executive officers Various None as a group Subsidiary: No officers or directors received remuneration exceeding $100,000 during the fiscal year ended July 31, 1999. (b) (1) Compensation Pursuant to Plans. Incentive Stock Option Plan The Board of Directors of the Registrant, 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 are 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 Registrant'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 Registrant has no defined benefit and actuarial plan providing for payments to employees upon retirement. (b) (3) Alternative Pension Plan Disclosure. The Registrant has no defined benefit and actuarial plan providing for payments to employees upon retirement. 14 (b) (4) Stock Option and Stock Appreciation Rights Plans. During the period from August 1, 1988, through July 31, 1999, 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, 1989, through July 31, 1999. (d) Compensation of Directors. (d) (1) Standard Arrangements. The Registrant reimburses its directors for expenses incurred by them in connection with business performed on the Registrant's behalf, including expenses incurred in attending meetings. No such reimbursements were made for the period from August 1, 1989 through July 31, 1999. The Registrant does not pay any director's fees. (d) (2) Other Arrangements. There are no other arrangements pursuant to which any director of the Registrant was compensated during the period from August 1, 1989, through July 31, 1999, for services as a director other than as listed above in (d) (1). (e) Termination of Employment and Change of Control Arrangement. The Registrant has no formal plan or arrangement with respect to any such persons, which will result from a change in control of the Registrant or a change in the individual's responsibilities following a change in control. 15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a)(b) Security Ownership of Certain Beneficial Owners and Security Ownership of Management. The following table sets forth the number of shares of the Registrant'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 Registrant's Common Stock, and executive officers as a group, as of October 1, 1999. Number of Shares and Nature of Beneficial Percent Name and address Ownership (1) of Class - ----------------------- ----------------- ---------- CompuSonics Corporation 11,300,000 (2) 7.1% 2345 Yale Street Palo Alto, California 94306 TICO, Inc. 30,000,000 18.7% 7001 Orchard Lake Road Suite 424 West Bloomfield, Michigan 48322 Acrodyne Profit Sharing Trust 9,617,594 6.0% 7001 Orchard Lake Road Suite 424 West Bloomfield, Michigan 48322 Thomas W. Itin 64,652,594 (3) 40.4% 7001 Orchard Lake Road Suite 424 West Bloomfield, Michigan 48322 Robert R. Hebard 15,000,000 (4) 9.4% 7001 Orchard Lake Road Suite 424 West Bloomfield, Michigan 48322 Officer and directors 15,000,000 (5) 9.4% as a group (one person) 16 (1) All shares are beneficially owned of record unless otherwise indicated. (2) A transfer of 18,700,000 shares from CompuSonics Corporation to Equitex has not been recorded by the Registrants' stock transfer agent as of October 1, 1999 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 -0- shares of the Registrant. Mr. Itin has beneficial ownership of the following: TICO, Inc. 30,000,000 TICO 35,000 SICO 5,000,000 Acrodyne Profit Sharing Trust 9,617,594 Other Trusts 20,000,000 ---------- 64,652,594 ========== Mr. Itin is a controlling person in TICO, Inc. Mr. Itin is controlling partner in TICO and a general partner in SICO. Shares, in TICO, Inc.'s name, are held as nominee for Thomas W. Itin. Mr. Itin is the trustee and beneficiary of Acrodyne Profit Sharing Trust. Therefore, he can be considered as having beneficial ownership of the shares of these entities. Mr. Itin's wife is a trustee of certain other trusts holding a total of 20,000,000 shares. Mr. Itin is not a beneficiary of the above mentioned trusts in which his wife is trustee and disclaims any beneficial ownership. (4) Includes 5,000,000 shares owned directly and 10,000,000 shares held in trust for his children. Mr. Hebard is not a trustee or beneficiary of the trust and disclaims any beneficial interest in them. (5) Includes only active management as of October 1, 1999. (c) Changes in Control. On August 19, 1993 Equitex transferred all its interest in the Registrant including stocks, notes and accounts receivable to Thomas W. Itin or his assigns. 17 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others. License Agreement On September 17, 1985, the Registrant and CompuSonics Corporation, a shareholder of the Registrant, entered into a license agreement pursuant to which the Registrant 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 Registrant'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 Registrant is not in violation of any of the license restrictions. The license may not be transferred by the Registrant. The technology licensed allows the Registrant 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 is currently engaged in marketing and promoting its CSX Technology licensing and engineering consulting services on a limited basis. Assignment Agreement and Issuance of Preferred Stock The Registrant 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 digital video system patent application was prepared with the assistance of CompuSonics Corporation's president at the time. Patent application fees and patent counsel fees were also paid by CompuSonics Corporation. The value of the services and the fees advanced total $34,500 of which $19,000 was expended for patent application fees and patent attorney fees and $15,500 represents salary expense for assistance provided by CompuSonics Corporation personnel. The assignment of patent application and all other rights to the digital video system gives the Registrant the right to develop the technology assigned. CompuSonics Corporation has relinquished the right to develop this video technology. Loans The Registrant previously had outstanding notes and accounts payable to an affiliated party and shareholder, Equitex, Inc. In August 1993, Equitex, Inc. transferred all its interest in the Registrant including these notes and accounts payable to an affiliated party. The notes and accounts payable totaling $50,112 with interest as of July 31, 1999, are unsecured and bear interest at the rate of 10 and 12% per annum, and are due upon demand. The Registrant and its subsidiary Tyler-Shaw together, in addition to the above stated amounts, have outstanding notes and accounts payable to an affiliated party totaling $809,570 with interest as of July 31, 1999. The loans are at 10.50% & 10.25% interest, respectively. These loans are Collaterized by all the assets of Tyler-Shaw and the Registrant. The Registrant also has an outstanding note payable to a non-affiliated party in the amount of $32,550, including interest of 10.50%. From August 1, 1989, through July 31, 1999, the Registrant did not purchase any equipment of material value. 18 (b) Certain Business Relationships. (b) (1) During the Registrant'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 Registrant's current year, payments to the Registrant for property or services in excess of five percent of: (i) the Registrant'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 Registrant 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 Registrant has made during the Registrant's last full fiscal year or proposes to make during the Registrant's current fiscal year, payments for property or services in excess of five percent of (i) the Registrant'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 Registrant 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 Registrant was indebted at the end of the Registrant's last full fiscal year in an aggregate amount in excess of five percent of the Registrant's total consolidated assets at the end of such fiscal year. (b) (4) No nominee or director of the Registrant is, or during the last fiscal year has been, a member of or of counsel to a law firm that the Registrant 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 Registrant 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 Registrant, other than as a participating underwriter in a syndicate, during the last fiscal year or that the Registrant proposes to have performed services during the current year. (b) (6) The Registrant is not aware of any other relationship between nominees for election as directors or its directors and the Registrant that are similar in nature and scope to those relationships listed in paragraphs (b) (1) through (5) of this Item 13. 19 (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 Registrant 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 Registrant is not required to report any information concerning transactions with promoters. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report Form 10-K immediately following the signature page. 1. Financial Statements and Supplementary Data. Page --------- Independent Auditor's Report F-1 to F-2 Consolidated Balance Sheets at July 31, 1999 and 1998 F-3 Consolidated Statements of Operations for the years ended July 31, 1999, 1998 and 1997 F-4 Consolidated Statements of Changes in Stockholders' Deficit for the years ended July 31, 1999, 1998 and 1997 F-5 Statements of Cash Flows for the years ended July 31, 1999, 1998 and 1997 F-6 Notes to Consolidated Financial Statements F-7 to F-14 Schedules of Investments at July 31, 1999 and 1998 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 21 (b) Reports on Form 8-K Form 8-K was filed on May 6, 1999 to announce the extension of Class A and Class B Warrants from May 15, 1999 to May 15, 2000. (c) Exhibits required by Item 601 of Regulation S-K Exhibit 3.1 ............................Articles of Incorporation * Exhibit 3.2 .................................................Bylaws * Exhibit 3.3 ................Designation of Series A Preferred Stock - Exhibit 11 Statement of Computation of Per Share Earnings (Loss)...F-4 Exhibit 16 Letter re Change in Certifying Accountant FILED HEREWITH Exhibit 27 Financial Date Schedule FILED HEREWITH * Incorporated by reference from the Registrant's Registration Statement on Form S-18, No. 1-14200, and effective November 27, 1985. 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 22 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 (Registrant) By: \s\Robert R. Hebard --------------------------- Robert R. Hebard, President Date: November 12, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 12th day of November, 1999. Signature Title ----------- ------- \s\Robert R. Hebard ------------------- Robert R. Hebard Chairman of the Board of Directors Chief Executive Officer and Treasurer \s\Robert J. Flynn -------------------- Robert J. Flynn Vice President and Director The foregoing constitute all of the Board of Directors. 23 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, 1999, and the related statement of operations, changes in stockholders' deficit, and cash flows for the year ended July 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of the Company as of July 31, 1998 and 1997 were audited by other auditors whose reports dated October 26, 1998 and October 20, 1997 included an explanatory paragraph that described going concern uncertainties. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits 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, 1999 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. F-1 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. /s/ JL Stephan Co PC - ---------------------- J L Stephan Co PC Traverse City, Michigan September 15,1999 F-2
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS July 31, ----------------------------- 1999 1998 ----------- ----------- Current Assets Cash $ 48,563 $ 77 Accounts Receivable - Related Parties 30,254 -0- Interest Receivable 1,603 -0- Notes Receivable - Related Party 150,000 -0- Prepaid Assets 614 -0- Marketable Equity Securities Available For Sale 88,984 80,086 ----------- ----------- Total Current Assets 320,018 80,163 Other Assets Equipment 45,896 38,774 Less Accumulated Depreciation (39,510) (38,774) ----------- ----------- 6,386 0 Total Other Assets ----------- ----------- Total Assets $ 326,404 $ 80,163 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Notes Payable to Related Entities $ 552,440 $ 398,440 Notes Payable - Other 20,100 20,100 Accounts Payable and Accrued Liabilities 66,807 48,010 Accounts Payable - Related Entities 307,741 264,818 ----------- ----------- Total Liabilities 947,088 731,368 ----------- ----------- Stockholders' Deficit Preferred Stock - Series A Convertible Stock $.001 Par Value, 75,000,000 Shares Authorized, -0- Shares Issued and Outstanding -0- -0- Common Stock $.001 Par Value, 300,000,000 Shares Authorized, 160,006,250 Shares Issued and Outstanding in 1999 and 1998 160,006 160,006 Additional Paid-In Capital 680,880 680,880 Retained Earnings Unrealized Gain on Available for Sale Securities 63,949 55,051 Accumulated Deficit (1,525,519) (1,547,141) ----------- ----------- Total Stockholders' Deficit (620,684) (651,204) ----------- ----------- Total Liabilities and Stockholders' Deficit $ 326,404 $ 80,163 =========== =========== 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, 1999, 1998 and 1997 1999 1998 1997 ------------ ------------ ------------ Commission Income $ 212,210 $ -0- $ -0- ------------ ------------ ------------ General and Administrative Expenses Staff Salaries 101,817 -0- -0- Professional Fees 7,231 6,714 3,144 Management Fees - Related Party 4,150 1,200 1,200 Patent Fees 7,156 8,229 2,463 Travel and Entertainment 6,121 -0- -0- All Other General and Administrative Expenses 20,582 191 219 ------------ ------------ ------------ Total General and Administrative Expenses 147,058 16,334 7,026 ------------ ------------ ------------ Gain (Loss) From Operations 65,152 (16,334) (7,026) ------------ ------------ ------------ Interest Income 1,603 -0- -0- Interest Expense (45,134) (42,927) (41,540) ------------ ------------ ------------ Total Other Income (Expense) (43,532) (42,927) (41,540) ------------ ------------ ------------ Net Income Before Income Taxes 21,621 (59,261) (48,566) Income Tax Benefit -0- -0- -0- ------------ ------------ ------------ Net Income (Loss) $ 21,621 (59,261) $ (48,566) ============ ============ ============ 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 STOCKHOLDERS' DEFICIT For the Years Ended July 31, 1999, 1998 and 1997 Unrealized Gain on Marketable Additional Securities Total Convertible Paid-In Available-for- Accumulated Stockholders' Preferred Stock Common Stock Capital Sale Deficit Deficit ----------------------------------------------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------ Balance at July 31, 1996 -0- -0- 160,006,250 160,006 $ 680,880 $ 46,152 $ (1,439,314) $ (552,276) Net Loss for the Year Ended July 31, 1997 -0- -0- -0- -0- -0- (3,559) (48,566) (52,125) ----------------------------------------------------------------------------------------------------- Balance at July 31, 1997 -0- -0- 160,006,250 160,006 680,880 42,593 (1,487,880) (604,401) Net Loss for the Year Ended July 31, 1998 -0- -0- -0- -0- -0- 12,458 (59,261) (46,803) ----------------------------------------------------------------------------------------------------- Balance at July 31, 1998 -0- -0- 160,006,250 160,006 680,880 55,051 (1,547,141) (651,204) Net Loss for the Year Ended July 31, 1999 -0- -0- -0- -0- -0- 8,898 21,621 30,520 ----------------------------------------------------------------------------------------------------- Balance at July 31, 1999 -0- $ -0- 160,006,250 $ 160,006 $ 680,880 $ 63,949 $ (1,525,519) $ (620,684) ===================================================================================================== Theaccompanying 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, 1999, 1998 and 1997 1999 1998 1997 ------------ ---------- ----------- Cash Flows From Operating Activities Net Loss $ 21,621 $ (59,261) $ (48,566) ------------ ----------- ----------- Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities Depreciation 735 -0- -0- (Increase) Decrease In: Accounts Receivable and Accrued Assets (32,470) -0- -0- Increase (Decrease) In: Accounts Payable and Accrued Liabilities 18,797 10,219 1,341 Accounts Payable Related Entities 42,924 41,116 29,812 ------------ ---------- ----------- Total Adjustments 29,986 51,335 31,153 ------------ ---------- ----------- Net Cash (Used For) Operations 51,607 (7,926) (17,413) ------------ ---------- ----------- Cash Provided by Investing Activities Purchase of Equipment (7,121) -0- -0- Investments (150,000) -0- -0- ------------ ---------- ----------- Net Cash (Used For) Investing Activities (157,121) -0- -0- ------------ ---------- ----------- Cash Provided by Financing Activities Proceeds From Notes Payable - Related 154,000 7,850 17,300 ------------ ---------- ----------- Net Cash Provided by Financing Activities 154,000 7,850 17,300 ------------ ---------- ----------- Increase (Decrease) in Cash 48,486 (76) (113) Balance at Beginning of Year 77 153 266 ------------ ---------- ----------- Balance at End of Year $ 48,563 $ 77 $ 153 ============ ========== =========== The accompanying notes are an integral part of this financial statement. F-6
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1999 ------------- 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 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 around the world. The Company's management concluded that significant opportunities existed in this emerging technology 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. The Company focuses its efforts on the development of commercial sites on the World Wide Web. The Company develops e-commerce applications, where a manufacturer or distributor would sell its products on the Internet, internal coordination sites called Intranets, that are used by employees of a company to communicate with each other and share information, and Extranets, used by companies to communicate and share information with outside groups such as suppliers and major customers. F-7 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1999 ------------- The technical management of the Company has significant experience in this type of work and has two current clients for these type of projects, while currently prospecting for additional business in this area. The ability of the Company to generate additional business is directly related to staffing levels of employees. As such, the Company expects to hire additional employees as the level of business grows. 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, 1999 the cost to maintain these patents and record them in foreign countries was $7,156 which was 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. 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, 1999, the Company's carryforwards are as follows: F-8 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- 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 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, 1999, 1998 and 1997 was $735, $0 and $0 respectively. F-9 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1999 ------------- Note 2. Marketable Securities During the years ended July 31, 1999 and 1998 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, 1999 and 1998 of $88,984 and $80,086 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, 1999. 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 1999, 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, ------------------- 1999 1998 ---- ---- June 21, 1988 (3) 12% 600 600 August 30, 1989 (3) 12% 6,500 6,500 January 14, 1993 (3) 10% 5,000 5,000 December 19, 1999 (1) 10.25% 381,217 227,157 September 11, 1999 (2) 10.25% 159,123 159,123 (1) Owed to Acrodyne Corporation ("Acrodyne"). Collateralized by al lassets of CompuSonics Video Corporation. (2) Owed to Acrodyne. Collateralized by all of the assets of Tyler-Shaw. (3) Owed to Acrodyne, unsecured, and transferred from Equitex, Inc. (see note 8). B. Non - Related Entity Notes Payable July 31, -------------------- 1999 1998 ---- ---- October 20, 1999 (1) 10.50% 20,100 20,100 F-10 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1999 ------------- (1) Owed to First Equity Corporation. Collaterized by all assets of CompuSonics Video Corporation. C. Notes Receivable - Related On June 22, 1999, the Company loaned $150,000 to Pro Golf International, Inc. ("PGI"), a subsidiary of Ajay Sports, Inc. The Company received a promissory note that is subordinated to PGI's primary lender. The unpaid principal balance will bear an interest rate of 10% and will be due and payable in full on July 22, 2000. The Company has made a proposal to PGI to do website development and maintenance work for PGI and its related companies. Note 4. Stockholders' Equity A. Preferred Stock Under the Company's Certificate of Incorporation, up to 75,000,000 shares of preferred stock, with classes and terms as designated by the Company, may be issued and outstanding at any point in time. The Company had 300,000 authorized shares of Series A Convertible Preferred Stock ($.001 par value) outstanding at July 31, 1988. In September 1988, all the outstanding shares were converted at $.001 per share, at the holder's option, into 30,000,000 shares of common stock. B. Public Offering of Common Stock In December 1985 the Company completed a public offering of 30,000,000 units, each consisting of one share of the Company's common stock, $.001 par value, and one Class A purchase warrant. One Class A warrant entitles the holder to purchase one share of common stock plus a Class B warrant for $.05 during the twelve month period originally ending November 27, 1986 and currently extended to May 15, 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 May 15, 2000. The offering was made pursuant to an underwriting agreement whereby the units were sold by the Underwriter on a "best efforts, all or none" basis at a price of $.03 per unit. The Underwriter received a commission of $.003 per unit and a nonaccountable expense allowance of $27,000. 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 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1999 ------------- Also pursuant to the underwriting agreement, the Company sold to the Underwriter, for $100, warrants to purchase 3,000,000 shares of the Company's common stock at a price of $.036 per share. These warrants were exercisable for a period of four years beginning December 13, 1986. These warrants were not exercised and have expired. C. Incentive Stock Option Plan On October 4, 1985, the Company's board of directors authorized an Incentive Stock Option Plan covering up to 7,000,000 shares of the Company's common stock for key employees. The board of directors is authorized to determine the exercise price, the time period, the number of shares subject to the option and the identity of those receiving the options. Note 5. Related Party Transactions The Company currently occupies office space, at no charge, in the office of Acrodyne, a related entity. TSC also utilizes space in a related entity at no charge for the purposes of accounting and administration. The Company believes its current facilities are sufficient for its presently intended business activity. The accounts payable, as of July 31, 1999 and 1998, include management fees owed to Acrodyne of $500 and $600 respectively (see note 6(b)). The Company also has an unsecured advance payable, to Acrodyne of $26,016 as of July 31, 1999. This payable was transferred from Equitex, Inc. to Acrodyne Corporation in August, 1993 (see note 8). The accrued interest payable at July 31, 1999 and 1998 to Acrodyne was $281,226 and $238,202 respectively. See Note 3, herein, regarding loans made to the Company by a related entity. The Company currently has consulting agreements with two affiliated companies to do website development and maintenance consulting work. They are Williams Controls, Inc. ("Williams") and Ajay Sports, Inc. ("Ajay"). The work product includes redesigns of the companies websites, the development of intranet products, and ongoing maintenance of the sites as new features are added. During the years ended July 31, 1999 and 1998 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 $4,150, $1,200, and $1,200 for the years ended July 31, 1999, 1998, and 1997. F-12 Note 6. Cash Flows Disclosure Interest and income taxes paid for the years ended July 31, 1999, 1998 and 1997 were as follows: 1999 1998 1997 -------- --------- --------- Income Taxes $ -0- $ -0- $ -0- ========= ======== ========= Interest $ -0- $ -0- $ -0- ========= ======== ========= Note 7. Transfer of Interest On August 19, 1993, Equitex transferred all its interest in the Company including stocks, notes and accounts receivable to Thomas W. Itin or his assigns. Mr. Itin is the former President and Chairman of the Board of the Company. Thomas W. Itin is Chairman of the Board and President of Acrodyne and WMCO. Note 8. Change in Control Effective November 10, 1993, the President and Chairman of the Board of Directors of the Company resigned due to commitments to other companies in which he is an officer and director. Robert R. Hebard was elected as director and chairman of the board and president. Mr. Hebard is assistant secretary of an investee, WMCO. Note 9. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 10. Other Subsequent Events On August 27, 1999, the Registrant filed a Form 8-K regarding the Registrant's engagement with the accounting firm of J.L. Stephan Co., P.C. to act as its independent accounting firm, to replace Hirsch Silberstein & Subelsky, P.C. The decision by Hirsch Silberstein & Subelsky, P.C. to resign was a result of one of its members, Ronald N. Silberstein, leaving the firm to become Ajay Sports, Inc.'s Chief Financial Officer and Chief Administrative Officer. Following Mr. Silberstein's departure, the Registrant was advised that the firm will concentrate its practice of providing accounting related services to individuals and privately held businesses. F-13 COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1999 ------------- Note 11. Concentration of Risk The Company provides internet consulting services to other businesses. Substantially all consulting revenue for the year ended July 31, 1999 was from two businesses, both of whom are related parties. Note 12. Contingencies The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has prior years' net losses of $59,261 and $48,566 for the years ended July 31, 1998 and 1997, respectively, and as of July 31, 1999 had a working capital deficiency of $627,070 and net stockholders' deficiency of $620,684. The Company earned commission income of $212,210, $0, and $0 during the years ended July 31, 1999, 1998 and 1997 and was mainly dependent upon a related party to fund its working capital prior to the current year. Management adopted a plan in August 1998 to provide contractual internet consulting services. The Company's ability to continue as a going concern is partially dependent on the retention of these consulting contracts. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. F-14
COMPUSONICS VIDEO CORPORATION & SUBSIDIARIES Schedules of Investments At July 31, 1999 and 1998 Amount at Which Each Portfolio of Market Value of Equity Security Issues Each Issue at and Each Other Name of Issuer and Number of Cost of Balance Sheet Security Issue Carried Title of Each Issue Shares or Units Each Issue Date in the Balance Sheet - ---------------------------------------- ------------------- --------------- ---------------- -------------------- July 31, 1999 Common Stocks Williams Controls, Inc. * 28,475 $25,035 $88,984 $88,984 ====== ======= ======= ======= July 31, 1998 Common Stocks Williams Controls, Inc. * 28,475 $25,035 $80,086 $80,086 ====== ======= ======= ======= * See Note 2 The accompanying notes are an integral part of this financial statement. F-15
EX-27 2 FDS --
5 (Replace this text with the legend) 0000777844 Compusonics Video Corporation 1 U.S. Dollar Year Jul-31-1999 Aug-01-1998 Jul-31-1999 1 48,563 88,984 181,857 0 0 320,018 45,896 (39,510) 326,404 947,088 0 0 0 160,006 (780,690) 326,404 0 212,210 0 147,058 0 0 45,134 21,621 0 0 0 0 0 21,621 0.00 0.00
EX-16 3 LETTER RE: CHANGE IN AUDITORS August 31, 1999 Securities and Exchange Commission 450 Fifth Street N.W. Washington, D.C. 20549 Gentlemen: We have read the statements made by CompuSonics Video Corporation (copy attached) which we understand will be filed with the Commission, pursuant to Item 4 of Form 8-K, as part of the Company's Form 8-K report dated August 27, 1999. We agree with the statements concerning our firm in such Form 8-K. Very Truly Yours, \s\Hirsch Silberstein & Subelsky - --------------------------------- Hirsch Silberstein & Subelsky, P.C. attachment -----END PRIVACY-ENHANCED MESSAGE-----