Part 13 Prospectus
Continued Government Support
The success of the commercialization of products based on the V-Chip Technology is dependent on the establishment by governments of requirements for the adoption of rating systems compatible with the V-Chip Technology and the encoding of such ratings in television signals. While Canada and the United States have adopted ratings systems, any material delay in the encoding of ratings information in television signals would have a material adverse effect on the success of products incorporating the V-Chip Technology and, accordingly, the Company's business, prospects and financial condition.
Intellectual Property Rights
Although CVCD and VCCE have taken steps to protect the rights to the V-Chip Technology and the trade-mark "ViewControl", no assurance can be given that the V-Chip Technology does not infringe one or more patents or intellectual property rights held by third parties. CVCD has filed patent applications in respect of the V-Chip Technology. To date, no patents have been issued and there can be no assurances that any patents will issue and if, in fact, the patents are issued, that such patents will not be found to be invalid or unenforceable or that the scope of such patents may not be limited. See "Intellectual Property". The profitability of the Company will be affected by its ability, as well as that of CVCD and VCCE, to protect their respective interests in the V-Chip Technology. The cost of defending or prosecuting the patents may be borne in whole or in part by the Company.
Dependence on Key Personnel
The success of the Company is heavily dependent on its key personnel and on its ability to motivate, retain and attract highly skilled persons. The loss of such services or the failure by the Company to continue to attract and retain other key personnel may have a material adverse effect on the Company.
Dependence on Key Customers
In the year ended March 31, 1997, the Company's ten largest customers accounted for 80.4% of total sales, with the largest customer accounting for 38.1% of total sales. The Company will be relying on these customers as well as certain key distributors for the distribution of its V-Chip Technology products. See "The V-Chip Technology - Market and Distribution of the V-Chip Technology". There can be no guarantee of future revenues from such customers.
Dependence on Third Parties for Manufacturing
The Company is dependant on third party manufacturers for the production of the bulk of its products including the ViewControlO V-Chip Decoder and cable converter and hand-held remote control products. Although the ViewControlO V-Chip Decoder has been produced for test purposes it has not yet been manufactured in commercial quantities. In the event the Company's manufacturers experience production difficulties, delays or disruptions or the Company is unsuccessful in retaining third party manufacturing, the Company may not be able to obtain adequate supplies of products in a timely fashion or at acceptable quality, quantity, timing or prices. Any disruption in the supply and manufacturing of the Company's products could have a material adverse effect on the Company's business and financial condition.
Competition
The Company operates in a highly competitive market place. As competitors introduce new products or revise their supply or pricing strategies, the Company may encounter additional and more intense competition. Such competitors may have greater name recognition and more extensive financial, technological, marketing and personnel resources than the Company. There can be no assurance that the Company will be able to compete successfully with existing or new competitors.
International Operations
The Company carries on a significant portion of its business outside of Canada. International business is subject to various risks, including exposure to currency fluctuations, political and economic instability, greater difficulty of administering business abroad and the need to comply with a wide variety of foreign laws. To date, the Company has not hedged its currency risk with the purchase of foreign exchange contracts. However, the risk of decreased revenues and earnings for the Company resulting from a decrease in the value of the U.S. dollar relative to the Canadian dollar is mitigated to some extent by the fact that a significant portion of the Company's manufacturing costs are denominated in U.S. dollars.
Dilution
Purchasers of Units will suffer immediate dilution based upon the difference between the price per Common Share comprising part of a Unit and the net tangible book value per Common Share. The effective price for each Common Share comprising part of a Unit exceeds by $2.00 the consolidated net tangible book value of each Common Share as at December 31, 1997, after giving effect to the Public Offering (but not including any exercise of the Over-Allotment Option), representing a dilution factor of 80%. See "Dilution".
ESCROW ARRANGEMENTS
In accordance with the requirements of The Alberta Stock Exchange (the "ASE") applied at the time of the reverse take-over of Peter Island Resources Ltd. by TVE, Najmul Hasan Siddiqui, Nazrul Hasan Siddiqui, Qamrul Hasan Siddiqi, Young Kwon Han, Vincent Elinares and Razi Ansari (collectively, the "Shareholders") entered into an agreement dated March 5, 1993 (the "Escrow Agreement") with Tri-Vision and Equity Transfer Services Inc. (the "Escrow Agent"). Pursuant to the Escrow Agreement, an aggregate of 15,394,500 Common Shares (the "Escrowed Shares") owned by the Shareholders were deposited in escrow with the Escrow Agent. The Escrowed Shares were to be released from escrow on the basis of one Common Share for each $0.12 of cash flow generated by the Company. For such purposes, cash flow means net income as shown on the audited financial statements of the Company or as verified by the Company's auditors, adjusted to add back depreciation, depletion, deferred taxes, amortization of goodwill, and amortization of research and development costs ("Cash Flow"). All of the Escrowed Shares have been released from escrow.
In addition, in conjunction with the Company's acquisition of certain rights to the V-Chip Technology, VCCE entered into an agreement dated June 10, 1997 (the "V-Chip Escrow Agreement") with TVI and the Escrow Agent, pursuant to which the 3,600,000 Common Shares ("V-Chip Consideration Shares") received by VCCE as part consideration for the granting of certain rights to the V-Chip Technology were deposited in escrow with the Escrow Agent. The V-Chip Consideration Shares may be released from escrow on the basis of one Common Share for each $2.20 of Cash Flow generated by the V-Chip Technology. No more than one-third of the original number of V-Chip Consideration Shares may be released in any one year. In the event that any of the V-Chip Consideration Shares remain in escrow on June 10, 2002, such shares shall, unless otherwise exempted by the ASE, be cancelled by the Escrow Agent within six months of such date. To date, none of the V-Chip Consideration Shares have been released from escrow.
MATERIAL CONTRACTS
Except for contracts entered into in the ordinary course of business, during the two year period immediately preceding the date of this prospectus, Tri-Vision has not entered into any material contracts other than the following:
(a) the V-Chip Technology Agreements between TVI, TVE, CVCD and VCCE referred to under the heading "The V-Chip Technology - Rights to the V-Chip Technology";
(b) the Consulting Agreement between TVE and CVCD referred to under the heading "The V-Chip Technology - Rights to the V-Chip Technology";
(c) the V-Chip Escrow Agreement between VCCE, TVI and the Escrow Agent referred to under the heading "Escrow Arrangements";
(d) the Underwriting Agreement referred to under "Plan of Distribution";
(e) the Special Warrant Underwriting Agreement referred to under "Prior Sales"; and
(f) the Special Warrant Indenture dated as of October 30, 1996 between the Company and Equity Transfer Services Inc. governing the Special Warrants referred to under "Prior Sales".
Copies of the contracts referred to in (c), (d), (e) and (f) above may be inspected at the head office of the Company located at 41 Pullman Court, Scarborough, Ontario, during normal business hours during the period of distribution of the Units pursuant to this offering.
AUDITOR, TRANSFER AGENTS AND REGISTRARS
The auditor of Tri-Vision is Khalid Usman, C.A., 4961 Highway #7 East, Markham, Ontario.
The registrars and transfer agents for the Common Shares are Equity Transfer Services Inc. at its principal office in Toronto and Montreal Trust Company of Canada at its principal office in Calgary. Equity Transfer Services Inc., at its principal office in Toronto, will also act as Warrant Agent and Warrants may be exercised at its principal office in Toronto and, if appointed, at the principal office of a co-transfer agent in the city of Calgary.
LEGAL MATTERS
Legal matters relating to the issue and sale of the Units will be passed upon on behalf of the Company by Daley, Byers, Toronto, Ontario, and on behalf of the Underwriters by Aird & Berlis, Toronto, Ontario.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in several of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, damages where the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that such remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. The purchaser should refer to any applicable provisions of the securities legislation of his or her province for the particulars of these rights or consult with a legal adviser.
CONSOLIDATED FINANCIAL STATEMENTS
AUDITOR'S REPORT
To the Directors of Tri-Vision International Ltd./Lt‚e
I have audited the consolidated balance sheet of Tri-Vision International Ltd./Lt‚e as at March 31, 1997, the consolidated statements of income and retained earnings and changes in financial position for the years ended March 31, 1997, March 31, 1995, March 31, 1994 and March 31, 1993. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.
In my opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Tri-Vision International Ltd./Lt‚e as at March 31, 1997 and the results of its operations and the changes in its financial position for the years ended March 31, 1997, March 31, 1995, March 31, 1994 and March 31, 1993 in accordance with generally accepted accounting principles and the disclosure respecting subsequent events made in note 17 is appropriate.
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