-----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, P4O+PebVAM7vAigGiTC0ZDXWtPe2xpL9uBGpSpCrugIhjAzUF1SjhXBGs83KvgLB sGqqExCts1qXTz6KS2LgJw== 0000950116-99-001050.txt : 19990518 0000950116-99-001050.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950116-99-001050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROJECTAVISION INC CENTRAL INDEX KEY: 0000848135 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 133499909 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19218 FILM NUMBER: 99627064 BUSINESS ADDRESS: STREET 1: ONE EVERTRUST PLAZA STREET 2: 11TH FLOOR CITY: NEW JERSEY STATE: NJ ZIP: 07302 BUSINESS PHONE: 2019380099 MAIL ADDRESS: STREET 1: ONE EVERTRUST PLAZA STREET 2: 11TH FLOOR CITY: NEW JERSEY STATE: NJ ZIP: 07302 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended March 31, 1999 -------------- Commission File Number 33-33997 -------- Vidikron Technologies Group, Inc.. ---------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3499909 - -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 Evertrust Plaza 11th Floor, Jersey City, NJ 07302 (Address of Principal Executive Offices) (zip code) (201) 938-0099 (Registrant's telephone number, including area code) 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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X As of May 17, 1999, there were 1,049,825 shares of the Registrant's common stock outstanding. SPECIAL CAUTINARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management. Such forward-looking statements are principally contained in the sections "Part 1 - Item 2- Management's Discussion and Analysis of Financial Condition and Results of Operations" and include, without limitation, the Company's expectations and estimates as to: the Company's integration of the Vidikron Acquisition; the Company's ability to successfully address Year 2000 issues and the costs and timing of the steps it expects to take; the Company's future financial performance, including its ability to generate sufficient cash flow and meet working capital requirements; the introduction of new products; the market for the Company's products; and the Company's business operations in general. In addition, in those and other portions of this Form 10-Q, the words "anticipates," "believes" "estimates," "expects" "plans," "intends" and similar words or phrases, as they relate to the Company and its subsidiaries, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks and uncertainties and that could cause the actual results to differ materially from those expressed in any forward-looking statements made by the Company. The Company does not intend to update these forward-looking statements VIDIKRON TECHNOLOGIES GROUP, INC. FORM 10-Q TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations F-11 Item 3. Quantitative and Qualitative Disclosure about Market Risk F-12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K F-13 SIGNATURES F-14 VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) - --------------------------------------------------------------------------------
December 31, March 31, ASSETS 1998 1999 CURRENT ASSETS: Cash and cash equivalents $ 2,280,107 $ 142,669 Accounts receivable 1,934,426 2,338,602 Inventory 4,617,680 3,917,574 Investments 500,000 500,000 Other current assets 299,575 471,818 ----------- ----------- Total Current Assets 9,631,788 7,370,663 PROPERTY AND EQUIPMENT Furniture, fixtures and equipment 436,278 364,311 Tooling 2,250,143 2,250,144 Computers and software 411,095 411,466 Assets under capital leases 47,989 47,989 Leasehold improvements 8,824 28,591 ----------- ----------- 3,154 329 3,132,501 Less: Accumulated depreciation and amortization 290,662 452,300 ----------- ----------- Property and equipment, net 2,863,667 2,680,200 GOODWILL - Net of accumulated amortization of $130,337 5,985,094 6,192,297 TRADEMARKS - Net of accumulated amortization of $18,8440 599,216 584,141 OTHER ASSETS 150,635 211,168 ----------- ----------- TOTAL ASSETS $19,230,400 $17,033,345 =========== ===========
LIABILITIES AND STOCKHOLDERS' EOUITY CURRENT LIABILITIES: Accounts payable $ 3,597,729 $ 4,076,971 Accrued liabilities 1,297,500 1,096,986 Notes payable 7,889,197 1,249,550 Bank debt 1,681,579 1,494,678 Convertible debt 140,000 -- Current portion of capital lease obligations 17,904 18,643 ----------- ----------- Total Current Liabilities 14,623,909 7,938,828 ----------- ----------- LONG-TERM LIABILITIES Long-term portion of capital lease obligations 4,947 -- Other long-term liabilities 498,188 247,703 Convertible debt -- -- ----------- ----------- Total Long-term Liabilities 503,135 247,703 ----------- ----------- TOTAL LIABILITIES 15,127,044 8,186,531 STOCKHOLDERS' EQUITY Preferred stocks Series A Preferred Stock, $.01 par value 100 shares authorized, 100 shares issued ($1,000 liquidation preference per share) -- -- Series B Preferred Stock, $.01 par value 434,667 shares authorized, 251,258 shares outstanding as of December 31, 1998 and March 31,1999 ($5 liquidation preference per share) 3,512 3,512 Series D Preferred Stock, $100 par value 60,000 shares authorized; 36,900 shares issued as of December 31, 1998 ($100 liquidation preference per share) 3,690,000 -- Series E Preferred Stock, $1,000 par value 1,650 shares authorized; 1,510 shares issued as of December 31, 1998 ($1,000 liquidation preference per share) 1,510,000 -- Series F Preferred Stock, $1,000 par value 2,850 shares authorized; 2,850 shares issued as of December 31, 1998 ($1,000 liquidation preference per share) 2,850,000 -- Series G Preferred Stock. $1,000 par value 2,400 shares authorized; 2,400 shares issued as of December 31, 1998 and 400 shares issued as of March 31, 1999 ($1,000 liquidation preference per share) 2,400,000 400,000 Series I Preferred Stock, $.01 par value 16,190 shares authorized; 16,190 shares issued as of March 31, 1999 ($1,000 liquidation preference per share) -- 16,190,000 Common stock $.004 per value - 1,250,000 shares authorized; 1,146,327 and 1,049,825 issued and outstanding December 31, 1998 and March 31, 1999 respectively 4,585 4,199 Cumulative Translation Adjustment (21,353) 89,279 Additional pald-in capital 50,846,300 51,089,853 Accumulated Deficit (57,179,688 (58,930,029) ----------- ----------- Total Stockholders' Equity 4,103,356 8,846,814 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $19,230,400 $17,033,345 =========== ===========
The consolidated financial statements reflect a 40-to-1 reverse stock split See notes to consolidated financial statements F-2 VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended March 31, -------------------------------- 1998 1999 REVENUE $ 416,443 $ 3,978,490 COST OF SALES 354,906 3,089,355 ----------- ----------- GROSS PROFIT 61,537 889,135 OPERATING EXPENSES Sales and marketing 358,834 743,398 General and administrative 1,348,926 1,377,657 Depreciation and amortization 188,905 317,722 Research and development 148,957 61,394 Patent and license expense 26,843 20,819 ----------- ----------- Total Operating Expenses 2,072,465 2,520,990 ----------- ----------- LOSS FROM OPERATIONS (2,010,928) (1,631,855) ----------- ----------- OTHER INCOME (EXPENSE) Minority Interest 420,168 -- Interest income 11,393 3,166 Interest expense (5,500) (51,402) Interest expense - Amortization of debt expense (12,000) -- ----------- ----------- Other income/(expense) - Net 414,061 (48,236) ----------- ----------- Net Loss (1,596,867) (1,680,091) Dividends on Preferred Stock (333,072) (70,250) ----------- ----------- Net Loss Attributable to Common Shareholders $(1,929,939) $(1,750,341) =========== =========== Net Loss per Share Attributable to Common Shareholders $ (3.76) $ (1.74) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 513,637 1,004,603 =========== ===========
The consolidated financial statements reflect a 40-to-1 reverse stock split. See notes to consolidated financial statements F-3 VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------------------
CUMULATIVE SERIES A SERIES B TRANSLATION PREFERRED STOCK PREFERRED STOCK ADJUSTMENT SHARES AMOUNT SHARES AMOUNT ----------- ------- ------ ------- ------ BALANCE, DECEMBER 31, 1996 $ -- 100 ## 365,962 $3,859 NET LOSS CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK (34,724) (347) SERIES C PREFERRED STOCK CONVERSION STOCK ISSUANCE OF SERIES D PREFERRED STOCK ISSUANCE OF SERIES E PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS FINANCING COST FOR SERIES D PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF COMMON STOCK FOR SERVICES CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ----------- ------- ------ ------- ------ BALANCE, DECEMBER 31, 1997 0 100 0 351,258 3,512 NET LOSS CUMULATIVE TRANSLATION ADJ (21,353) TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS CONVERSION OF SERIES D PREFERRED STOCK FINANCING COST FOR SERIES D PREFERRED STOCK CONVERSION OF SERIES E PREFERRED STOCK ISSUE SHARES TO SERIES E PREFERRED STOCKHOLDER ISSUANCE OF SERIES F PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES F PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES F PREFERRED STOCKHOLDERS ISSUANCE OF SERIES G PREFERRED STOCK FINANCING COST FOR SERIES G PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES G PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES G PREFERRED STOCKHOLDERS ISSUE SHARES TO SERIES G PREFERRED STOCKHOLDER ISSUANCE OF COMMON STOCK ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. ISSUANCE OF COMMON STOCK FOR SERVICES ----------- ------- ------ ------- ------ BALANCE, DECEMBER 31, 1998 (21,353) 100 -- 351,258 3,512 NET LOSS CUMULATIVE TRANSLATION ADJ 110,632 TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES AND PREFERRED STOCK INTO SERIES I PREFERRED STOCK ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF SERIES I PREFERRED STOCK ISSUANCE OF COMMON STOCK FOR LEGAL SERVICES ADJUST ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. ISSUANCE OF COMMON STOCK FOR INVESTMENT BANKING SERVICES ----------- ------- ------ ------- ------ BALANCE, MARCH 31, 1999 $ 89,279 100 $ 0 351,258 $3,512 =========== ======= ====== ======= ======
[RESTUBBED FROM PREVIOUS TABLE] VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------------------
SERIES C SERIES D SERIES E PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- ------ -------- ----------- -------- ----------- BALANCE, DECEMBER 31, 1996 7,500 $ 8 0 -- 0 -- NET LOSS CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK SERIES C PREFERRED STOCK CONVERSION STOCK (7,500) (8) ISSUANCE OF SERIES D PREFERRED STOCK 51,000 5,100,000 ISSUANCE OF SERIES E PREFERRED STOCK 1,650 1,650,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS FINANCING COST FOR SERIES D PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF COMMON STOCK FOR SERVICES CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ------- ------ -------- ----------- -------- ----------- BALANCE, DECEMBER 31, 1997 0 0 51,000 5,100,000 1,650 1,650,000 NET LOSS CUMULATIVE TRANSLATION ADJ TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS CONVERSION OF SERIES D PREFERRED STOCK (14,000) (1,410,000) FINANCING COST FOR SERIES D PREFERRED STOCK CONVERSION OF SERIES E PREFERRED STOCK (140) (140,000) ISSUE SHARES TO SERIES E PREFERRED STOCKHOLDER ISSUANCE OF SERIES F PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES F PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES F PREFERRED STOCKHOLDERS ISSUANCE OF SERIES G PREFERRED STOCK FINANCING COST FOR SERIES G PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES G PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES G PREFERRED STOCKHOLDERS ISSUE SHARES TO SERIES G PREFERRED STOCKHOLDER ISSUANCE OF COMMON STOCK ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. ISSUANCE OF COMMON STOCK FOR SERVICES ------- ------ -------- ----------- -------- ----------- BALANCE, DECEMBER 31, 1998 0 -- 36,900 3,690,000 1,510 1,510,000 NET LOSS CUMULATIVE TRANSLATION ADJ TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES AND PREFERRED STOCK INTO SERIES I PREFERRED STOCK (36,900) ($3,690,000) (1,510) ($1,510,000) ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF SERIES I PREFERRED STOCK ISSUANCE OF COMMON STOCK FOR LEGAL SERVICES ADJUST ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. ISSUANCE OF COMMON STOCK FOR INVESTMENT BANKING SERVICES ------- ------ -------- ----------- -------- ----------- BALANCE, MARCH 31, 1999 0 $ 0 0 $ 0 0 $ 0 ======= ====== ======== =========== ======== ===========
[RESTUBBED FROM PREVIOUS TABLE] VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------------------
SERIES F SERIES G PREFERRED STOCK PREFERRED STOCK SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- ----------- BALANCE, DECEMBER 31, 1996 0 -- 0 -- NET LOSS CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK SERIES C PREFERRED STOCK CONVERSION STOCK ISSUANCE OF SERIES D PREFERRED STOCK ISSUANCE OF SERIES E PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS FINANCING COST FOR SERIES D PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF COMMON STOCK FOR SERVICES CONVERSION OF 8% DEBENTURES INTO COMMON STOCK -------- ----------- -------- ----------- BALANCE, DECEMBER 31, 1997 0 0 0 0 NET LOSS CUMULATIVE TRANSLATION ADJ TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS CONVERSION OF SERIES D PREFERRED STOCK FINANCING COST FOR SERIES D PREFERRED STOCK CONVERSION OF SERIES E PREFERRED STOCK ISSUE SHARES TO SERIES E PREFERRED STOCKHOLDER ISSUANCE OF SERIES F PREFERRED STOCK 2,850 2,850,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES F PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES F PREFERRED STOCKHOLDERS ISSUANCE OF SERIES G PREFERRED STOCK 2,400 2,400,000 FINANCING COST FOR SERIES G PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES G PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES G PREFERRED STOCKHOLDERS ISSUE SHARES TO SERIES G PREFERRED STOCKHOLDER ISSUANCE OF COMMON STOCK ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. ISSUANCE OF COMMON STOCK FOR SERVICES -------- ----------- -------- ----------- BALANCE, DECEMBER 31, 1998 2,850 2,850,000 2,400 2,400,000 NET LOSS CUMULATIVE TRANSLATION ADJ TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES AND PREFERRED STOCK INTO SERIES I PREFERRED STOCK (2,850) ($2,850,000) (2,000) ($2,000,000) ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF SERIES I PREFERRED STOCK ISSUANCE OF COMMON STOCK FOR LEGAL SERVICES ADJUST ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. ISSUANCE OF COMMON STOCK FOR INVESTMENT BANKING SERVICES -------- ----------- -------- ----------- BALANCE, MARCH 31, 1999 0 $ 0 400 $400,000 ======== =========== ======== ===========
[RESTUBBED FROM PREVIOUS TABLE] VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------------------
SERIES I PREFERRED STOCK COMMON STOCK SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- ---------- BALANCE, DECEMBER 31, 1996 0 -- 355,735 1,423 NET LOSS CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK 868 3 SERIES C PREFERRED STOCK CONVERSION STOCK 122,042 489 ISSUANCE OF SERIES D PREFERRED STOCK ISSUANCE OF SERIES E PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS FINANCING COST FOR SERIES D PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS 1,669 6 ISSUANCE OF COMMON STOCK FOR SERVICES 1,250 5 CONVERSION OF 8% DEBENTURES INTO COMMON STOCK 18,161 73 -------- ----------- -------- ---------- BALANCE, DECEMBER 31, 1997 0 0 499,725 1,999 NET LOSS CUMULATIVE TRANSLATION ADJ TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES INTO COMMON STOCK 43,851 175 ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS 8,739 34 CONVERSION OF SERIES D PREFERRED STOCK 96,897 396 FINANCING COST FOR SERIES D PREFERRED STOCK CONVERSION OF SERIES E PREFERRED STOCK 20,741 83 ISSUE SHARES TO SERIES E PREFERRED STOCKHOLDER 5,000 20 ISSUANCE OF SERIES F PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES F PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES F PREFERRED STOCKHOLDERS ISSUANCE OF SERIES G PREFERRED STOCK FINANCING COST FOR SERIES G PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES G PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES G PREFERRED STOCKHOLDERS ISSUE SHARES TO SERIES G PREFERRED STOCKHOLDER 62,500 250 ISSUANCE OF COMMON STOCK 103,333 414 ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. 300,000 1,200 ISSUANCE OF COMMON STOCK FOR SERVICES 3,541 14 -------- ----------- --------- ---------- BALANCE, DECEMBER 31, 1998 0 -- 1,146,327 4,585 NET LOSS CUMULATIVE TRANSLATION ADJ TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES AND PREFERRED STOCK INTO SERIES I PREFERRED STOCK 10,190 10,190,000 ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF SERIES I PREFERRED STOCK 6,000 6,000,000 ISSUANCE OF COMMON STOCK FOR LEGAL SERVICES 858 3 ADJUST ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. (155,991) (624) ISSUANCE OF COMMON STOCK FOR INVESTMENT BANKING SERVICES 58,633 235 -------- ----------- --------- ---------- BALANCE, MARCH 31, 1999 16,190 $16,190,000 1,049,825 $ 4,199 ======== =========== ========= ==========
[RESTUBBED FROM PREVIOUS TABLE] VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------------------
ADDITIONAL PAID IN ACCUMULATED CAPITAL DEFICIT TOTAL ---------- ----------- ----------- BALANCE, DECEMBER 31, 1996 40,594,023 (34,157,268) 6,442,045 NET LOSS (8,269,920) (8,269,920) CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK 344 0 SERIES C PREFERRED STOCK CONVERSION STOCK (481) 0 ISSUANCE OF SERIES D PREFERRED STOCK 5,100,000 ISSUANCE OF SERIES E PREFERRED STOCK 1,650,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK 478,248 (478,248) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK 1,700,000 (1,700,000) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK 550,000 (550,000) 0 ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS 232,620 (232,620) 0 FINANCING COST FOR SERIES D PREFERRED STOCK (75,000) (75,000) ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS 48,900 (48,900) 0 ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS 147,492 (147,496) 0 ISSUANCE OF COMMON STOCK FOR SERVICES 96,870 96,875 CONVERSION OF 8% DEBENTURES INTO COMMON STOCK 762,890 762,963 ---------- ----------- ----------- BALANCE, DECEMBER 31, 1997 44,535,906 (45,604,454) 5,686,963 NET LOSS (9,312,278) (9,312,278) CUMULATIVE TRANSLATION ADJ (21,353) ----------- TOTAL COMPREHENSIVE LOSS (9,333,631) CONVERSION OF 8% DEBENTURES INTO COMMON STOCK 866,915 867,090 ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS 140,451 (140,485) 0 CONVERSION OF SERIES D PREFERRED STOCK 1,409,604 0 FINANCING COST FOR SERIES D PREFERRED STOCK (317,490) (317,490) CONVERSION OF SERIES E PREFERRED STOCK 139,917 0 ISSUE SHARES TO SERIES E PREFERRED STOCKHOLDER 17,980 18,000 ISSUANCE OF SERIES F PREFERRED STOCK 2,850,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES F PREFERRED STOCK 950,000 (950,000) 0 ISSUANCE OF WARRANTS TO SERIES F PREFERRED STOCKHOLDERS 67,500 (67,500) 0 ISSUANCE OF SERIES G PREFERRED STOCK 2,400,000 FINANCING COST FOR SERIES G PREFERRED STOCK (168,000) (168,000) AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES G PREFERRED STOCK 1,028,571 (1,028,571) 0 ISSUANCE OF WARRANTS TO SERIES G PREFERRED STOCKHOLDERS 76,400 (76,400) 0 ISSUE SHARES TO SERIES G PREFERRED STOCKHOLDER 224,750 225,000 ISSUANCE OF COMMON STOCK 499,586 500,000 ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. 1,148,800 1,150,000 ISSUANCE OF COMMON STOCK FOR SERVICES 225,410 225,424 ---------- ----------- ----------- BALANCE, DECEMBER 31, 1998 50,846,300 (57,179,688) 4,103,356 NET LOSS (1,680,091) (1,680,091) CUMULATIVE TRANSLATION ADJ 110,632 ----------- TOTAL COMPREHENSIVE LOSS (1,569,459) CONVERSION OF 8% DEBENTURES AND PREFERRED STOCK INTO SERIES I PREFERRED STOCK 140,000 ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS (70,250) (70,250) ISSUANCE OF SERIES I PREFERRED STOCK 6,000,000 ISSUANCE OF COMMON STOCK FOR LEGAL SERVICES 23,292 23,295 ADJUST ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. 624 0 ISSUANCE OF COMMON STOCK FOR INVESTMENT BANKING services 219,637 219,872 ----------- ------------ ----------- BALANCE, MARCH 31, 1999 $51,089,853 ($58,930,029) $8,846,814 =========== ============ ===========
The consolidated financial statements reflect a 40-to-1 reverse stock split. F-4 VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- 1998 1999 ----------- ----------- OPERATING ACTIVITIES Net loss $(1,596,867) $(1,680,091) Adjustments to reconcile net loss to not cash used in operating activities: Depreciation and amortization 188,905 317,722 Minority Interest 762,384 - Other noncash operating expenses -- 32,375 Asset and liability management Changes in accounts receivable (37,917) (404,176) Changes In Inventory (586,381) 700,106 Changes in other operating assets (823,266) (275,776) Changes In accounts payable 297,484 481,242 Changes In other liabilities -- (1,116,904) ----------- ----------- Net cash used in operating activities (1,794,638) (1,945,502) ----------- ----------- INVESTING ACTIVITIES Capital expenditures (170,631) (5,036) Payment for purchase of Vidikron, net of cash acquired (1,000,000) - ----------- ----------- Net cash (used in) investing activities (1,170,631) (5,036) ----------- ----------- FINANCING ACTIVITIES Repayment Bank Debt -- (186,900) Issuance of preferred stock 2,850,000 - Issuance fees for preferred stock (317,490) - ----------- ----------- Net cash provided by/(used in) financing activities 2,532,510 (186,900) ----------- ----------- (DECREASE) IN CASH AND CASH EQUIVALENTS (432,759) (2,137,438) CASH AND CASH EQUIVALENTS-BEGINING OF PERIOD 1,331,925 2,260,107 ----------- ----------- CASH AND CASH EQUIVALENTS-END OF PERIOD $899,166 $142,669 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for Interest $1,834 $51,402 =========== =========== The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements F-5 VIDIKRON TECHNOLOGIES GROUP, INC. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: - -------------------------------------------------------------------------------- In 1997, the Company issued 1,669 shares of its common stock with a value of $147,492 as payment for the dividend on its Series B convertible preferred stock. In addition, the Company issued 122,042 shares of its common stock to retire the entire issue of 7,500 shares of Series C convertible preferred stock. The Company also issued 1,250 shares of its common stock for services rendered by an officer and director of the Company. Finally, the Company issued 18,161 shares of common stock in connection with retiring $0.6 million of convertible debt, leaving a face value on the debt of $ 900,000. In 1998, the Company issued 8,739 shares of its common stock with a value of $140,451 as payment for the dividend on its Series B convertible preferred stock. The Company issued 98,897 shares of its common stock to retire 14,100 shares of Series D convertible preferred stock. The Company issued 20,741 shares of its common stock to retire 140 shares of Series E convertible preferred stock The Company issued 43,851 shares of common stock in connection with retiring $760,000 of convertible debt, leaving a face value on the debt of $140,000. 3,750 warrants with a value of $ 67,500 were issued in connection with the Series F Convertible Preferred Stock, and 6,250 warrants with a value of $ 76,400 were issued in connection with the Series G convertible preferred stock. 5,000 shares were issued under the terms and conditions pertaining to the Series F convertible preferred stock, and 62,500 shares were issued under the terms and conditions pertaining to the Series G convertible preferred stock. 103,333 shares of common stock were sold for gross proceeds of $500,000. 3,541 shares of common stock were issued for services. 258,333 shares were issued to acquire the Vidikron trademark, and 41,667 shares were issued to acquire the minority interest in Vidikron of America, Inc. The Company issued 144,009 shares of common stock as partial consideration for the transfer to the Company of certain trademarks and attendant intellectual property rights in connection with the acquisition of certain assets and assumption of certain liabilities from Vidikron Industries, S.p.A. In 1999 the Company issued an aggregate of 59,491 shares of common stock as partial consideration for investment banking services rendered in connection with the Vidikron transaction and for legal services. F-6 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO MARCH 31, 1999 (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - Vidikron Technologies Group, Inc. (the "Company," formerly Projectavision, Inc.), a Delaware corporation, was incorporated on September 9, 1988. The Company was originally formed to complete the development of a unique proprietary solid state projection television and related video display technology. With the Company completing the acquisition of certain assets and assumption of certain liabilities of Vidikron Industries, S.p.A. in December 1998, the Company added a recognized name and now sells high-end home theater projection televisions and accessories worldwide Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1998 Form 10-K. The results of operations for the period ended March 31, 1999 are not necessarily indicative of the operating results for the full year. The accompanying interim financial statements are unaudited, but in the opinion of management, include all adjustments, consisting only of normal recurring accruals considered necessary for a fair presentation of the results for the interim periods presented. Certain reclassifications have been made to the consolidated balance sheet as of December 31,1998 and the consolidated statement of operations for the first quarter of 1998 to conform to this year's presentation. 2. ACCOUNTS RECEIVABLE At December 31, 1998 and March 31, 1999, the allowance for bad debt was $212,040 and $274,383 respectively. 3. INVENTORY Inventories are stated at the lower of cost or market on a first-in first-out basis. At December 31, 1998 and March 31, 1999, respectively, inventories are summarized, as follows: December 31, March 31, 1998 1999 ---- ---- Parts $ 1,684,868 $ 1,590,063 Work in process 991,235 799,743 Finished Goods 1,941,577 1,510,958 ----------- ----------- Total $ 4,617,680 $ 3,900,764 4. UNCONSOLIDATED AFFILIATE In 1993, the Company entered into an agreement with Tamarack Storage Devices, Inc. ("Tamarack") under which the Company invested $3,000,000 in the aggregate in Tamarack and had accounted for this investment under the equity method. The goodwill recorded with this investment, which represented the excess of the Company's investment over the underlying net assets of Tamarack, was $1,883,995. The Company issued 800 shares of common stock (valued at $109,120) for advisory services received in connection with the acquisition. In 1994, the Company loaned Tamarack $1,500,000 with interest payable at 6%. In 1995, Tamarack received a commitment from the Company to fund its cash needs through December 31, 1995 to continue its operations as then constituted. Pursuant to this commitment, $94,240 was advanced to Tamarack. The Company recorded a reserve against its investment in Tamarack of $300,000 in 1994, and, at December 31, 1995, the Company reduced its investment in and advances to Tamarack to zero recording an additional reserve of $2,129,252 due to Tamarack's inability, to date, to commercialize its holographic storage technology and its current lack of prospects. In addition, in 1996 the Company classified its investment in Tamarack as available for sale, and, in order to maximize the recovery of its investment, loaned Tamarack an additional $100,000 in 1996 and was to have been repaid following receipt of funds from a government agency. This loan was also fully reserved in 1997. After eliminating the intercompany accounts and reflecting previous write-offs, Tamarack's financial statements were not material to the Company and were not consolidated prior to 1998. F-7 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO MARCH 31, 1999 (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4. UNCONSOLIDATED AFFILIATE (continued) In January 1998, Tamarack was acquired by Manhattan Scientific, Inc. ("MSI") (formerly Grand Enterprises, Ltd.) a NASDAQ bulletin-board traded company. All of the shares of Tamarack (97% of which were represented by the Company's holdings in Tamarack at the time of the closing) were exchanged for 44 million shares of MSI. Simultaneously therewith, an additional 5 million shares were sold to the public, resulting in aggregate gross proceeds of $1 million. Further, in connection with the transaction, the Company's $1,500,000 loan plus accrued interest thereon was exchanged for 182,525 shares of convertible preferred stock of MSI. Each share of convertible preferred stock is convertible into 50 shares of MSI common stock. The Company also received a warrant to purchase 750,000 shares of MSI common stock at an exercise price of $0.20 per share. During 1998 the Company's chief executive officer and the chairman of its board of directors serve on the board of directors of MSI. As the Company owns 64.5% of the common shares of MSI, MSI was consolidated into the Company. In July 1998, the Company sold its common shares in MSI to an institutional investor for $2 million in net proceeds. The Company used the proceeds from the sale of its MSI shares as working capital for general operations, with the gain recognized in the third quarter of 1998. The Company also converted its preferred stock into approximately 9 million MSI common shares. The result of these transactions was to reduce the Company's ownership position in MSI to approximately 12% and, accordingly, at September 30, 1998, MSI was accounted for under the cost method. In October 1998, the Company sold its remaining ownership position in MSI to one of the owners of the Company's preferred stock for $500,000 and recognized a gain. On December 7, 1998 the Company reacquired its ownership position of approximately 9 million MSI common shares as part of the financing obtained from the owners of the Company's preferred stock for the acquisition of the video business from Vidikron Industries, S.p.A. On April 23, 1999 the Company sold its common shares in MSI for $500,000 in cash. 5. COMMON STOCK In February 1999 the Company's stockholders approved a forty-for-one reverse split, the effect of which has been retroactively restated. 6. PREFERRED STOCK The Series B Convertible Preferred Stock provides for cumulative annual stock dividends payable in common shares of 8% of the liquidation value of $5 per share (for a total of $1,756,290) to be paid semiannually and is convertible into one share of common stock, subject to adjustment. In 1997, 34,724 shares of Series B Convertible Preferred Stock were converted into common stock. This stock may be redeemed by the Company if certain conditions are met for $1.00 per share. In 1996, the Company issued 7,500 shares of Series C Preferred Stock for $7,500,000, resulting in net proceeds to the Company of $7,000,000 after fees. The Series C Preferred Stock converts into shares of Common Stock at a 25% discount of the average closing bid price of the Common Stock for the five (5) trading days immediately preceding the date of conversion. The holder of the Series C Preferred Stock has the right to convert into Common Stock as follows: 25% can be converted on or after November 1, 1996; 25% may be converted on or after January 1, 1997; 25% may be converted on or after March 1, 1997; and 25% may be converted on or after May 1, 1997. The Company, in accordance with the terms and conditions of the sale of the Series C Preferred Stock, registered the shares of Common Stock into which the Series C Preferred Stock is convertible in the third quarter of 1996. The Series C Preferred Stock pays dividends semi-annually, seven (7) business days after each of December 31st and June 30th of each year, which may be in cash or shares of Common Stock at the election of The Company. The dividend rate is 3% per annum of the liquidation value of $1,000.00 per share until and through June 30, 1997; 6% per annum from July 1, 1997 through June 30, 1998; and 8% per annum from July 1, 1998 and thereafter. The Company recognized a dividend on the Series C Preferred Stock based on the annualized pro-rata amount of the 25% discount on the conversion into common stock and on the increase in the dividend rate. During 1997, the Series C Preferred Stock was converted into 122,042 shares of Common Stock, which resulted in retiring the issue.
Original Three Months Ended March 31, 1999 Total to Vest --------------------------------- ------------- Dividend accretion on Series C Preferred Stock $ 0 $ 492,650 Amortization of Warrants on Series C Preferred Stock 0 290,000 Amortization of Discount on Series C Preferred Stock 0 2,500,000
F-8 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO MARCH 31, 1999 (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In January 1997, the Company issued an aggregate of 35,000 shares of 6% Series D convertible preferred stock to two foreign institutional investors for an aggregate purchase price of $3,500,000, resulting in net proceeds to the Company of $3,500,000. In October, 1997, these 35,000 Series D shares were sold to two other foreign institutional investors. In December 1997, the Company issued an additional 16,000 shares of 6% Series D convertible preferred stock to the same institutional investors for a purchase price of $1,600,000, resulting in net proceeds to the Company of $1,525,000 after fees. Each share of Series D Preferred Stock is convertible, at the option of the holder, into shares of the Company's Common Stock at any time. The Series D Preferred Stock is convertible into Common Stock at a 25% discount to the then current market price of the Company's Common Stock at the time of conversion. After giving effect to the conversion of an aggregate of $1,410,000 of Series D Preferred Stock in 1998 and to the conversion of $3,690,000 of Series D Preferred Stock into Series I Preferred Stock in February 1999, the issue was retired.
Three Months Ended March 31, 1999 Total to Vest --------------------------------- ------------- Amortization of Warrants on Series D Preferred Stock $ - $ 232,620 Amortization of Discount on Series D Preferred Stock - 1,700,000
In July 1997, the Company issued 1,000 shares of 8% Series E convertible preferred stock to one foreign institutional investor for a purchase price of $1,000,000, resulting in net proceeds to the Company of $1,000,000. In December 1997, the Company issued an additional 650 shares of 8% Series E convertible preferred stock to the same foreign institutional investor for a purchase price of $650,000, resulting in net proceeds to the Company of $650,000. Each share of Series E Preferred Stock is convertible, at the option of the holder, into shares of the Company's Common Stock at any time. The Series E Preferred Stock is convertible into Common Stock at a 25% discount to the then current market price of the Company's Common Stock at the time of conversion. After giving effect to the conversion of an aggregate of $140,000 of Series E Preferred Stock in 1998 and to the conversion of $2,510,000 of Series E Preferred Stock into Series I Preferred Stock in February 1999, the issued was retired.
Three Months Ended March 31, 1999 Total to Vest --------------------------------- ------------- Amortization of Warrants on Series E Preferred Stock $ - $ 48,900 Amortization of Discount on Series E Preferred Stock - 550,000
In February 1998, the Company issued 2,850 shares of 8% Series F convertible preferred stock to one institutional investor for a purchase price of $2,850,000, resulting in net proceeds to the Company of $2,532,510 after fees. The preferred stock is convertible into the Company's common stock at $40.00 per share in five equal installments every thirty days starting in August 1998. The Series F Preferred Stock is convertible into common stock at a 25% discount to the then current market price of the Company's Common Stock at the time of conversion. The Company had the right to repurchase the preferred shares at a 12.5% premium over the issue price within 90 days and at a 25% premium after 90 but before 180 days from the issue date. After giving effect to the conversion of $2,850,000 of Series F Preferred Stock into Series I Preferred Stock in February 1999, the issue was retired.
Three Months Ended March 31, 1999 Total to Vest --------------------------------- ------------- Amortization of Warrants on Series F Preferred Stock $ - $ 67,500 Amortization of Discount on Series F Preferred Stock - 950,000
In May of 1998, the Company issued 2,000 shares of 8% Series G convertible preferred stock to one foreign institutional investor for a purchase price of $2,000,000, resulting in net proceeds to the Company of $1,860,000 after fees. In June 1998 the Company completed another private placement of preferred stock to a second foreign institutional investor for gross proceeds of $400,000, resulting in net proceeds of $376,000. The Series G Preferred Stock is convertible into Common Stock at a 30% discount to the then current market price of the Company's Common Stock at the time of conversion. After giving effect to the conversion of $2,000,000 of Series G Preferred Stock in February 1999, there currently remains $400,000 in Series G Preferred Stock outstanding.
Three Months Ended March 31, 1999 Total to Vest --------------------------------- ------------- Amortization of Warrants on Series G Preferred Stock $ - $ 76,400 Amortization of Discount on Series G Preferred Stock - 1,028,571
F-9 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO MARCH 31, 1999 (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In February 1999, the Company issued an aggregate of 16,190,000 shares of 9% Series I convertible preferred stock to the investors who had provided the financing for the acquisition of certain of the video assets and the assumption of certain liabilities of Vidikron Industries, S.p.A. These shares of Series I Preferred Stock were issued to such investors in exchange for the $6,000,000 in Notes issued to such investors in December upon the close of the Vidikron transaction. These Notes, by their terms, were automatically convertible into equity securities of the Company upon the Company obtaining the requisite stockholders' approval, which the Company obtained in February 1999. In addition, all of the Series D, E, and F Preferred Stock and all but $400,000 of the Series G Preferred Stock were converted into Series I Preferred Stock at that time. The Series I Preferred Stock is convertible into shares of Common Stock at the rate of $2.40 per share. Series I Preferred Stock carries a cumulative dividend payable in cash or common stock at the option of the Company. The dividend rate is 9% per year if paid in cash and 13.5% per share if paid in shares of common stock. Dividends are payable commencing December 31, 1999. 7. CONVERTIBLE DEBT In February 1996, the Company completed an offshore private placement of $10,000,000 of convertible debt resulting in net proceeds to the Company of $9,500,000. The convertible debt bears interest at the rate of 8% per annum and pays interest quarterly in arrears on any unpaid or unconverted debt. To the extent not previously converted, the convertible debt is due in January 1999, and may be repaid in cash or common stock of the Company at the sole option of the Company. All conversions of convertible debt into common stock are based upon a 25% discount of the price of the Company's common stock for five consecutive trading days immediately prior to the date of conversion. The Company recognized as interest expense the 25% discount on the conversion into common stock equal to $3,333,333 in 1996. In 1996 the Company issued 44,324 shares of its common stock and paid $4,958,250 in cash in exchange for retiring $8,400,000 in convertible debt. In January 1997, the Company retired $100,000 of convertible debt for cash. During 1997, the Company issued an additional 11,901 shares of its common stock in exchange for retiring $600,000 of convertible debt. In January 1998, the Company issued 43,851 shares of its common stock in exchange for retiring $760,000 of convertible debt. In February, 1999, the remaining $140,000 in convertible debt was converted into Series I Preferred Stock of the Company. 8. COMMITMENTS AND CONTINGENCIES In June 1995 and August 1995, two class action lawsuits were filed against the Company as well as certain of its officers and directors by stockholders of the Company. In October 1995 the plaintiffs in the second action joined as plaintiffs in the first action, and the second action was dismissed without prejudice. In July 1996, the class action suit was dismissed without prejudice, and the plaintiffs were given an opportunity to replead. Upon repleading, the class action suit alleged numerous violations of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, but not limited to, violations of Section 10(b) of the Exchange Act. The suit also alleged claims for negligent misrepresentation and for common law fraud and deceit. In response, the Company and the individual defendants submitted motions to dismiss the action. In July 1997 these motions were granted, and the class action suit was dismissed with prejudice by the U.S. District Court in New York. In July 1998, the case was settled with the individual plaintiffs at no cost to the Company. In April 1995 a legal action was brought against the Company, certain members of the Board of Directors, and an employee of the Company by Eugene Dolgoff, a founder and former officer of the Company. The complaint alleged, among other actions, breach of employment and patent assignment agreements. Mr. Dolgoff sought damages, punitive damages, and equitable relief totaling in excess of $ 100 million. In April 1998, the lawsuit was settled for $ 500,000, of which $250,000 was paid and $250,000 was accrued, and all of Mr. Dolgoff's claims and those of the Company against him were dismissed. $125,000 of the accrued amount was paid in April 1999 to Mr. Dolgoff. In December, 1998, a shareholder of the Company initiated an action in Supreme Court, State of New York, alleging common law fraud, negligence and breach of fiduciary duty claims against the Company and its Directors. In February, 1999 the Company and the Defendant Directors moved to dismiss this action based upon undisputed documentary evidence and based upon an assertion that the Complaint failed to state a cause of action. The Plaintiffs' responsive papers were filed in April, 1999 and reply papers are due to be submitted by the Company and the Defendant Directors in May, 1999. Based upon discussions with counsel, the Company's management believes that the motion to dismiss is well-founded. In the event, however, that the motion were not granted, the Company's management believes that it has meritorious defenses and intends to vigorously defend against these claims. The Company's management believes that the outcome of this litigation will not have a material adverse effect on its financial position or results of operations. F-10 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO MARCH 31, 1999 (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9. NOTES PAYABLE AND BANK DEBT The Company obtained the financing used for the Vidikron acquisition through the issuance of $6.0 million in Notes for cash to the existing owners of the Company's Preferred Stock and Convertible Debt. These Notes were converted into Series I Convertible Preferred Stock in March 1999. Additionally, $1.0 million in Notes were issued to the sellers of the Vidikron assets acquired. These Notes are due in December 1999, carry no interest for the first six months, and carry an interest rate of 15% annually thereafter until the due date. Finally, the Company has Notes with Texas Instruments, Inc. with an outstanding balance of approximately $414,000 as of March 31, 1999 payable in installments through July 1999 at an interest rate of 8% annually. The Company had outstanding as of March 31, 1999 a loan of $ 1,197,400 bearing interest of 10.45% which was scheduled to mature on June 30, 1999. This loan was assumed by the Company in connection with the acquisition of certain assets and assumption of certain liabilities of Vidikron Industries, S.p.A.. On December 28, 1998, the lender sent notice of their intention to accelerate the loan due to a breach of a change in control covenant. The Company is in negotiations with the lender and is seeking to substitute a new facility to satisfy this obligation. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management discussion and analysis should be read in conjunction with the financial statements and notes thereto. Liquidity and Capital Resources As of March 31, 1999, the Company had cash of $142,669 and current ratio of .93 to 1.0. Net cash used in operations was $ 1,945,902 due primarily to the net loss for the quarter. During the quarter, $6,000,000 in Notes payable due to the preferred shareholders classified as a current liability as of December 31, 1998 were converted into Series I Preferred Stock. The Company had outstanding as of March 31, 1999 a loan of $1,197,400 bearing interest of 10.45%, which was scheduled to mature on June 30, 1999. This loan was assumed by the Company in connection with the Vidikron Acquisition. On December 28, 1998 the lender sent notice of its intention to accelerate the loan due to the breach of a change in control covenant. The Company has entered into a forebearance agreement with the lender which calls for regular payments of principle and is seeking to substitute a new facility to satisfy this obligation. Failure to find a substitute lender could have a material adverse effect on the Company. In addition, oral commitments of $2,000,000 in equity financing have been obtained to close simultaneously with the new facility. Although discussions are currently taking place with another lender, there can be no assurances that the Company will be successful in attracting a substitute lender, nor can there be any assurances that the Company will successfully consummate the equity financing. To date, the Company has funded its operations primarily from sales of capital stock and convertible debt. In February 1998, the Company completed a private placement of preferred stock of $2.85 million. In May 1998 the Company completed a second private placement of preferred stock of $2.4 million and a private placement of common stock of $500,000. In December 1998 the Company completed a private placement of convertible Notes totaling $6.0 million in connection with financing the Vidikron Acquisition. The Company has a subsidiary in Italy and does not hedge the foreign exchange risk associated with transactions in foreign currencies. Results of Operations January 1, 1999 to March 31, 1999 The Company had revenues of $3,978,490 for the three month period ended March 31, 1999, which is approximately a ten-fold increase from the same period last year, due to sales of Vidikron-brand products. Cost of goods sold of $3,089,355, approximately a nine-fold increase, resulted in gross profit of $889,135 and includes additions to inventory reserves of $94,000 for slow-moving inventory. Even with this addition to inventory reserves, gross profit improved over 14-fold versus the same period last year, reflecting the higher profitability of the Vidikron brand. The Company incurred cash expenses of $2,203,268 in this period, an increase of 17%, reflecting the sales and marketing and the general and administrative expenses related to the Vidikron operations acquired in the fourth quarter of 1998. Sales and marketing expenses of $743,398 in the current quarter were 107% greater than the same period last year. General and administrative expenses were $ 1,377,657 for the first quarter of 1999, only 2% greater than the same period last year. Research and development expenses of $61,394 were lower by almost 60%, reflecting the prior years' spending on the Digital Home Theater. Patent and license expense was 22% lower, reflecting a change in Company philosophy from a development company to a marketing and sales company. The Company also incurred non-cash expenses of $317,722 during the period for depreciation and amortization, and increase of 68%, reflecting the amortization of the goodwill associated with the Vidikron acquisition. F-11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Interest expense of $51,402 was nine times higher than the first quarter last year due to bank debt which was assumed as part of the Vidikron acquisition. 1998 results also included $420,168 of non-recurring minority interest connected with Manhattan Scientifics, Inc. which was consolidated into the Company in the first quarter of 1998. The Company recorded $70,250 in dividends on the Series B Preferred Stock during the first quarter of 1999. The dividends recorded in the same period in the prior year included the Series B dividends as well as the amortization of the discount feature connected with other Preferred Stock issues. The net loss attributable to common shareholders of $1,750,341 was a 9% improvement versus the same period last year. January 1, 1998 to March 31, 1998 The Company had revenues of $ 416,443 for the three month period ended March 31, 1998 which was from the sale of the Digital Home Theater. Cost of goods sold of $ 354,906 resulted in gross profits of $ 61,537, which was adversely affected by the initial cost of the Texas Instruments light engine. During this period, the Company incurred cash expenses of $1,883,560. With respect to the amount spent in the first three months of 1998 versus the amounts spent in the comparable period in 1997, the increase in general and administrative expense is due to increased participation in trade shows, higher salaries reflecting the addition of marketing personnel, higher legal fees related to the costs of the public offering of common stock of Manhattan Scientifics, Inc., and higher R&D associated with the development of product enhancements to the Digital Home Theater. The Company incurred non-cash expenses of $188,905 during the period for depreciation. The Company also recorded $333,072 in dividends (i) on the Series F Convertible Preferred Stock in connection with recognizing the discount on the conversion feature, (ii) for warrants issued in connection with the issuance of Series F Convertible Preferred Stock, and (iii) for Series B Preferred Stock Dividends. Year 2000 Substantially all of the Company's business computer systems were acquired after the year 2000 issue became widely publicized. Consequently, the Company has endeavored to ensure that computer systems acquired were Year 2000 compliant at the time of their purchase. The Company believes that it has been substantially successful in that goal. The Company does not anticipate that the costs of final testing of its systems to assure Year 2000 compliance will exceed $ 25,000. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity, and financial condition. Due to the general uncertainty of the Year 2000 problem, resulting in part form the uncertainty of the Year 2000 readiness of third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity, or financial condition. The Company is in the process of verifying that all key suppliers are year 2000 compliant and has ascertained that at least one major supplier is Year 2000 compliant. The Company at present has no individual customer which could have a material adverse effect on the Company's operations should such customer not be Year 2000 compliant. In addition, the Company intends to evaluate the Year 2000 readiness of any future significant customers or suppliers. Item 3. Quantitative and Qualitative Disclosure About Market Risk. Not Applicable F-12 Part II: Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- None (b) Report on Form 8-K ------------------ None F-13 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly executed on this 17th day of May, 1999. VIDIKRON TECHNOLOGIES GROUP, INC. By: /s/ Phillip Siegel ------------------------------ Phillip Siegel, Chairman and CEO By: /s/ Stuart Barlow ------------------------------ Stuart Barlow Vice President Finance (principal financial officer) F-14 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 142,669 0 2,612,985 (274,383) 3,917,574 7,370,663 3,132,501 452,300 17,033,345 7,938,828 0 0 16,453,512 4,199 (7,610,897) 17,033,345 3,978,490 3,089,355 889,135 2,520,990 (3,166) 0 51,402 (1,680,091) 0 (1,680,091) 0 0 0 (1,680,091) (1.74) (1.74)
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