-----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, UDtv3rL/JEQy/2nSZsNO9zJLNgtgSe49c9hLOuRwA9P6CvFeV94Gau8PIveZRNnl JXiJIf178rVyxrDiNislqA== 0000950116-98-002257.txt : 19981118 0000950116-98-002257.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950116-98-002257 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98751702 BUSINESS ADDRESS: STREET 1: TWO PENN PLZ STE 640 CITY: NEW YORK STATE: NY ZIP: 10121 BUSINESS PHONE: 2129713000 MAIL ADDRESS: STREET 1: TWO PENN PLAZA STREET 2: STE 640 CITY: NEW YORK STATE: NY ZIP: 10121 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 September 30, 1998 ------------------ Commission File Number 33-33997 -------- Projectavision 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.) Two Penn Plaza, Suite 640, New York, NY 10121 --------------------------------------------------- (Address of Principal Executive Offices) (zip code) (212) 971-3000 --------------------------------------------------- (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 X No --- As of November 16, 1998, there were 31,819,754 shares of the Registrant's common stock outstanding. PROJECTAVISION, INC. FORM 10-Q TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets F-2 Statements of Operations F-3 Statements of Stockholders' Equity F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-7 Item 2. Management's Discussion and Analysis of F-11 Financial Condition and Results of Operations PART II - OTHER INFORMATION Item 5. Other Information F-12 SIGNATURES PROJECTAVISION, INC. BALANCE SHEETS - --------------------------------------------------------------------------------
December 31, September 30, 1997 1998 ------------ ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,331,925 $ 1,050,287 Accounts receivable-net of allowances 377,608 261,207 Inventory 1,857,604 1,950,893 Investments - - Other current assets 1,001,629 1,028,341 ----------- ----------- Total Current Assets 4,568,766 4,290,728 PROPERTY AND EQUIPMENT Furniture, fixtures and equipment 127,128 68,421 Tooling 5,907,288 6,010,078 Computers and software 259,048 268,088 Assets under capital leases 47,989 47,989 Leasehold improvements 185,030 185,030 ----------- ----------- 6,526,483 6,579,606 Less: Accumulated depreciation and amortization 851,250 1,392,286 ----------- ----------- Property and equipment, net 5,675,233 5,187,320 OTHER ASSETS 168,358 2,002,108 ----------- ----------- TOTAL ASSETS $10,412,357 $11,480,156 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,466,676 $ 2,343,720 Accrued liabilities 1,070,638 405,137 Current portion of capital lease obligations 15,229 17,193 ----------- ----------- Total Current Liabilities 3,552,543 2,766,050 ----------- ----------- LONG-TERM LIABILITIES Long-term portion of capital lease obligations 22,851 9,699 Other Long-Term Liabilities 250,000 250,000 Convertible Debt 900,000 140,000 ----------- ----------- Total Long-term Liabilities 1,172,851 399,699 ----------- ----------- TOTAL LIABILITIES 4,725,394 3,165,749 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Preferred Stock Series A Preferred Stock, $.01 par value 100 shares authorized, 100 shares issued ($100,000 liquidation preference) - - Series B Preferred Stock, $.01 par value, 434,667 shares authorized, 351,258 shares outstanding as of December 31, 1997 and September 30, 1998 ($ 1,756,290 liquidation preference) 3,512 3,512 Series D Preferred Stock, $100 par value, 60,000 shares authorized; 51,000 shares issued on December 31, 1997 and 36,900 on September 30, 1998 ($100 per share liquidation preference) 5,100,000 3,690,000 Series E Preferred Stock, $1,000 par value, 1,650 shares authorized; 1,650 shares issued on December 31, 1997 and 1,510 on September 30, 1998 ($1,000 per share liquidation preference) 1,650,000 1,510,000 Series F Preferred Stock, $1,000 par value, 2,850 shares authorized; 2,850 shares issued on September 30, 1998 ($1,000 per share liquidation preference) - 2,850,000 Series G Preferred Stock, $1,000 par value, 2,400 shares authorized; 2,400 shares issued on September 30, 1998 ($1,000 per share liquidation preference) - 2,400,000 Common stock $.0001 par value - 50,000,000 shares authorized; 19,998,997 and 31,819,751 issued and outstanding in 1997 and 1998 respectively 1,999 3,181 Additional paid-in capital 44,535,906 49,372,834 Accumulated Deficit (45,604,454) (51,515,120) ----------- ----------- Total Stockholders' Equity 5,686,963 8,314,407 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,412,357 $11,480,156 =========== ===========
See Notes to Financial Statements F-2 PROJECTAVISION, INC STATEMENTS OF OPERATIONS (Unaudited) - --------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ---------------------------------- 1997 1998 1997 1998 --------- -------- -------- -------- REVENUE $ 358,784 $ 352,470 $ 409,889 $ 931,770 ----------- ----------- ----------- ----------- LESS: COST OF SALES 344,517 280,805 395,629 789,072 ----------- ----------- ----------- ----------- GROSS PROFIT 14,267 71,665 14,260 142,698 OPERATING EXPENSES General and administrative 600,340 680,913 2,257,628 2,382,479 Salaries 445,642 392,725 1,167,036 1,206,983 Legal fees 304,935 65,543 1,048,571 738,476 Depreciation (13,558) 182,311 412,105 541,036 Research and development 304,750 134,114 486,634 864,412 Patent and license expense 21,679 9,112 204,200 81,758 ----------- ----------- ----------- ----------- Total Operating Expenses 1,663,788 1,464,718 5,576,174 5,815,144 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (1,649,521) (1,393,053) (5,561,914) (5,672,446) ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) (Provision for)/recovery of allowances on advances (100,000) 1,563,433 (100,000) 1,942,290 Interest income 28,030 16,827 158,784 33,073 Interest expense - 8% Debentures (31,781) (1,796) (90,190) (16,247) Interest expense - Amortization of debt expense - - (89,122) (16,250) ----------- ----------- ----------- ----------- Other income/(expense) - Net (103,751) 1,578,464 (120,528) 1,942,866 ----------- ----------- ----------- ----------- Net Income/(Loss) (1,753,272) 185,411 (5,682,442) (3,729,580) Dividends on Preferred Stock (473,895) (372,589) (2,158,296) (2,181,059) ----------- ----------- ----------- ----------- Net Loss Attributable to Common Shareholders $(2,227,167) $ (187,178) $(7,840,738) $(5,910,639) =========== =========== =========== =========== Net Loss per Share Attributable to Common Shareholders $(.12) $(.01) $(.45) $(.25) =========== =========== =========== =========== AVERAGE NUMBER OF SHARES OUTSTANDING 19,009,450 28,842,100 17,595,111 24,098,721 =========== =========== =========== ===========
See Notes to Financial Statements F-3 PROJECTAVISION, INC. STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
Series A Series B Series C Series D Series E Preferred Stock Preferred Stock Preferred Stock Preferred Stock Preferred Stock Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Balance, December 31, 1995 100 $ - 385,982 $ 3,859 0 $ - 0 $ - 0 $ - Issuance of Common Stock for Preferred Stock Dividends Conversion of 8% Debentures into Common Stock Issuance of Series C Preferred Stock 7,500 8 Series C Preferred Stock Placement Fee Cash Dividend on Series C Preferred Stock Exercise of Stock Options Amortization of Discount on 8% Debentures Amortization of Discount (Dividend) on Series C Preferred Stock Issuance of Warrants and Options for Services Net Loss ------ ------ -------- ------ ------ ------ ------- --------- ------ ----------- Balance, December 31, 1996 100 0 385,982 3,859 7,500 8 0 0 0 0 Conversion of Series B Preferred Stock into Common Stock (34,724) (347) Series C Preferred Stock Conversion (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 Net Loss ------ ------ -------- ------ ------- ------ ------- --------- ------ ---------- Balance, December 31, 1997 100 0 351,258 3,512 0 0 51,000 5,100,000 1,650 1,650,000 Issuance of Common Stock for Series B Preferred Stock Dividends Conversion of Series D Preferred Stock (2,000) (200,000) Issuance of Series F Preferred Stock Amortization of Discount (Dividend) on Series F Preferred Stock Financing Cost for Series D Preferred Stock Issuance of Warrants to Series F Preferred Stockholders Conversion of 8% Debentures into Common Stock Net Loss ------ ------ -------- ------ ------- ------ ------- --------- ------ ---------- Balance, March 31, 1998 100 $0 351,258 $3,512 0 $0 49,000 $4,900,000 1,650 $1,650,000
[CONTINUED FROM PREVIOUS PAGE]
Series A Series B Series C Series D Series E Preferred Stock Preferred Stock Preferred Stock Preferred Stock Preferred Stock Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Issuance of Common Stock Issuance of Common Stock for Services Conversion of Series D Preferred Stock (8,000) (800,000) Issuance of Series G Preferred Stock Amortization of Discount (Dividend) on Series F Preferred Stock Amortization of Discount (Dividend) on Series G Preferred Stock Financing Cost for Series G Preferred Stock Issuance of Warrants to Series G Preferred Stockholders Net Loss ------ ------ -------- ------ ------- ------ ------- --------- ------ ---------- Balance, June 30, 1998 100 $0 351,258 $3,512 0 $0 41,000 $4,100,000 1,650 $1,650,000 Conversion of 8% Debentures into Common Stock Conversion of Series D Preferred Stock (4,100) (410,000) Conversion of Series E Preferred Stock (140) (140,000) Issuance of Common Stock for Series B Preferred Stock Dividends Issuance of Additional Common Stock in Connection with 2Q Stock Issue Amortization of Discount (Dividend) on Series F Preferred Stock Issue Shares to Series G Preferred Stockholder Net Loss ------ ------ -------- ------ ------- ------ ------- --------- ------ ---------- Balance, September 30, 1998 100 $0 351,258 $3,512 0 $0 36,900 $3,690,000 1,510 $1,510,000 ====== ====== ======== ====== ======= ====== ======= ========= ====== ==========
[RESTUBBED TABLE FROM ABOVE]
Series F Series G Additional Preferred Stock Preferred Stock Common Stock Paid in Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit Total ------ ------ ------ ------ ------ ------ ----------- ----------- ----- Balance, December 31, 1995 0 $ - 0 $ - 12,388,790 $ 1,239 $24,318,651 $(20,641,044) $3,682,705 Issuance of Common Stock for Preferred Stock Dividends 37,666 4 154,389 (154,393) 0 Conversion of 8% Debentures into Common Stock 1,772,945 177 3,020,298 3,020,475 Issuance of Series C Preferred Stock 7,499,992 7,500,000 Series C Preferred Stock Placement Fee (500,000) (500,000) Cash Dividend on Series C Preferred Stock (123,750) (123,750) Exercise of Stock Options 30,000 3 24,372 24,375 Amortization of Discount on 8% Debentures 3,333,333 3,333,333 Amortization of Discount (Dividend on Series C Preferred Stock 2,357,188 (2,357,188) 0 Issuance of Warrants and Options for Services 385,800 385,800 Net Loss (10,880,893) (10,880,893) ------ ------ ------ ------ ---------- ------ ---------- ----------- ---------- Balance, December 31, 1996 0 0 0 0 14,229,401 1,423 40,594,023 (34,157,268) 6,442,045 Conversion of Series B Preferred Stock into Common Stock 34,724 3 344 0 Series C Preferred Stock Conversion 4,881,656 489 (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 66,740 6 147,492 (147,498) 0 Issuance of Common Stock for Service 50,000 5 96,870 96,875 Conversion of 8% Debentures into Common Stock 726,476 73 762,890 762,963 Net Loss (8,289,920) (8,289,920) ------ ---------- ------ ---------- ---------- ------ ----------- ------------ ---------- Balance, December 31, 1997 0 0 0 0 19,988,997 1,999 44,535,906 (45,604,454) 5,686,963 Issuance of Common Stock for Series B Preferred Stock Dividends 72,041 7 70,161 (70,168) 0 Conversion of Series D Preferred Stock 530,000 34 199,966 0 Issuance of Series F Preferred Stock 2,850 2,850,000 2,850,000 Amortization of Discount (Dividend) on Series F Preferred Stock 195,404 (195,404) 0 Financing Cost for Series D Preferred Stock (317,490) (317,490) Issuance of Warrants to Series F Preferred Stockholders 67,500 (67,500) 0 Conversion of 8% Debentures into Common Stock 954,042 95 718,595 718,690 Net Loss (1,322,395) (1,322,395) ------ ---------- ------ ---------- ---------- ------ ----------- ------------ ---------- Balance, March 31, 1998 2,850 $2,850,000 0 $0 21,351,976 $2,135 $45,470,042 ($47,259,921) $7,615,768
[CONTINUATION OF PREVIOUS PAGE]
Series F Series G Additional Preferred Stock Preferred Stock Common Stock Paid in Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit Total ------ ------ ------ ------ ------ ------ ----------- ----------- ----- Issuance of Common Stock 666,667 67 499,933 500,000 Issuance of Common Stock for Services 141,635 14 225,410 225,424 Conversion of Series D Preferred Stock 1,501,378 150 799,850 0 Issuance of Series G Preferred Stock 2,400 2,400,000 2,400,000 Amortization of Discount (Dividend) on Series F Preferred Stock 370,454 (370,454) 0 Amortization of Discount (Dividend) on Series G Preferred Stock 1,028,571 (1,028,571) 0 Financing Cost for Series G Preferred Stock (168,000) (168,000) Issuance of Warrants to Series G Preferred Stockholders 76,400 (76,400) 0 Net Loss (2,592,596) (2,592,596) ------ ---------- ------ ---------- ---------- ------ ----------- ------------ ---------- Balance, June 30, 1998 2,850 $2,850,000 2,400 $2,400,000 23,661,656 $2,366 $48,302,660 ($51,327,942) $7,980,596 Conversion of 8% Debentures into 800,000 80 148,320 148,400 Common Stock Conversion of Series D Preferred Stock 2,117,618 212 409,788 0 Conversion of Series E Preferred Stock 829,630 83 139,917 0 Issuance of Common Stock for Series B Preferred Stock Dividends 277,517 27 70,290 (70,317) 0 Issuance of Additional Common Stock in Connection with 2Q Stock Issue 3,133,333 313 (313) 0 Amortization of Discount (Dividend) on Series F Preferred Stock 302,272 (302,272) 0 Issue Shares to Series G Preferred Stockholder 1,000,000 100 (100) 0 Net Loss ------ ---------- ------ ---------- ---------- ------ ----------- ------------ ---------- Balance, September 30, 1998 2,850 $2,850,000 2,400 $2,400,000 31,819,754 $3,181 $49,372,834 ($51,515,120) $8,314,407 ====== ========== ===== ========== ========== ====== =========== ============ ==========
See Notes to Financial Statements F-4 PROJECTAVISION, INC STATEMENTS OF CASH FLOWS (Unaudited) - --------------------------------------------------------------------------------
Nine Months Ended September 30, ----------------------------------- 1997 1998 OPERATING ACTIVITIES Net loss $ (5,682,442) $ (3,729,580) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 412,105 541,036 Issuance of common stock for services - 225,410 Other non-cash operating expenses - 49,394 Allowance taken on investment in unconsolidated affiliate 100,000 - Gain recognized on sale of MSI Stock (1,942,290) Asset and liability management Changes in other operating assets (1,102,650) 139,538 Changes in accounts receivable 116,401 Changes in inventories (93,289) Accounts payable and other liabilities 293,654 (799,645) ------------ ----------- Net cash used in operating activities (5,979,333) (5,493,025) ------------ ----------- INVESTING ACTIVITIES Capital expenditures (1,515,369) (53,123) Proceeds from Sale of MSI stock 2,000,000 Deposit on Asset Purchase Agreement - (2,000,000) Purchases and redemption of government securities 2,245,882 - ------------ ----------- Net cash (used in)/provided by investing activities 730,513 (53,123) ------------ ----------- FINANCING ACTIVITIES Issuance of common stock - 500,000 Issuance of preferred stock 4,500,000 5,250,000 Issuance Fees - (485,490) ------------ ----------- Net cash provided by financing activities 4,500,000 5,264,510 ------------ ----------- DECREASE IN CASH AND CASH EQUIVALENTS (748,820) (281,638) CASH AND CASH EQUIVALENTS-BEGINING OF PERIOD 1,060,283 1,331,925 ------------ ----------- CASH AND CASH EQUIVALENTS-END OF PERIOD $ 311,463 $ 1,050,287 ============ =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 190 $ 3,634 ============ ===========
See notes to financial statements F-5 PROJECTAVISION, INC. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: - -------------------------------------------------------------------------------- In 1996, the Company issued 37,666 shares of its common stock with a value of $154,393 as payment for the dividend on its series B convertible stock. In addition, the Company issued 1,772,945 shares of its common stock and paid $4,958,250 in cash in exchange for retiring $8.4 million of convertible debt. Also, the Company issued 34,724 shares of its common stock in connection with the conversion of 34,724 shares of its Series B convertible preferred stock into common stock. In 1997, the Company issued 66,740 shares of its common stock with a value of $147,498 as payment for the dividend on its series B convertible stock. In addition, the Company issued 4,881,656 shares of its common stock to retire the entire issue of 7,500 shares of Series C convertible preferred stock. The Company also issued 50,000 shares of its common stock for services rendered by an officer and director of the Company. Finally, the Company issued 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 349,535 shares of its common stock with a value of $140,485 as payment for the dividend on its series B convertible stock. The Company issued 3,955,892 shares of its common stock to retire 14,100 shares of Series D convertible preferred stock. The Company issued 829,630 shares of its common stock to retire 140 shares of Series E convertible preferred stock The Company issued 1,754,042 shares of common stock in connection with retiring $760,000 of convertible debt, leaving a face value on the debt of $140,000. 150,000 warrants with a value of $ 67,500 were issued in connection with the Series F Convertible Preferred Stock, and 250,000 warrants with a value of $76,400 were issued in connection with the Series G Convertible Preferred Stock. 1,000,000 shares were issued under the terms and conditions pertaining to the Series G convertible preferred stock. 3,800,000 shares of common stock were sold for gross proceeds of $ 500,000. 141,635 shares of common stock were issued for services. F-6 PROJECTAVISION, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - Projectavision, Inc. (the "Company"), a Delaware corporation, was incorporated on September 9, 1988. The Company was formed to complete the development of a unique proprietary solid state projection television and related video display technology. In addition, the Company will seek to identify new high technology and electronic products for consumers and commercial customers. Besides licensing the technology developed, the Company outsources the manufacture of its products to third party subcontractors. The Company emerged from the development stage in 1997 and has generated significant revenue from its planned principal operations. Management of the Company believes that it has sufficient funds to successfully sustain its operations. However, the attainment of profitable operations is dependent upon future events including achieving a level of revenue adequate to support the Company's then cost structure. 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 1997 Form 10-K. The results of operations for the period ended September 30, 1998 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. 2. REVENUE Revenue for the periods ended September 30, 1997 and 1998 consisted of sales of the Digital Home Theater, the Company's principle product. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS At September 30, 1998, the fair values of cash, cash equivalents, investments, and accounts payable and accrued liabilities approximated their carrying values because of the short-term nature of these accounts. Convertible debt has a carrying value of $140,000 and a fair value of $186,667. 4. ACCOUNTS RECEIVABLE At December 31, 1997 and September 30, 1998, the allowance for bad debt was $11,540 and $105,096 respectively. 5. INVENTORY Inventories are stated at the lower of cost or market on a first-in first-out basis. At December 31, 1997 and September 30, 1998, respectively, inventories are summarized, as follows: Parts $ 797,297 $ 922,196 Work in process 678,882 519,449 Finished Goods 381,425 509,248 ---------- ---------- Total $1,857,604 $1,950,893 6. UNCONSOLIDATED AFFILIATE In 1993, the Company entered into an agreement with Tamarack Storage Devices, Inc. ("Tamarack") pursuant to which the Company had the right to acquire up to 50 percent of Tamarack's common stock representing 37.2 percent of the issued and outstanding voting securities of Tamarack. Under the terms of the agreement, 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. Such amount was being amortized over ten years and is reported in the statement of operations as Equity in Loss from Unconsolidated Affiliate. Amortization expense related to such goodwill for the fiscal years ended December 31, 1994 and 1995 was $197,884 and $148,413, respectively. The Company issued 32,000 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 percent. F-7 PROJECTAVISION, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In 1995, Tamarack received a commitment from the Company to fund its cash needs through December 31, 1995 to continue its operations, and $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. In January, 1998, Tamarack was acquired by Manhattan Scientifics, Inc.("MSI"), 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 approximately 43 million shares of MSI. Simultaneously therewith, an additional 5 million shares were sold to the public by MSI, resulting in aggregate gross proceeds to MSI of $1 million. Further, in connection with the transaction, the Company's $1,500,000 loan plus accrued interest thereon was exchanged for 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. Subsequent to the closing of this transaction, MSI issued an aggregate of 7.2 million shares to purchase patents in a portable fuel cell technology which MSI is planning to develop commercially. In July 1998, the Company sold its common shares in MSI to an institutional investor for $2 million in net proceeds concurrent with the investor making a commitment to secure an additional $ 1 million equity capital investment into MSI. The Company intends to use 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 is accounted for under the cost method. In October 1998, the Company sold its remaining ownership position in MSI for $500,000. 7. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with three of its officers and directors and a consulting agreement with one of its officers and directors. Aggregate minimum compensation under these agreements will be $535,000 per year through 1999. Through September 30, 1996and 1997, salary expense was under employment agreements was $277,500 in both years. 8. PREFERRED STOCK The Series B Convertible Preferred Stock provides for cumulative annual stock dividends payable in common shares of 8 percent of the liquidation value of $5 per share (for a total of $1,756,290) to be paid semiannually and is convertible to one share of common stock, subject to adjustment. In 1996, 34,200 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 4,881,336 shares of Common Stock, which resulted in retiring the issue.
Original Nine Months Ended Sept. 30, 1998 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 PROJECTAVISION, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ In January of 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 investor. 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. 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 $410,000 of Series D Preferred Stock in July 1998, there currently remains $3,690,000 in Series D Preferred Stock outstanding.
Original Nine Months Ended Sept. 30, 1998 Total to Vest --------------------------------------- ------------- Amortization of Warrants on Series D Preferred Stock 0 232,620 Amortization of Discount on Series D Preferred Stock 0 1,700,000
In July of 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 July 1998, there currently remains $1,510,000 in Series E Preferred Stock outstanding.
Original Nine Months Ended Sept. 30, 1998 Total to Vest --------------------------------------- ------------- Amortization of Warrants on Series E Preferred Stock 0 48,900 Amortization of Discount on Series E Preferred Stock 0 550,000
In February of 1998, the Company issued 2,850 shares of 8% Series F convertible preferred stock to one foreign 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 a maximum of $1.00 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 has 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.
Original Nine Months Ended Sept. 30, 1998 Total to Vest --------------------------------------- ------------- Amortization of Warrants on Series F Preferred Stock 67,500 67,500 Amortization of Discount on Series F Preferred Stock 871,130 950,000
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 issuance fees. In June 1998 the Company completed another private placement of preferred stock for gross proceeds of $0.4 million, 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.
Original Nine Months Ended Sept. 30, 1998 Total to Vest --------------------------------------- ------------- Amortization of Warrants on Series G Preferred Stock 76,400 76,400 Amortization of Discount on Series G Preferred Stock 1,028,571 1,028,571
F-9 PROJECTAVISION, INC. NOTES TO FINANCIAL STATEMENTS - --------------------------------------------------------------------------- 9. 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 1,772,945 shares of its common stock and paid $4,958,250 in cash in exchange for retiring $8.6 million in convertible debt. In January 1997, the Company retired $100,000 of convertible debt for cash. During 1997, the Company issued an additional 476,034 shares of its common stock in exchange for retiring $0.6 million of convertible debt. In January 1998, the Company issued 954,042 shares of its common stock in exchange for retiring $625,000 of convertible debt. After giving effect to the conversion of an aggregate of $135,000 of subordinated debt in July 1998, there currently remains $140,000 in convertible debt outstanding. 10. COMMITMENTS AND CONTINGENCIES On November 18, 1994 the Company entered into a non exclusive, non-transferable license without a right to sub-license, except to related companies, with Samsung Electronics Co. pursuant to which the Company gave to Samsung the right to use the Company's patented depixelization technology (as defined) in connection with the manufacturing and marketing of LCD projectors. The license is co-terminus with the life of the patents and patent applications relating to the proprietary rights underlying the license. The future minimum rental commitments as of June 30, 1998 are as follows: Year Amount ---- ------- 1998 $ 69,987 In January 1998 the Company signed a definitive agreement to acquire substantially all of the assets of Vidikron Industries, S.p.A. ("Vidikron") relating to its video business, including its U.S. distribution subsidiary, Vidikron of America, Inc. In accordance with the definitive acquisition agreement, the Company advanced Vidikron $ 1,000,000 on a non-refundable basis. In April 1998 the Company entered into an agreement with Vidikron extending the closing date of the transaction from April 30, 1998 to July 31, 1998, subject to further automatic additional extension of up to an additional sixty (60) days to September 30, 1998 under certain circumstances ("The April Extension"). Pursuant to the April Extension, the Company advanced to Vidikron an additional $1,000,000 on a non-refundable basis. In October, the Company received further extensions to close the Vidikron Acquisition to November 30, 1998 and in connection therewith, agreed to advance to Vidikron an additional $1,000,000 on a non-refundable basis, $750,000 of which has been advanced by or on behalf of the Company to date. The closing of the acquisition is expressly subject to the satisfactory completion by the Company of all due diligence and obtaining the requisite financing to complete the transaction. Although the Company received commitments from four (4) current investors in the Company to finance the Vidikron Acquisition, there can be no assurance that the Company will be satisfied upon its completion of its due diligence, that it will be able to effect a closing with respect to the committed financing, or that it will otherwise be able to effect the acquisition of Vidikron. 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 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 other than litigation costs. 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, and all of Mr. Dolgoff's claims and those of the Company against him were dismissed. There is currently no litigation outstanding with respect to the Company. The Company is not presently a party to any litigation. F-10 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 September 30, 1998, the Company had working capital of $1,524,678. To date, the Company has funded its operations primarily from sales of capital stock and investments. In February 1998, the Company completed a private placement of preferred stock for gross proceeds of $2.85 million, resulting in net proceeds of $ 2.53 million.. In April 1998 the Company completed a private placement of common stock of $0.5 million. In May 1998 the Company completed a private placement of preferred stock for gross proceeds of $2.0 million, resulting in net proceeds of $1.86 million. In June 1998 the Company completed another private placement of preferred stock for gross proceeds of $0.4 million, resulting in net proceeds of $376,000. In July 1998 the Company sold its investment in Manhattan Scientifics, Inc. for $2 million. Capital expenditures of $53,123 were significantly lower than in 1997 due to the completion of the tooling for the Digital Home Theater in 1997. The sales of capital stock and investments along with existing cash balances primarily funded the net cash used in operating activities of $5.5 million and the $2.0 million advance to Vidikron made pursuant to the Definitive Acquisition Agreement. As of September 30, 1998, the Company had cash and cash equivalents of $1,050,287. In the opinion of management, the Company has sufficient funds or will be able to raise sufficient funds based on history to fund future operations. As of December 31, 1997, the Company had working capital of $1,016,223. In January 1997, the Company completed a private placement of preferred stock of $3.5 million, in July 1997 the Company completed a second private placement of preferred stock of $1.0 million, and in December 1997 the Company completed two more private placements of preferred stock totaling $2.25 million. In addition, the sale of government securities was used to fund working capital and to purchase production tooling for the Digital Home Theater. As of December 31, 1997, the Company had cash and cash equivalents of $1,331,925. As of December 31, 1997, the Company had available for Federal income tax purposes net operating and capital loss carryforwards of approximately $29,500,000. The Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), may impose certain restrictions on the amount of net operating loss carryforwards which may be used in any year by the Company. Results of Operations January 1, 1998 to September 30, 1998 The Company had revenues of $931,770 for the nine month period ended September 30, 1998, all of which was from the sale of the Digital Home Theater and accessories. Cost of goods sold of $789,072 resulted in gross profit of $142,698, which was adversely affected by the initial cost of the Texas Instruments light engine, the principle component of the Digital Home Theater. During this period, the Company completed development and began production of a second-generation product, the Series II Digital Home Theater. During this period, the Company incurred cash expenses of $4,691,797. With respect to the amount spent in the first nine months of 1998 versus the amounts in the comparable period in 1997, the increase in general and administrative expense is due to increased participation in trade shows, higher salaries reflects the addition of marketing personnel, higher legal fees are related to the costs of settling the litigation with a former officer, and higher R&D is associated with development of the Series II product. The Company also incurred non-cash expenses of $1,139,597 during the period: a) for $557,286 depreciation and amortization, which was higher than in the first nine months of 1997 due to a full nine months of depreciation of the tooling for the Digital Home Theater in 1998, b) for the expensing of $356,901 inventory not usable in the Series II product, and c) for the issuance of stock with a value of $225,410 principally for legal services. The Company also recorded $2,181,059 in dividends on the Series B, Series F, and Series G Convertible Preferred Stock in connection with recognizing the dividends on the Series B, the discount on the Series F and Series G conversion feature, and the warrants issued in connection with the Series F and Series G Preferred Stock. January 1, 1997 to September 30, 1997 The Company had revenues of $409,889 for the nine month period ended September 30, 1997 which was from the sale of the Digital Home Theater. Cost of goods sold of $395,629 resulted in gross profits of $14,260, which was adversely affected by the initial cost of the Texas Instruments light engine. During this period, the Company incurred cash expenses of $5,164,069. The Company incurred non-cash expenses of $412,105 during the period for depreciation The Company also recorded $1,684,401 in dividends on the Series C and D Convertible Preferred Stock in connection with recognizing the discount on the conversion feature, for warrants issued in connection with the issuance of Series D Convertible Preferred Stock, and for Series B Preferred Stock Dividends. F-11 Year 2000 - --------- In 1997, the Company emerged for the development stage. 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 this goal. Computer systems purchased since 1996 had a cost to the Company of $47,989, which were acquired for the purpose of gearing up for commencement of sales of the company's principal product, not merely becoming Year 2000 compliant. In this process, the Company believes that it has become Year 2000 compliant. The Company does not anticipate that the cost of final testing of its systems to assure Year 2000 compliance will be material. 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 inherent in the Year 2000 problem, resulting in part from 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 conditions. The Company has one major supplier which 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. PART II Other Information - ----------------- On November 10, 1998, the Company received a temporary exception from the listing requirements for its Common Stock on the Nasdaq SmallCap Market, specifically the Company is deficient with respect to the $1.00 minimum bid price requirement. The Company presently has until December 22, 1998 to rectify this deficiency. In the event that the Company is unable to rectify this deficiency by December 22, 1998, or get a further extension from the Nasdaq Stock Market, the shares of the Company's Common Stock will be delisted from the Nasdaq SmallCap Market. The Company is currently contemplating certain actions, subject to stockholder approval, to come into compliance with the $1.00 minimum bid requirement, including but not limited to a reverse stock split. F-12 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 16th day of November, 1998. PROJECTAVISION, INC. By: /s/ Martin Holleran ---------------------- Martin Holleran, President Chief Executive Officer and Director By: /s/ Jules Zimmerman ------------------------------- Jules Zimmerman Secretary, Chief Financial Officer, and Director EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1997 JAN-01-1998 SEP-30-1998 1,050,287 0 366,303 (105,096) 1,950,893 4,290,728 6,579,606 1,392,286 11,480,156 2,766,050 0 0 10,453,512 3,181 (2,142,286) 11,480,156 931,770 931,770 789,072 5,815,144 (1,959,113) 0 16,247 (3,729,580) 0 (3,729,580) 0 0 0 (3,729,580) (0.25) (0.25)
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