-----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, Nj3kOPWHJHlt4PJkq5nVHapSQj4xuUehQ7vBTT0vu5jV9dNVSy8xXv1aweE734+z ZH6J9BgzHb4k4jwhQ/AZoQ== 0000950116-97-002083.txt : 19971117 0000950116-97-002083.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950116-97-002083 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE 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: 97719029 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, 1997 ------------------ 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 13, 1997, there were 19,902,277 shares of the Registrant's common stock outstanding. PROJECTAVISION, INC. (A DEVELOPMENT STAGE COMPANY) FORM 10-Q TABLE OF CONTENTS PAGE ---- 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-10 Financial Condition and Results of Operations SIGNATURES PROJECTAVISION, INC (A Development Stage Company) BALANCE SHEETS - --------------------------------------------------------------------------------
(Unaudited) December 31, September 30, ASSETS 1996 1997 CURRENT ASSETS: Cash and cash equivalents $ 1,060,283 $ 311,463 Accounts receivable - net -- 170,148 Inventory -- 1,025,315 Investments 3,437,386 1,191,504 Other current assets 851,198 1,061,982 ------------ ------------ Total Current Assets 5,348,867 3,760,412 PROPERTY AND EQUIPMENT Furniture, fixtures and equipment 68,422 119,699 Tooling Costs 4,208,005 5,608,308 Computers and software 226,019 241,819 Assets under capital leases -- 47,989 Leasehold improvements 185,030 185,030 ------------ ------------ 4,687,476 6,202,845 Less: Accumulated depreciation and amortization 242,896 655,001 ------------ ------------ Property and equipment, net 4,444,580 5,547,844 OTHER ASSETS 339,041 35,444 ------------ ------------ TOTAL ASSETS $ 10,132,488 $ 9,343,700 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,718,004 $ 1,658,075 Accrued liabilities 209,476 557,765 Current portion of capital lease obligations -- 14,625 ------------ ------------ Total Current Liabilities 1,927,480 2,230,465 ------------ ------------ LONG-TERM LIABILITIES Long-term portion of capital lease obligations -- 26,892 Convertible Debt 1,762,963 1,629,865 ------------ ------------ Total Long-term Liabilities 1,762,963 1,656,757 ------------ ------------ TOTAL LIABILITIES 3,690,443 3,887,222 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY Preferred stocks Series A Preferred Stock, $.01 par value 100 shares authorized, 100 shares issued ($100,000 liquidation preference) -- -- Series B Preferred Stock, $.01 par value 434,667 shares authorized, 351,258 shares outstanding as of September 30, 1997 ($ 1,929,910 liquidation preference) 3,859 3,512 Series C Preferred Stock, $.001 par value 7,500 shares authorized; 7,500 shares issued; no shares outstanding as of September 30, 1997 8 0 Series D Preferred Stock, $100 par value 60,000 shares authorized; 35,000 shares issued; ($3,500,000 liquidation preference) -- 3,500,000 Series E Preferred Stock, $1000 par value 1,000 shares authorized; 1,000 shares issued; ($1,000,000 liquidation preference) -- 1,000,000 Common stock $.0001 par value - 50,000,000 shares authorized; 14,229,401 and 19,594,375 issued and outstanding respectively 1,423 1,959 Additional paid-in capital 38,760,690 41,115,680 Deficit accumulated during the development stage (32,323,935) (40,164,673) ------------ ------------ Total Stockholders' Equity 6,442,045 5,456,478 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,132,488 $ 9,343,700 ============ ============
See notes to financial statements F-2 PROJECTAVISION, INC (A Development Stage Company) STATEMENTS OF OPERATIONS (Unaudited) - --------------------------------------------------------------------------------
For the Period September 9, 1988 (Date of Three Months Ended September 30, Nine Months Ended September 30, Incorporation) ---------------------------------- ------------------------------- to September 30, 1996 1997 1996 1997 1997 Restated Restated REVENUE $ 150,000 $ 358,784 $ 150,000 $ 409,889 $ 1,864,889 LESS: COST OF SALES -- 344,517 -- 395,629 395,629 ------------ ------------ ------------ ------------ ------------ GROSS PROFIT 150,000 14,267 150,000 14,260 1,469,260 OPERATING EXPENSES General and administrative 410,915 600,340 1,505,123 2,257,628 11,626,390 Salaries 266,822 445,642 936,581 1,167,036 5,992,892 Legal fees 158,628 304,935 657,604 1,048,571 4,086,629 Depreciation and amortization 58,185 (13,558) 479,934 412,105 710,439 Research and development 191,577 304,750 503,930 486,634 6,297,886 Patent and license expense 104,360 21,679 242,445 204,200 1,692,252 ------------ ------------ ------------ ------------ ------------ Total Operating Expenses 1,190,487 1,663,788 4,325,617 5,576,174 30,406,488 ------------ ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (1,040,487) (1,649,521) (4,175,617) (5,561,914) (28,937,228) ------------ ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) Provision for allowances on advances -- (100,000) -- (100,000) (289,260) Interest income 152,687 28,030 360,147 158,784 1,665,644 Interest expense-8% Debentures (46,334) (31,781) (320,049) (90,190) (468,909) Interest expense-Amortization of debt expense -- -- (1,544,678) (89,122) (2,123,805) ------------ ------------ ------------ ------------ ------------ Other income/(expense) - Net 106,353 (103,751) (1,504,580) (120,528) (1,216,330) ------------ ------------ ------------ ------------ ------------ LOSS BEFORE EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE (934,134) (1,753,272) (5,680,197) (5,682,442) (30,153,558) ------------ ------------ ------------ ------------ ------------ EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE -- -- -- -- (4,897,314) ------------ ------------ ------------ ------------ ------------ NET LOSS $ (934,134) $ (1,753,272) $ (5,680,197) $ (5,682,442) $(35,050,872) ============ ============ ============ ============ ============ NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (.15) $ (.12) $ (.53) $ (.45) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 14,271,681 19,009,450 13,595,111 17,323,908 ========== ========== ========== ==========
See Notes to Financial Statements F - 3 PROJECTAVISION, INC (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT BALANCE, JANUARY 1, 1996 100 $0 385,982 $ 3,859 0 $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 ISSUE WARRANTS AND OPTIONS FOR SERVICES NET LOSS -------- --------- ------------ --------- ---------- --------- ---------- ------------- BALANCE, DECEMBER 31, 1996 100 0 385,982 $3,859 7,500 $8 0 $0 ======== ========= ============ ========= ========== ========= ========== ============= ISSUANCE OF SERIES D PREFERRED STOCK 35,000 3,500,000 CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK (34,724) (347) SERIES C PREFERRED STOCK CONVERSION (4,210) (5) AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK ISSUE WARRANTS TO SERIES D PREFERRED STOCKHOLDERS ISSUANCE OF COMMON STOCK FOR PREFERRED STOCK DIVIDENDS EXERCISE OF STOCK OPTIONS NET LOSS -------- --------- ------------ --------- ---------- --------- ---------- ------------- BALANCE, MARCH 31, 1997 100 0 351,258 3,512 3,290 3 35,000 3,500,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK NET LOSS -------- --------- ------------ --------- ---------- --------- ---------- ------------- BALANCE, JUNE 30, 1997 100 $0 351,258 $3,512 3,290 $3 35,000 $3,500,000 SERIES C PREFERRED STOCK CONVERSION (3,290) (3) ISSUE SERIES E PREFERRED STOCK ISSUANCE OF COMMON STOCK FOR PREFERRED STOCK DIVIDENDS AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK ISSUANCE OF COMMON STOCK FOR SALARY CONVERSION OF 8% DEBENTURES INTO COMMON STOCK NET LOSS -------- --------- ------------ --------- ---------- --------- ---------- ------------- BALANCE, SEPTEMBER 30, 1997 100 $0 351,258 $3,512 0 $0 35,000 $3,500,000 ======== ========= ============ ========= ========== ========= ========== =============
See notes to financial statements RESTUBBED TABLE
ACCUMULATED SERIES E ADDITIONAL DEFICIT DURING PREFERRED STOCK COMMON STOCK PAID IN DEVELOPMENT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL BALANCE, JANUARY 1, 1996 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 3,441,573 3,441,750 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 1,078,725 1,078,725 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK 2,357,188 (2,357,188) 0 ISSUE WARRANTS AND OPTIONS FOR SERVICES 385,800 385,800 NET LOSS (9,047,560) (9,047,560) ----- --------- ---------- ----- ----------- ----------- ---------- BALANCE, DECEMBER 31, 1996 0 $0 14,229,401 1,423 $38,760,690 (32,323,935) $6,442,045 ===== ========= ========== ===== =========== =========== ========== ISSUANCE OF SERIES D PREFERRED STOCK 3,500,000 CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK 34,724 3 344 0 SERIES C PREFERRED STOCK CONVERSION 2,226,186 223 (218) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK 318,171 (318,171) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK 530,973 (530,973) 0 ISSUE WARRANTS TO SERIES D PREFERRED STOCKHOLDERS 163,600 (163,600) 0 ISSUANCE OF COMMON STOCK FOR PREFERRED STOCK DIVIDENDS 24,588 2 77,194 (77,196) 0 EXERCISE OF STOCK OPTIONS 250,442 25 (25) 0 NET LOSS (1,377,322) (1,377,322) ----- ---------- ---------- ----- ----------- ----------- ---------- BALANCE, MARCH 31, 1997 0 0 16,766,341 1,676 39,850,729 (34,791,197) 8,564,723 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK 160,077 (160,077) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK 434,384 (434,384) 0 NET LOSS (2,551,848) (2,551,848) ----- ---------- ---------- ----- ----------- ----------- ---------- BALANCE, JUNE 30, 1997 0 $0 16,765,341 1,676 $40,445,190 (37,937,506) $6,012,875 SERIES C PREFERRED STOCK CONVERSION 2,655,470 266 (263) 0 ISSUE SERIES E PREFERRED STOCK 1,000 1,000,000 1,000,000 ISSUANCE OF COMMON STOCK FOR PREFERRED STOCK DIVIDENDS 42,152 4 70,295 (70,299) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK 170,199 (170,199) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK 233,397 (233,397) 0 ISSUANCE OF COMMON STOCK FOR SALARY 50,000 5 96,870 96,875 CONVERSION OF 8% DEBENTURES INTO COMMON STOCK 81,412 8 99,992 100,000 NET LOSS (1,753,272) (1,753,272) ----- ---------- ---------- ----- ----------- ----------- ---------- BALANCE, SEPTEMBER 30, 1997 1,000 $1,000,000 19,594,375 1,959 $41,115,680 (40,164,673) $5,456,478 ===== ========== ========== ===== =========== =========== ==========
See notes to financial statements F-4 PROJECTAVISION, INC (A Development Stage Company) STATEMENTS OF CASH FLOWS (Unaudited) - ------------------------------------------------------------------------------
For the Period September 9, 1988 (Date of Nine Months Ended September 30, Incorporation) ----------------------------------- to September 30, 1996 1997 1997 Restated OPERATING ACTIVITIES Net loss $ (4,135,519) $ (5,682,442) $(35,050,872) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 479,935 412,105 2,745,124 Issuance of common stock for services -- -- 1,664,131 Allowance taken on investment in unconsolidated affiliate -- 100,000 2,229,252 Other noncash operating expenses -- -- 288,216 Settlement of legal fees (11,250) -- (97,287) Provision for allowances on advances -- -- 189,260 Equity in loss of unconsolidated affiliate -- -- 2,768,061 Asset and liability management Changes in operating assets 269,111 (1,102,650) (2,562,349) Accounts payable and other liabilities 96,882 293,654 2,367,791 ------------ ------------ ------------ Net cash used in operating activities (3,300,841) (5,979,333) (25,458,673) ------------ ------------ ------------ INVESTING ACTIVITIES Capital expenditures (3,047,863) (1,515,369) (6,202,844) Investment in and advances to unconsolidated affiliate -- -- (4,703,440) Interest accrued on loan to unconsolidated affiliate -- -- (121,808) Licenses -- -- (30,000) Purchases and redemption of government securities (4,959,470) 2,245,882 (1,191,504) ------------ ------------ ------------ Net (cash used in)/provided by investing activities (8,007,333) 730,513 (12,249,596) ------------ ------------ ------------ FINANCING ACTIVITIES Proceeds from notes payable 10,000,000 -- 10,800,000 Private placement costs -- -- (518,505) Repayment of notes payable (4,607,000) -- (6,080,955) Issuance of preferred stock 7,500,000 4,500,000 12,716,341 Issuance Fees (500,000) -- (500,000) Series C Preferred Stock Dividend -- -- (123,750) Proceeds from Issuance of common stock -- -- 18,617,239 Proceeds from warrants excercised -- -- 2,760,612 Proceeds from stock options excercised 24,375 -- 398,750 Deferred public offering costs (500,000) -- (50,000) ------------ ------------ ------------ Net cash provided by financing activities 11,917,375 4,500,000 38,019,732 ------------ ------------ ------------ INCREASE\(DECREASE) IN CASH AND CASH EQUIVALENTS 609,201 (748,820) 311,463 CASH AND CASH EQUIVALENTS-BEGINING OF PERIOD 3,491,982 1,060,283 -- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS-END OF PERIOD $ 4,101,183 $ 311,463 $ 311,463 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 320,049 $ 190 $ 378,546 ============ ============ ============
See notes to financial statements F-5 PROJECTAVISION, INC. (A Development Stage Company) SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: - ------------------------------------------------------------------------------- In 1996, the Company issued an aggregate of 37,666 shares of its common stock with a value of $ 154,393 as payment for the dividend on its series B convertible preferred 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 In 1997, the Company issued an aggregate of 66,748 shares of its common stock with a value of $ 140,503 as payment for the dividend on its series B convertible preferred stock. The Company issued 2,226,186 shares of its common stock in exchange for retiring 4,210 shares of Series C convertible preferred stock in the First Quarter and retired the entire balance of 3,290 shares of the Series C convertible preferred stock in July by issuing 2,655,470 shares of common stock. In addition, in the quarter ended September 30, 1997, the Company issued 81,412 shares of its common stock in connection with the conversion of $100,000 of its convertible debt, and as of October 25, 1997, the Company has issued another 307,902 shares of its common stock in connection with the conversion of $ 400,000 of its convertible debt, leaving a face value on the debt of $ 1,000,000. F-6 PROJECTAVISION, INC. (A Development stage Company) 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 has been formed to complete 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. The Company is a development stage enterprise and has generated no significant revenue from its planned principal operations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1996 Form 10-K. The results of operations for the period ended September 30, 1997 are not necessarily indicative of the operating results for the full year. 2. REVENUE Revenue for the period for products shipped consisted of billings for the Digital Home Theater. Included in cumulative revenues is $ 1,000,000 in funding from a government agency. 3. INVESTMENT IN UNCONSOLIDATED AFFILIATE In 1993, the Company entered into an agreement with Tamarack Storage Devices, Inc. ("Tamarack") pursuant to which the Company acquired shares of Tamarack's common stock representing approximately 37 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 per annum. When Tamarack failed to meet proscribed levels of profitability by March 31, 1995, the Company automatically received under the terms of its agreement with Tamarack additional shares of Tamarack's common stock, increasing the Company's voting equity interest in Tamarack to approximately 53%. In 1995, Tamarack received a commitment from Projectavision to fund its cash needs through December 31, 1995 to continue its operations as then constituted. Pursuant to this $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, Tamarack continues to incur losses, and its viability to achieve profitable operations is doubtful. In November, 1996, the Company loaned $ 100,000 to Tamarack and originally secured by a government receivable. This amount was written off on the Company's books as of September 30, 1997. F-7 PROJECTAVISION, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 4. PREFERRED STOCK 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. Each share of Series D Preferred Stock is convertible, at the option of the holder, into shares of the Company's Common Stock as follows: 8,750 shares on or after May 1, 1997; 8,750 shares on or after July 1, 1997; 8,750 shares on or after September 1, 1997; and 8,750 shares on or after November 1, 1997. 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 (the "Series D Conversion Price"); provided, however, that in the event that the Series D Conversion price is less than $ 2.00 per share, then under no circumstances can shares of Series D Preferred Stock be converted into the Company's Common Stock until such time as the Series D Conversion Price exceeds $ 2.00 per share, subject to the following: (i) in the event that the Company fails to either ship 2,500 projectors or generate $ 12,500,000 projector revenues during the period January 1, 1997 through June 30, 1997, then the minimum Series D Conversion Price shall be reduced by $0.50, or (ii) in the event that the Company fails to ship 2,500 projectors and generate $ 12,500,000 of projector revenues during the period July 1, 1997 through December 31, 1997, then the minimum Series D Conversion Price shall be reduced by an additional $ 0.50. The 25% discount is being recognized as a dividend over the shortest period in which the shares can be converted into common stock. In July of 1997, the Company issued an aggregate of 1,000 shares of 8% Series E convertible preferred stock to one foreign institutional investor for an aggregate purchase price of $ 1,000,000, resulting in net proceeds to the Company of $1,000,000. Each share of Series E Preferred Stock is convertible, at the option of the holder, into shares of the Company's Common Stock as follows: 250 shares on or after August 15, 1997; 250 shares on or after October 15, 1997; 250 shares on or after December 15, 1997; and 250 shares on or after February 15, 1998. 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 (the "Series E Conversion Price"); provided, however, that in the event that the Series E Conversion price is less than $ 1.50 per share, then under no circumstances can shares of Series E Preferred Stock be converted into the Company's Common Stock until such time as the Series E Conversion Price exceeds $ 1.50 per share, subject to the following: (i) in the event that the Company fails to either ship 417 projectors per month or generate $ 2,085,000 projector revenues per month during the period June 1, 1997 through December 31, 1997, then the Series E Conversion Price shall be reduced by $ 0.50 at a rate of $0.083 per month, but (ii) in the event that the Company ships 2,500 projectors or generates $ 12,500,000 of projector revenues by December 31, 1997, then the Series E Conversion Price shall be restored to $1.50. The 25% discount will be recognized as a dividend over the shortest period in which the shares can be converted into common stock. 5. COMMITMENTS AND CONTINGENCIES In April of 1997, the Company entered into a capital lease for computer equipment. Future minimum lease payments are $ 15,246 in 1997, $ 20,328 in both 1998 and 1999, and $ 5,082 in 2000. In June of 1995 and August of 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 of 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. Plaintiffs have filed a notice of appeal with the Second Circuit Appellate Court, but have not yet perfected the notice of appeal. In January 1996, Mr. and Mrs. Eugene Dolgoff sued the Company and certain members of the Board of Directors in the Chancery Court in the State of Delaware, and in connection therewith moved to preliminarily enjoin the Company's annual stockholders' meeting scheduled for February 29, 1996. The Dolgoffs alleged, among other things, manipulation of the election process and breaches of the Company's charter documents. The Dolgoffs' request to preliminarily enjoin the meeting was denied. Subsequently, a settlement agreement was entered into between the Company and the Dolgoffs, which was approved by the Delaware Chancery Court which includes, among other things, the Company reimbursing the Dolgoffs for a portion of their legal expenses and moving one of its Directors from one class to another class so as to balance the size of its three (3) classes of directors. F-8 PROJECTAVISION, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 5. COMMITMENTS AND CONTINGENCIES (Continued) 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 alleges, among other actions, breach of employment and patent assignment agreements. Mr. Dolgoff is seeking damages, punitive damages, and equitable relief totaling in excess of $ 100 million. In April 1996, the New York State Supreme Court issued an order and opinion which disqualified the Company's litigation counsel, Anderson Kill, & Olick, P.C. ("Anderson, Kill") on the basis that Anderson, Kill had a conflict of interest vis-a-vis Mr. Dolgoff , substantially denied the Company's motion to dismiss Mr. Dolgoff's entire complaint, and denied Mr. Dolgoff's motion to have a receiver appointed. The Company appealed the New York Supreme Court's decision regarding the disqualification of Anderson, Kill and the denial of its motion to dismiss Mr. Dolgoff's complaint. Mr. Dolgoff appealed the New York Supreme Court's denial of his motion to have a receiver appointed. In January of 1997, the Supreme Court of the State of New York Appellate Division First Department, affirmed the lower court's disqualification of Anderson, Kill and the lower court's motion to dismiss and ordered that a receiver be appointed to protect whatever interest, if any, the former officer and employee of the Company may ultimately be able to prove that he has in any inventions Mr. Dolgoff assigned to the Company. The Supreme Court has issued a decision restricting the scope of the receivership. However, the receivership order has not as yet been entered. At this time, neither the Appellate Court, nor any other court, has determined that Mr. Dolgoff has any proof to support his claims; the Appellate Court has merely reaffirmed the lower court's decision that, at this preliminary stage of the litigation, Mr. Dolgoff's complaint has satisfied procedural pleading requirements. As a consequence of new facts having come to the attention of the Company, the Company has amended its pleadings and filed counterclaims against Mr. Dolgoff, his affiliated companies, Breakthrough Enterprises, Inc. and Floating Images, Inc. for, among other things, fraud, breach of fiduciary duty, misappropriation of trade secrets, conversion, breach of contract, diversion of corporate assets and opportunities, unjust enrichment, and tortious interference with contractual relations, in connection with which the Company is seeking injunctive relief and a constructive trust, in addition to monetary damages in excess of $ 100 million. In 1996, a suit was filed by a individual investor against the Company and Marvin Maslow, Chairman of the Board of Directors, alleging fraudulent inducement in connection with the plaintiff's purchase of the Company's securities. In March 1997 the case was dismissed by the U.S. District Court in Florida on jurisdictional grounds. In the remaining action outstanding with Mr. Dolgoff, the Company's management, based upon discussions with counsel, believe that they have a meritorious defense and intend a vigorous defense against these claims. The Company's management believes that the outcome of these matters will not have a material adverse effect on its financial position or results of operations. 6. 1996 FINANCIAL STATEMENTS The Company is restating its quarterly financial statements for each quarter in the nine-month period ended September 30, 1996. There is no change in the full year reported results. This restatement is being made due to the Company's recording amortization of a discount relating to debt issued in the first quarter of 1996, which was convertible into common stock at a discount, in the fourth quarter rather than recording and amortizing this discount over the earliest conversion period. Similarly, amortization of dividends recorded on convertible preferred stock relating to the ability of the holders of such preferred stock to convert their shares into common stock at a discount were recorded in the fourth quarter rather than recording and amortizing them over the earliest conversion period. Reported results for the year properly reflect this interest expense and these preferred stock dividends. The adjustments to the reported quarterly results to properly reflect the timing of the recognition of the interest and dividends have no impact on the Company's stockholders' equity. The impact of the restatement on the timing of the Company's reported net loss and net loss per share attributable to common shareholders is summarized below:
Period Ended September 30, 1996 ------------------------------------------------------------------- Three Months Nine Months ----------------------------- -------------------------------- As Originally As Originally Reported Restated Reported Restated -------- -------- -------- -------- Net loss $ ( 934,134) $ (934,134) $ (4,135,519) $ (5,680,197) Net loss per share attributable to common stockholders $ (0.07) $ (0.15) $ (0.30) $ (0.53)
F-9 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 there to. As of September 30, 1997, the Company had working capital of $ 1,529,947. With respect to changes in the first nine months of 1997 versus the amounts recorded in the first nine months of 1996, the increase in general and administrative expense is due to increased participation in trade shows and to higher advertising and travel expense. Higher legal fees are due to the on-going litigation with a former officer of the Company. To date, the Company has funded its operations primarily from sales of capital stock. In January 1997, the Company completed a private placement of preferred stock of $3.5 million, and in July 1997 the Company completed a private placement of preferred stock of $ 1.0 million. In addition, the sale of government securities were used to fund working capital and to purchase production tooling for the Digital Home Theater. As of September 30th 1997 the Company had cash and cash equivalence of $311,463 and government securities of $1,191,504. In March 1997 the Company shipped its first Digital Home Theater to retail distribution, and for the three (3) months ended September 30, 1997, the Company had sales of $ 358,784. As of December 31, 1996, the Company had working capital of $3,421,387. The Company has funded its operations primarily from sales of capital stock. In February 1996, the Company completed a private placement of convertible debt of $10.0 million which resulted in $9.5 million in net proceeds to the Company after paying a 5% investment banking fee. In June 1996 the Company issued an aggregate of $ 7,500,000 for 7,500 shares of a newly created Series C Preferred Stock to an Australian financial institution pursuant to Regulation D of the Securities Act, resulting in net proceeds to the Company of $ 7,000,000. The net proceeds from the sale of the Series C Convertible Preferred Stock were used primarily to retire unconverted portions of the convertible debt issued in February 1996. There currently remains outstanding $ 1.0 million of convertible debt. At June 30, 1997, 4,210 shares were converted into 2,226,186 shares of the Company's Common Stock, and the balance of 3,290 shares of the Series C Preferred Stock were converted into 2,655,470 shares of common stock in July 1997. The Company also intends to rely on arrangements with retailers and contract manufacturers in connection with meeting the balance of the capital requirements necessary for the Company to manufacture, market and distribute the Digital Home Theater. The Company is in the development stage and, to date, its sole revenues have been $1,455,000 in fees and $ 409,889 from the sale of the Digital Home Theater. Of such fees, $1,000,000 was derived from a government agency to develop certain projection technology for use in a high definition television projector and the remaining balance, $455,000, from licensing agreements. The Company has completed research and development with respect to the Digital Home Theater projector, although certain engineering refinements are still ongoing, including optimizing picture brightness for a new rear projection system. Primarily as a result of work performed in developing its technology, the Company has sustained losses aggregating approximately $35,000,000 from its inception to September 30, 1997. The Company has continued to incur losses since September 30, 1997. As of December 31, 1996, the Company had available for Federal income tax purposes net operating and capital loss carry-forwards of approximately $25,000,000. The Internal Revenue Code of 1986, as amended, may impose certain restrictions on the amount of net operating loss carry-forwards which may be used in any year by the Company. F-10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this Registration has duly authorized and caused the undersigned to sign this report on the Registrant's behalf: PROJECTAVISION, INC. By: /s/ Martin Holleran ------------------------------------ Martin Holleran, President/ Chief Executive Officer and Director By: /s/ Jules Zimmerman ------------------------------------ Jules Zimmerman, Chief Financial Officer and Director November 13, 1997 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JUL-01-1997 SEP-30-1997 311,463 1,191,504 175,748 (5,600) 1,025,315 3,760,412 6,202,845 (655,001) 9,343,700 2,230,465 1,629,865 0 4,503,512 1,959 951,007 9,343,700 358,784 358,784 344,517 1,663,788 71,970 0 31,781 (1,753,272) 0 (1,753,272) 0 0 0 (1,753,272) (0.12) (0.12)
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