<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period April 1, 1996 to September 30, 1996.
Commission file number 0-28472
DIGITAL VIDEO SYSTEMS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0333728
- ------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2710 Walsh Ave. 2/nd/ Fl.
Santa Clara, Ca. 95051
- -------------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(408)748-2100
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods 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
--- ---
Common Stock, $.0001 Par Value- 17,502,091 shares as of October 31, 1996
<PAGE>
Index
DIGITAL VIDEO SYSTEMS, INC.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets- September 30, 1996 and March 31,
1996
Condensed consolidated statements of income- Six-months ended September 30,
1996 and 1995
Condensed consolidated statements of income- Three months ended September
30, 1996 and 1995
Condensed consolidated statements of cash flows- Six-months ended September
30, 1996 and 1995
Notes to condensed consolidated financial statements- September 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part II. Other Information
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
On November 4, 1996, the Company filed a registration statement with the
Securities and Exchange Commission for a secondary public offering by the
Company of 23,000 "Units." Each Unit will consist of a minimum of 70 and
a maximum of 100 units of the Company's securities (the "IPO Units").
Each IPO Unit consists of one share of Common Stock, one redeemable Class
A Warrant and one redeemable Class B Warrant and is identical to the
units sold in the Company's initial public offering in May 1996. It is
currently anticipated that the Units will be priced at $1,000 per Unit.
The actual number of IPO Units included in each Unit will be determined
by the Company and D.H. Blair Investment Banking Corp., the underwriter
of the offering. A registration statement relating to the Units has been
filed with the Securities and Exchange Commission, but has not yet become
effective. These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes effective.
The foregoing information shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities
laws of any such state.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included or incorporated by reference herein:
(10) Material Contracts:
<PAGE>
Consulting Agreement dated September 27, 1996 between the Company and
Sitrick And Company Inc. (incorporated by reference to the Company's
Registration Statement on Form SB-2, Registration No. 333-15471, as
filed with the Securities and Exchange Commission on November 4, 1996.)
Lease dated July 17, 1996 between the Company and Ken Yang Real Estate
(Shanghai) Co. Ltd. (incorporated by reference to the Company's
Registration Statement on Form SB-2, Registration No. 333-15471, as
filed with the Securities and Exchange Commission on November 4, 1996.)
(11) Statement re: Computation of net loss per share
(27) Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on August 12, 1996 reporting that the
Company had announced that it was calling for a redemption of all of its
outstanding Class A Warrants and offering new exercise terms for holders
of Class A warrants who elected to exercise their Class A Warrants prior
to the date of redemption, and that the Company subsequently caused the
withdrawal of such offer.
<PAGE>
DIGITAL VIDEO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 14,638,889 $ 4,658,845
Accounts receivable, net 1,194,143 534,969
Inventories 1,488,454 1,925,600
Prepaid expenses and other current assets 768,188 818,584
Deferred financing charges - 832,059
------------ -----------
Total current assets 18,089,674 8,770,057
------------ -----------
Property and equipment, net 499,921 537,584
Intangible assets 16,904 -
Other assets - 95,755
------------ -----------
Total assets $ 18,606,499 $ 9,403,396
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 694,034 $ 1,092,082
Accrued liabilities 467,986 383,379
Bridge loan payable - 6,340,763
------------ -----------
Total current liabilities 1,162,020 7,816,224
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock - 524
Common stock 1,701 672
Additional paid-in capital 29,800,775 9,153,734
Accumulated deficit (12,267,320) (7,385,418)
Foreign currency translation adjustments (45,437) (31,486)
Deferred compensation (45,240) (150,854)
------------ -----------
Total stockholders' equity 17,444,479 1,587,172
------------ -----------
Total liabilities and stockholders'
equity $ 18,606,499 $ 9,403,396
============ ===========
</TABLE>
See accompanying notes
<PAGE>
DIGITAL VIDEO SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Product revenue $ 1,862,667 $ 212,933 $ 2,584,320 $ 910,369
Development and services revenue - 212,291 150,000 653,355
Component revenue - 61,544 774,326 61,544
------------ ------------ ------------ ------------
Total revenue 1,862,667 486,768 3,508,646 1,625,268
Cost of product revenue 2,351,035 347,647 3,117,317 824,657
Cost of development and services revenue - 150,933 235,347 321,713
Cost of component revenue - 208,542 797,500 208,542
------------ ------------ ------------ ------------
Total cost of revenue 2,351,035 707,122 4,150,164 1,354,912
Gross profit (loss) (488,368) (220,354) (641,518) 270,356
Operating expenses:
Research and development 344,619 310,589 682,485 560,257
Sales and marketing 314,225 126,461 654,165 306,646
General and administrative 1,115,553 518,308 1,625,842 904,410
------------ ------------ ------------ ------------
Total operating expenses 1,774,397 955,358 2,962,492 1,771,313
------------ ------------ ------------ ------------
Operating loss (2,262,765) (1,175,712) (3,604,010) (1,500,957)
Other income (expenses), net 182,843 (16,504) (14,096) (20,141)
------------ ------------ ------------ ------------
Net loss before extraordinary item (2,079,922) (1,192,216) (3,618,106) (1,521,098)
Extraordinary item - loss on early
extinguishment of bridge notes - - (1,263,796) -
------------ ------------ ------------ ------------
Net loss $ (2,079,922) $ (1,192,216) $ (4,881,902) $ (1,521,098)
============ ============ ============ ============
Net loss per share before extraordinary item $ (0.21) $ (0.22) $ (0.41) $ (0.28)
============ ============ ============ ============
Net loss per share $ (0.21) $ (0.22) $ (0.55) $ (0.28)
============ ============ ============ ============
Shares used in the calculation
of net loss per share 10,133,263 5,353,294 8,867,657 5,353,294
============ ============ ============ ============
</TABLE>
See accompanying notes
<PAGE>
DIGITAL VIDEO SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended September 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(4,881,902) $(1,521,098)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 108,853 133,434
Amortization of deferred compensation 8,588 4,245
Deferred financing charges and accretion from
bridge loan payable, net 1,491,296 -
Changes in operating assets and liabilities:
Accounts receivable (673,125) (242,413)
Inventories 437,146 355,397
Prepaid expenses and other assets 146,151 8,869
Accounts payable (398,048) (148,880)
Accrued liabilities 84,607 125,327
Increase in deferred revenue - 363,347
----------- -----------
Net cash (used in) operating activities (3,676,434) (921,772)
Investing activities:
Acquisition of furniture and equipment (71,190) (56,604)
Purchase of intangible assets (16,904) -
----------- -----------
Net cash (used in) investing activities (88,094) (56,604)
Financing activities:
Proceeds from initial public offering of common stock 20,713,843 -
Repayment of bridge loan (7,000,000) -
Proceeds from sale of preferred stock, net of notes payable
converted to preferred stock net of issuance costs - 1,000,000
Proceeds from exercise of common stock options and sale
of options 30,729 48,943
Payment of line of credit - (965,355)
Decrease in restricted cash _ 1,053,352
Payment of bridge financing _ -
----------- -----------
Net cash provided by financing activities 13,744,572 1,136,940
Net Increase in cash & cash equivalents 9,980,044 158,564
Cash and cash equivalents at beginning of period 4,658,845 247,752
----------- -----------
Cash and cash equivalents at end of period $14,638,889 $ 406,316
=========== ===========
See accompanying notes
</TABLE>
<PAGE>
Digital Video Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1996
Note 1-Basis of Presentation
Digital Video Systems, Inc. (the "Company") develops, manufactures and
markets digital video compression and decompression hardware and software for
entertainment, business and educational uses.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three-and six-month
periods ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 1997 or for any other
future period. For further information, refer to the financial statements for
the year ended December 31, 1995 and footnotes thereto included in the Company's
Registration Statement on Form SB-2.
Note 2- Net Loss Per Share
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common stock equivalent shares from stock options,
and warrants are not included as the effect is anti-dilutive. In accordance
with Securities and Exchange Commission Staff Accounting Bulletins, common stock
and common stock equivalent shares issued by the Company at prices below the
initial public offering price during the period beginning one year prior to such
offering have been included in the calculation as if they were outstanding for
all periods presented (using the treasury stock method and the initial public
offering price of the Company's units). The weighted average number of common
shares used in the net loss per share calculation was reduced by the common
stock placed in escrow in connection with the Company's initial public offering.
Note 3- Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
Inventories: September 30, 1996 March 31, 1996
------------------- --------------
<S> <C> <C>
Raw materials $1,059,643 $ 741,714
Work in process $ 328,978 $1,015,574
Finished goods $ 99,833 $ 168,312
---------- ----------
$1,488,454 $1,925,600
========== ==========
</TABLE>
Note 4- Stock Split
In January 1996, the Board of Directors approved a stock split of 1.078-
for-1 of all outstanding shares of common stock. All share and
<PAGE>
per share information has been adjusted to give effect to the stock split in the
accompanying financial statements.
Note 5- Private Placement
In March 1996, the Company completed a $7,000,000 private placement of 140
units at $50,000 per unit face value promissory note bearing 10% interest and
due in January and March 1997, and 25,000 warrants ("Bridge Warrants") which
initially enabled the holder to purchase shares of common stock at $4.00 per
share. The Company received net proceeds of approximately $6,055,000 after
deducting selling commissions and expenses of $945,000. The $7,000,000 was
allocated $875,000 to warrants and $6,125,000 to bridge notes payable. The debt
discount and selling commissions and expenses will be expensed using the
interest method over the terms of the notes.
On May 14, 1996 the Company repaid these bridge notes in full from the
proceeds received pursuant to its initial public offering of Units.
Note 6- Closing of Initial Public Offering
On May 14, 1996, the Company closed its initial public offering which
consisted of 4,200,000 units ("Units") of common stock, Class A warrants and
Class B warrants, priced at $5.00 per unit. On May 22, 1996, the Company's
underwriter exercised its overallotment option to purchase an additional 630,000
units at $5.00 per unit. The Company received net offering proceeds from the
sale of units of approximately $20,714,000 after deducting underwriting
discounts and commissions and other expenses of the offering. Upon the closing
of the Offering, the Company agreed to grant to their underwriter an option to
purchase up to 420,000 Units. The Option is exercisable during the three-year
period commencing two years from the date of the Company's initial public
offering at an exercise price of $6.50 per Unit.
Note 7- Escrow Securities
In April 1996, the holders of the Company's common and preferred stock, and
holders of options to purchase common stock pursuant to the Company's 1993 stock
option plan, placed, on a pro rata basis, 7,812,948 of their shares and options
to purchase 1,852,697 shares of common stock, respectively, into escrow, and a
holder of an option to purchase 200,000 shares of Common Stock outside the
Company's 1993 stock option plan placed all of such options into escrow upon
grant. Additionally, 234,355 options reserved for future grant under the
Company's 1993 Stock
<PAGE>
Option Plan were subject to escrow upon grant. The common stock and options will
be released to the stockholders on a pro rata basis, in the event specified
levels of pretax income of the Company for the years ended March 31, 1997 to
2001 are achieved, or the market price of the Company's common stock attains
specified targets during a 36-month period commencing from the effective date of
the registration statement relating to the Company's initial public offering.
Any shares or options remaining in escrow on July 15, 2001 will be forfeited,
which shares and options will then be contributed to the Company's capital. The
pretax income levels are subject to proportionate adjustment upon the issuance
of certain securities subsequent to the Company's initial public offering.
Based on the terms of the Escrow agreement, 7,957,857 shares of the
Company's common stock and 1,874,276 outstanding options to purchase common
stock outstanding as of September 30,1996 were in escrow. Additionally, at
September 30, 1996, 267,867 options available for future grant were subject to
escrow upon grant.
In the event that the foregoing earnings or market price levels are
attained and the escrow securities released, the Securities and Exchange
Commission has adopted the position that the release of escrow securities to
officers, directors, employees and consultants of the Company will be
compensatory and, accordingly, will result in compensation expense for financial
reporting purposes. The expense will equal the fair market value of the escrow
securities on the date of release and will result in a material charge to
operations.
<PAGE>
Note 8- Secondary Offering of Units with Underwriter
In October 1996, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission for the registration of up to 26,450 Units at $1,000 per unit. Each
Unit will consist of a minimum of 70 and a maximum of 100 units which are
identical to the Units issued in the Company's initial public offering of Units
as described in Note 6. Additionally the Board of Directors authorized the
issuance of an additional option which will allow the Company's underwriter to
purchase up to 2,300 Units (each consisting of a minimum of 70 and a maximum 100
units identical to the ones issued in the IPO) at an exercise price of $1,300
per Unit, exercisable over a period of three years commencing two years from the
date of such Offering.
Note 9- Business combination with Related Party
In October 1996 the Company acquired all of the outstanding stock of ViComp
Technology, Inc. ("ViComp"), a development stage company engaged in the design
and development of integrated circuits for use in
<PAGE>
video CD players. Pursuant to such acquisition, the Company issued 491,253
shares of its Common Stock for all the outstanding ViComp capital stock and
granted options to certain ViComp shareholders exercisable for 189,557 shares of
Digital Video common stock. The Company's Chairman and Chief Executive Officer
owned approximately 57% of the outstanding capital stock of ViComp at the time
of its acquisition by the Company. Of the 281,520 shares of the Company to be
received by this related party, 140,760 shares are subject to an escrow having
substantially identical terms to the escrow agreement described in Note 7. These
shares have not been included in the purchase price as they are subject to
forfeiture in the event specified levels of pretax income or market price are
not achieved. An additional 140,760 shares are held in separate performance
escrow and may be released to this related party in the event that certain
performance milestones relating to the development of ViComp's MPEG-1 chip are
reached by July 1997. Since the shares are subject to forfeiture, they also have
not been included in the purchase price. The transaction will be accounted for
as a purchase and, accordingly, the initial purchase price and acquisition costs
will be allocated to the identifiable assets and liabilities, including in-
process research and development which will be immediately expensed. Additional
consideration paid upon the achievement of the performance milestones (equal to
the fair market value of the 140,760 shares released from the performance
escrow), if any, will be recorded as additional purchase price at such time.
Note 10- 1996 Stock Option Plan
In September 1996, the Company's Board of Directors approved the Company's
1996 Stock Option Plan (the "1996 Option Plan"), which is subject to subsequent
shareholder approval. The 1996 Option Plan provides for the grant of options to
purchase up to an aggregate of 1,000,000 shares of the Company's Common Stock.
The 1996 Option Plan has terms and conditions substantially identical to those
of the 1993 Option Plan.
Note 11- Employee Matters
In October 1996, the Company removed Janis Gemignani as the Company's Vice
President, Secretary and Chief Financial Officer. The Company currently is
attempting to negotiate the terms under which Ms. Gemignani will continue to
provide services to the Company or will receive severance payments from the
Company. There can be no assurance, however, that the Company will be able to
negotiate such an arrangement with Ms. Gemignani, who has advised the Company
that she has claims against the Company in connection with her employment by the
Company and that she intends to formally assert those claims. Although the
Company has not been served with any litigation by Ms. Gemignani, based on its
preliminary review of the relevant facts, the Company does not believe that any
of the claims she may have against the Company have merit. In the event a
lawsuit is filed against the Company, however, the costs to defend the lawsuit,
and any damages the Company might be required to pay should Ms. Gemignani
prevail, could have material adverse effect on the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion contains forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 that involve risks and uncertainties. The Company's actual
results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below as well as those discussed elsewhere in this Form 10-QSB
and any document incorporated herein by reference. The following discussion
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Form 10-QSB.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Total revenue increased 283% in the quarter ended September 30,1996 to
approximately $ 1,863,000. The 1996 sales increase was due to increases in
unit sales of digital video CD players during the quarter ended September
30,1996 as compared to the quarter ended September 30,1995.
Gross margin percentage for the September 30, 1996 quarter was negative, as the
Company was not able to produce products in quantities which could result in
greater economies of scale. Gross profit percentage for the September 30, 1995
quarter was also negative, due to low production quantities, and the cost of
certain components which the Company was unable to pass on to its customers.
Total operating expenses increased by approximately $819,000 or 86% during the
September 30, 1996 quarter, from approximately $955,000 in the September 30,
1995 quarter to approximately $1,774,000 in the September 30,1996 quarter. This
increase resulted primarily from the Company's increased sales and marketing
expenses and increased general and administrative expenses.
Research and development expenses consist primarily of personnel and equipment
costs required to conduct the Company's development efforts. The Company
believes that investments in research and development are required to remain
competitive. These expenses increased approximately $34,000 or 11% from
approximately $311,000 in the September 30, 1995 quarter to approximately
$345,000 in the September 30, 1996 quarter. As a percentage of total revenue,
research and development expenses decreased from 64% in the September 30, 1995
quarter to 19% in the September 30, 1996 quarter due to the increase in sales in
the September 30, 1996 quarter compared to the September 30, 1995 quarter.
Sales and marketing expenses consist primarily of personnel and consulting costs
involved in the sales process, including sales commissions. These expenses
increased 148% in the September 30, 1996 quarter to approximately $314,000 from
approximately $126,000 in the comparable quarter of 1995 due to increases in
sales and marketing personnel and related activities. As a percentage of total
revenue, sales and marketing expenses decreased from 26% in the September 30,
1995 quarter to 17% in the comparable quarter of 1996.
<PAGE>
General and administrative expenses, which consist of administrative salaries
and benefits, insurance and other business support costs, increased
115%, or approximately $597,000 to approximately $1,116,000 in the September
30, 1996 quarter compared to the September 30, 1995 quarter. This increase was
the result of hiring of additional administrative personnel, costs associated
with the Company's Class A Warrant exchange and redemption offer (which was
subsequently abandoned due to market conditions) (the "Warrant Exchange Offer")
and increased legal, accounting and consulting fees. As a percentage of total
revenue, general and administrative expenses were 60% in the September 30, 1996
quarter and 106% in the comparable quarter of 1995.
Other income, net increased approximately $199,000 in the September 30, 1996
quarter compared to the comparable quarter of 1995 as a result of interest
income generated by funds raised in the Company's initial public offering that
closed in May 1996.
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995
Total revenue increased 116% in the six months ended September 30,1996 to
approximately $3,509,000, an increase of approximately $1,883,000 over the six
months ended September 30,1995. The increase was due to higher sales of
digital video CD players and components during the six months ended September
30, 1996 compared to the six months ended September 30,1995.
A negative gross margin was recorded for the six months ended September 30,
1996 as the Company was not able to produce products in sufficient quantities
to result in greater economies of scale and component costs which the Company
was unable to pass on to its customers. The gross profit percentage for the
six months ended September 30, 1995 of 17% was significantly greater as there
were minimal direct costs associated with contract revenue of $250,000
recognized in the period.
Research and development expenses increased approximately $122,000 or 22% from
approximately $560,000 in the six months ended September 30, 1995 to
approximately $682,000 in the six months ended September 30, 1996. As a
percentage of total revenue, research and development expenses decreased from
34% in the six months ended September 30, 1995 to 19% in the six months ended
September 30, 1996 due to the increase in sales in the six months ended
September 30, 1996 compared to the six months ended September 30, 1995.
<PAGE>
Sales and marketing expenses increased 113% in the six months ended September
30, 1996 to approximately $651,000 from approximately $307,000 in the comparable
six-month period of 1995. Sales and marketing expenses represented 19% of total
revenues in the six months ended September 30, 1996 and 1995. The increase in
expenses is due to the increase in sales and marketing personnel as well as
increased trade show and marketing activities in the six months ended September
30, 1996.
General and administrative expenses, increased approximately $721,000, to
approximately $1,626,000 in the six months ended September 30, 1996 compared
to the six months ended September 30, 1995. This increase was the result of
hiring additional administrative personnel, registration costs relating to the
Warrant Exchange Offer, and increased legal, accounting and consulting fees.
As a percentage of total revenue, general and administrative expenses
decreased to 46% in the six months ended September 30, 1995 from 56% in the
comparable six months of 1995 due to the increase in sales in the six months
ended September 30, 1996 compared to the six months ended September 30, 1995.
The Company recorded an extraordinary non-cash charge in the quarter ended June
30, 1996 of approximately $1,264,000 related to the repayment of the bridge
notes issued in the bridge financing which were repaid in May 1996 from proceeds
of the Company's initial public offering.
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
The Company had working capital of approximately $16,928,000 as of September 30,
1996 as compared to working capital of approximately $954,000 as of March 31,
1996.
Cash flows used in operations were approximately $3,676,000 for the September
30, 1996 six months period as compared to cash flows used by operations of
approximately $922,000 in the comparable period in 1995. Net cash provided by
financing activities was approximately $13,745,000 for the September 30, 1996
six-month period as compared to approximately $1,137,000 for the September 30,
1995 six-month period. Cash provided by financing activities in the six months
ended September 30, 1996 includes funds generated pursuant to the
Company's initial public offering of approximately $20,714,000 net of offering
costs, which were partially offset by the repayment of the $7,000,000 in bridge
notes.
The Company anticipates, based on currently proposed plans and assumptions
relating to present operations, that existing working capital will be sufficient
to satisfy the Company's contemplated cash requirements for at least the next 12
months and, together with the net proceeds of the Company's proposed public
offering, will be sufficient to satisfy the Company's contemplated cash
requirements for at least the next 24 months. If the Company's estimates prove
incorrect, or if the Company's proposed public offering is not consummated, the
Company may require additional funds to support its working capital
requirements. The Company may seek to raise such funds for working capital or
other purposes through public or private equity financing or from other sources
to the extent such additional capital is not provided to the Company through
such proposed public offering or through the exercise of its outstanding Class A
and Class B warrants. There can be no assurance that any such financing will be
available to the Company on favorable terms or at all and if the Company is
unable to obtain needed financing, the Company's business would be materially
and adversely affected.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Digital Video Systems, Inc.
---------------------------
(Registrant)
Date 11/14/96 /s/ Arvin S. Erickson
----------------------- ----------------------------------
Arvin S. Erickson
Chief Financial Officer
<PAGE>
EXHIBIT 11.1
DIGITAL VIDEO SYSTEMS, INC.
STATEMENT REGARDING THE COMPUTATION OF PER SHARE LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $(2,079,922) $(1,192,216) $(4,881,902) $(1,521,098)
=========== =========== =========== ===========
Weighted average common shares outstanding 8,951,752 3,361,526 7,281,023 3,361,526
Common equivalent shares from preferred stock issued
during the twelve month period prior to the Company's
proposed initial public offering - 688,297 344,148 688,297
Common equivalent shares from warrants issued
during the twelve month period prior to the Company's
proposed initial public offering 700,000 700,000 700,000 700,000
Common equivalent shares from stock options issued
during the twelve month period prior to the Company's
proposed initial public offering 451,135 451,135 451,135 451,135
Common equivalent shares from common stock issued
during the twelve month period prior to the Company's
proposed initial public offering 30,376 152,326 91,351 152,326
----------- ----------- ----------- -----------
Shares used in computing net loss per share 10,133,263 5,353,284 8,867,657 5,353,284
=========== =========== =========== ===========
Net loss per share $ (0.21) $ (0.22) $ (0.55) $ (0.28)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,638,889
<SECURITIES> 0
<RECEIVABLES> 1,194,143
<ALLOWANCES> 0
<INVENTORY> 1,488,454
<CURRENT-ASSETS> 18,089,674
<PP&E> 932,609
<DEPRECIATION> (432,688)
<TOTAL-ASSETS> 18,606,499
<CURRENT-LIABILITIES> 1,162,020
<BONDS> 0
0
0
<COMMON> 1,701
<OTHER-SE> 29,800,775
<TOTAL-LIABILITY-AND-EQUITY> 18,606,499
<SALES> 3,508,646
<TOTAL-REVENUES> 3,508,646
<CGS> 4,150,164
<TOTAL-COSTS> 2,962,492
<OTHER-EXPENSES> 14,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,618,106
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,263,796
<CHANGES> 0
<NET-INCOME> (4,881,902)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
