U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from ___________ to ___________
Commission file number 000-23415
PRINCETON VIDEO IMAGE, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-3062052
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 Princess Road, Lawrenceville, New Jersey, 08648
(Address of principal executive offices)
609-912-9400
(Issuer'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 Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No X
The aggregate number of shares of the Issuer's common stock outstanding on
January 31, 1998 was 8,159,472.
Transitional Small Business Disclosure Format:
Yes No X
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
Princeton Video Image, Inc.
(A Development Stage Company)
Balance Sheet
(Unaudited)
December 31,
1997
ASSETS
Current Assets:
Cash and cash equivalents $ 26,330,928
Restricted marketable securities held to maturity 134,801
Trade accounts receivable 98,750
Other current assets 339,030
Total current assets 26,903,509
Property and equipment, net 1,537,608
Intangible assets, net 437,633
Other assets 143,345
------------------
Total assets $ 29,022,095
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 792,259
Unearned revenue 230,497
Customer deposits 312,500
------------------
Total current liabilities 1,335,256
Unearned revenue 915,219
------------------
Total liabilities 2,250,475
------------------
Commitments and contingencies -
Redeemable preferred stock:
Cumulative, Series A, conditionally redeemable,
$4.50 par value, authorized 167,000 shares;
issued and outstanding 67,600 shares at
December 31, 1997, redemption value equal to carrying
value (par plus all accrued but unpaid dividends) 394,325
Cumulative, Series B, conditionally redeemable,
$5.00 par value, authorized 93,300 shares;
issued and outstanding 86,041 shares at
December 31, 1997, redemption value equal to carrying
value (par plus all accrued but unpaid dividends) 531,255
------------------
Total redeemable preferred stock 925,580
<PAGE>
Princeton Video Image, Inc.
(A Development Stage Company)
Balance Sheet
(Unaudited)
December 31,
1997
Shareholders' Equity
Common stock, no par value; $.005 stated value;
authorized 40,000,000 shares; 7,908,472 shares
issued and outstanding as of December 31, 1997 39,542
Additional paid-in capital 51,597,140
Less: Related party notes receivable (948,498)
Deficit accumulated during the development stage (24,842,144)
-------------------
Total shareholders' equity 25,846,040
-------------------
Total liabilities, redeemable preferred
stock and shareholders' equity $ 29,022,095
===================
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Princeton Video Image, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
July 23,1990
For the three months For the six months (date of inception)
ended December 31, ended December 31, to December 31,
----------------------------------------------------
1997 1996 1997 1996 1997
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
License fees $ 195,124 $ 25,000 $ 252,751 $ 50,000 $ 1,383,277
Advertising revenue 6,850 7,774 82,027 29,827 172,735
-----------------------------------------------------------------------
Total revenue 201,974 32,774 334,778 79,827 1,556,012
Costs and expenses
Selling, general & administrative 1,005,044 817,297 2,229,063 1,386,152 11,513,767
Research and development 430,788 351,302 876,782 700,463 10,440,723
L-VIS System costs 395,683 162,429 812,415 318,792 3,265,728
-----------------------------------------------------------------------
Total costs and expenses 1,831,515 1,331,028 3,918,260 2,405,407 25,220,218
Operating loss (1,629,541) (1,298,254) (3,583,482) (2,325,580) (23,664,206)
Interest and other financial
expense (1,814,178) (1,252) (1,814,178) (12,200) (1,826,378)
Interest and other income 80,697 38,966 97,070 86,440 648,440
-----------------------------------------------------------------------
Net loss (3,363,022) (1,260,540) (5,300,590) (2,251,340) (24,842,144)
Accretion of preferred stock
dividends (11,012) (11,012) (22,024) (22,024) (191,174)
-----------------------------------------------------------------------
Net loss applicable to common
stock $ (3,374,034) $ (1,271,552) $ (5,322,614) $(2,273,364) $ (25,033,318)
========================================================================
Basic and diluted net loss per
share applicable to common stock
(see Note 2) $(0.83) $(0.56) $(1.47) ($1.01)
==========================================================
Weighted average number of
shares of common stock
outstanding 4,075,139 2,252,996 3,632,222 2,249,329
===========================================================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
Princeton Video Image, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<CAPTION>
July 23, 1990
For the six months ended (date of inception)
December 31, to December 31,
-------------------------------
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,300,590) $ (2,251,340) $ (24,842,144)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of unearned income (252,751) (50,000) (383,277)
Depreciation expense 269,383 214,493 1,268,983
Amortization of intangibles 34,488 28,679 146,835
Charges associated with option and warrant
grants and related party notes receivable 440,250 169,167 1,498,387
Equity in net loss of affiliate - - 9,048
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable (11,757) (53,501) (98,750)
Current assets (301,498) 54,800 (339,030)
Other assets (14,227) (574) (143,345)
Accounts payable and accrued expenses (87,313) (35,541) 889,333
Unearned revenue - 141,492 1,591,492
Customer deposits (175,000) - 250,000
Miscellaneous other (6,480) (43,317) 112,874
---------------------------------------------------
Net cash used in operating
activities (5,405,495) (1,825,642) (20,039,594)
---------------------------------------------------
Cash flows from investing activities:
Purchase of held-to-maturity investments (52,000) (501,878) (5,341,558)
Proceeds from held-to-maturity investments - 3,000,000 5,200,000
Purchases of property and equipment (540,185) (165,656) (2,818,599)
Increase in intangible assets (83,367) (42,891) (678,576)
Investments in joint venture - - (9,048)
---------------------------------------------------
Net cash (used in) provided by
investing activities (675,552) 2,289,575 (3,647,781)
---------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Princeton Video Image, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<CAPTION>
July 23,1990
For the six months ended (date of inception)
December 31, to December 31,
-------------------------------
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuances of preferred stock - - 734,405
Proceeds from Bridge Financing promissory notes 1,353,000 - 1,353,000
Repayments of Bridge Financing promissory notes (1,353,000) - (1,353,000)
Proceeds from sale of Bridge Financing warrants, net 1,479,822 - 1,479,822
Cash advanced for related party notes receivable (169,498) - (169,498)
Collections of stock subscriptions receivable 1,264,485 - 1,264,485
Proceeds from issuances of common stock, net 29,061,473 30,000 46,709,089
-----------------------------------------------------
Net cash provided by financing
activities 31,636,282 30,000 50,018,303
-----------------------------------------------------
Net increase in cash and
cash equivalents 25,555,235 493,933 26,330,928
-----------------------------------------------------
Cash and cash equivalents at beginning of period 775,693 1,506,709 -
=====================================================
Cash and cash equivalents at end of period $ 26,330,928 $ 2,000,642 $ 26,330,928
=====================================================
See accompanying notes to financial statements
</TABLE>
<PAGE>
Princeton Video Image, Inc.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
1. Nature of Business and Basis of Presentation
Princeton Video Image, Inc., formerly known as Princeton
Electronic Billboard, Inc. (the "Company"), was incorporated on
July 23, 1990 in the State of New Jersey. The Company has
developed a Live Video Insertion System (the "L-VIS System")
which utilizes proprietary software and hardware to insert images
into a live television sports broadcast so that the images appear
to actually exist in the stadium where the game is being played.
The Company is marketing this system to advertisers for use in
real time insertion of an image into television transmissions of
a live sporting event. The Company intends to market its systems
on a worldwide basis through licensing agreements or the
formation of joint ventures.
The condensed financial statements presented herein 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 and
are unaudited. Reference should be made to the Company's
Prospectus for its initial public offering of common stock
declared effective on December 16, 1997 for additional
disclosures, including a summary of the Company's accounting
policies. In the opinion of management, the financial statements
reflect all adjustments (which consist of normal recurring
accruals) necessary for a fair statement of the results of the
interim periods presented.
2. Per Share Data
In December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") to
calculate net loss per share applicable to common stock.
All prior periods presented have been retroactively
restated to conform to the SFAS 128 requirements. SFAS 128
requires the presentation of basic and diluted per share amounts.
Basic per share amounts are computed by dividing net loss
applicable to common stock by the weighted average number of
common shares outstanding during the period. Diluted per share
amounts
<PAGE>
are computed by dividing net loss applicable to common stock by
the weighted average number of common shares outstanding plus the
dilutive effect of common share equivalents.
Since the Company incurred net losses for all periods presented,
both basic and diluted per share calculations are the same.
Accordingly, option and warrants to purchase 2,687,854 and
2,124,708 shares of common stock that were outstanding at
December 31, 1997 and 1996, respectively, were not included in
diluted per share calculations, as their effect would be
antidilutive.
3. Income Taxes
As of December 31, 1997, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$9,600,000 which expire in the years 2006 through 2012. The
available net operating losses are based on the assumption that
the Company had gone through a change in ownership pursuant to
Internal Revenue Code ("IRC") Section 382 during the fiscal year
ended June 30, 1997. Under IRC Section 382, the amount of the
net operating loss carryforwards that are available to offset
taxable income in any particular year is severely limited.
Although the Company has determined its net operating losses as
if it had undergone a change of ownership pursuant to IRC Section
382, the Company has not yet finalized the analysis to make an
actual determination of whether such a change has occurred.
Therefore, if such a change has not occurred during the fiscal
year ended June 30, 1997, the amount of net operating loss
carryforwards available in total and on an annual basis may be
increased.
4. Bridge Financing
In October 1997, the Company entered into a $3,000,000 Bridge
Financing arrangement whereby the Company issued 30 units, each
unit consisting of i) one promissory note payable with a
principal amount of $100,000 and bearing interest at 10% and ii)
warrants with a five year term to purchase 10,000 shares of
common stock at an exercise price of $.01 per share. The
promissory notes matured and the warrants became fully vested
upon the consummation of the initial public offering of
<PAGE>
the Company's common stock in December 1997. The fair value of
the warrants, which approximated $1,647,000 at the closing date,
was recorded as an increase to additional paid-in capital. Upon
maturity of the promissory notes, the Company remitted the
$3,000,000 principal balance and approximately $59,000 of accrued
interest. The difference between the $3,000,000 of proceeds
received from the Bridge Financing and the $1,353,000 of the
proceeds allocated to the promissory notes was amortized to
interest expense over the term of the promissory notes.
Additionally, the Company incurred approximately $270,000 of
commissions and fees in connection with the Bridge Financing
which were deferred and amortized over the term of the promissory
notes.
5. Stockholders' Equity
On September 3, 1997 the Board of Directors of the Company
declared a 2 for 1 stock split of the Company's common stock.
All references to share and per share information and warrant and
option data have been restated to give retroactive effect to the
stock split.
In July 1997, two employees of the Company signed notes (the
"Employee Notes") for $655,000 as consideration for the exercise
of warrants to purchase 262,000 shares of common stock at an
exercise price of $2.50 per share. Accordingly, a $360,250
charge to general and administrative expense was recorded for the
excess of the fair value of the Company's stock in July 1997 over
the exercise price of the underlying warrants. The Employee
Notes, which bear interest at a rate of 8.5%, mature in July 2002
and contain no recourse provisions by which the Company can
enforce collection.
On December 16, 1997, the Company completed its initial public
offering of 4,000,000 shares of its common stock at a price of
$7.00 per share (the "Offering"). The net proceeds from the
Offering, after deducting underwriting discounts and commissions
and estimated expenses payable by the Company were approximately
$25,050,000. Additionally, in connection with the underwriting
services provided in the Offering, the underwriters received
warrants with a five year term to purchase 400,000 shares of
common stock at an exercise price of $8.40.
On December 31, 1997, the Company issued 600,000 shares of common
stock at $7.00 per share to the underwriters of the Offering
pursuant to the exercise of an over-allotment option granted in
connection with the Offering. The net proceeds from the exercise
of this option, after deducting underwriting discounts and
commissions and estimated expenses payable by the Company were
approximately $3,900,000.
6. Warrants and Options
On October 1, 1997, the Board of Directors of the Company
approved a modification of the terms of all stock options held by
individuals who, as of that date, were current
<PAGE>
employees of the Company, except executive officers. The
modification, which affected approximately 320,380 options,
reduced the exercise price of such options to $8.00 per share.
7. Commitments and Contingencies
Lease Agreement
In October 1997, the Company entered into a five-year operating
lease agreement for its headquarters in Lawrenceville, New
Jersey. Minimum annual lease payments under the lease will be
approximately $249,000 per year.
GDM Agreement
In December 1997, the Company settled a dispute with Gerencia de
Medios, S.A. ("GDM") concerning a $500,000 payment to the Company
from GDM under the provisions of a license and association
agreement which expired in December 1996. Under the terms of the
settlement, the Company recognized $135,000 of the amount
received as license fee revenue and has agreed to remit the
remaining $365,000 to GDM in return for shipment of the L-VIS
System used by GDM back to the Company. In December 1997,
$300,000 of this amount was remitted to GDM. The remaining
$65,000 will be remitted upon receipt of the L-VIS System in
1998.
8. New Pronouncements
The Company will adopt Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
during the fourth quarter of the year ending June 30, 1998.
Comprehensive income represents the change in net assets of a
business enterprise as a result of nonowner transactions.
Management does not expect the adoption of SFAS 130 to have a
material effect on the Company's financial position and results
of operations.
The Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") during the year ending June 30, 1998.
SFAS 131 requires that a business enterprise report certain
information about operating segments, products and services,
geographic areas of operation, and major customers in complete
sets of financial statements and in condensed financial
statements for interim periods. Currently, there are no
disclosures required to be made under SFAS 131.
9. Related Party Transactions
A member of the Board of Directors of the Company is a Managing
Director and Executive Vice President of Allen & Company
Incorporated ("Allen & Co."), which is a shareholder of the
Company. Allen & Co. received underwriting discounts and
commissions in the aggregate amount of approximately $1,503,000
as well as warrants initially exercisable for 380,000 shares of
common stock with respect to
<PAGE>
services rendered on behalf of the Company with respect to the
initial public offering of common stock in December 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Princeton Video Image, Inc. is engaged primarily in the technical
development of the L-VIS System and its introduction and
marketing in various markets. Since its inception in 1990, the
Company has devoted substantially all of its resources to the
development of this L-VIS System, an electronic video insertion
system that was designed to modify broadcasts to television
viewers by inserting electronic video images, primarily
advertisements.
The Company has incurred substantial operating losses since its
inception. As of December 31, 1997, the Company had an
accumulated deficit of approximately $24,800,000 and expects to
incur operating losses at least through calendar year 1998. This
deficit is the result of research and development expenses
incurred in the development and commercialization of the L-VIS
System, expenses related to field testing of the L-VIS System and
its deployment pursuant to customer contracts, operating expenses
relating to manufacturing, sales and marketing activities of the
Company and general administrative costs.
The Company intends to devote substantial resources to enhance
the L-VIS System and develop additional software applications.
The Company plans to increase its product development expenses by
using a portion of the proceeds from its initial public offering
to hire additional qualified hardware and software engineers in
this roll out and development of its L-VIS System. In order to
increase its revenue generating user base, the Company also plans
to increase its sales and marketing staff. The sales and
marketing staff is responsible not only for agreements with
teams, leagues and broadcasters, but also for promoting the L-VIS
System to advertisers in order to create market pull.
Management's plans include the continuation of marketing efforts
aimed at generating revenue and achieving the successful
acceptance of the L-VIS System with advertisers, broadcaster and
sporting event rights holders, and enter into a sufficient number
of satisfactory contracts to generate revenue adequate to meet
operating expenses. The Company expects to generate revenue from
ads sold by rights holders that use the L-VIS System and to share
these revenues with the rights holders. The Company realizes
revenue when the advertisement runs over the air. Due to the
seasonal nature of the sporting events themselves, the Company's
revenue will fluctuate seasonally. However, the Company expects
to moderate this seasonality by the multi-sport capabilities of
the L-VIS System and its use in non-sporting events.
In addition to the revenue arising from advertising, a second
revenue source is the strategic licensing of the L-VIS System to
third parties. These licenses may be territorial in nature or
they may cover individual major broadcast events. The Company
has not generated any significant revenue with the exception of a
<PAGE>
$2,000,000 license fee paid for an L-VIS System license. The
Company recognized $25,000 of this fee as revenue in each of the
quarters ended December 31, 1997 and December 31, 1996.
Results of Operations
Quarter ended December 31, 1997 compared to the quarter ended
December 31, 1996
Revenue
Total revenue increased from $32,774 for the quarter ended
December 31, 1996 to $201,974 for the quarter ended December 31,
1997 as a result of an increase in the number of L-VIS Systems
which have been sub-licensed and the recognition of $135,000 in
license fees as a result of the settlement of the GDM dispute.
Selling, General and Administrative
For the quarter ended December 31, 1997, selling, general and
administrative expenses were $1,005,044, an increase of $187,747
or 23%, from the quarter ended December 31, 1996. This increase
was the result of the move and expansion of the Company's
headquarters and manufacturing facilities to Lawrenceville, New
Jersey, increased personnel costs from the addition of marketing
and sales personnel in the New York office, and the hiring of
outside marketing consultants to explore potential expansion in
certain European and international markets.
Research and Development
Total research and development expenses increased to $430,788 for
the quarter ended December 31, 1997 from $351,302 for the quarter
ended December 31, 1996 as a result of an increase in spending on
an enhanced search system for the basic L-VIS platform and
ongoing research and development projects.
L-VIS System Costs
In the quarter ended December 31, 1997, L-VIS System costs
increased to $395,683 from $162,429 for the quarter ended
December 31, 1996. This increase resulted from increased costs
due to increased usage of the L-VIS System for baseball and
pre-season NFL football, and increased salaries attributable to
personnel shifts from R&D into product costs as more time was
spent providing service to L-VIS Systems in the field.
Interest and Other Financial Expense
The increase in interest and other financial expense to
$1,814,178 from $1,252 for the quarters ended December 31, 1997
and 1996, respectively, is due to the interest costs incurred in
connection with the Bridge Loan financing.
<PAGE>
Interest and Other Income
Interest and other income increased to $80,697 from $38,966 for
the quarters ended December 31, 1997 and 1996, respectively.
This increase is due to the investment of funds from the Bridge
Loan and the IPO.
Six months ended December 31, 1997 compared to the six months ended
December 31, 1996
Revenue
The total revenue increased to $334,778 for the six months ended
December 31, 1997 from $79,827 for the six months ended December
31, 1996 as a result of the increased usage of the L-VIS System
in Major League Baseball, the initial use in pre-season NFL
football games, the recognition of licensing fees under
sub-license agreements in Mexico and South America, and the
recognition of $135,000 in license fees as a result of the
settlement of the GDM dispute.
Selling, General and Administrative
Selling, general and administrative expenses increased 61% to
$2,229,063 for the six months ended December 31, 1997 from
$1,386,152 for the six months ended December 31, 1996. This
increase was the result of several factors including; the hiring
of outside marketing consultants to market the L-VIS System to
various NFL teams and to explore potential expansion in certain
European markets; non-cash compensation charges incurred related
to the issuance of nonrecourse notes to certain officers used for
the purchase of stock; the addition of several marketing and
administrative personnel in order to staff the New York office in
July 1997 and the move and expansion of the Company's
headquarters and manufacturing facilities to Lawrenceville, New
Jersey in October 1997.
Research and Development
Research and development expenses increased to $876,782 from
$700,463 for the six months ended December 31, 1997 and 1996,
respectively, as a result of an increase in outside development
personnel working on the development of automated software test
procedures, spending on an enhanced search system for the basic
L-VIS platform and ongoing research and development projects.
L-VIS System Costs
L-VIS System costs increased substantially to $812,415 for the
six months ended December 31, 1997 from $318,792 for the six
months ended December 31, 1996 for several reasons, including an
increase in costs and supplies due to increased usage of the
L-VIS System in baseball and pre-season NFL football games, and an
increase in time spent on the servicing of L-VIS Systems in the
field.
<PAGE>
Interest and Other Financial Expense
Total interest and other financial expense increased to
$1,814,178 from $12,200 for the six months ended December 31,
1997 and 1996, respectively, as a result of the interest costs
incurred in connection with the Bridge Loan Financing.
Interest and Other Income
Total interest and other income increased to $97,070 for the six
months ended December 31, 1997 from $86,440 for the six months
ended December 31, 1996 as a result of the investment of the
proceeds from the Bridge Loan and the IPO which was effective
December 16, 1997.
Liquidity and Capital Resources
Trade and accounts receivable increased to $99,000 at December
31, 1997 from $87,000 at fiscal year end June 30, 1997 as a
result of the NFL using the L-VIS System for the first time
during the preseason games in the fall of 1997. The Company
expects full payment by the end of the first quarter 1998.
Current assets increased sharply to $339,000 at December 31, 1997
up from $38,000 at June 30, 1997 as a result of the $260,000
prepayment of a three year Directors' and Officers' insurance
policy commencing with the effective date of the initial public
offering.
With the influx of cash from the initial public offering, the
Company paid down its accounts payable at December 31, 1997,
resulting in a decrease in the accounts payable and accrued
expenses balance to $792,259 from $977,646 at December 31, 1997
and June 30, 1997, respectively.
Cash used in investing activities of $675,552 for the six months
ended December 31, 1997 included the purchase of securities held
to maturity as required by a letter of credit issued for the
security deposit on the Company's new Lawrenceville facility,
leasehold improvements and furniture purchases related to the
move, fixup and expansion of the Company's headquarters and
manufacturing facilities in Lawrenceville and the purchase of
components to be used in the building of additional L-VIS
Systems.
Net cash provided by financing activities in the amount of
$31,636,282 for the six months ended December 31, 1997 was the
result of several factors. In its efforts to raise money to meet
current obligations, the Company collected $1,264,485 of stock
subscriptions receivable in July 1997. To meet the Company's
short term financing needs in advance of the initial public
offering, the Board of Directors of the Company approved a
$3,000,000 Bridge financing which closed in October 1997. As the
Bridge Financing matured upon consummation of the initial public
offering in
<PAGE>
December 1997, the entire proceeds of the Bridge Financing plus
accrued interest was repaid in December 1997.
In December 1997 the Company completed an initial public offering
yielding net proceeds of approximately $28,900,000. The Company
believes that the net proceeds of this offering will be
sufficient to meet its capital needs for approximately 18 months.
Such capital requirements will depend on a number of factors
including the results of its research and development programs,
technological advances, the Company's ability to attract
customers to use the L-VIS System, and acceptance of the L-VIS
System technology by rightsholders.
<PAGE>
Part II
Item 2 Changes in Securities and Use of Proceeds
(c) On October 20, 1997, the Company issued 30 units, each
consisting of a $100,000, 10% senior secured promissory note (the
"October 1997 Promissory Notes") and a warrant to purchase up to
10,000 shares of Common Stock, to several accredited investors
for an aggregate purchase price of $3,000,000. The sale and
issuance of such securities was deemed to be exempt from
registration under the Securities Act by virtue of Rule 506 as a
transaction not involving a public offering. The purchasers
represented their intention to acquire the securities for
investment only and not with a view to the distribution thereof.
Appropriate legends were affixed to the securities issued in the
transaction. All recipients either received adequate information
about the Company or had access, through employment or other
relationships, to such information.
The October 1997 Promissory Notes matured upon the consummation
of the Company's initial public offering. In December 1997,
following the consummation of the initial public offering, the
Company remitted the $3,000,000 principal balance and
approximately $59,000 of accrued interest to the participating
investors out of the proceeds of the initial public offering (see
Item 2(d) below). In addition, the Company paid a fee of five
percent of the aggregate purchase price of the securities sold in
the offering described in the preceding paragraph (i.e. $150,000)
to Barington Capital Group, L.P. out of the proceeds of the initial
public offering.
(d) The Company commenced an initial public offering (the
"Offering") of its common stock, no par value (the "Common
Stock") on December 16, 1997 pursuant to a registration statement
on Form SB-2 (Registration No. 333-37725) (the "Registration
Statement"), which was declared effective by the Securities and
Exchange Commission on December 16, 1997. The managing
underwriters for the Offering were Allen & Company Incorporated
and Barington Capital Group, L.P. Pursuant to the Registration
Statement, 4,600,000 shares of Common Stock were registered for
the benefit of the Company, 700,000 shares of Common Stock were
registered for the benefit of various selling shareholders and
400,000 warrants were registered for the benefit of the managing
underwriters. All of the shares of Common Stock registered for
the benefit of the Company were sold. The shares and warrants
registered on behalf of the selling shareholders are currently
subject to a lock-up period following the Offering and have not
been sold. In addition, 2,000,000 shares of Common Stock were
registered solely in connection with the market making activities
of Allen & Company Incorporated.
Pursuant to the terms of the Underwriting Agreement relating to
the Registration Statement, the Company registered and sold
4,600,000 shares of Common Stock for an aggregate purchase price
of $32.2 million. The Company incurred total expenses in the
offering of approximately $3.3 million, of which approximately
$2.3 million
<PAGE>
represented underwriting discounts and commissions and
approximately $1.0 million represented other expenses. All such
expenses were direct or indirect payments to others. The net
offering proceeds to the Company after deducting the total
expenses were approximately $28.9 million.
Enrique F. Senior, a director of the Company, is a Managing
Director and Executive Vice President of Allen & Company
Incorporated. Allen & Company Incorporated received underwriting
discounts and commissions in the aggregate amount of
approximately $1,503,000 as well as warrants initially
exercisable for 380,000 shares of Common Stock with respect to
services rendered on behalf of the Company with respect to the
Offering.
From the effective date of the Registration Statement to December
31, 1997, the approximate amount of net offering proceeds used
was $3.21 million for repayment of indebtedness and expenses
related thereto (see Item 2 (c) above) and approximately $225,000
for working capital and general corporate purposes.
Item 4 Submission of Matters to a Vote of Security
Holders
The Company's Annual Meeting of Shareholders (the "Annual
Meeting") was held on October 31, 1997. At the Annual Meeting,
the shareholders of the Company (i) elected each of the persons
listed below to serve as a director of the Company until the
Annual Meeting of Shareholders to be held in 1998 and until their
successors have been duly elected and qualified; (ii) ratified
the appointment of Coopers & Lybrand, LLP as independent auditors
of the Company for the fiscal year ending June 30, 1998;
As of October 3, 1997, the record date for the Annual Meeting,
the Company had a total of 3,308,472 shares of Common Stock
issued and outstanding and entitled to vote. Present at the
Annual Meeting, either in person or by proxy, were holders of
2,368,132 Common Shares. The following sets forth information
regarding the results of the voting at the Annual Meeting:
Election of Directors
Voting Shares Voting Shares Voting Shares
DIRECTOR In Favor Against Withheld
Jerome J Pomerance 2,368,132 0 0
Eduardo Sitt 2,368,132 0 0
Larry Lucchino 2,368,132 0 0
Enrique F. Senior 2,368,132 0 0
John B. Torkelsen 2,368,132 0 0
Douglas J. Greenlaw 2,368,132 0 0
Brown F Williams 2,368,132 0 0
<PAGE>
Ratification of Selection of Independent Accountants
Votes in Favor: 2,368,132
Votes against: 0
Abstentions: 0
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 - Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-37725)
which became effective on December 16, 1997).
3.2 - Restated Bylaws, as amended (Incorporated by reference
to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 11,
1998).
27.1 - Financial Data Schedule
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during
the fiscal quarter ended December 31, 1997.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereto duly authorized,
PRINCETON VIDEO IMAGE, INC.
February 13, 1998 /s/ Brown F Williams
----------------- -----------------------------------
Date By: Brown F Williams, Chairman
February 13, 1998 /s/ Elizabeth A. Dumont
----------------- -----------------------------------
Date By: Elizabeth A. Dumont, Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS
OF CASH FLOW FILED AS PART OF PRINCETON VIDEO IMAGE, INC.'S QUARTERLY
REPORT ON FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON
FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 26,330,928
<SECURITIES> 134,801
<RECEIVABLES> 98,750
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,903,509
<PP&E> 2,707,557
<DEPRECIATION> 269,383
<TOTAL-ASSETS> 29,022,095
<CURRENT-LIABILITIES> 1,335,256
<BONDS> 0
925,580
0
<COMMON> 39,542
<OTHER-SE> 25,806,498
<TOTAL-LIABILITY-AND-EQUITY> 29,022,095
<SALES> 0
<TOTAL-REVENUES> 334,778
<CGS> 0
<TOTAL-COSTS> 3,918,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,826,378
<INCOME-PRETAX> (5,300,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,300,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,300,590)
<EPS-PRIMARY> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
