<PAGE> 1
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 MARCH 31, 1998
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 Identification No.)
incorporation or organization)
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 required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
The aggregate number of shares of the Issuer's common stock outstanding on April
30, 1998 was 8,183,472.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
<PAGE> 2
Part I Financial Information
Item 1. Financial Statements
Princeton Video Image, Inc.
(A Development State Company)
Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
March 31,
1998
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 23,721,787
Restricted marketable securities held to maturity 136,358
Trade accounts receivable 55,540
Other current assets 324,343
------------
Total current assets 24,238,028
Property and equipment, net 2,194,870
Intangible assets, net 466,648
Other assets 143,345
------------
Total assets $ 27,042,891
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 872,217
Unearned revenue 230,497
Customer deposits 250,000
------------
Total current liabilities 1,352,714
Unearned revenue 857,594
------------
Total liabilities 2,210,308
------------
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 March 31, 1998,
redemption value equal to carrying value
(par plus all accrued but unpaid dividends) 398,887
Cumulative, Series B, conditionally redeemable, $5.00 par value,
authorized 93,300 shares; issued and outstanding 86,041 shares at March 31,
1998, redemption value equal to carrying value
(par plus all accrued but unpaid dividends) 537,705
------------
Total redeemable preferred stock 936,592
Shareholders' Equity:
Common stock, no par value; $.005 stated value; authorized 40,000,000
shares; 8,183,472 shares issued and outstanding at March 31, 1998 40,917
Additional paid-in capital 51,578,819
Less: Related party note receivable (948,498)
Deficit accumulated during the development stage (26,775,247)
------------
Total shareholders' equity 23,895,991
------------
Total liabilities, redeemable preferred stock and
shareholders' equity $ 27,042,891
============
</TABLE>
See accompanying notes to financial statements
<PAGE> 3
Princeton Video Image, Inc.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED CUMULATIVE FROM
MARCH 31, MARCH 31, INCEPTION TO
----------------------------- ----------------------------- MARCH 31,
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
License fee $ 57,625 $ 36,791 $ 310,376 $ 86,791 1,440,902
Advertising revenue 100,000 7,145 182,027 36,972 272,735
------------ ------------ ------------ ------------ ------------
Total revenue 157,625 43,936 492,403 123,763 1,713,637
Costs and expenses:
Selling, general and administrative 1,391,984 825,855 3,621,047 2,212,007 12,905,751
Research and development 392,074 642,422 1,268,856 1,342,885 10,832,797
L-VIS System costs 687,349 361,361 1,499,764 680,153 3,953,077
------------ ------------ ------------ ------------ ------------
Total costs and expenses 2,471,407 1,829,638 6,389,667 4,235,045 27,691,625
Operating loss (2,313,782) (1,785,702) (5,897,264) (4,111,282) (25,977,988)
Interest and other financial (expense) -- (16,406) (1,814,178) (28,606) (1,826,378)
Interest and other income 391,290 23,543 488,360 109,983 1,039,730
Loss on disposal of fixed assets (10,611) -- (10,611) -- (10,611)
------------ ------------ ------------ ------------ ------------
Net loss (1,933,103) (1,778,565) (7,233,693) (4,029,905) (26,775,247)
Accretion of preferred stock
dividends (11,013) (11,013) (33,037) (33,037) (202,187)
------------ ------------ ------------ ------------ ------------
Net loss applicable to common stock $ (1,944,116) $ (1,789,578) $ (7,266,730) $ (4,062,942) $(26,977,434)
============ ============ ============ ============ ============
Basic and diluted net loss per share
applicable to common stock $ (0.24) $ (0.79) $ (1.42) $ (1.81)
============ ============ ============ ============
Weighted average number of
shares of common stock
outstanding 8,122,472 2,252,996 5,128,972 2,250,552
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 4
Princeton Video Image, Inc.
(A Development State Company)
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE FROM
FOR THE NINE MONTHS ENDED INCEPTION TO
MARCH 31, MARCH 31,
-----------------------------
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,233,693) $ (4,029,905) $(26,775,247)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of unearned income (310,376) (86,791) (440,902)
Depreciation expense 489,207 342,356 1,488,807
Amortization of intangibles 54,886 43,010 167,233
Charges associated with option and warrant
grants and related party note receivable 473,562 227,262 1,531,699
Equity in net loss of affiliate -- -- 9,048
Increase (decrease) in cash resulting
from changes in:
Trade accounts receivable 31,453 (13,868) (55,540)
Other current assets (286,811) 73,580 (324,343)
Other assets (14,227) (574) (143,345)
Accounts payable and accrued expenses (7,355) 234,480 969,291
Unearned revenue -- 141,492 1,591,492
Customer deposits (237,500) -- 187,500
Miscellaneous other 2,575 67,506 121,929
------------ ------------ ------------
Net cash used in operating activities (7,038,279) (3,001,452) (21,672,378)
Cash flows from investing activities:
Purchase of held-to-maturity investments (52,000) (501,878) (5,341,558)
Proceeds from held-to-maturity investments -- 3,500,000 5,200,000
Purchases of property and equipment (1,427,881) (404,037) (3,706,295)
Increase in intangible assets (132,782) (42,891) (727,991)
Investments in joint venture -- -- (9,048)
------------ ------------ ------------
Net cash provided by (used in)
investing activities (1,612,663) 2,551,194 (4,584,892)
------------ ------------ ------------
</TABLE>
<PAGE> 5
Princeton Video Image, Inc.
(A Development State Company)
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE FROM
FOR THE NINE MONTHS ENDED INCEPTION TO
MARCH 31, MARCH 31,
-----------------------------
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from Bridge Financing loans 1,353,000 -- 1,353,000
Repayments of Bridge Financing loans (1,353,000) -- (1,353,000)
Proceeds from sale of Bridge Financing warrants, net 1,479,822 -- 1,479,822
Proceeds from sales of preferred stock -- -- 734,405
Proceeds from sales of common stock, net 29,022,227 30,000 46,669,843
Cash advanced for related party notes receivable (169,498) -- (169,498)
Collections of stock subscriptions receivable 1,264,485 -- 1,264,485
------------ ------------ ------------
Net cash provided by
financing activities 31,597,036 30,000 49,979,057
Net increase (decrease) in cash and
cash equivalents 22,946,094 (420,258) 23,721,787
Cash and cash equivalents at beginning of
period 775,693 1,506,709 --
============ ============ ============
Cash and cash equivalents at end of period $ 23,721,787 $ 1,086,451 $ 23,721,787
============ ============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
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., (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 is marketing 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 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, options and
warrants to purchase 1,384,974 and 1,202,130 shares of common stock that
were outstanding at
<PAGE> 7
March 31, 1998 and 1997, respectively, were not included in diluted per
share calculations, as their effect would be antidilutive.
3. 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 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.
4. 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 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.
<PAGE> 8
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.
5. 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 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.
In January 1998, the Board of Directors of the Company approved the
creation of an employee bonus pool of 100,000 incentive stock options,
pursuant to the Company's Stock Option Plan to be awarded during calendar
year 1998, on a discretionary basis, in recognition of extraordinary
performance.
In January 1998, the Board of Directors of the Company approved the grant
of options with a ten year term to purchase up to 59,600 shares of common
stock to a third party consultant. Of those options granted, 9,600 were
fully vested upon grant in consideration for consulting services previously
rendered. Accordingly, the Company recorded a charge of $33,312 which
represents the fair value of the vested options, in the third quarter. The
remaining 50,000 options will vest upon the earlier of i) the consultant
providing ten years of continued consulting services or ii) the attainment
of certain performance criteria. Charges for such unvested options will be
recorded in proportion to progress made on such performance criteria. There
was no charge recorded in the third quarter for the unvested portion of
this option grant.
6. 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
<PAGE> 9
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 was remitted in January 1998 upon receipt of the
Company's L-VIS System from GDM.
7. New Pronouncements
The Company will adopt Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") in the first quarter of the
year ending June 30, 1999. Comprehensive income represents the change in
net assets of a business enterprise as a result of nonowner transactions.
The adoption of SFAS 130 is not expected 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.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 changes
current financial disclosure requirements for pension and other
postretirement benefit plans. SFAS 132 does not however, change the
measurement or recognition provisions of existing accounting standards.
Management does not believe that the future adoption of SFAS 132 will have
a material effect on the Company's financial statements.
8. 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 services rendered on behalf
of the Company with respect to the initial public offering of common stock
in December 1997.
9. Employee Benefits
Effective January 1, 1998, the Company implemented a 401(k) retirement plan
(the "Plan") whereby eligible employees may contribute up to 20% of their
annual pre-tax
<PAGE> 10
compensation, not to exceed maximum limits set by Federal law. Participants
are fully vested at all times in their contributions to the Plan.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Princeton Video Image, Inc. is engaged primarily in the technical
development of a live video insertion system (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 the 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 March 31, 1998, the Company had an accumulated deficit of
approximately $26,800,000 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 has financed its operations through proceeds from an initial
public offering of common stock in December 1997, private placements of
equity securities and debt securities, revenue with respect to a license
fee, and investment income earned on cash balances and short-term
investments. See Part II, Item 2 ("Changes in Securities and Use of
Proceeds").
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 the quarter ended March 31, 1998, the Company hired two
additional software engineers to assist in this development. 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 awareness.
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, broadcasters and sporting event rights holders, by
entering into a sufficient number of 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. 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.
<PAGE> 12
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 $2,000,000 license fee paid for an L-VIS
System license. The Company recognized $1,000,000 of this fee as revenue
during the fiscal year ended June 30, 1996. The remaining $1,000,000 is
being recognized into income over a ten-year period which commenced on July
1, 1996, including $25,000 in each of the quarters ended March 31, 1998 and
March 31, 1997.
Results of Operations
QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997
Revenue
Total revenue increased from $43,936 for the quarter ended March 31, 1997
to $157,625 for the quarter ended March 31, 1998 as a result of an increase
in the number of L-VIS Systems which have been sub-licensed and the
recognition of revenue generated from the use of the L-VIS System in the
international broadcast of Super Bowl XXXII in January 1998.
Selling, General and Administrative
For the quarter ended March 31, 1998, selling, general and administrative
("SG&A") expenses were $1,391,184, an increase from $825,855 for the
quarter ended March 31, 1997. This increase was the result of several
factors including the hiring of outside marketing consultants to explore
potential expansion in certain European and international markets and the
non-cash charges incurred related to the issuance of options to these
consultants; increased expenses related to the hiring of marketing,
administrative and financial personnel to support the New York and
Lawrenceville offices; the increase in expenses related to the expansion of
the Company's headquarters and manufacturing facilities in Lawrenceville,
New Jersey and the fee paid to NFL International for the exclusive right to
include electronic virtual signage in the international broadcast of Super
Bowl XXXII in January 1998.
Research and Development
Total research and development expenses decreased to $392,074 for the
quarter ended March 31, 1998 from $642,422 for the quarter ended March 31,
1997 as a result of a shift in spending from the development of an enhanced
search system for the basic L-VIS System platform and other ongoing
research and development projects to product costs. This shift was due to
the late December 1997 attainment of technological feasibility and the
initial use of the flex based system which had been under development
during prior fiscal years.
<PAGE> 13
L-VIS System Costs
In the quarter ended March 31, 1998, L-VIS System costs increased to
$687,349 from $361,361 for the quarter ended March 31, 1997. This increase
resulted from increased costs due to the initial usage of the L-VIS System
in the international broadcast of Super Bowl XXXII. In addition, salaries
have increased due to personnel shifts from R&D into product costs as more
time was spent providing customer support to L-VIS Systems in the field, in
the construction of additional L-VIS units, and in the first production run
of the flex boards used in the Company's recently introduced second
generation L-VIS Systems.
Interest and Other Income
Interest and other income increased to $391,291 from $23,543 for the
quarters ended March 31, 1998 and 1997, respectively. This increase is due
to the increase in funds available to invest from the proceeds of the
Company's initial public offering of stock in December 1997.
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE NINE MONTHS ENDED MARCH
31, 1997
Revenue
The total revenue increased to $492,403 for the nine months ended March 31,
1998 from $123,763 for the nine months ended March 31, 1997 as a result of
the increased usage of the L-VIS System in Major League Baseball, the
initial use in both pre-season National Football League ("NFL") football
games and the international broadcast of Super Bowl XXXII, 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. (See Note 6 of Notes to the Financial
Statements).
Selling, General and Administrative
Selling, general and administrative expenses increased to $3,621,047 for
the nine months ended March 31, 1998 from $2,212,007 for the nine months
ended March 31, 1997. 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, the addition of financial
personnel in the Company's headquarters, the move and expansion of the
Company's headquarters and manufacturing facilities to Lawrenceville, New
Jersey in October 1997 and the fee paid to the NFL for the exclusive right
to include electronic virtual signage in the international broadcast of
Super Bowl XXXII.
<PAGE> 14
Research and Development
Research and development expenses decreased to $1,268,856 from $1,342,885
for the nine months ended March 31, 1998 and 1997, respectively, as a
result of a shift in spending from research and development to product
costs as the enhanced search system used in the basic L-VIS System platform
was tested and integrated into the system for use in the first flex based
L-VIS System.
L-VIS System Costs
L-VIS System costs increased substantially to $1,499,764 for the nine
months ended March 31, 1998 from $680,153 for the nine months ended March
31, 1997 for several reasons, including an increase in costs and supplies
due to increased usage of the L-VIS System in baseball, pre-season NFL
football games and the international broadcast of Super Bowl XXXII, an
increase in time spent providing product support to L-VIS Systems in the
field and an increase in costs associated with the initial production run
and use of the flex board system introduced into the second generation
L-VIS System.
Interest and Other Financial Expense
Total interest and other financial expense increased to $1,814,178 from
$28,606 for the nine months ended March 31, 1998 and 1997, respectively, as
a result of the interest costs incurred in connection with the October 1997
bridge loan financing.
Interest and Other Income
Total interest and other income increased to $488,360 for the nine months
ended March 31, 1998 from $109,983 for the nine months ended March 31, 1997
as a result of the investment of the proceeds from the October 1997 bridge
loan and the Company's initial public offering in December 1997. (See Note
3 of Notes to the Financial Statements).
Liquidity and Capital Resources
With the influx of cash from the initial public offering, the Company paid
down its accounts payable at March 31, 1998, resulting in a decrease in the
accounts payable and accrued expenses balance to $872,217 from $977,646 at
March 31, 1998 and June 30, 1997, respectively.
Cash used in investing activities of $1,612,663 for the nine months ended
March 31, 1998 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, fix up and expansion of the Company's
headquarters and manufacturing facilities in Lawrenceville, the purchase of
components to be used in the building of additional L-
<PAGE> 15
VIS Systems and the upgrade of existing systems to the recently introduced
flex-based second generation L-VIS System.
Net cash provided by financing activities in the amount of $31,597,036 for
the nine months ended March 31, 1998 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
December 1997, the entire proceeds of the bridge financing plus accrued
interest were 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> 16
Part II
Item 2 Changes in Securities and Use of Proceeds
(d) The Company commenced an initial public offering of its common stock,
no par value 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. From the effective date of the Registration Statement to
March 31, 1998, the approximate amount of net offering proceeds used was
$3,210,000 for repayment of indebtedness and expenses related thereto (see
Note 3 of Notes to Financial Statements), $1,143,000 for the manufacture
of L-VIS Systems, $312,000 for research and development, $622,000 for
sales and marketing, and approximately $493,000 for working capital and
general corporate purposes.
Item 5 Other Information
In April 1998, Douglas J. Greenlaw, President and Chief Executive Officer
of the Company informed the Board of Directors that he plans to step down
as President and Chief Executive Officer of the Company by the end of 1998.
The Company has initiated a search for a successor to Mr. Greenlaw. Brown
Williams, Chairman and Co-Founder, will continue to co-manage the Company
with Mr. Greenlaw until a successor is found. Mr. Greenlaw intends to
remain as a member of the Board of Directors and a consultant to the
Company.
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 Exhibit 3.1
to the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 11, 1998).
10.1 Employment Agreement, dated as of February 5, 1998, between the
Company and Lawrence L. Epstein (Incorporated by reference to Exhibit
10.1 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
<PAGE> 17
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated February 11, 1998
which reported in Item 5 the amendment of the Corporation's Bylaws to
create the office of Chief Financial Officer and the naming of Lawrence L.
Epstein as Chief Financial Officer and Vice President of Finance of the
Corporation. Also disclosed was the resignation of Brown F Williams as
Treasurer and the election of Lawrence L. Epstein by the Board of Directors
to the office of Treasurer of the Corporation.
<PAGE> 18
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.
May 15, 1998 By: /s/ Brown F Williams
------------------------- ------------------------
Date Brown F Williams,
Chairman
May 15, 1998
-------------------------- By: /s/ Lawrence L. Epstein
Date ---------------------------
Lawrence L. Epstein,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 23,721,787
<SECURITIES> 136,358
<RECEIVABLES> 55,540
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,238,028
<PP&E> 3,571,645
<DEPRECIATION> 489,207
<TOTAL-ASSETS> 27,042,891
<CURRENT-LIABILITIES> 1,352,714
<BONDS> 0
936,592
0
<COMMON> 40,917
<OTHER-SE> 23,855,074
<TOTAL-LIABILITY-AND-EQUITY> 27,042,891
<SALES> 0
<TOTAL-REVENUES> 492,403
<CGS> 0
<TOTAL-COSTS> 6,389,667
<OTHER-EXPENSES> 10,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,814,178
<INCOME-PRETAX> (7,233,693)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,233,693)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,233,693)
<EPS-PRIMARY> (1.42)
<EPS-DILUTED> (1.42)
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