<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission file number 0-28728
NETLIVE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3848652
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
330 16th Street
Brooklyn, New York 11215
(Address of principal executive offices)
(212) 343-7082
(Issuer's telephone number, including area code)
Indicate by check mark whether the Issuer (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 period that the Issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at November 14, 1998
Common Stock, $0.0001 par value 2,950,000
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NETLIVE COMMUNICATIONS, INC.
(a development stage company)
<TABLE>
<CAPTION>
INDEX
Page Number
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of September 30, 1998 (unaudited)
and as of March 31, 1998 (audited) 3
Statement of Operations for the three and six month periods ended September
30, 1998 and 1997 (unaudited), and the period from
August 23, 1995 (inception) to Septembr 30, 1998 (unaudited) 4
Statement of Cash Flows for the six month periods ended September 30, 1998
and 1997 (unaudited) and the period from
August 23, 1995 (inception) to September 30, 1998 (unaudited) 5
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan 11
of Operation
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 19
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
NETLIVE COMMUNICATIONS, INC.
(a development stage company)
Balance Sheet
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 65,669 $ 119,375
Marketable securities -- 393,485
Prepaid expenses and other current assets 33,593 51,416
----------- -----------
TOTAL CURRENT ASSETS 99,262 564,276
Property and Equipment Held for Sale 4,500 10,000
Deferred income tax asset, net of valuation
allowance -- -
Other Assets 2,298 14,798
----------- -----------
TOTAL ASSETS $ 106,060 $ 589,074
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses 24,803 129,769
----------- -----------
TOTAL CURRENT LIABILITIES $ 24,803 $ 129,769
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock--$.0001 par value; authorized
1,000,000 shares, none issued -- --
Common Stock--$.0001 par value: authorized 19,000,000
shares, issued and outstanding 2,950,000 shares 295 295
Additional paid-in capital 5,256,578 5,245,628
Deficit accumulated during development stage (5,175,616) (4,786,618)
----------- -----------
STOCKHOLDERS' EQUITY 81,257 459,305
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 106,060 $ 589,074
=========== ===========
</TABLE>
The accompanying notes should be read in conjunction with the financial
statements.
3
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NETLIVE COMMUNICATIONS, INC.
(a development stage company)
Statement of Operations
<TABLE>
<CAPTION>
Period from
August 23,
Three months Three months Six months Six months 1995 (date of
Ended ended ended ended inception)
September September September September to September
30, 1998 30, 1997 30, 1998 30, 1997 30, 1998
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net revenue - - - $10,256 $17,945
------------ ------------ ----------- ----------- -------------
Selling, general & administrative expenses:
Salaries $59,149 $108,872 $121,596 $233,081 $1,157,116
Research and development - - - - 568,855
Professional fees 68,966 84,931 175,626 272,235 1,102,653
Payroll taxes and other employee benefits 5,857 - 13,464 - 147,674
Rent 5,000 4,978 14,717 14,063 102,143
Depreciation & amortization - 13,331 - 24,722 87,931
Interest expense and financing costs - - - - 197,290
Interest and dividend income (1,351) (20,170) (5,390) (51,805) (202,836)
Impairment loss on property and equipment - - - - 94,725
Impairment loss on capitalized software
development costs - - - - 715,344
Other 21,468 129,328 68,985 284,482 1,222,666
------------ ------------ ----------- ----------- -------------
Total expenses $159,089 $321,270 $388,998 $776,778 $5,193,561
------------ ------------ ----------- ----------- -------------
Net loss ($159,089) ($321,270) ($388,998) ($766,522) ($5,175,616)
============ ============ =========== =========== =============
Basic loss per common share ($0.05) ($0.11) ($0.13) ($0.26)
============ ============ =========== ===========
Weighted average number of common shares
outstanding 2,950,000 2,950,000 2,950,000 2,950,000
============ ============ =========== ===========
</TABLE>
The accompanying notes should be read in conjunction with the financial
statements.
4
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NETLIVE COMMUNICATIONS, INC.
(a development stage company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Period from
Six Six August 23, 1995
months ended months ended (inception) to
September 30, 1998 September 30, 1997 September 30, 1998
------------------------ --------------------- --------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss ($388,998) ($766,522) ($5,175,616)
Adjustments to reconcile net loss to net cash used in
operating activities:
Expenses paid by stockholders, contributed to Company - 12,006
Amortization of deferred compensation expense - 111,957 277,430
Amortization of debt issue costs and discount on
notes payable - - 190,000
Depreciation and amortization - 24,414 87,931
Impairment loss on property and equipment - - 94,725
Impairment loss on capitalized software development costs - - 715,344
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other current assets 17,823 (50,387) (33,593)
(Increase) decrease in other assets 12,500 14,366 3,139
Increase in capitalized software development costs - (322,562) (715,344)
Increase (decrease) in accounts payable and accrued
expenses (104,966) (254,996) 24,803
------------ ------------ --------------
Net cash used in operating activities (463,641) (1,243,730) (4,519,175)
------------ ------------ --------------
Cash flows from investing activities:
Purchase of property and equipment - (45,333) (156,031)
Proceeds from sales of property and equipment 5,500 - 5,500
Acquisition of intangibles - - (6,140)
Purchase of available-for-sale securities - - (4,984,826)
Proceeds from sales of available-for-sale securities 393,485 1,990,091 4,984,826
------------ ------------ --------------
Net cash provided by (used in) investing activities 398,985 1,944,758 (156,671)
------------ ------------ --------------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants 10,950 - 4,827,647
Principal payments on obligations under capital leases - - (17,632)
Debt issue costs - - (25,000)
Deferred offering costs - - (43,500)
------------ ------------ --------------
Net cash provided from financing activities 10,950 - 4,741,515
------------ ------------ --------------
Net increase (decrease) in cash and cash equivalents (53,706) 701,028 -
Cash and cash equivalents at beginning of period 119,375 32,958 -
------------ ------------ --------------
Cash and cash equivalents at end of period $65,669 $733,986 $65,669
============ ============ ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest - - $7,290
============ ============ ==============
Supplemental schedule of noncash financing and investing activities:
Contributed property and equipment - - $18,290
============ ============ ==============
Capital lease obligations incurred - - $17,632
============ ============ ==============
(continued on next page)
</TABLE>
5
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NETLIVE COMMUNICATIONS, INC.
(a development stage company)
Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
Period from
Six Six August 23, 199
months ended months ended (inception) to
September 30, 1998 September 30, 1997 September 30, 1998
------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Common stock issued for services related to
initial public offering - - $14,875
========== ========== =========
Common stock and stock options issued under
employment agreement and for services - $60,000 $1,088,750
========== ========== ==========
Termination of common stock granted under the
performance share program and employment agreement - ($192,500) $811,320
========== ========= ==========
The accompanying notes should be read in conjunction with the financial
statements.
</TABLE>
6
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NETLIVE COMMUNICATIONS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and reflect all
adjustments (consisting of normal recurring adjustments) which, in the opinion
of management, are necessary for a fair presentation of the results for the
periods shown. The results of operations for such periods are not necessarily
indicative of the results expected for the full fiscal year or for any future
period. The accompanying financial statements should be read in conjunction
with the audited financial statements of NetLive Communications, Inc.
("NetLive" or the "Company") as of March 31, 1998 and for the year then ended
and the notes thereto included in the Company's Form 10-KSB and amendment
thereto. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. The Company believes, however, that
the disclosures in this report are adequate to make the information presented
not misleading in any material respect. There have been no significant changes
of accounting policy since March 31, 1998.
NOTE 2
PRIVATE PLACEMENT AND PUBLIC OFFERING
During May, 1996, the Company completed a private placement offering of
securities in which it issued 200,000 shares of the Company's common stock,
$0.001 par value ("Common Stock") at an offering price of $2.50 per share with
proceeds to the Company of approximately $376,000, which is net of
approximately $124,000 of offering expenses. The Company used a portion of the
net proceeds to repay $250,000 of aggregate principal amount of notes payable
and approximately $4,500 of interest. The Company recorded a charge to earnings
of approximately $165,000 during the quarter ended June 30, 1996 in connection
with the repayment of the notes payable.
In August 1996, the Company completed an initial public offering ("IPO") of
950,000 shares of Common Stock at $5.50 per share and 730,000 Company common
stock purchase warrants ("Warrants") for $0.10 per Warrant. The net proceeds to
the Company, after
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deducting underwriting commissions and expenses of the offering of
approximately $1.1 million, were approximately $4.2 million. Additionally, the
Company received net proceeds of approximately $9,500 from the issuance of
Warrants and the underwriter's warrant pursuant to an over-allotment option.
NOTE 3
CAPITALIZED SOFTWARE COSTS
Certain software development costs were capitalized in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, and are
stated at the lower of unamortized cost or net realizable value. Capitalization
of software development costs begins upon the establishment of technological
feasibility and ends when the product is available for general release to
customers. The Company determined that it achieved technological feasibility
during April 1997. Amortization of capitalized software development costs shall
start when the product is available for general release to customers and will
be provided at the greater of the amount computed using (a) the ratio of
current gross revenue for a product to the total of current and anticipated
future gross revenue or (b) the straight-line method over the remaining
estimated economic life of the product. All other research and development
expenses, consisting primarily of salaries and consulting fees to support
technology and services content development, are expensed as incurred.
In connection with the Company ceasing development of its Internet call center
software during March 1998, all software development costs capitalized through
March 1998 have been expensed.
NOTE 4
BASIC LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, Earnings per Share. SFAS No. 128 requires dual presentation of basic
earnings per share ("EPS") and diluted EPS on the face of all statements of
earnings issued after December 15, 1997 for all entities with complex capital
structures. Basic EPS is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur from common shares
issuable through stock-based compensation including stock options, restricted
stock awards, warrants and other convertible securities.
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For purposes of this computation shares of Common Stock issued for nominal
consideration prior to the initial filing of the Registration Statement
relating to the IPO and shares issuable upon the exercise of all common stock
purchase options outstanding issued for nominal consideration, with exercise
prices below the IPO price, have been included in weighted average number of
shares outstanding, since inception, utilizing the treasury stock method.
Common Stock equivalents issued after the IPO are not included in the weighted
average number of shares since the effect would be anti-dilutive. The adoption
of SFAS No. 128 had no effect on the restatement of net loss per common share
for the three month and six month periods ended September 30, 1997. Diluted EPS
is not presented since the effect would be anti-dilutive.
NOTE 5
INCOME TAXES
No provision for income taxes has been made for all periods presented since the
Company had net operating losses. These net operating losses have resulted in a
deferred tax asset at September 30, 1998. Due to the uncertainty regarding the
ultimate amount of income tax benefits to be derived from the Company's net
operating losses, the Company has recorded a valuation allowance for the entire
amount of the deferred tax asset at September 30, 1998.
NOTE 6
EMPLOYEE STOCK OPTIONS AND PERFORMANCE SHARE PROGRAM
During February 1996, the board of directors of the Company adopted the 1996
Stock Option Plan (the "1996 Plan") which authorizes the granting to employees,
officers and directors of the Company options to purchase up to an aggregate of
800,000 shares of Common Stock. In May 1996, in connection with an employment
agreement, the Company issued options to purchase 100,000 shares of Common
Stock to an employee. In connection with the issuance of the options, the
Company recorded deferred compensation of $300,000 to reflect the difference
between the fair market price of the stock and the exercise price of the
options at the date of issuance. The deferred compensation was being amortized
over three years, the term of the employment agreement. During the three and
six month periods ended September 30, 1997, the Company recorded charges to
earnings of $25,000 and $50,000 respectively, for amortization of deferred
compensation. In March 1998, in connection with the employee's termination and
severance agreement, these options were canceled. Accordingly, the remaining
unamortized deferred compensation aggregating $120,834 was reversed to
additional paid-in capital.
9
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During February 1997, the board of directors of the Company adopted a
restricted stock program which authorized the establishment of a trust and
contributed to the trust 300,000 shares of Common Stock that shall be held
therein, until distributed to employees, as defined. Shares to be awarded in
the name of the employee will have all rights of a stockholder, subject to
certain restrictions or forfeitures. During March 1997, 106,000 shares of
Common Stock were granted to certain employees. The market value on the date of
these grants was $728,750, which had been recorded as deferred compensation and
was shown as a separate component of stockholders' equity. Restrictions on
these awards expire annually over a five-year period. The deferred compensation
was being charged to selling, general and administrative expense over the
five-year vesting period. During September 1997, an award for 10,000 shares of
Common Stock was made to an employee. The market value on the date of grant was
$60,000 which had been recorded as deferred compensation and was shown as a
separate component of stockholders' equity. The deferred compensation was being
charged to selling, general and administrative expenses over the 13-month
vesting period. During the year ended March 31, 1998, previously issued awards
relating to 101,233 shares (28,000 shares at September 30, 1997) of Common
Stock have been forfeited due to employee departures in connection with the
ceasing of operations. Accordingly, the remaining unamortized deferred
compensation aggregating $690,486 ($192,500 at September 30, 1997) was reversed
to additional paid-in capital. Compensation charged to selling, general and
administrative expense was $25,519 and $61,957, respectively, for the three and
six month periods ended September 30, 1997.
During October 1997, the board of directors of the Company adopted the 1997
Stock Option Plan (the "1997 Plan") which authorizes the granting to employees,
officers and directors of the Company options to purchase up to an aggregate of
600,000 shares of Common Stock. Although the compensation committee of the
board of directors has recommended the issuance of 350,000 stock options to the
Company's chairman of the board of directors, no board of directors' action
regarding such options has been taken at the request of the Company's chairman
of the board of directors. The Company's management believes these stock
options will not be issued.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
U.S. SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS INVOLVE UNKNOWN
RISKS AND UNCERTAINTIES THAT MAY CAUSE THE COMPANY'S ACTUAL RESULTS OR OUTCOMES
TO BE MATERIALLY DIFFERENT FROM THOSE ANTICIPATED AND DISCUSSED HEREIN. IN
ASSESSING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, READERS ARE URGED TO
READ CAREFULLY ALL RISK FACTORS AND CAUTIONARY STATEMENTS CONTAINED IN THIS
FORM 10-QSB AND IN OTHER FILINGS MADE BY NETLIVE COMMUNICATIONS, INC. WITH THE
SECURITIES AND EXCHANGE COMMISSION.
PLAN OF OPERATION
NetLive Communications, Inc. (the "Company" or "NetLive"), a development stage
company, was incorporated on August 23, 1995 in the State of Delaware. The
Company was developing live, one-on-one videoconferenced entertainment,
educational and counseling services over the Internet and technologies designed
to deliver such content services to consumers. After March 31, 1997, the
Company shifted its focus to concentrate principally on developing Internet
call center software technologies to license to businesses.
On March 11, 1998, the Company entered into a non-binding letter of intent to
enter into a transaction with an affiliate of Newton Grace Pty. Ltd. ("Newton
Grace"). Newton Grace is an Australian corporation engaged in the consumer
electric goods business. To preserve resources, the Company's Board of
Directors decided that it was necessary to terminate all employees other than
those who would be instrumental in efforts to complete the Newton Grace
transaction or another similar transaction. Accordingly, on March 13, 1998 the
Company terminated the vast majority of its non-executive staff and ceased its
historic business operations. During the next six months and continuing through
the date hereof, the Company concentrated on winding up its operations,
negotiating settlement agreements with departing personnel and others, and
conducting due diligence on, and negotiating with the principals of, Newton
Grace.
On June 22, 1998, NetLive and its newly-formed Australian subsidiary, Linda
Industries Pty Limited, entered into a Stock Purchase and Reorganization
Agreement ("Purchase Agreement"), dated as of June 22, 1998, with Playbyrne
Investments Pty Limited, Budbox Pty Limited, Newton Grace, Intercorp Group Pty
Limited, Hallendon Pty Limited, Geoffrey Russell Player and Vicki Gaye Player
(collectively the "Purchasers"). Pursuant to the Purchase Agreement, the
Company agreed, in general, to sell to the Purchasers, for $10,000,000
Australian Dollars ("AUD"), newly-issued shares of Common Stock constituting
approximately 89% of the total outstanding Common Stock, on a post-transaction
basis, and certain shares of preferred stock, convertible into a maximum of 10%
of the total outstanding Common Stock (on a post-conversion basis) if certain
earnings targets were met. Thus, following conversion of all of the preferred
stock, the Purchasers in aggregate would own 90% of the total outstanding
Common Stock. The Company and its subsidiary would then utilize such funds, a
promissory note and
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additional funds to be obtained by loan to acquire certain of Newton Grace's
operating assets (excluding its cash and certain receivables), subject to the
assumption of certain liabilities, for an aggregate purchase price of (AUD)
$24,000,000, subject to adjustment.
The Purchase Agreement provided that the Company's current management would
prepare proxies to distribute to the Company's stockholders in preparation for
a stockholder meeting. In such proxies and at such meeting, the stockholders
would have been asked, among other things, to ratify the Purchase Agreement, to
approve a reverse stock split and to approve an increase in the number of
authorized shares of common and preferred stock. If these measures were
approved and if certain other conditions were satisfied, the transaction would
have then proceeded to closing.
The transactions contemplated by the Purchase Agreement, and amendments
thereto, were subject to the parties fulfilling certain conditions by specified
dates. Although active negotiations continued, such conditions were not
satisfied by such dates, and thus the Purchase Agreement expired pursuant to
its terms.
The Company and the Purchasers are continuing active negotiations in efforts to
reach mutually acceptable agreements in light of changed circumstances (the
"Contemplated Agreement;" all transactions contemplated therein, collectively
the "Contemplated Transaction"). Although no assurance can be given concerning
if and when the Contemplated Agreement will be consummated or concerning the
provisions thereof, the Company presently anticipates that the general terms of
the Contemplated Agreement would be similar to the terms of the Purchase
Agreement.
Unlike the Purchase Agreement, however, the Contemplated Agreement contemplates
a two-step transaction with the Purchasers. In the first step, the Purchasers
would pay (AUD) $10,000,000 for approximately 27.2 million (pre-reverse split)
shares of Common Stock; however, they would receive only approximately 13.5
million (pre-reverse split) shares at that stage. Simultaneously, the Company
and its subsidiaries would utilize such funds, a promissory note and additional
funds to be obtained by loan (collectively, the "Asset Purchase Funds") to
acquire certain of Newton Grace's operating assets (excluding its cash and
certain receivables), subject to the assumption of certain liabilities, for an
aggregate purchase price of approximately (AUD) $22,000,000, subject to
adjustment. Simultaneous with the first stage of the Contemplated Transaction,
the Company additionally contemplates a sale of 450,000 newly-issued
(pre-reverse split) shares of Common Stock to a private investor for (U.S.)
$150,000. The Company's current officers and directors, with the exception of
Adam Goldberg, a member of the Company's board of directors, would resign from
their officer and director positions at that point. As such, the Company would
effect a change in business and change in control at closing of the first
stage.
Following the closing of the first stage, the Company's new management would
prepare proxies to distribute to the Company's stockholders in preparation for
a stockholder meeting. In such proxies and at such meeting, the stockholders
would be asked, among other things, to ratify the Contemplated Transaction, to
approve an approximate 3.4 to 1 reverse stock split and to approve an increase
in the number of authorized shares of common and preferred stock. In light of
the
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issuance of the 13.5 million shares of Common Stock to the Purchasers in the
first stage, the ratification of such measures would be virtually assured.
Assuming such measures were passed, the Purchasers would then be issued,
pursuant to the second step of the Contemplated Agreement, the balance of the
27.2 million shares of Common Stock that they purchased--i.e., the equivalent
of approximately 13.7 million pre-reverse split shares of Common Stock. In the
second stage, the Purchasers would also receive certain shares of preferred
stock that would be convertible, assuming certain earnings targets are met by
the Company, into a maximum of the equivalent of approximately 3.4 million
pre-reverse split shares of Common Stock.
Consummation of the Contemplated Transactions is dependent, among other things,
upon the Company obtaining certain financing (the "Financing"), including a
(AUD) $10,000,000 loan necessary to raise the Asset Purchase Funds. National
Australia Bank Limited (the "Bank") has issued a letter of offer to the
Company's Australian subsidiary, Linda Industries Pty Limited, tentatively
agreeing to provide the Financing. The Bank's approval of the Financing,
however, is subject to the satisfaction of various conditions. No assurance can
be given that the parties will fulfill such conditions or that the Company will
succeed in obtaining the Financing required to complete the Contemplated
Transactions.
On September 29, 1998, the Company received a letter from The Nasdaq Stock
Market, Inc. ("Nasdaq") regarding the listing of the Common Stock and Warrants.
In the letter, Nasdaq indicated, as previously announced and notwithstanding
the Company's efforts, that such securities would be de-listed from The Nasdaq
SmallCap Market effective at the close of the business day on September 29,
1998. The Common Stock and Warrants are currently listed on the OTC-Bulletin
Board under the symbols NETL and NETLW, respectively.
During the three and six months ended September 30, 1998, the Company directed
a significant part of its efforts toward completing the Purchase Agreement and
the Contemplated Agreement. Based on this strategy, the Company directed a
significant percentage of its capital reserves towards operating expenses and
towards non-operating expenses associated with the Contemplated Transaction.
Net losses were $159,089 and $388,998 during the three and six months ended
September 30, 1998, as compared to $321,270 and $766,522 during the three and
six months ended September 30, 1997. Net loss per share was $0.05 and $0.13
during the three and six months ended September 30, 1998, as compared to $0.11
and $0.26 during the three and six months ended September 30, 1997.
The Company has incurred net losses since inception through the quarter ended
September 30, 1998. As of September 30, 1998, the Company had an accumulated
deficit during the development stage of $5,175,616. The Company's survival is
dependent upon the consummation of the Contemplated Transaction or a similar
transaction in the near or immediate future.
As the Company has ceased its historic business operations, it does not
anticipate any material effect from, nor has it set aside any reserves for,
potential year 2000 programming flaws.
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses consist primarily of expenses for
administration, office operations, finance and general management activities,
including legal, accounting and other professional fees. Selling, general and
administrative expenses were $159,089 and $388,998 for the three and six months
ended September 30, 1998, as compared to $321,270 and $776,778 for the three
and six months ended September 30, 1997. Included in Selling, General and
Administrative expenses are salaries aggregating $59,149 and $121,596 for three
and six months ended September 30, 1998, as compared to $108,872 and $233,081
for the three and six months ended September 30, 1997. Such decrease is
attributable to the reduction of the Company's administrative staff.
PROVISION FOR INCOME TAXES
The Company has no provision for income taxes for all periods presented since
it incurred net losses for such periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities aggregated
$65,669 at September 30, 1998, as compared to $1,728,721 at September 30, 1997.
Net cash used in operations was $463,641for the six months ended September 30,
1998, as compared to $1,243,730 for the six months ended September 30, 1997.
The reduction in net cash used in operations from period to period was
primarily attributable to the reduction of costs associated with ceasing
historic operations.
The uses of cash during the quarter ended September 30, 1998 were financed
mainly by the sale in August 1996, of 950,000 shares of Common Stock and
730,000 Warrants which resulted in proceeds of $4.2 million, net of offering
expenses, as well as the sale, in May 1996 of 200,000 shares of Common Stock in
a private placement which resulted in proceeds of $376,000, net of offering
expenses. Additionally, the Company received net proceeds of approximately
$9,500 from the issuance of Warrants and the underwriter's warrant pursuant to
an over-allotment option.
Net cash provided by investing activities was $398,985 for the six months ended
September 30, 1998, as compared to $1,944,758 for the six months ended
September 30, 1997. The change in investing activities was due to proceeds from
sales of available for sale securities. Such cash was provided primarily by the
proceeds of the Company's initial public offering.
Net cash provided by financing activities was $10,950 for the six months ended
September 30, 1998, as compared to zero for the six months ended September 30,
1997. Such cash was provided by the May Davis Group, Inc.'s exercise of the
portion of its Underwriter's Warrant entitling it to purchase 73,000 Warrants
for $0.15 each.
Pursuant to the Company's current plan of operation, the Company does not
expect any purchase of plant or significant equipment during fiscal 1999.
14
<PAGE>
The Company's management has substantial doubts about the Company's ability to
continue as a going concern, whether the Financing and the Contemplated
Transactions will be consummated, and whether the Company's existing cash and
marketable securities will be sufficient to fund the Company's operations until
the Financing and Contemplated Transaction are consummated. Because of the lack
of resources, both members of the Company's management have been deferring
their salary since early October 1998. There can be no assurance that the
Company's capital resources will be sufficient to meet its operating needs. If
such capital resources are not sufficient, material adverse consequences would
result. There is a substantial likelihood that such consequences would involve
liquidation of the Company, which would likely result in loss to investors of
all or a substantial portion of their investment.
15
<PAGE>
PART II: OTHER INFORMATION
ITEMS 1 THROUGH 5, INCLUSIVE, ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed herewith or incorporated
herein by reference:
Exhibit
Number Name of Exhibit
- ------- --------------------
1.1 Underwriting Agreement (1)
2.1 Stock Purchase and Reorganization Agreement (10)
3.1 Articles of Incorporation, as amended to date(1) (6)
3.2 By-Laws (1) (2) (7)
4.1 Form of Underwriter's Warrant(1)
4.2 Form of Financial Advisory and Investment Banking Agreement with the
Underwriter(1)
4.3 Form of Common Stock Certificate(1)
4.4 Form of Common Stock Purchase Warrant(1)
4.5 Form of Common Stock Purchase Warrant used for Bridge Loans(1)
4.6 Form of Warrant Agreement(1)
10.1 Employment Agreement with Laurence Rosen(1)
10.2 Employment Agreement with Michael Kharitonov(1)
10.3 Employment Agreement with Jeffrey Wolf, as amended(1)
10.4 Amendment No. 1 to Employment Agreement with Michael Kharitonov(1)
10.5 Employment Agreement with Vladislav Rysin(1)
16
<PAGE>
10.6 License Agreement with Jeane Dixon(1)
10.7 Company's 1996 Incentive Stock Option Plan (1)(9)
10.8 NetLive Communications, Inc. Performance Share Program and Performance
Share Program Trust(3)
10.9 Settlement and Voting Agreement, dated as of June 12, 1997, among the
Company, May Davis Group, Inc. et al.(4)
10.10 Letter agreement, dated as of June 12, 1997, between the Company and
Gary Rogers(4)
10.11 Severance Agreement, dated as of June 12, 1997, between the Company
and Laurence M. Rosen and exhibits thereto including the Consulting
Agreement.(4)
10.12 Amendment to Settlement and Voting Agreement, dated as of September
23, 1997, by and among the Company, May Davis Group, Inc. et al. (5)
10.13 Amendment to Underwriting Agreement, dated as of September 23, 1997,
by and between the Company and May Davis Group, Inc. (5)
10.14 Letter Agreement, dated as of September 23, 1997, by and between the
Company and Gary Rogers (5)
10.15 Company's 1997 Stock Option Plan (8)
27.1 Financial Data Schedule (11)
- -----------------
(1) Filed with the Company's Registration Statement filed on Form SB-2
(File No. 333-4057).
(2) Amendment to Article II, Section 7 of the Company's By-laws filed with
the Company's Current Report on Form 8-K dated January 28, 1997.
(3) Filed with the Company's Current Report on Form 8-K dated February 27,
1997.
(4) Filed with the Company's Current Report on Form 8-K dated July 3, 1997
(5) Filed with the Company's Current Report on Form 8-K dated October 8,
1997
(6) Additional Articles IX, X and XI were filed with the Company's Current
Report on Form 10-QSB dated November 14, 1997.
17
<PAGE>
(7) The amendment to Article III, Sections 1(a), 1(c), 6 and 9 and the
amendment to Article IV, Sections 1(b), 1(c) and 3 were filed with the
Company's Current Report on Form 10-QSB dated November 14, 1997.
(8) Filed with the Company's Current Report on Form 10-QSB dated November
14, 1997.
(9) Amended and corrected version filed with the Company's Current Report
on Form 10-QSB dated November 14, 1997.
(10) Filed with the Company's Current Report on Form 8-K dated June 30,
1998.
(11) Filed herewith.
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETLIVE COMMUNICATIONS, INC.
Date: 11/19/98 By: /s/ Michael Kharitonov
- ------------------------------ --------------------------------------
Michael Kharitonov
Chief Executive Officer and
President
Date: 11/19/98 By: /s/ Andrew Schwartz
- ------------------------------ ---------------------------------------
Andrew Schwartz
Chief Financial Officer, Treasurer
and Secretary (Principal Accounting
and Financial Officer)
19
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