<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 December 31, 1997
--------------
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)
584 Broadway, New York, NY 10012
--------------------------------------------------
(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 February 1, 1998
------- -----------------------------------
Common Stock, $0.0001 par value 2,950,000
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NETLIVE COMMUNICATIONS, INC.
(a development stage company)
INDEX
<TABLE>
<CAPTION>
Page Number
-----------------
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of December 31, 1997 (unaudited)
and as of March 31, 1997 (audited) 3
Statement of Operations for the three and nine month periods ended
December 31, 1997 and 1996 (unaudited), and the period from
August 23, 1995 (inception) to December 31, 1997 (unaudited) 4
Statement of Cash Flows for the nine month periods ended December 31, 1997
and 1996 (unaudited) and the period from
August 23, 1995 (inception) to December 31, 1997 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan
of Operation 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 18
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
NETLIVE COMMUNICATIONS, INC.
(a development stage company)
Balance Sheet
<TABLE>
<CAPTION>
DECEMBER 31,1997 MARCH 31, 1997
---------------- --------------
<S> <C> <C>
(unaudited) (audited)
ASSETS
Current Assets
Cash and cash equivalents $ 416,366 $ 32,958
Marketable securities 987,892 2,984,826
Prepaid expenses and other current assets 84,580 32,435
---------------- --------------
TOTAL CURRENT ASSETS 1,488,838 3,050,219
Property and Equipment, net 113,988 93,853
Capitalized software development costs 523,600 -
Deferred income tax asset, net of valuation
allowance - -
Other Assets 28,092 50,112
---------------- --------------
TOTAL ASSETS $ 2,154,518 $ 3,194,184
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable & accrued expenses $ 189,518 $ 414,633
Note payable-bank 150,000 -
---------------- --------------
TOTAL CURRENT LIABILITIES 339,518 414,633
---------------- --------------
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 5,864,448 5,996,948
Deficit accumulated during development stage (3,430,755) (2,288,588)
Deferred Compensation (618,988) (929,104)
---------------- --------------
STOCKHOLDERS' EQUITY 1,815,000 2,779,551
---------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,154,518 $ 3,194,184
================ ==============
</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
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS AUGUST 23, 1995
ENDED ENDED ENDED ENDED (DATE OF INCEPTION)
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996 TO DECEMBER 31, 1997
----------------- ----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Net revenue - - $ 10,256 - $ 17,945
----------------- ----------------- ----------------- ----------------- --------------------
Selling, general &
administrative expenses:
Salaries $ 149,679 $ 105,110 $ 382,760 $ 297,286 $ 1,020,493
Research and development - 73,042 - 207,022 568,855
Professional fees 105,678 56,258 377,913 118,167 780,241
Rent 7,685 12,335 21,748 35,184 79,950
Depreciation &
amortization 14,772 6,929 39,494 18,540 72,768
Interest expense and
financing costs - - - 119,028 196,123
Interest and dividend
income (21,556) (50,904) (73,361) - (187,047)
Other 119,387 201,850 403,869 309,833 917,317
----------------- ----------------- ----------------- ----------------- --------------------
Total expenses 375,645 404,620 1,152,423 1,105,060 3,448,700
----------------- ----------------- ----------------- ----------------- --------------------
Net loss $ (375,645) $ (404,620) $(1,142,167) $(1,105,060) $(3,430,755)
================= ================= ================= ================= ====================
Basic loss per common
share $ (0.13) $ (0.13) $ (0.39) $ (0.43) -
================= ================= ================= ================= ====================
Weighted average number of
common shares
Outstanding 2,950,000 3,080,259 2,950,000 2,593,168 -
================= ================= ================= ================= ====================
</TABLE>
The accompanying notes should be read in conjunction with the financial
statements.
4
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(a development stage company)
Statement of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
NINE NINE AUGUST 23, 1995
MONTHS ENDED MONTHS ENDED (INCEPTION) TO
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- ----------------- -----------------
<S> <C> <C> <C>
(unaudited) (unaudited) (unaudited)
Cash flows from operating activities:
Net Loss $(1,142,167) $ (1,105,060) $(3,430,755)
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 177,616 62,500 277,262
Amortization of debt issue costs and discount
on notes payable - 186,131 190,000
Depreciation and amortization 39,494 18,540 72,306
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current
assets (52,145) (80,387) (84,580)
(Increase) decrease in other assets 21,558 (50,000) (22,655)
Increase in capitalized software development
costs (523,600) - (523,600)
Increase (decrease) in accounts payable and
accrued expenses (225,115) (26,095) 189,518
------------------- ----------------- -----------------
Net cash used in operating activities (1,704,359) (994,371) (3,320,498)
------------------- ----------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (59,167) (55,628) (149,669)
Acquisition of intangibles - (1,920) (6,140)
Purchase of available-for-sale securities - - (4,984,826)
Proceeds from sales of available-for-sale
securities 1,996,934 - 3,996,934
------------------- ----------------- -----------------
Net cash provided by (used in) investing
activities 1,937,767 (57,548) (1,143,701)
------------------- ----------------- -----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock - 4,737,057 4,816,697
Principal payments on obligations under capital
leases - (17,470) (17,632)
Proceeds from issuance (repayment of) notes
payable 150,000 (250,000) 150,000
Debt issue costs - - (25,000)
Deferred offering costs - - (43,500)
------------------- ----------------- -----------------
Net cash provided from financing activities 150,000 4,469,587 4,880,565
------------------- ----------------- -----------------
Net increase in cash and cash equivalents 383,408 3,417,668 416,366
Cash and cash equivalents at beginning of
period 32,958 160,395 -
------------------- ----------------- -----------------
Cash and cash equivalents at end of period $ 416,366 $ 3,578,063 $ 416,366
=================== ================= =================
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest - $ 7,155 $ 6,123
Supplemental schedule of noncash financing and
investing activities:
Contributed property and equipment - - $ 18,290
=================== ================= =================
Capital lease obligations incurred - - $ 17,632
=================== ================= =================
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 $ 300,000 $ 1,088,750
=================== ================= =================
Termination of common stock granted under the
performance share program (192,500) - (192,500)
=================== ================= =================
</TABLE>
The accompanying notes should be read in conjunction with the financial
statements.
5
<PAGE>
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, 1997 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, 1997.
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 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 its common stock at $5.50 per share and 730,000 common
stock purchase warrants for $0.10 per warrant. The net proceeds to the
Company, after 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
6
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common stock purchase warrants and the underwriters warrant pursuant to an
over-allotment option.
NOTE 3
CAPITALIZED SOFTWARE COSTS
Certain software development costs are 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.
NOTE 4
NET 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.
7
<PAGE>
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 Initial Public Offering ("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
antidilutive. 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 December 31, 1997. 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 December 31, 1997.
NOTE 6
EMPLOYEE STOCK OPTIONS AND PERFORMANCE SHARE PROGRAM
The Company maintains stock option plans to motivate and reward its employees,
officers and directors. In May, 1996, in connection with an employment
agreement, the Company issued options to purchase 100,000 shares of common
stock to an employee under its 1996 stock option plan. 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 is being amortized over three years, the term of the employment
agreement. During the three and nine month periods ended December 31, 1997,
the Company recorded a charge to earnings of $25,000 and $75,000,
respectively, for amortization of deferred compensation.
During February 1997, the board of directors of the Company adopted a
performance share program, which authorized the establishment of a trust. The
Company contributed 300,000 shares of the Company's common stock to the trust
to be held therein until distributed to employees, as defined. Restrictions on
such awards expire annually over a five year period. As of December 31, 1997,
awards relating to an aggregate of 106,000 shares of common stock had been
made to employees. As of the same date, previously issued awards relating to
28,000 shares of common stock had been forfeited due to employee departures
and the awards outstanding net of awards forfeited aggregated 78,000 shares of
common stock. The market value of the 106,000
8
<PAGE>
shares on the date of grant was $728,750, which was recorded as deferred
compensation and is shown as a separate component of stockholders' equity. The
deferred compensation is being charged to selling, general and administrative
expenses over the five year vesting period. In connection with the forfeiture
of the 28,000 shares of common stock, the Company adjusted deferred
compensation relating to the issuance of these awards by $192,500. In 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 has been recorded as
deferred compensation and is shown as a separate component of stockholders'
equity. The deferred compensation is being charged to selling, general and
administrative expenses over the 1 year vesting period. Compensation charged to
selling, general and administrative expense was $40,659 and $102,616 for the
three months and nine months ended December 31, 1997, respectively
On October 8, 1997, the stockholders of the Company adopted a stock option plan
(the "1997 Plan"). Six hundred thousand shares have been authorized for
issuance under the 1997 Plan. Although the Compensation Committee of the Board
of Directors has recommended the issuance of 350,000 stock options to Michael
Kharitonov, no Board of Directors action has been taken at the request of Mr.
Kharitonov, and the Company has not yet issued any options under the 1997 Plan.
9
<PAGE>
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
The Company, a development stage company, was incorporated on August 23, 1995
in the State of Delaware. The Company is engaged principally in the design and
development of Internet call center software technologies to license to
businesses.
The Company continues to seek strategic alliances and joint ventures that
complement the Company's overall business strategy. No such alliances or
ventures have been consummated to date. Based on this strategy, the Company
directs a significant percentage of its capital reserves towards operating
expenses and towards non-operating expenses associated with business
development, and anticipates continuing to do so for the near future. Net
losses were $375,645 and $1,142,167 during the three months and nine months
ended December 31, 1997, as compared to $404,620 and $1,105,060 during the
three months and nine months ended December 31, 1996, respectively. Net loss
per share was $0.13 and $0.39 during the three months and nine months ended
December 31, 1997, as compared to $0.13 and $0.43 during the three months and
nine months ended December 31, 1996.
The Company has only a limited operating history upon which an evaluation of
the Company and its prospects can be based. Certain testing of the Company's
technology has been delayed, and, to date, the Company has not produced or
sold any commercial products. Nor has the Company generated any significant
revenues. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving
markets. To address these risks, the Company must, among other things, respond
to competitive developments, continue to attract, retain and motivate
qualified employees, and continue to develop its technologies and
commercialize products and services incorporating such technologies. There can
be no assurance that the Company will be successful in addressing such risks.
In January, 1998, two members of the Company's Board of Directors, John Meier
and Michael Wolf, resigned. Meier also served as the Company's Executive Vice
President and Chief Operating Officer for approximately six months, ending in
early January. The Company does not presently intend to fill the Executive
Vice President and Chief Operating Officer positions. Michael Wolf, an outside
director, was also a member of the Board's Compensation Committee. The
10
<PAGE>
resignations were for personal reasons and were unrelated to each other.
Following the resignations, two of the seven NetLive Board positions are
vacant. The Company has incurred net losses since inception through the
quarter ended December 31, 1997. As of December 31, 1997, the Company had an
accumulated deficit during the development stage of $3,430,755. There can be
no assurance that the Company will achieve or maintain profitability.
On November 14, 1997, the Company received a letter from The NASDAQ Stock
Market, Inc. ("NASDAQ") stating its intention to de-list the Company after
November 28, 1997 if the Company did not demonstrate its compliance with
NASDAQ's maintenance requirements or provide a definitive plan to become in
compliance. On November 26, 1997, the Company amended its Form 10-QSB for the
period ended September 30, 1997 to reflect management's decision to capitalize
certain software development costs as permitted by applicable accounting
standards, which had the effect of increasing the Company's total assets as of
September 30, 1997 to $2,284,623 (the Company also amended its 10-QSB for the
period ended June 30, 1997 to reflect capitalization of software development
costs). NASDAQ then requested certain supplemental information, which the
Company timely submitted. Although the Company has not received a further
response from NASDAQ on this subject, a proposal to increase NASDAQ's
maintenance requirements, and add certain new criteria, was approved on August
22, 1997 and will take effect on February 24, 1998. The Company would not
satisfy such requirements if they were currently in effect and there can be no
assurance that the Company will not be de-listed at any time, before or after
that date. The Company believes that there is substantial likelihood that it
will be de-listed when these rules become effective. In the event that the
Company is de-listed, trading, if any, in the Company's securities would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or the NASD's "Electronic Bulletin Board." As a consequence of such
de-listing, an investor would likely find it more difficult to dispose of, or
to obtain quotations as to, the price of the Company's securities. Also, if
the Company's securities were to become subject to the regulations applicable
to penny stocks, as to which there is also a substantial likelihood, the
market liquidity for the securities would be severely affected, limiting the
ability of broker-dealers to sell the securities and the ability of
stockholders to sell their securities in the secondary market. There is no
assurance that trading in the Company's securities will not be subject to
these or other regulations that would adversely affect the market for such
securities.
The Company's ability to implement its objectives, as described herein and
elsewhere, is necessarily subject to its ability to continue as a going
concern. The Company believes that its existing cash and marketable securities
will be sufficient to fund the Company's operations through approximately
May 31, 1998. There can be no assurance that the Company's cost estimates are
accurate. The Company anticipates spending approximately $200,000 of its
available cash and marketable securities during the last quarter of fiscal
1998, ending March 31, 1998, on software development costs, a portion of which
will be capitalized. It is also anticipated that the Company will continue to
devote resources to its lawsuit brought by Merrill New York Company
("Merrill"). Such lawsuit arose from a dispute over the bill relating to
printing services performed by Merrill in conjunction with the Company's
initial public offering. Merrill claims damages of approximately $100,000
plus interest and costs. The Company
11
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disputes and is vigorously defending a substantial portion of such claims.
The Company has also filed counterclaims for fraud, misrepresentation and
tortious interference with business relations. Discovery has been completed,
and the parties are awaiting the court's setting of a trial date. As a
contingency matter and without prejudice to its legal position, the Company
has previously recorded a portion of the amount claimed for damages in its
financial statements.
The Company is having discussions with several companies concerning a possible
business combination or other transaction. No letter of intent or definitive
agreement has been executed and there can be no assurance that any of the
transactions being discussed will be consummated. The Company expects that it
will have to explore additional cost-saving measures. The Company anticipates,
in the event that a business combination is not consummated, seeking to raise
additional funds. Such additional capital may take the form of equity
issuance, debt issuance or a combination thereof. The Company currently does
not have any commitments to obtain additional financing and there can be no
assurance that such financing will be available or, if so, that it can be
obtained on terms satisfactory to the Company. In the event that the Company
cannot obtain additional funds or enter into a business combination or other
transaction with an entity with sufficient liquid resources in the near
future, the Company will be forced to significantly curtail or cease its
activities, which would likely result in loss to investors of all or a
substantial portion of their investment.
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 $375,645 and $1,152,423 for the three and nine
months ended December 31, 1997, as compared to $404,620 and $1,105,060 for the
three and nine months ended December 31, 1996. Included in Selling, General
and Administrative expenses are salaries aggregating $149,679 and $382,760 for
the three months and nine months ended December 31, 1997, as compared to
$105,110 and $297,286 for the three months and nine months ended December 30,
1996.
Interest Expense, Financing Costs and Interest Income
There were no interest expenses and financing costs in either the third
quarter of fiscal 1998 or the third quarter of fiscal 1997. Interest and
dividend income was $21,556 and $73,361 for the three and nine months ended
December 31, 1997, as compared to $50,904 and zero for the three and nine
months ended December 31, 1996. All sums represent interest earned on
investments of the proceeds from the initial public offering.
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
12
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The Company's cash, cash equivalents and marketable securities aggregated
$1,404,258 at December 31, 1997, as compared to $3,017,784 at March 31, 1997.
Net cash used in operations was $1,704,359 for the nine months ended December
31, 1997, as compared to $994,371 used in operations for the nine months ended
December 31, 1996. The increase in net cash used in operations from period to
period was primarily attributable to the costs from hiring additional
personnel and otherwise expanding operations and costs associated with the
threatened proxy contest during the first quarter of fiscal 1998 by May Davis
Group, Inc. ("May Davis"), the underwriter for the Company's initial public
offering, and affiliated parties. Following extensive negotiations, the
Company entered into a Settlement and Voting Agreement with May Davis and such
parties on June 12, 1997, which was subsequently amended on September 23,
1997.
The uses of cash during the quarter ended December 31, 1997 were financed
almost exclusively by the sale in August 1996, of 950,000 shares of common
stock and 839,500 warrants to purchase common stock (including the exercise of
the underwriter's overallotment option relating to 109,500 warrants) which
resulted in proceeds of $4.2 million, net of offering expenses, as well as the
sale, in March and May 1996, of an aggregate of 400,000 shares of common stock
and 1,000,000 warrants in a private placement which resulted in proceeds of
$376,000, net of offering expenses.
Net cash provided by (used in) investing activities was $1,937,767 for the nine
months ended December 31, 1997, as compared to ($57,548) for the nine months
ended December 31, 1996. The change in investing activities was primarily due
to proceeds from sales of available for sale securities.
Net cash provided by financing activities was $150,000 during the nine months
ended December 31, 1997, as compared to $4,469,587 for the nine months ended
December 31, 1996. The decrease in net cash provided by financing activities
primarily reflects the receipt of proceeds from the Company's initial public
offering in August, 1996.
The Company does not expect any purchase or sale of plant or significant
equipment during the remainder of fiscal 1998.
In the fourth quarter of fiscal 1998, the Company's bank obligation of
$150,000 was repaid.
See also comments in the introduction section of Part I, Item 2 above.
13
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PART II OTHER INFORMATION
ITEMS 1, 2, 3 AND 5 - NOT APPLICABLE
ITEM 4 Submission of Matters to a Vote of Security Holders
As previously reported in the Company's Form 10-QSB filed November 14, 1997,
the Company held its annual meeting of stockholders on October 8, 1997 in New
York, New York (the "Annual Meeting"). The following four proposals were
adopted:
(1) The stockholders ratified amendments to the Company's By-Laws and
Certificate of Incorporation to, among other things, increase the number of
directors of the Company to seven and to institute a classified Board of
Directors. To effect these amendments, Sections 1(a) and 1(c) of Article III
of the By-laws were deleted in their entirety, certain additions to Articles
III and IV were incorporated, and Articles IX, X and XI were added to the
Company's Certificate of Incorporation. This summary is qualified by reference
to the full text of the amendments to the Company's Certificate of
Incorporation and By-laws which are set forth as Exhibits 3.1 and 3.2 to the
Company's Form 10-QSB filed November 14, 1997. The classified Board of
Directors divides the Company's Board of Directors into three classes of
directors. Pursuant to these amendments, the terms of the directors will be as
follows: (i) Class I Directors shall serve for a term expiring at the
Company's 1998 Annual Meeting of Stockholders; (ii) Class II Directors shall
serve for a term expiring at the Company's 1999 Annual Meeting of
Stockholders; and (iii) Class III Directors shall serve for a term expiring at
the Company's 2000 Annual Meeting of Stockholders. In addition, the Chairman
of the Board will be elected directly by the Company's stockholders. The
Company proposed these amendments to comply with its obligations under the
Settlement and Voting Agreement (the "Voting Agreement") it entered into as of
June 12, 1997 with May Davis Group, Inc. ("May Davis"), Owen May, Dibo Attar,
Dennis E. Sal and seven investment funds as to which Mr. Attar acts as
advisors. The Voting Agreement, which was amended on September 23, 1997, was
entered into to, among other things, resolve certain corporate governance
issues relating to the Company. The proposal to amend the charter and by-laws
received 1,974,899 votes for, 3,200 votes against and 10,000 votes to abstain.
(2) Seven directors, constituting the entire board, were elected at the
Annual Meeting to serve until their respective successors are elected and
qualified. Adam L. Goldberg and Marcel M. Yung were elected as Class I
Directors and shall serve for a term of one year expiring at the Company's
1998 Annual Meeting of Stockholders. John E. Meier and Michael Wolf were
elected as Class II Directors and shall serve for a term of two years expiring
at the Company's 1999 Annual Meeting of Stockholders. Michael Kharitonov (as
Chairman of the Board), Andrew J. Schwartz and Jeffrey Wolf were elected as
Class III Directors and shall serve for a term of three years expiring at the
Company's 2000 Annual Meeting of Stockholders. Each director received
1,986,299 votes for and 1,800 votes withheld.
14
<PAGE>
(3) The stockholders ratified the proposal to select Goldstein, Golub,
Kessler & Company, P.C., independent certified public accountants, to serve as
auditors for the Company for the fiscal year ended March 31, 1998. Goldstein,
Golub, Kessler & Company, P.C. has been the Company's auditors since its
inception. The proposal to ratify Goldstein, Golub, Kessler & Company, P.C.
received 1,988,099 votes for, zero votes against and zero votes to abstain.
(4) The stockholders ratified the adoption of the 1997 NetLive
Communications, Inc. Stock Option Plan (the "1997 Plan"). The 1997 Plan was
adopted to enable the Company to compete for talent in a highly competitive
job market. Six hundred thousand shares of Common Stock have been authorized
for issuance under the 1997 Plan. The 1997 Plan imposes no limit on the number
of officers and other key employees to whom awards may be made. The 1997 Plan
will be administered by a committee of at least two non-employee directors to
be appointed by the Company's Board of Directors. The foregoing summary of the
1997 Plan is qualified in its entirety by reference to the full text of the
1997 Plan, a copy of which is annexed as Exhibit 10.15 to the Company's Form
10-QSB filed November 14, 1997. The proposal to ratify the 1997 Plan received
1,973,299 votes for, 14,800 votes against and zero votes to abstain.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are filed herewith or incorporated
herein by reference:
1.1 Underwriting Agreement (1)
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)
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)
15
<PAGE>
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 (10)
- ------------------
(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.
(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 herewith.
(b) As previously reported in the Company's Form 10-QSB filed
November 14, 1997, a Form 8-K was filed by the Company on October
8, 1997. This filing disclosed under
16
<PAGE>
Item 5 the Company's entry, as of September 23, 1997, into (1) an
amendment to the June 12, 1997 Settlement and Voting Agreement
with May Davis Group, Inc and several of its affiliates, (2) a
letter agreement with Gary Rogers, and (3) an amendment to the
Underwriting Agreement with May Davis Group, Inc.
<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: 2/17/98 By: Michael Kharitonov
- ----------------------- ----------------------------------------
Michael Kharitonov
Chief Executive Officer and
President
Date: 2/17/98 By: Andrew Schwartz
- ----------------------- ------------------------------------------
Andrew Schwartz
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
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