U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _______ to _______
Commission file number 0-23505
INNOVACOM, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0308568
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3400 Garrett Drive
Santa Clara, CA 94054
(Address of principal executive offices) (Zip Code)
(408) 727-2447
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of common stock outstanding as of March 31, 2000 was 36,394,520
Transitional Small Business disclosure format
Yes [ ] No [X]
<PAGE>1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
(Unaudited)
MARCH 31,
2000
---------
ASSETS
CURRENT ASSETS:
Cash $ 296
Accounts receivable,
less: allowance for doubtful accounts of $10 27
Inventory 218
Prepaid expenses and other 61
---------
Total current assets 602
PROPERTY AND EQUIPMENT, net 115
DEPOSITS 37
---------
TOTAL ASSETS $ 754
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable - related parties $ 100
Secured promissory notes 5,175
Convertible debentures 4,750
Accounts payable 1,106
Accrued liabilities 2,694
Liabilities in excess of assets of discontinued operations 63
---------
Total current liabilities 13,888
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, 150,000,000 shares
authorized, 36,394,520 shares issued and outstanding 36
Warrants 2,797
Additional paid-in capital 29,257
Deficit accumulated during development stage (45,224)
---------
Total stockholders' equity (deficit) (13,134)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 754
=========
<PAGE>2
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 3, 1993
FOR THE THREE MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31,
-------------------------- -----------
1999 2000 2000
---------- --------- -----------
<S> <C> <C> <C>
REVENUES $ 36 $ 297 $ 1,060
---------- --------- -----------
COSTS AND EXPENSES:
Costs of goods sold 167 237 1,120
Research and development 369 471 12,793
Selling, general and administrative 607 1,025 19,965
Impairment loss on property and equipment - - 937
---------- --------- -----------
Total costs and expenses 1,143 1,733 34,815
---------- --------- -----------
OPERATING LOSS (1,107) (1,436) (33,755)
---------- --------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income (659) (937) (9,737)
Debt conversion expense - - (261)
Other income - - 2
---------- --------- -----------
Total other income (expense) (659) (937) (9,996)
---------- --------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAX EXPENSE, DISCONTINUED OPERATIONS, AND
EXTORDINARY ITEM (1,766) (2,373) (43,751)
INCOME TAX EXPENSE 2 2 10
---------- --------- -----------
LOSS FROM CONTINUING OPERATIONS: (1,768) (2,375) (43,761)
---------- --------- -----------
Loss on disposal of discontinued operations - - (1,160)
Loss from operations of discontinued
operation, net of income tax expense - - (1,130)
---------- --------- -----------
LOSS FROM DISCONTINUED OPERATIONS - - (2,290)
Extordinary Item: GAIN ON EXTINGUISHMENT OF
LIABILITIES 123 18 827
---------- ---------- -----------
NET LOSS $ (1,645) $ (2,357) $ (45,224)
========== ========== ===========
BASIC AND DILUTED NET LOSS PER SHARE:
Continuing operations $ (.07) $ (.08)
Discontinued operations - -
Extraordinary item - -
---------- ---------
Basic and diluted net loss per share $ (.07) $ (.08)
========== =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 25,036 30,738
========== =========
</TABLE>
<PAGE>3
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 3, 1993
FOR THE THREE MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31,
-------------------------- -----------
1999 2000 2000
---------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (1,768) $ (2,375) $ (43,761)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 38 29 902
Provision for inventory obsolescence - 45 85
Provision for doubtful accounts - - 20
Amortization of discount on long-term debt - - 2,346
Loss on sale of fixed assets - - 25
Impairment loss on property and equipment - - 940
Interest related to beneficial conversion feature
and warrants issued in connection with notes
payable and convertible debentures 285 436 3,834
Compensation recognized upon issuance of
stock and stock options 11 232 6,069
Shares canceled from default judgement - - (250)
Contribution of product license - - 1,275
Write down of purchased incomplete
research and development - - 500
Write-off acquisition costs - - 68
Gain on extinguishment of liabilities 123 18 827
Debt conversion expense - - 261
Write-off of related party receivable - - 140
Changes in operating assets and liabilities:
Accounts receivable (9) 128 (47)
Inventory (136) (53) (304)
Prepaid expenses (11) (12) (61)
Deposits - - (37)
Accounts payable (255) (116) 1,513
Accrued liabilities 387 416 4,018
---------- --------- -----------
Net cash used in operating activities from
Continuing operations (1,335) (1,252) (21,637)
---------- --------- -----------
Net loss from discontinued operations - - (2,290)
Loss on disposal of assets - - 49
Write-down of film rights and film costs inventory - - 250
Write-down of goodwill - - 848
Change in liabilities in excess of assets of
discontinued operations - - 63
---------- --------- -----------
Net cash (used in) operating activities
from discontinued operations - - (1,080)
---------- --------- -----------
</TABLE>
(Continued)
<PAGE>4
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 3, 1993
FOR THE THREE MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31,
-------------------------- -----------
1999 2000 2000
---------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received in acquisition of Sierra Vista
Entertainment - - 2,917
Cost incurred for organization of joint venture - - (68)
Advance to related party - - (140)
Purchases of property and equipment (5) - (2,200)
Proceeds from sale of assets - - 4
---------- --------- -----------
Net cash provided by (used in)
investing activities (5) - 513
---------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 600 - 4,865
Proceeds from secured promissory notes - 975 5,175
Net proceeds from sale of convertible debentures
With detachable warrants 750 - 9,358
Principal payments on notes payable-related party (15) - (309)
Proceeds from sale of common stock - - 2,898
Proceeds from issuance of stock options - 270 272
Proceeds from settlements 40 - 241
---------- --------- -----------
Net cash provided by financing
Activities 1,375 1,245 22,500
---------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 35 (7) 296
CASH AND CASH EQUIVALENTS, beginning of
Period 34 303 -
---------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 69 $ 296 $ 296
========== ========= ===========
</TABLE>
<PAGE>5
INNOVACOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the fiscal year
ended December 31, 1999.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments considered necessary to present fairly
the Company's financial position at March 31, 2000, results of operations
for the three months ended March 31, 1999 and 2000, and the period from
March 3, 1993 (inception) to March 31, 2000, and the cash flows for the
three months ended March 31, 1999 and 2000, and the period from March 3,
1993 (inception) to March 31, 2000. The results for the period ended March
31, 2000, are not necessarily indicative of the results to be expected for
the entire fiscal year ending December 31, 2000.
2. SECURED PROMISSORY NOTES:
During the period ended March 31, 2000, the Company entered into promissory
note agreements totaling $975,000 that are due on demand and accrue interest
at 13% per annum. The notes are secured by substantially all of the
Company's assets. As part of the issuance of the notes, the Company issued
to the note holder five-year warrants to purchase 487,500 shares of common
stock at prices ranging from $0.30 to $1.00. In addition, the Company issued
five-year warrants to purchase 195,000 shares of common stock at prices
ranging from $0.53 to $1.63 per share as a finder's fee.
3. CONVERTIBLE DEBENTURES:
In the period ended March 31, 2000, the holders of the December 1997
debentures converted $4,690,000 in principal and $723,063 in accrued
interest into 8,349,248 shares of common stock.
4. STOCKHOLDERS' EQUITY:
During the period ended March 31, 2000, outstanding options to purchase
437,627 shares of common stock were exercised in non-cash transactions. In
addition, outstanding warrants to purchase 785,028 shares of common stock
were also exercised in non-cash transactions.
<PAGE>6
Also, during the period ended March 31, 2000, options to purchase 1,038,017
shares of common stock were exercised with prices ranging from $0.23 to
$0.26 per share with proceeds received equal to $270,000.
5. SUBSEQUENT EVENTS:
On April 26, 2000, the Company borrowed $400,000 from an investor in the
form of a note. The note bears interest at 13% and is due on demand. In
conjunction with this note, the Company issued five year warrants to
purchase up to 200,000 shares of common stock at $.50 per share to the note
holder, and five year warrants to purchase up to 80,000 shares of common
stock at $.97 per share to two brokers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
With the exception of historical facts stated herein, the matters discussed in
this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenues and earnings from operations of the Company. Factors that could cause
actual results to differ materially include, in addition to other factors
identified in this report, lack of revenues, substantial losses, need for
additional capital and limited operating history, and other risk factors
detailed in the Company's Securities and Exchange Commission ("SEC") filings
including the factors set forth in the "Certain Consideration" section in the
Company's Form 10-KSB for the year ended December 31, 1999. Readers of this
report are cautioned not to put undue reliance on "forward looking" statements
which are, by their nature, uncertain as reliable indicators of future
performance. The Company disclaims any intent or obligation to publicly update
these "forward looking" statements, whether as a result of new information,
future events, or otherwise.
Revenues
Revenues for the three months ended March 31, 2000 were approximately $297,000
as compared to approximately $36,000 for the same period in 1999, representing a
725% increase. The revenue in 2000 was from the sale of approximately 26
Transpeg family products and in 1999 was from the sale of 2 TransPeg systems.
Cost of goods sold
Cost of goods sold was approximately $237,000 in the first three months of 2000
as compared to approximately $167,000 in the same period of 1999. Cost of sales
for the three month period ended March 31, 2000, includes an unfavorable
inventory cost adjustment of approximately $44,000 which is not expected to be
an ongoing adjustment. The cost of sales as a proportion of sales as experienced
in the periods shown in 2000 and 1999 do not necessarily predict the cost of
sales that the Company might experience at such time, if any, that production
level products begin to ship in normal production volumes.
<PAGE>7
Research and development
Research and development expense was approximately $471,000 in the first quarter
of 2000 as compared to approximately $369,000 in the same period of 1999. The
increase in R&D expenditure represents the Company's ongoing program to develop
its products to meet market opportunities. In addition, consistent with year end
1999, certain costs associated with start-up manufacturing and product
development are being treated as research and development expense.
Selling, general and administrative
Selling, general and administrative expenses were approximately $1,025,000 in
the first quarter of 2000 as compared to approximately $607,000 for the same
period of 1999. Selling and marketing expenses increased by approximately
$108,000 or 38% reflecting the Company's ongoing plan to build a world-class
sales and marketing organization. General and administrative expenses increased
by approximately $310,000 of which approximately $300,000 was due to
compensation expense recognized upon issuance of stock options and warrants.
Interest expense, net of interest income
Interest expense net of interest income increased to approximately $937,000 in
the first quarter of 2000 from approximately $659,000 for the same period in
1999. The increase in the current period is due to recording the cost of
warrants issued in connection with demand notes issued for borrowing purposes.
Liquidity and Capital Resources
Through March 31, 2000, the Company funded its operations primarily through the
sale of stock and placement of debt. On March 31, 2000, the Company had a cash
balance of approximately $296,000 and a working capital deficit of approximately
$13,286,000. This compares with cash of approximately $303,000 and a working
capital deficit of approximately $17,309,000 at December 31, 1999. The decrease
in working capital deficit is largely a result of the conversion of $4,690,000
of convertible debentures to equity less an increase in secured promissory notes
and other liabilities of approximately $550,000.
During the quarter ended March 31, 2000, the Company borrowed an additional
total of $975,000 from the investor who has previously funded the Company. This
borrowing is evidenced in the form of three notes. The notes bear interest at
13% and are due on demand. In conjunction with this funding, the Company issued
the holder of the notes five year warrants to purchase up to 487,500 shares of
Common Stock at prices ranging from $1.00 to $0.30 per share.
In conjunction with the borrowing of $975,000 in demand notes, in the quarter
ending March 31, 2000, the Company issued warrants to purchase up to 195,000
shares of the Company's common stock at prices ranging from $0.53 to $1.63 per
share to two brokers.
There can be no assurance that the Company will be successful in its efforts to
internally generate the cash that will be required to fund the Company's
operations and to pay off the liabilities incurred in prior periods. In addition
if the Company's products are successful, the Company will require additional
capital to fund growth. In these events, the Company will require additional
funding to finance its operations. Since December 1997, the Company has financed
<PAGE>8
its operations through the issuance of convertible Debentures and demand notes,
but no assurance can be given that the Company will be able to secure additional
financing or, if it can, that it will be available on terms favorable to the
Company.
Impact of the Year 2000 Issue
The Company has experienced no disruptions in its operations that management can
attribute to Year 2000 software issues. In addition, the Company has seen no
Year 2000 related problems itself or received any reports of such problems from
its customers related to the Company's products.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Swiss American Securities, Inc., et. al. On February 25, 2000, InnovaCom
filed suit against Swiss American Securities, Inc., and five other stock
brokerages in the San Jose Division of the United States District Court (Case
Number C-0020214). The complaint alleges that the defendants in this action
guaranteed improper endorsements of stock certificates issued as part of the
reverse merger of Jettson Realty Development Corporation and InnovaCom, a
Florida corporation, in 1996. The Company's claims in this action were assigned
to InnovaCom by Atlas as part of the settlement with Atlas in the Haynes
litigation discussed in the Company's Form 10-KSB for the year ended December
31, 1999. The litigation is in its initial stages and discovery has not yet
begun.
Item 2. Changes in Securities and Use of Proceeds. - Not Applicable
Item 3. Defaults Upon Senior Securities. - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. - Not Applicable
Item 5. Other Information. - Not Applicable
Item 6. Exhibits and Reports on Form 8-K- Not Applicable
<PAGE>9
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INNOVACOM, INC.
(Registrant)
Date: May 5, 2000 FRANK J. ALIOTO
--------------------------------------
Frank J. Alioto, President and
Chief Executive Officer
Date: May 5, 2000 JAMES D. CASEY
--------------------------------------
James D. Casey, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 296,000
<SECURITIES> 0
<RECEIVABLES> 27,000
<ALLOWANCES> 10,000
<INVENTORY> 218,000
<CURRENT-ASSETS> 602,000
<PP&E> 115,000
<DEPRECIATION> 29,000
<TOTAL-ASSETS> 754,000
<CURRENT-LIABILITIES> 13,888,000
<BONDS> 0
0
0
<COMMON> 36,000
<OTHER-SE> 29,250,000
<TOTAL-LIABILITY-AND-EQUITY> 754,000
<SALES> 297,000
<TOTAL-REVENUES> 297,000
<CGS> 237,000
<TOTAL-COSTS> 1,733,000
<OTHER-EXPENSES> 937,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 937,000
<INCOME-PRETAX> (2,373,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 18,000
<CHANGES> 0
<NET-INCOME> (2,357,000)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
