<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1996.
--------------
Commission File Number 33-33997
--------
Projectavision Inc.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3499909
-------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Penn Plaza, Suite 640, New York, NY 10121
---------------------------------------------------
(Address of Principal Executive Offices) (zip code)
(212) 971-3000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 of
1934 during the preceding 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
------- -------
As of June 30, 1996, there were 13,891,664 shares of the Registrant's common
stock outstanding.
<PAGE>
PROJECTAVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
Item 1. Financial Statements
Comparative Balance Sheet (Unaudited) F-2
Comparative Statement of Operations (Unaudited) F-3
Statements of Stockholders' Equity (Unaudited) F-4
Comparative Statement of Cash Flows (Unaudited) F-10
Notes to Financial Statements (Unaudited) F-11
Item 2. Management's Discussion and Analysis of F-23
Financial Condition and Results
of Operations
SIGNATURES
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company
COMPARATIVE BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
1995 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 3,491,982 $ 7,590,208
Investments-held to maturity (Notes 1 and 5) - 4,896,983
Due from related parties (Notes 6 and 12) 10,683 10,683
Other current assets 324,470 137,396
------------ ------------
Total Current Assets 3,827,135 12,635,270
------------ ------------
INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATE (Note 4) - -
PROPERTY AND EQUIPMENT (Note 1):
Furniture, fixtures and equipment 68,421 68,422
Computers and software 116,155 184,610
Tooling 0 1,154,030
Leasehold improvements 180,795 185,030
------------ ------------
365,371 1,592,092
Less: Accumulated depreciation 151,612 193,916
------------ ------------
Property and equipment, net 213,759 1,398,176
OTHER ASSETS:
Deposits 127,521 107,940
referred Commission -- 120,556
------------ ------------
TOTAL ASSETS $ 4,168,415 $ 14,261,942
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 485,710 $ 1,124,497
------------ ------------
Total Current Liabilities 485,710 1,124,497
------------ ------------
LONG-TERM CONVERTIBLE DEBT
8% Debentures Due January 31, 1999
- 2,800,000
------------ ------------
Total Liabilities 485,710 3,924,497
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 14) - -
STOCKHOLDERS' EQUITY (Notes 9 and 10)
Preferred stock $.01 par value - 1,000,000 shares authorized; Series A
Preferred Stock, 100 shares outstanding ($100,000 liquidation preference)
Series B Preferred Stock, 414,452 and 385,982 shares outstanding in 1994 and 1995 NIL NIL
respectively (liquidation preference $1,929,920 plus accrued and unpaid interest); 3,859 3,859
Series C Preferred Stock, $.001 Par Value-1,000,000 shares
Authorized; 7,500 shares issued; ($100,000 liquidation preference) - 8
Common stock $.0001 par value - 30,000,000 shares authorized; 12,228,803
and 12,388,7790 issued and outstanding in 1994 and 1995 respectively 1,239 1,389
Additional paid-in capital 23,998,477 33,854,444
Deficit accumulated during the development stage (20,320,870) (23,522,255)
------------ ------------
Total Stockholders' Equity 3,682,705 10,337,445
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,168,415 $ 14,261,942
============ ============
</TABLE>
See notes to financial statements
F-2
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
September 9,
For the Three For the Three For the Six For the Six 1988 (Date of
Months Ended Months Ended Months Ended Months Ended Incorporation)
June 30, 1995 June 30, 1996 June 30, 1995 June 30, 1996 to June 30, 1996
<S> <C> <C> <C> <C> <C>
REVENUE (Note 3) - - $ 200,000 - $ 1,305,000
------------ ----------- ------------ ---------- -------------
OPERATING EXPENSES
General and Administrative 269,461 474,982 770,432 1,094,207 8,283,837
Salaries 282,691 245,068 505,608 669,760 4,229,329
Legal fees (Notes 8 and 14) 115,772 187,623 191,607 440,828 2,460,977
Amortization and depreciation (Note 1) 18,112 374,313 36,131 421,748 628,798
Research and development
(Notes 1 and 8) 63,604 (37,138) 156,697 312,354 3,734,277
Patent expense (Note 8) 123,743 113,701 176,458 138,084 1,216,502
License 6,667 - 16,667 - 46,667
------------ ----------- ------------ ---------- -------------
Total Operating Expenses 880,050 1,358,549 1,853,600 3,076,981 20,600,387
------------ ----------- ------------ ---------- -------------
LOSS FROM OPERATIONS (880,050) (1,358,549) (1,653,600) (3,076,981) (19,295,387)
------------ ----------- ------------ ---------- -------------
OTHER INCOME (EXPENSE)
Provision for allowances on advances
(Notes 5 and 11) (35,300) (40,049) (131,176) (58,149) (356,575)
Interest income 95,316 127,082 201,638 207,460 1,255,341
Interest expense - (138,359) - (273,715) (300,385)
------------ ----------- ------------ ---------- -------------
Other Income - Net 60,016 (51,326) 88,462 (124,404) 598,381
------------ ----------- ------------ ---------- -------------
LOSS BEFORE EQUITY IN LOSS OF
UNCONSOLIDATED AFFILIATE (820,032) (1,409,875) (1,565,138) (3,201,385) (18,697,006)
EQUITY IN LOSS OF UNCON-
SOLIDATED AFFILIATE (Note 4) (165,907) 0 (388,347) - (4,825,249)
------------ ----------- ------------ ---------- -------------
NET LOSS $ (985,939) $ (1,409,875) $ (1,953,485) $ (3,201,385) $ (23,522,255)
------------ ----------- ------------ ---------- -------------
NET LOSS PER SHARE $ ( .08) $ ( .14) $ ( .16) $ ( .25) $ ( 2.78)
------------ ----------- ------------ ---------- -------------
AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 1) 11,663,089 13,897,347 12,514,861 13,097,392 8,466,565
------------ ----------- ------------ ---------- -------------
</TABLE>
See notes to financial statements
F-3
<PAGE>
PROJECTAVISION, INC
(A Developed Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Preferred Stock Common Stock
Preferred Stock ----------------------------- --------------------------------
------------------ Proceeds Proceeds
Shares Amount Shares Per Share Amount Shares Per Share Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OCTOBER 1988
ISSUANCE OF COMMON STOCK 3,849,544 $ .00002 $ 106
TO FOUNDERS FOR CASH
NOVEMBER 1988
ISSUANCE OF COMMON STOCK 98,706 1.01 289
TO INVESTORS FOR CASH
MERGER WITH DKY, INC.:
Issuance of preferred stock 100 $NIL
Distribution to DKY stockholders
Additional paid-in capital
NET LOSS
--- ---- --- ----
BALANCE, DECEMBER 31, 1988 100 NIL 3,948,250 1.32 395
FEBRUARY 1989
ISSUANCE OF COMMON STOCK
TO INVESTORS FOR CASH
(Net of private placement costs) 518,416 1.32 52
NET LOSS
--- ---- --- ---- --------- ----
BALANCE, DECEMBER 31, 1989 100 NIL 4,466,666 447
REVERSAL OF ACCRUAL FOR
PRIVATE PLACEMENT COSTS
JULY 1990
INITIAL PUBLIC OFFERING
(Net of public offering costs) 1,600,000 1.86 160
NET LOSS
--- ---- --- ---- --------- ----
BALANCE, DECEMBER 31, 1990 100 NIL 6,066,666 607
ISSUANCE OF COMMON STOCK FOR
RESEARCH AND DEVELOPMENT 146,000 1.24 15
ISSUANCE OF COMMON STOCK FOR
MEMBERSHIP FEE 30,000 .83 2
ISSUANCE OF COMMON STOCK FOR
PATENT COSTS 105,251 1.00 10
NET LOSS
--- ---- --- ---- --------- ----
BALANCE, DECEMBER 31, 1991 100 $ NIL 6,347,91 $ 635
--- ---- --- ---- --------- ----
<PAGE>
Deficit
Accumulated
Additional During the
Paid-In Development Unearned
Capital Stage Compensation Total
OCTOBER 1988
ISSUANCE OF COMMON STOCK $ $ $ 106
TO FOUNDERS FOR CASH
NOVEMBER 1988
ISSUANCE OF COMMON STOCK 99,771 100,000
TO INVESTORS FOR CASH
MERGER WITH DKY, INC.:
Issuance of preferred stock (300,000) (300,000)
Distribution to DKY stockholders 100,900 100,900
Additional paid-in capital
NET LOSS (257,443) (257,443)
---------- ----------
BALANCE, DECEMBER 31, 1988 (99,389) (356,437)
FEBRUARY 1989
ISSUANCE OF COMMON STOCK
TO INVESTORS FOR CASH 681,443 681,495
(Net of private placement costs)
NET LOSS (589,653) (589,653)
--------- ---------- ----------
BALANCE, DECEMBER 31, 1989 582,054 (847,096) (264,595)
REVERSAL OF ACCRUAL FOR
PRIVATE PLACEMENT COSTS 50,000 50,000
JULY 1990
INITIAL PUBLIC OFFERING
(Net of public offering costs) 2,977,472 2,977,632
NET LOSS (1,019,315) (1,019,315)
--------- ---------
BALANCE, DECEMBER 31, 1990 3,609,526 (1,866,411) 1,743,722
ISSUANCE OF COMMON STOCK FOR
RESEARCH AND DEVELOPMENT 180,985 181,000
ISSUANCE OF COMMON STOCK FOR
MEMBERSHIP FEE 24,997 25,000
ISSUANCE OF COMMON STOCK FOR
PATENT COSTS 105,241 105,251
NET LOSS (1,617,501) (1,617,501)
---------- ----------- --- ----------
BALANCE, DECEMBER 31, 1991 $3,920,749 $(3,483,912) $ 0 $ 437,472
---------- ----------- --- ----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PROJECTAVISION, INC
(A Developed Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Preferred Stock Common Stock
Preferred Stock ----------------------------- --------------------------------
------------------ Proceeds Proceeds
Shares Amount Shares Per Share Amount Shares Per Share Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1992
ISSUANCE OF COMMON
STOCK FOR CONSULTING 200,000 1.4 $ 20
APRIL 1992
ISSUANCE OF COMMON
STOCK FOR CASH 317,460 2.14 32
MAY 1992
ISSUANCE OF SERIES B PREFERRED
STOCK FOR SALARIES 80,000 $ 800
ISSUANCE OF SERIES B PREFERRED
STOCK FOR PROFESSIONAL SERVICES 29,000 290
ISSUANCE OF SERIES B PREFERRED
STOCK FOR FUTURE RENT 9,000 90
ISSUANCE OF SERVICES B PREFERRED
STOCK FOR FUTURE LEGAL SERVICES 20,000 200
JUNE 1992
ISSUANCE OF COMMON STOCK FOR
CASH INCLUDING 28,064 SHARES
ISSUED FOR COMMISSION 391,700 2.55 39
ISSUANCE OF COMMON STOCK
FOR CASH 146,333 2.70 15
AUGUST 1992
ISSUANCE OF SERIES B PREFERRED
STOCK FOR PROFESSIONAL
SERVICES 30,000 300
NOVEMBER/DECEMBER 1992
ISSUANCE OF COMMON STOCK
FOR WARRANTS AND CASH (Note 9) 500,000 1.00 50
ISSUANCE OF COMMON AND
PREFERRED STOCK FOR WARRANTS 246,452 2,464 1,483,200 1.00 148
ISSUANCE OF COMMON STOCK
FOR PATENT COSTS 37,065 1.00 3
AMORTIZATION OF UNEARNED
COMPENSATION
NET LOSS
--- ---- ------- ------ --------- -----
BALANCE DECEMBER 31, 1992 100 $NIL 414,452 $4,144 9,423,675 $ 942
--- ---- ------- ------ --------- -----
<PAGE>
Deficit
Accumulated
Additional During the
Paid-In Development Unearned
Capital Stage Compensation Total
JANUARY 1992
ISSUANCE OF COMMON
STOCK FOR CONSULTING $ 287,481 $(287,501)
APRIL 1992
ISSUANCE OF COMMON
STOCK FOR CASH 899,968 $ 900,000
MAY 1992
ISSUANCE OF SERIES B PREFERRED
STOCK FOR SALARIES 359,200 360,000
ISSUANCE OF SERIES B PREFERRED
STOCK FOR PROFESSIONAL SERVICES 130,210 130,500
ISSUANCE OF SERIES B PREFERRED
STOCK FOR FUTURE RENT 40,410 (40,500)
ISSUANCE OF SERVICES B PREFERRED
STOCK FOR FUTURE LEGAL SERVICES 89,800 (9,159) 80,841
JUNE 1992
ISSUANCE OF COMMON STOCK FOR
CASH INCLUDING 28,064 SHARES
ISSUED FOR COMMISSION 999,961 1,000,000
ISSUANCE OF COMMON STOCK
FOR CASH 395,085 395,100
AUGUST 1992
ISSUANCE OF SERIES B PREFERRED
STOCK FOR PROFESSIONAL
SERVICES 134,700 135,000
NOVEMBER/DECEMBER 1992
ISSUANCE OF COMMON STOCK
FOR WARRANTS AND CASH (Note 9) 499,950 500,000
ISSUANCE OF COMMON AND
PREFERRED STOCK FOR WARRANTS 2,222,188 2,224,800
ISSUANCE OF COMMON STOCK
FOR PATENT COSTS 37,062 37,065
AMORTIZATION OF UNEARNED
COMPENSATION 147,771 147,771
NET LOSS (2,002,795) (2,002,795)
----------- ----------- --------- ----------
BALANCE DECEMBER 31, 1992 $10,016,764 $(5,486,707) $ (189,389) $4,345,754
----------- ----------- --------- ----------
</TABLE>
F-5
<PAGE>
PROJECTAVISION, INC
(A Developed Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Preferred Stock Common Stock
Preferred Stock ----------------------------- --------------------------------
------------------ Proceeds Proceeds
Shares Amount Shares Per Share Amount Shares Per Share Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 100 NIL 414,452 $4,144 9,423,675 $942
JANUARY, 1993
ISSUANCE OF COMMON STOCK
FOR BONUS 2,000 3.41
ISSUANCE OF COMMON STOCK
FOR SERVICES 100,500 3.41 10
ISSUANCE OF COMMON STOCK
FOR FINDERS FEES 9,000 3.41 1
MARCH, 1993
ISSUANCE OF COMMON STOCK
FOR STOCK OPTIONS EXERCISED 210,000 041.50 21
APRIL, 1993
ISSUANCE OF COMMON STOCK FOR CASH 565,230 5.80.9.63 57
ISSUANCE OF COMMON STOCK FOR CASH 100,000 2.75 10
ISSUANCE OF COMMON STOCK
FOR WARRANTS 13,396 1.42 1
ISSUANCE OF COMMON STOCK
FOR WARRANTS 4,547 3.00
AUGUST, 1993
ISSUANCE OF COMMON STOCK
FOR STOCK OPTIONS EXERCISED 20,000 1.03 2
ISSUANCE OF COMMON STOCK
FOR WARRANTS 800 0.75
SEPTEMBER, 1993
ISSUANCE OF COMMON STOCK FOR CASH 215,000 6.00 22
AMORTIZATION OF UNEARNED
COMPENSATION
NET LOSS
--- ---- ------- ------ ---------- ------
BALANCE, DECEMBER 31,1993 100 $NIL 414,452 $4,144 10,664,148 $1,066
--- ---- ------- ------ ---------- ------
<PAGE>
Deficit
Accumulated
Additional During the
Paid-In Development Unearned
Capital Stage Compensation Total
BALANCE, DECEMBER 31, 1992 $10,016,764 ($5,486,707) ($189,389) $4,345,754
JANUARY, 1993
ISSUANCE OF COMMON STOCK
FOR BONUS 6,825 6,825
ISSUANCE OF COMMON STOCK
FOR SERVICES 342,947 342,957
ISSUANCE OF COMMON STOCK
FOR FINDERS FEES 30,711 30,712
MARCH, 1993
ISSUANCE OF COMMON STOCK
FOR STOCK OPTIONS EXERCISED 312,354 312,375
APRIL, 1993
ISSUANCE OF COMMON STOCK FOR CASH 3,899,027 3,899,084
ISSUANCE OF COMMON STOCK FOR CASH 274,990 275,000
ISSUANCE OF COMMON STOCK
FOR WARRANTS 19,119 19,120
ISSUANCE OF COMMON STOCK
FOR WARRANTS 13,692 13,692
AUGUST, 1993
ISSUANCE OF COMMON STOCK
FOR STOCK OPTIONS EXERCISED 20,623 20,625
ISSUANCE OF COMMON STOCK
FOR WARRANTS 600 600
SEPTEMBER, 1993
ISSUANCE OF COMMON STOCK FOR CASH 1,189,978 1,190,000
AMORTIZATION OF UNEARNED
COMPENSATION 183,419 183,419
NET LOSS ( 2,730,242) (2,730,242)
----------- ---------- ------ -----------
BALANCE, DECEMBER 31,1993 $16,127,630 ($8,216,949) ($5,970) $ 7,909,921
----------- ---------- ------ -----------
</TABLE>
See notes to financial statements
F-6
<PAGE>
PROJECTAVISION, INC
(A Developed Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Preferred Stock Common Stock
Preferred Stock ----------------------------- --------------------------------
------------------ Proceeds Proceeds
Shares Amount Shares Per Share Amount Shares Per Share Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 100 $NIL 414,452 $4,144 10,664,148 $1,066
JANUARY 1994
ISSUANCE OF COMMON STOCK FOR CASH 200,000 7.8 20
ISSUANCE OF COMMON STOCK FOR SERVICES 1,000 10.50 -
ISSUANCE OF COMMON STOCK FOR CASH 250,000 6.40 25
ISSUANCE OF COMMON STOCK FOR STOCK
OPTIONS EXERCISED 73,500 4.75 7
MARCH
ISSUANCE OF COMMON STOCK FOR STOCK
DIVIDENDS 11,590 1
ISSUANCE OF COMMON STOCK FOR BONUS 4,000 7.00 1
ISSUANCE OF COMMON STOCK FOR SERVICES 31,000 7.00 3
ISSUANCE OF COMMON STOCK FOR FEES
STOCK WARRANTS 20,000 7.00 2
AMORTIZATION OF UNEARNED COMPENSATION
APRIL
ISSUANCE OF COMMON STOCK FOR SERVICES 500
MAY
ISSUANCE OF COMMON STOCK FOR CASH 50,000 4.88 5
ISSUANCE OF COMMON STOCK FOR CASH 150,000 4.31 15
ISSUANCE OF COMMON STOCK FOR CASH 100,000 3.84 10
ISSUANCE OF COMMON STOCK FOR CASH 100,000 3.75 10
ISSUANCE OF COMMON STOCK FOR STOCK
WARRANTS EXERCISED 1,000 1.50 -
JUNE
ISSUANCE OF COMMON STOCK FOR CASH 150,000 4.03 15
ISSUANCE OF COMMON STOCK FOR CASH 125,000 3.75 13
ISSUANCE OF COMMON STOCK FOR STOCK
WARRANTS EXERCISED 600 1.50
ISSUANCE OF COMMON STOCK FOR STOCK
OPTIONS EXERCISED 30,000 0.81 3
--- ---- ------- ------ ---------- ------
SUB TOTAL 100 $NIL 414,452 $4,144 11,962,338 $1,196
--- ---- ------- ------ ---------- ------
<PAGE>
Deficit
Accumulated
Additional During the
Paid-In Development Unearned
Capital Stage Compensation Total
BALANCE, DECEMBER 31, 1993 $ 16,127,830 $(8,216,949) $(5,970) $ 7,909,921
JANUARY 1994
ISSUANCE OF COMMON STOCK FOR CASH 1,574,980 1,575,000
ISSUANCE OF COMMON STOCK FOR SERVICES 10,500 10,500
ISSUANCE OF COMMON STOCK FOR CASH 1,381,225 1,381,250
ISSUANCE OF COMMON STOCK FOR STOCK
OPTIONS EXERCISED 349,993 350,000
MARCH
ISSUANCE OF COMMON STOCK FOR STOCK
DIVIDENDS (1)
ISSUANCE OF COMMON STOCK FOR BONUS 27,999 28,000
ISSUANCE OF COMMON STOCK FOR SERVICES 218,747 218,750
ISSUANCE OF COMMON STOCK FOR FEES
STOCK WARRANTS (2)
AMORTIZATION OF UNEARNED COMPENSATION 5,970 5,970
APRIL
ISSUANCE OF COMMON STOCK FOR SERVICES
MAY
ISSUANCE OF COMMON STOCK FOR CASH 243,745 243,750
ISSUANCE OF COMMON STOCK FOR CASH 646,860 646,875
ISSUANCE OF COMMON STOCK FOR CASH 364,365 384,375
ISSUANCE OF COMMON STOCK FOR CASH 374,990 375,000
ISSUANCE OF COMMON STOCK FOR STOCK
WARRANTS EXERCISED 1,500 1,500
JUNE
ISSUANCE OF COMMON STOCK FOR CASH 604,485 604,500
ISSUANCE OF COMMON STOCK FOR CASH 468,737 468,750
ISSUANCE OF COMMON STOCK FOR STOCK
WARRANTS EXERCISED 900 900
ISSUANCE OF COMMON STOCK FOR STOCK
OPTIONS EXERCISED 24,372 24,375
----------- ---------- ------- -----------
SUB TOTAL $22,441,025 ($8,216,949) $ 0 $14,229,416
----------- ---------- ------- -----------
</TABLE>
See notes to financial statements
F-7
<PAGE>
PROJECTAVISION, INC
(A Developed Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Preferred Stock Common Stock
Preferred Stock ----------------------------- --------------------------------
------------------ Proceeds Proceeds
Shares Amount Shares Per Share Amount Shares Per Share Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBTOTAL 100 NIL 414,452 4,144 11,962,338 1,196
ISSUANCE OF COMMON STOCK FOR CASH 45,860 4.59 5
ISSUANCE OF COMMON STOCK FOR STOCK
DIVIDENDS 16,297 - 2
NOVEMBER
ISSUANCE OF COMMON STOCK FOR CASH 200,000 4.03 20
DIFFERED STOCK CONVERTED TO
COMMON STOCK (4,306) (43) 4,308 1
NET LOSS
--- ---- ------- ------ ---------- ------
BALANCE, DECEMBER 31, 1994 100 $NIL 410,144 $4,101 12,228,803 $1,223
--- ---- ------- ------ ---------- ------
Deficit
Accumulated
Additional During the
Paid-In Development Unearned
Capital Stage Compensation Total
SUBTOTAL 22,441,025 (8,216,949) 0 14,229,416
ISSUANCE OF COMMON STOCK FOR CASH 210,662 210,667
ISSUANCE OF COMMON STOCK FOR STOCK
DIVIDENDS (2)
NOVEMBER
ISSUANCE OF COMMON STOCK FOR CASH 806,230 806,250
DIFFERED STOCK CONVERTED TO
COMMON STOCK 43
NET LOSS (5,632,283) (5,632,263)
----------- ------------ -------- -----------
BALANCE, DECEMBER 31, 1994 $23,457,958 $(13,849,232) $ 0 $ 9,614,050
----------- ------------ -------- -----------
</TABLE>
See notes to financial statements
F-8
<PAGE>
PROJECTAVISION, INC
(A Developed Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES 8 AND 9)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 100 NIL 410,144 $4,101 $0 NIL 12,228,803 $1,223
MARCH
ISSUANCE OF COMMON STOCK 26,040 3
FOR STOCK DIVIDENDS
APRIL
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK (24,162) (242) 24,162 2
ISSUANCE OF COMMON STOCK FOR
COMPENSATION OF OFFICER & DIRECTOR 50,000 5
ISSUANCE OF COMMON STOCK
FOR PROFESSIONAL SERVICES 83,030 8
SEPTEMBER
ISSUANCE OF COMMON STOCK
FOR STOCK DIVIDENDS 26,755 3
DECEMBER
CANCELLATION OF COMMON STOCK FOR
COMPENSATION OF OFFICER & DIRECTOR (50,000) (5)
NET LOSS
---- ---- ------- ------ ----- ------- ----------- ------
BALANCE AT DECEMBER 31, 1995 100 NIL 385,982 $3,859 0 NIL 12,388,790 $1,239
---- ---- ------- ------ ----- ------- ----------- ------
MARCH
ISSUANCE OF COMMON STOCK 16,545 2
FOR STOCK DIVIDENDS
NET LOSS
---- ---- ------- ------ ----- ------- ----------- ------
BALANCE AT MARCH 31, 1996 100 0 385,982 $3,859 0 0 12,405,335 $1,241
---- ---- ------- ------ ----- ------- ----------- ------
APRIL
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 1,456,329
JUNE
ISSUANCE OF SERIES C PREFERRED STOCK 7,500 $8
SERIES C PREFERRED STOCK PLACEMENT FEE
SERIES C PREFERRED STOCK DIVIDEND
EXERCISE STOCK OPTIONS 30,000 $3
NET LOSS
---- ---- ------- ------ ----- ------- ----------- ------
BALANCE AT JUNE 30, 1996 100 0 385,982 $3,859 7,500 $8 13,891,664 $1,389
---- ---- ------- ------ ----- ------- ----------- ------
<PAGE>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
CAPITAL STAGE TOTAL
BALANCE, DECEMBER 31, 1994 $23,457,958 ($13,849,232) $9,614,05x
MARCH
ISSUANCE OF COMMON STOCK (2) NIL
FOR STOCK DIVIDENDS
APRIL
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK 240
ISSUANCE OF COMMON STOCK FOR
COMPENSATION OF OFFICER & DIRECTOR 124,995 125,000
ISSUANCE OF COMMON STOCK
FOR PROFESSIONAL SERVICES 540,284 540,29x
SEPTEMBER
ISSUANCE OF COMMON STOCK
FOR STOCK DIVIDENDS (3)
DECEMBER
CANCELLATION OF COMMON STOCK FOR
COMPENSATION OF OFFICER & DIRECTOR (124,995) (125,000)
NET LOSS (6,471,638) (6,471,638)
----------- ------------ ----------
BALANCE AT DECEMBER 31, 1995 $23,998,477 ($20,320,870) $3,682,70x
----------- ------------ ----------
MARCH
ISSUANCE OF COMMON STOCK (2) $0
FOR STOCK DIVIDENDS
NET LOSS (1,791,510) (1,791,510)
----------- ------------ ----------
BALANCE AT MARCH 31, 1996 ($23,998,475) ($22,112,380) $1,891,19x
----------- ------------ ----------
APRIL
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK $2,842,855 $2,843,000
JUNE
ISSUANCE OF SERIES C PREFERRED STOCK $7,499,992 $7,500,000
SERIES C PREFERRED STOCK PLACEMENT FEE ($500,000) ($500,000)
SERIES C PREFERRED STOCK DIVIDEND ($11,250) ($11,250)
EXERCISE STOCK OPTIONS $24,372 $24,372
NET LOSS ($1,409,875) ($1,409,875)
----------- ------------ ----------
BALANCE AT JUNE 30, 1996 $33,854,444 ($23,522,255) $10,337,442
----------- ------------ ----------
</TABLE>
See notes to financial statements
F-9
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
COMPARATIVE STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the Period
September 9,
For the For the 1988 (Date of
Six Months Six Months Incorporation)
June 30, June 30, to June 30,
----------- ----------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,953,485) (3,201,385) (23,522,255)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization and depreciation 34,187 421,748 628,800
Issuance of common stock for services 665,292 - 1,664,131
Other noncash operating expenses - - 288,216
Settlement of legal fees - - (97,287)
Provision for allowances on advances 113,176 - 298,426
Equity in loss of unconsolidated affiliate 388,347 - 2,695,996
Asset and liability management:
Prepaid expenses and other current assets (399,419) 187,074 (185,396)
Organization costs - - (52,940)
Due from related party 892 - (10,683)
Deposits ( 1,000) 19,581 (107,940)
Advances in contemplation of investment (113,176) - (298,426)
Accounts payable and accrued expenses 7,505 638,787 1,271,154
----------- ----------- -----------
Net cash used in operating activities (1,257,681) (1,934,195) (17,428,204)
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (14,878) (1,226,721) (1,592,091)
Investment in and advances to unconsolidated affiliate - (4,703,440)
Allowance taken on investment in unconsolidated affiliate 2,129,252
Interest accrued on loan to unconsolidated affiliate - (121,808)
Licenses (44,629) - (30,000)
Proceed of investments held to maturity 5,401,761 - 10,638,848
Purchase of investments held to maturity (5,618,650) (4,896,983) (15,535,831)
Certificate of deposit 91,505 - -
----------- ----------- -----------
Net cash provided by or (used in) investing activities (184,891) (6,123,704) (9,215,070)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from notes payable - 10,000,000 10,800,000
Repayment of notes payable - (4,357,000) (5,479,705)
Proceeds from issuance of common stock - net - - 18,617,239
Issuance of preferred stock - 7,500,000 8,216,341
Preferred Stock Issuance Fees - ( 500,000) (500,000)
Series C Preferred Stock Cash Dividend - (11,250) ( 11 ,250)
Proceeds from warrants exercised - - 2,760,612
Proceeds from stock options exercised - 24,375 398,750
Deferred private placement cost - (500,000) (518,505)
Deferred public offering costs - - (50,000)
----------- ----------- -----------
Net cash provided by financing activities 0 12,156,125 34,233,482
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,442,572) 4,098,226 7,590,208
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 3,712,990 3,491,982 -
----------- ----------- -----------
CASH AND CASH EQUIVALENTS-END OF PERIOD $ 2,270,418 $ 7,590,208 $ 7,590,208
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest - $ 135,356 $ 137,010
============ ============ ============
</TABLE>
See notes to financial statements F-10
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
- ------------------------------------------------------------------------------
A liability of $300,000 has been incurred in connection with the merger of DKY
into the Company and has been recorded as a reduction of stockholders' equity.
In March 1990, a $50,000 reduction in accounts payable and increase in
additional paid-in capital was recorded to reflect the release of certain
obligations in conjunction with the private placement.
In January 1992, the Company issued 200,000 shares of its common stock for
consulting services through January 1994.
In May 1992, the Company issued 138,000 shares of Series B preferred stock
(valued at $621,000); 109,000 of the shares were issued as compensation for
services rendered, and 29,000 shares were for future services and office rental.
In June 1992, the Company issued 28,064 shares of its common stock as payment
for services rendered in conjunction with a private placement.
In September 1992, the Company issued 30,000 shares of Series B preferred stock
(valued at $135,000) for consulting services.
In January 1993, the Company issued 2,000 shares of its common stock for
bonuses. 100,500 shares for services rendered, and 9,000 shares for finder fees.
In January 1994, the Company issued 1,000 shares of its common stock for
services rendered.
In March 1994, the Company issued 11,590 shares of its common stock as payment
for the dividend on its series B convertible preferred stock, 4,000 shares of
its common stock for bonuses, and 31,000 shares of its common stock for services
rendered in connection with its private placements. Also in March 1994, the
Company issued 20,000 shares of its common stock for fees regarding the exercise
of the Company's stock warrants.
In April 1994 the Company issued 500 shares for services rendered.
In June 1994, the Company issued 16,297 shares of its common stock as payment
for the dividend on its series B convertible preferred stock.
In December 1994, the Company issued 4,308 shares of its common stock for 4,308
shares of its series B convertible preferred stock.
In March 1995, the Company issued 26,040 of its common stock as payment for the
dividend on its series B convertible stock.
In April 1995, the Company issued 50,000 shares of its common stock for services
rendered by an officer and director of the Company. These shares were canceled
by the Company in December, 1995. Also, in April 1995, the Company issued 24,162
shares of its common stock for 24,162 shares of its series B convertible
preferred stock, and 83,030 shares of its common stock for professional services
rendered and to be rendered.
In September 1995, the Company issued 26,755 shares of its common stock as
payment for the dividend on its series B convertible stock.
In March 1996, the Company issued 16,545 shares of its common stock as payment
for the dividend on its series B convertible stock.
In April 1996 the Company issued 1,456,329 shares of its common stock and paid $
4,357,000 in cash in exchange for retiring $ 7.2 million of convertible debt.
F-11
See notes to financial statements
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Projectavision, Inc. (the "Company"), a Delaware
corporation, was incorporated on September 9, 1988. The Company has
been formed to complete development of a unique proprietary solid state
projection television and related video display technology.
In addition, the Company will seek to identify new high technology and
electronic products for consumers and commercial customers. The Company
is a development stage enterprise and has generated no revenue from its
planned principal operations.
Property and Equipment - Property and equipment are stated at cost and
depreciated on the straight-line basis over the estimated useful lives
of the respective assets. Tooling costs for the Digital Home Theater
are being capitalized, with amortization to begin when revenues
commence. The estimated useful service lives of the assets are as
follows:
Furniture, fixtures and equipment 7 years
Computers and software 5 years
Leasehold improvements 3 years
Property and equipment are carried at cost. Depreciation and
amortization are computed based on economic useful lives using the
straight-line method.
Cash Equivalents - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount approximates fair value because of the
short maturity of those instruments.
Investments - The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"), upon purchase of debt securities.
SFAS 115 requires an enterprise to classify debt and equity securities
into one of three categories: held-to-maturity, available-for-sale, or
trading. Investments classified as held-to-maturity are measured at
amortized cost. At December 31, 1994, the Company's investments were
classified as held-to-maturity. The fair values of the investments were
estimated based on quoted market prices.
Organization Costs - Organization costs are recorded at cost and
amortized on a straight-line basis over five years.
Research and Development - Costs are expensed as incurred.
Net Loss Per Share - The cumulative loss per share for the period
September 9, 1988 (Date of incorporation) to December 31, 1995 will not
agree to the sum of the individual years due to the weighted average of
the shares outstanding. Net loss per share is computed based on the
number of shares outstanding during the period, as adjusted for reverse
splits in February 1990 and on July 17, 1990, and the stock split in
March 1992 of the Company's common stock as well as the effect of stock
options outstanding prior to August 1, 1990 (consummation date of the
public offering), from December 31, 1993 through 1995, the net loss per
share calculations are computed based on the weighted average number of
shares outstanding.
Excluded from the computations in each period are warrants, and in
1992, 1993, 1994, and 1995 stock options issued after August 1, 1990,
as their effect is antidilutive. Escrowed shares were excluded from
each period's computation up until their issuance on August 7, 1991.
Development Stage - The Company, currently in the development stage,
has not yet received revenues from its planned principal operations and
has continued to incur losses since its inception. The Company has an
accumulated deficit of $23,522,255 as of June 30, 1996, including a
loss of $1,409,875 during the quarter ended June 30, 1996. Management
of the Company believes that it has sufficient funds to successfully
complete its development program and to sustain its operations.
F-12
<PAGE>
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ------------------------------------------------------------------------------
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No.109, "Accounting for
Income Taxes," pursuant to which deferred taxes are determined based on
the difference between the financial statement and tax basis of assets
and liabilities, using enacted tax rates, as well as any net operating
or capital loss or tax credit carryforwards expected to reduce taxes
payable in future years.
Use of Estimates- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Stock-Based Compensation - In October 1995, the FASB issued SFAS No.
123, "Accounting for Stock- Based Compensation," which requires
adoption of the disclosure provisions no later than fiscal years
beginning after December 15, 1995 and adoption of the measurement and
recognition provisions for nonemployee transactions no later than after
December 15, 1995. The new standard defines a fair value method of
accounting for the issuance of stock options and other equity
instruments. Under the fair value method, compensation cost is measured
at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting
period. Pursuant to SFAS No. 123, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," but would be
required to disclose in a note to the financial statements pro forma
net income and per share amounts as if the company had applied the new
method of accounting. SFAS No. 123 also requires increased disclosures
for stock-based compensation arrangements regardless of the method
chosen to measure and recognize compensation for employee stock- based
arrangements. The Company has not yet determined if it will elect to
change to the fair value method, nor has it determined the effect the
new standard will have on its operating results should it elect to make
such a change.
2. MERGER WITH DKY
In February 1990, an agreement in principle was reached, as a result of
which, on July 12, 1990, DKY, Inc. (DKY), the Company's majority
stockholder, was merged into the Company. Pursuant to the terms of the
agreement, all shares of common stock of DKY were exchanged for an
aggregate 3,223.764 shares of the Company's common stock, which gave
effect to the July 17, 1990 two-for-three reverse stock split and the
March 1992 two-for-one stock split. The equal number of shares of the
Company owned by DKY were canceled. Each share of DKY preferred stock
(100 shares) was exchanged for one share of the Company's Series A
Preferred Stock with a liquidation value of $1,000 per share. In
addition, $300,000 was paid to the former stockholders of DKY as
additional consideration for their common stock in DKY. Such merger has
been treated as if it were a pooling of interests and has been recorded
in the financial statements retroactively.
3. REVENUE
In October 1989, the Company entered into a firm fixed price contract
with the United States Defense Advanced Research Projects Agency
(DARPA) to utilize the Company's technology to develop prototype video
projectors for potential use with high definition television.
Under the terms of the contract, the Company received an aggregate of
$1,000,000 over a nine-month period beginning October 2, 1989 upon
submission of an aggregate of ten technical design and progress reports
delineating the work performed.
F-13
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
3. REVENUE (Continued)
The Company recognized contract revenue in accordance with the terms
specified by the contract, which requires submission of proper invoices
and certification by a DARPA official that all reports have been
received and accepted.
During the year ended December 31, 1989, the Company submitted billings
to DARPA totaling $625,000, of which $375,000 was accompanied by
completed progress reports and recognized as revenue. During the year
ended December 31, 1990, the Company recognized in full and collected
the remaining revenue under the DARPA contract.
In 1993, the Company received $105,000 royalty income from licensing
agreements.
In January, 1995, the Company received $200,000 royalty income from a
licensing agreement.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On April 13, 1993, the Company entered into an agreement with Tamarack
Storage Devices, Inc. ("Tamarack") pursuant to which the Company has
the right to acquire up to 50 percent of Tamarack's common stock
representing 37.2 percent of the issued and outstanding voting
securities of Tamarack. Under the terms of the agreement, the Company
invested $1,000,000 in cash in Tamarack on the date of the agreement
and, in July 1993 and October 1993, respectively, invested an
additional $2,000,000 in the aggregate in Tamarack. As of March 1994,
the Company owns 37.2 percent of the voting stock of Tamarack and has
accounted for this investment under the equity method. Market value of
the common shares is not readily ascertainable. The goodwill recorded
with this investment, which represented the excess of the Company's
investment over the underlying net assets of Tamarack, was $1,883,995.
Such amount was being amortized over ten years and is reported in the
income statement in Equity in Loss from Unconsolidated Affiliate.
Amortization expense related to such goodwill for the fiscal years
ended December 31, 1993, 1994, and 1995 was $94,840, $197,884 and
$148,413 respectively. The Company issued 32,000 shares of common stock
(valued at $109,120) for advisory services received in connection with
the acquisition.
In May, 1994 the Company loaned Tamarack $1,500,000 with interest
payable at 6 percent such loan is evidenced by a note and is unsecured.
The loan is to be repaid from 5 percent of gross revenues or a public
offering, whichever comes first, and in any event, not after September
30, 2000. In conjunction with this loan Tamarack issued a warrant for
the purchase of common stock at a price of $5.00 per share or the
offering price in the event of a qualified offering, whichever comes
first. The number of warrant shares is to be determined by dividing the
face amount of the loan by the exercise price. The Company is entitled
to purchase 1,500,000 shares of common stock of Tamarack at a price of
$.01 per share. Such purchase would result in Projectavision obtaining
a controlling interest in Tamarack.
On March 16, 1995, Tamarack received a commitment from Projectavision
to fund its cash needs through December 31, 1995 to continue its
operations as then constituted. Pursuant to this $60,000 was advanced
to Tamarack on August 28, 1995 and $34,240 in October and November of
1995.
The Company recorded a reserve against their investment in Tamarack of
$300,000 at December 31, 1994 and at December 31, 1995 the Company took
its investment in and advances to Tamarack to zero recording an
additional reserve of $2,129,252 due to Tamarack's inability, to date,
to commercialize its holographic storage technology and its current
lack of prospects. In addition Tamarack continues to incur losses and
its viability to achieve profitable operations is doubtful.
F-14
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE (Continued)
The following represents audited summarized financial information
of Tamarack at December 31, 1994:
9 months ended December 31, 1994:
Other income $ 895,000
Costs and expenses 3,145,000
Net loss $ ( 2,250,000)
---------------
Balance Sheet at December 31, 1994:
Current assets $ 812,000
Noncurrent assets 226,000
Total assets $ 1,038,000
Current liabilities $ 338,000
Other liabilities 1,508,000
Shareholders' deficit (808,000)
---------------
Total liabilities and
shareholders deficit $ 1,038,000
The following presents the Company's proportional interest in the
audited summarized financial information of Tamarack:
9 months ended December 31, 1994:
Other income $ 335,625
Costs and expenses 1,179,375
Net loss $ (843,750)
===============
Balance Sheet at December 31, 1994:
Current assets $ 304,500
Non-current assets 84,750
Total assets $ 389,250
Current liabilities $ 126,750
Other liabilities 565,500
Shareholders' deficit (303,000)
---------------
Total liabilities and
shareholders' deficit $ 389,250
===============
F-15
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE (Continued)
Tamarack has changed its year-end to conform to that of
Projectavision. The following presents unaudited summarized
financial information of Tamarack at March 31, 1994:
3 months ended March 31, 1994: Unaudited
---------
Other income $ 572,000
Costs and expenses 1,505,501
---------------
Net loss $ ( 933,501)
===============
The following presents the Company's proportional interest in the
unaudited summarized financial information of Tamarack:
3 months ended March 31, 1994: Unaudited
---------
Other income $ 214,500
Costs and expenses 564,563
Net Loss $ (50,063)
===============
5. PROVISION FOR ALLOWANCE ON ADVANCES
The Company has made advances through July 31, 1995 in
contemplation of an investment in a high technology company. The
president of the Company is related to an individual who is an
executive officer and director of Projectavision. Such advances
aggregated $298,426 and have been fully reserved for at December
31, 1995.
6. ASSIGNMENT AGREEMENT
On March 19, 1990, and officer/stockholder of the Company entered
into an assignment agreement with the Company whereby all rights,
title and interest to the projection technology were assigned to
the Company. The rights, title and interest to the United States
patent and foreign patents relating to the projector technology
under development by the Company were originally applied for by
this officer/stockholder.
7. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with several
officers and directors. Aggregated minimum compensation under
these agreements will be $360,000 per year through 1996.
For the years ended December 31, 1992 and 1993, salary expense
aggregated approximately $300,000 to its founders under the
various employment agreements. For 1994 and 1995 it was
approximately $330,000 and $527,000 respectively.
8. STOCKHOLDERS' EQUITY
On February 20, 1990, the Company amended its Certificate of
Incorporation, decreasing the authorized stock of the Company to
an aggregate of 31,000,000 shares consisting of 30,000,000 shares
of common stock with a par value of $.0001 per share and
1,000,000 shares of $.01 par value preferred stock. Of the shares
of preferred stock authorized for issuance, 100 shares have been
designated as Series A Preferred Stock. Each share of Series A
Preferred Stock entitles the stockholder to a liquidation
preference of $1,000.
Also, on February 20, 1990, the Company's Board of Directors
declared a reverse split of common stock (one share for
11.34679611 shares) to the stockholders of record on February 20,
1990. On July 17, 1990, the Company effected a two-for-three
reverse split of common stock.
F-16
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY (continued)
Pursuant to this agreement, the third party may, at any time
prior to July 24, 1996, convert all or a portion of the shares of
common stock in accordance with the following provisions:
o If the Company achieves a net worth of at least $10,000,000,
all of the shares may be exchanged for $181,000 in cash plus
interest accrued at a rate of 10 percent per annum;
o 20 percent or any multiple thereof of the shares may be
exchanged for a royalty interest in the Company's licensing
activities. The percentage and maximum amount payable shall be
determined by the time period upon which the election to
receive a royalty interest is made and is as follows:
Election Royalty Maximum
to Convert Percentage Amount Payable*
Within 12 months 5% $ 500,000
13-24 months 4% 400,000
25-36 months 3% 300,000
37-48 months 2% 200,000
49-60 months 1% 100,000
*Based on exchange of all the shares of stock
In addition, 30,000 shares of common stock were issued to the third
party as payment for a one-year membership fee in the organization,
valued at $25,000.
During the year ended December 31, 1991, the Company also entered into
an agreement with its patent attorneys whereby the attorneys would
accept shares of the Company's common stock as payment for legal
services rendered. As of December 31, 1995, the Company has issued
89,122 restricted shares at $1.00 per share and 60,878 restricted
shares at a substantially higher value. The Company's attorneys do not
agree with this higher value and are presently in discussion with the
Company to resolve this. The shares have been recorded as a charge to
operations and a credit to common stock and additional paid-in capital.
In January 1992, the Company issued 200,000 shares of common stock to a
third party as payment for consulting services for two years through
January 1994. The value of the services was based upon the market value
of the stock at the time of the contract. In connection with this
transaction, the Company has recorded unearned compensation and is
amortizing such amount over the two-year period.
On April 30, 1992, the Company sold 317,460 shares of its common stock
in a private placement for $1,000,000 (before deduction of $100,000 in
issuance costs).
On June 26, 1992, the Company received gross proceeds of $1,439,000 for
the sale of 538,033 shares of its stock in two private placements. The
Company paid $43,900 in cash and issued an additional 28,046 shares of
common stock as payment for issuance costs which is included in the
above shares incurred in conjunction with the private placements. In
connection with one of these private placements, the investor was
granted an option to purchase an additional $1,061,000 worth of
nonregistered shares of common stock. Such option was exercisable until
November 27, 1993.
In January 1993, the Company issued 2,000 shares of its common stock
for bonuses, 100,500 shares for services rendered, and 9,000 shares for
finders fees.
In April 1993, the Company sold 565,230 shares of its common stock in a
series of private placements for $4,034,795 (before deduction of
$135,711 brokers' fees).
On April 10, 1993, the Company sold 100,000 shares of its common stock
for $275,000. Such sale was under an agreement relating to a private
placement made in 1992.
F-17
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY (Continued)
On September 9, 1993, the Company sold 10,000 shares of its common
stock in a private placement for $60,000.
On September 13, 1993, the Company sold 175,000 shares of its common
stock in a private placement for $1,050,000 (before deduction of
$100,000 in brokers' fees).
On September 24, 1993, the Company sold 30,000 shares of its common
stock in a private placement for $180,000.
On January 12, 1994, the Company received gross proceeds of $1,575,000
in connection with the sale of 200,000 shares of its common stock in a
private placement effected pursuant to Regulation S of the Securities
Act of 1933, as amended (Registration S). On February 9, 1994, the
Company received an additional $1,381,250 of gross proceeds in
connection with the sale of 250,000 shares of its common stock pursuant
to a private placement effected under Regulation S. In connection with
the February private placement, the Company also issued an additional
31,000 shares of its common stock in payment of private placement
costs. During May, June, July and November, 1994 the Company received
gross proceeds of $3,740,167 in connection with the sale of 920,860
shares of common stock in a series of private placements effected
pursuant to Regulation S of the Securities Act of 1993, as amended
(Registration S).
In April, 1995 the Company issued 83,030 shares of common stock for
professional services.
Warrant Incentive Program
On September 9, 1992, the Company's registration statement on Form S-1
was declared effective by the Securities & Exchange Commission (the
Registration Statement). The Registration Statement was filed by the
Company in order to induce the exercise of its outstanding Redeemable
Warrants (the Warrant Incentive Program). Each of the company's
Redeemable Warrants entitles its holder to receive two (2) shares of
common stock for each Redeemable Warrant exercised. The exercise price
of the Company's Redeemable Warrants is $3.00 per Warrant. The Warrant
Incentive Program provided that those holders of the Company's
outstanding redeemable Warrants who exercised their Redeemable Warrants
within sixty-five (65) days after the effective date of the
Registration Statement would receive, in addition to two (2) shares of
common stock, one-third (1/3) of one (1) share of the Company's series
B Preferred Stock for no additional cost. As of December 31, 1992,
739,386 out of 800,000 Redeemable Warrants were exercised resulting in
net proceeds to the Company of approximately $2,218,000. During the
year ended December 31, 1993, an additional 37,846 warrants were
exercised resulting in net proceeds to the Company of approximately
$33,411. For the year ended December 31, 1994 an additional 800
warrants were exercised resulting in net proceeds to the Company of
$2,400.
Preferred Stock
On April 16, 1992 the Board of Directors authorized the issuance of up
to 404,667 shares of nonvoting Series B Convertible Preferred Stock as
set forth in a Certificate of Designation and Preferences. In August
1992, the Board of Directors authorized the issuance of another 30,000
shares of Series B Convertible Preferred Stock for future consulting
services.
The Series B Convertible Preferred Stock provides for cumulative annual
stock dividends (payable in common shares) of 8 percent of the
liquidation value of $5 per share (for a total of $2,173,335 including
shares issued on May 15, 1992 as discussed below) to be paid
semiannually and is convertible to one share of common stock, subject
to adjustment. In 1994, 27,887 shares of common stock were paid as
stock dividends on Series B Convertible Preferred Stock. This stock may
be redeemed by the Company if certain conditions are met for $1.00 per
share.
All holders of redeemable warrants issued in conjunction with the 1990
initial public offering could receive an additional one-third share of
the Series B Convertible Preferred Stock at no additional cost for each
redeemable warrant that was exercised under the Warrant Incentive
Program.
F-18
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY (Continued)
On May 15, 1992, the Company issued 138,000 shares of its Series B
Convertible Preferred Stock to various parties, of which 90,000 shares
were to officers and directors of the Company. The shares have been
recorded at the fair market value of the stock at the date of issuance.
The Company issued 109,000 of the shares as compensation for services
rendered and 20,000 and 9,000 were issued for future legal services and
future office rental, respectively.
On August 20, 1992, the Company issued 30,000 shares of its Series B
Convertible Preferred Stock for future consulting services.
On June 11, 1996, the Company issued 7,500 shares of Series C
Preferred Stock for $ 7,500,000, netting $ 7,000,000 after fees.
9. CONVERTIBLE DEBT
In February 1996 the Company completed an offshore private placement of
$10,000,000 of convertible debt resulting in net proceeds to the
Company of $9,500,000. The convertible debt bears interest at the rate
of 8% per annum and interest quarterly in arrears on any unpaid or
unconverted debt. To the extent not previously converted, the
convertible debt is due in February 1999, and may be repaid in cash or
common stock of the Company at the sole option of the Company. Prior to
maturity, holders of the convertible debt, after 60 days, may convert
up to 50% of their convertible debt to common stock of the Company (no
conversions may be made prior to 60 days). After 90 days, holders of
the convertible debt may convert up to all of their convertible debt
into common stock of the Company. All conversions of convertible debt
into common stock are based upon a 25% discount of the price of the
Company's common stock for five consecutive trading days immediately
prior to the date of conversion. In April 1996 the Company issued
1,456,329 shares of its common stock and paid $ 4,357,000 in cash in
exchange for retiring $ 7.2 million in convertible debt.
10. STOCK OPTION PLANS
Non-qualified Option Plan - The Company has reserved 5,000,000 shares of
common stock for issuance upon exercise of options under a non-qualified
stock option plan adopted in February 1990 and amended in June 1990,
July 1990, and November 1993. All options granted under this plan have
been granted at fair market value at the date of grant.
The following is a summary of non-qualified option plan activity for
the four years ended December 31, 1995:
OUTSTANDING AT JANUARY 1, 1993 1,036,666
Canceled (266,666)
Granted $5.38 - $9.25 758,333
Expired -
Exercised $.40 - $5.00 (230,000)
-----------
OUTSTANDING AT DECEMBER 31, 1993 1,298,333
Granted $5.375 1,260,500
Expired -
Canceled -
Exercised $.81 - 4.76 (103,500)
-----------
OUTSTANDING AT DECEMBER 31, 1994 2,455,333
Granted $1.875 - 4.38 68,000
Expired -
Canceled (312,500)
Exercised -
-----------
OUTSTANDING AT DECEMBER 31, 1995 2,210,833
===========
F-19
<PAGE>
.
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
10. STOCK OPTION PLANS (continued)
Incentive Option Plan - In February 1990, the 1988 Incentive Stock
Option and Appreciation Plan was terminated and a new plan, as amended
in June 1990, July 1990, and November 1993 was adopted under which
options to purchase 1,000,000 shares of common stock have been
reserved. The incentive option plan provides for the granting of
incentive stock options (ISOS) at an exercise price not less than the
fair market value of the common stock on the date the option is
granted. ISOS may not be granted to an individual to the extent that,
in the calendar year in which such ISOS first become exercisable, the
shares subject to such ISOS have a fair market value on the date of
grant in excess of $100,000. No option may be granted after February
20, 2000, and no option may be outstanding for more than ten years
after its grant. As of June 30, 1996, no options have been granted
under the Plan.
11. RELATED PARTY TRANSACTIONS
The Company subleased from a stockholder, on a month-to-month basis,
approximately 700 square feet of office space for $1,900 per month.
Rent expense under this agreement aggregated approximately $15,000 and
$10,000 for the years ended December 31, 1990 and 1989, respectively.
In 1989 other advances totaling $10,833 were made to a principal
stockholder of DKY and were outstanding at December 31, 1995.
12. INCOME TAXES
The Company adopted Statement of Financial Accounting Standard (SFAS)
No. 109, "Accounting for Income Taxes," effective January 1, 1993. The
cumulative effect of adopting SFAS No. 109 was not material.
SFAS No. 109 provides for the recognition of deferred tax assets and
liabilities for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes and for net operating and capital loss
carryforwards.
As of December 31, 1994 and 1995, the composition of the Company's net
deferred taxes was as follows:
1994 1995
------------- -------------
Deferred tax assets $ 4,261,000 $ 6,801,000
Less valuation allowance (4,261,000) (6,801,000)
------------- -------------
Net $ - $ -
============= =============
Deferred tax assets principally result from the availability of net
operating and capital loss carryforwards to offset income earned in
future years. The offsetting valuation allowance reduces total deferred
tax assets to an amount management believes will likely be realized.
At December 31, 1995, the Company had tax net operating and capital
loss carryforwards of approximately $15,400,000, which expire in the
years 2003 through 2010. The utilization of tax net operating and
capital losses may be subject to certain limitations.
F-20
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENCIES
The Company has agreed to indemnify a stockholder of the Company in
connection with any costs he may incur as a result of becoming a
stockholder for an amount not to exceed $350,000, plus related
expenses.
On March 29, 1993, the Company entered into a non-exclusive license
with Matsushita Electric Industrial Co. Ltd. (Matsushita) pursuant to
which the Company granted to Matsushita the right to use the Company's
patented depixelization technology (as defined) in connection with the
manufacturing and marketing of an advanced tubeless television system
in the United States. The license is co-terminus with the life of the
patents and patent applications relating to the proprietary rights
underlying the license.
On September 4, 1993, the Company entered into a non-exclusive,
non-transferable license under any applicable world patents with CMC
Magnetics Corporation (CMC) pursuant to which the Company granted to
CMC, the following rights:
- the right to use the technology and information in connection
with CMC's manufacture, assembly, marketing and sale of licensed
products;
- the right to convey to CMC's customers with respect to licensed
products sold to customers, rights to use licensed products in
the form sold; and
- the right to grant sublicenses to the affiliates.
The Company canceled the license to CMC Magnetics on May 2, 1995.
On November 18, 1994 the Company entered into a non exclusive,
non-transferable license without a right to sublicense, except to
related companies, with Samsung Electronics Co. pursuant to which the
Company gave to Samsung the right to use the Company's patented
depixelization technology (as defined) in connection with the
manufacturing and marketing of LCD projectors. The license is
co-terminus with the life of the patents and patent applications
relating to the proprietary rights underlying the license.
The Company entered into a sublease agreement for new premises which
commenced on December 28, 1993 and expires on January 30, 1996. Upon
the expiration of the sublease agreement, a lease agreement commences
for a two year period. The future minimum rental commitments as of
December 31, 1995 are as follows:
Year Amount
1996 $ 253,112
1997 257,554
1998 21,462
-------------
$ 532,128
=============
Rent expense for the years ended December 31, 1994 and 1995 were
$201,608 and $204,832 respectively.
In August, 1994 a legal action was brought against the Company and
various other parties by several former employees and a former
consultant of Tamarack. The complaint alleged wrongful termination of
employment and related charges. This complaint was settled in February,
1996 at no cost to the Company.
In April 1995 a legal action was brought against the Company, certain
members of the Board of Directors, and an employee of the Company by a
former officer and employee of the Company. The complaint alleges,
among other actions, breach of employment and patent assignment
agreements.
F-21
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENCIES (Continued)
In June and August 1995 the Company was served with class action law
suits, which have now been consolidated, alleging various federal
securities laws violations primarily in connection with the Company's
public disclosures. In July, 1996 the class action was denied by the
court.
In May, 1996 two of the eleven purchasers of the convertible debt
commenced a lawsuit against the Company seeking an order to have their
debt converted into common stock.
In June, 1996, a suit was filed by a individual investor against the
Company and Marvin Maslow alleging fraudulent inducement in connection
with the plaintiff's purchase of the Company's securities.
In all of the above actions, the Company's management, based upon
discussions with counsel, believe that they have a meritorious defense
against these claims and intend a vigorous defense against these
claims. The Company's management believes that the outcome of these
matters will not have a material adverse effect on its financial
position or results of operations.
F-22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis should be read in
conjunction with the financial statements and notes thereto.
Liquidity and Capital Resources
As of June 30, 1996, the Company had working capital of $11,510,773. To
date, the Company has funded its operations primarily from sales of capital
stock. In February, 1996, the Company completed a private placement of
convertible debt of $10.0 million which resulted in $9.5 million in net proceeds
to the Company after paying a 5% investment banking fee. The unsecured debt
requires quarterly interest payments in cash based upon an annual interest rate
of 8%. The debt matures in three (3) years, at which time any of this debt then
outstanding is to be repaid by the Company in cash or common stock, at the
Company's option. In June, 1996 the Company issued 7,500 shares of Series C
preferred stock for $ 7.5 million which netted $ 7 milllion after fees, the
proceeds of which were primarily used to retire convertible debt.
The debt is convertible into the Company's Common Stock in whole or in
part, at the option of the investor, at any time during the three year life of
the debt, but not before 60 days (with respect to 50% of the debt) or 90 days
(with respect to the entire debt) after the date of the investment. All
conversions into Common Stock are at a 25% discount to the then- present price
of the Company's Common Stock at the time of conversion.
The Company intends to use the proceeds from this offering principally in
connection with the commencement of the production and introduction of its
Chameleon projector. The Company also intends to rely on arrangements with
retailers and contract manufacturers in connection with meeting the balance of
the capital requirements necessary for the Company to manufacture, market and
distribute the Chameleon. All of the debt received in this offering was raised
from institutional investors located in Belgium, Canada, Israel, Saudi Arabia,
Singapore, Switzerland and England.
As of December 31, 1995 and December 31, 1994, the Company had working
capital of $3,341,425 and $6,659,132 respectively. The Company has funded its
operations primarily from sales of capital stock, although the Company did not
sell any securities during 1995. In January, 1994 the Company effected a private
placement pursuant to foreign investors in the aggregate amount of 450,000
shares of the Company's Common Stock resulting in aggregate net proceeds to the
Company of $2,956,250. In the second quarter of 1994, the Company also sold an
aggregate of 720,860 shares of Common Stock to foreign investors in a private
placement resulting in aggregate gross proceeds to the Company of $2,933,917. In
November, 1994 the Company effected a private placement to a foreign investors
for 200,000 shares, resulting in net proceeds to the Company of $806,250. In
1994, the Company also extended a $1,500,000 loan to its non-consolidated
subsidiary, Tamarack and has reserved $300,000 of this loan on its financial
statements.
As of December 31, 1993, the Company had working capital of $5,181,003. The
Company has funded its operations primarily from sales of capital stock and the
exercise of its publicly traded Redeemable Warrants. In April of 1993, the
Company sold 262,500 shares of its Common Stock in a private placement pursuant
to Regulation D promulgated under the Securities Act of 1933, as amended
("Regulation D") and received gross proceeds therefrom of $1,522,000. In April
of 1993, the Company effected a private placement pursuant to a Far Eastern
investor in the amount of 60,000 shares of Common Stock for which the Company
received gross proceeds of $577,875. The Company also effected two other private
placements to two different groups of European investors in April of 1993 for
158,730 shares of Common stock and 84,000 shares of Common Stock, respectively,
resulting in gross proceeds to the Company of $1,125,396 and $809,025,
respectively. Also, in April of 1993, a Hong Kong based entity that purchased
146,33 shares of the Company's Common Stock in a private placement in June of
1992 (and was granted an option in connection therewith until December 27, 1993,
to purchase up to 1,061,000 non-registered shares of the Company's Common Stock)
purchased an additional 100,000 shares of the Company's Common Stock resulting
in gross proceeds to the Company of $275,000. In September of 1993, the Company
effected a private placement pursuant to Regulation D to a single institution, a
private placement pursuant to Regulation D to a sole investor, and a private
placement to a Middle Eastern investor for 175,000, 30,000 and 10,000 shares of
the Company's Common Stock, respectively. These three private placements
resulted in gross proceeds to the Company of $1,050,000, $180,000 and $60,000,
respectively.
The Company is in the development stage and, to date, its sole revenues
have been $1,305,000. Of such revenues, $1,000,000 were derived from DARPA to
develop certain projection technology for use in a high definition television
projector and the balance, $305,000, from licensing agreements. The Company has
substantially completed research and development with respect to the Chameleon
and the Projector, and, consequently, the Company does not presently anticipate
that any significant expenditure of funds for research and development is
necessary in order to complete the Chameleon and the Projector, although certain
engineering refinements are still ongoing, including optimizing picture
brightness for a new rear projection system. The Company is also expending
research efforts in connection with testing
F-23
<PAGE>
the feasibility of the Company's thin screen. In addition, due to the inability
of the Company's affiliate, Tamarack Storage Devices, Inc., to commercialize its
holographic storage technology and Tamarack's current lack of prospects, the
Company determined in the fourth quarter of 1995 to record a reserve of
approximately $2,100,000 against its entire interest in Tamarack.
Primarily as a result of work performed in developing its technology, the
Company has sustained losses aggregating approximately $23,500,000 from its
inception to June 30, 1996. The Company has continued to incur losses since June
30, 1996.
As of June 30, 1996, the Company had available for Federal income tax
purposes net operating and capital loss carry-forwards of approximately
$15,000,000. The Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), may impose certain restrictions on the amount of net operating
loss carryforwards which may be used in any year by the Company.
Results of Operations
January 1, 1993 to December 31, 1993
The Company had revenues of $105,000 for the twelve month period ended
December 31, 1993, all of which was from licensing agreements. During this
period, the Company incurred cash expenses of $2,111,933. The Company also
incurred non-cash expenses of $380,494 during this period relating to the
issuance of stock for services incurred for salaries paid or payable to officers
and employees of, and consultants to, the Company as compensation for services
rendered to the Company.
January 1, 1994 to December 31, 1994
The Company has no revenue for the twelve months ended December 31, 1994.
The Company incurred cash expenses of $3, 843,063. The Company also incurred
non-cash expenses of $257,250 during this period relating to the issuance of
stock for services incurred for salaries paid or payable to officers and
employees of, and consultants to, the Company as compensation for services
rendered to the Company. The Company also recorded its proportional share of the
loss of Tamarack of $1,691,697.
January 1, 1995 to December 31, 1995
The Company had revenues of $200,000 for the twelve month period ended
December 31, 1995, all of which was from licensing agreements. During this
period, the Company incurred cash expenses of $3,873,607. The Company also
incurred non-cash expenses of $3,160,138 during this period relating to the
issuance of stock for services incurred for salaries paid or payable to officers
and employees of, and consultants to, the Company as compensation for services
rendered to the Company, and the aforementioned reserved of the Company's
interest in its affiliate, Tamarack Storage Devices, Inc.
January 1, 1996 to March 31, 1996
The Company had no revenue for the quarter ended March 31, 1996. The
operating expenses for this period totaled $1,718,432, which included $325,717
for research and development and $424,692 for salaries paid or payable to
officers and employees of the Company.
April 1, 1996 to June 30, 1996
The Company had no revenue for the quarter ended June 30, 1996. The
operating expenses for this period totaled $ 2,512,579, which included $
1,150,667 for research and development and $ 245,068 for salaries paid or
payable to officers and employees of the Company.
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
The Company incurred fixed interest expenses of $2,043, $2,295 and $0 for
the years ended December 31, 1993, December 31, 1994 and December 31, 1995,
respectively. Earnings in these years were insufficient to cover these fixed
charges resulting in a deficiency of $2,044, $2,295 and $0 for 1993, 1994 and
1995, respectively. The 100 shares of Series A Preferred Stock do not pay
dividends. The Series B Preferred Stock, none of which was outstanding in 1990
or 1991, only pays dividends in Common Stock.
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1994, the Registrant
has duly authorized and caused the undersigned to sign this Report on the
Registrant's behalf.
PROJECTAVISION, INC.
By /s/ Marvin Maslow
----------------------------
Marvin Maslow
Chief Executive Officer and
Chairman of the Board of
Directors
By: /s/ Jules Zimmerman
----------------------------
Jules Zimmerman
Chief Financial Officer
Dated: August 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,590,208
<SECURITIES> 4,896,983
<RECEIVABLES> 10,683
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,635,270
<PP&E> 1,592,092
<DEPRECIATION> 193,916
<TOTAL-ASSETS> 14,261,942
<CURRENT-LIABILITIES> 1,124,497
<BONDS> 2,800,000
0
3,867
<COMMON> 1,389
<OTHER-SE> 10,337,445
<TOTAL-LIABILITY-AND-EQUITY> 14,261,942
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,358,549
<OTHER-EXPENSES> 40,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,359
<INCOME-PRETAX> (1,409,875)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,409,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,409,875)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
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