<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______, 19___ to ______, 19___.
Commission File Number: 33-35580-D
INSTANT VIDEO TECHNOLOGIES, INC.
------------------------------------
(Exact Name of Small Business Issuer
as Specified in its Charter)
Delaware 84-1141967
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
500 Sansome Street, Suite 503
San Francisco, California 94111
-------------------------------
Address of Principal Executive Offices, Including Zip Code
(415) 391-4455
--------------
(Issuer's Telephone Number, Including Area Code)
N/A
---
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
There were 6,203,553 shares of the Issuer's $.00001 par value common stock
outstanding as of March 31, 1998.
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this Report includes forward-looking statements within
the meaning of applicable securities laws that involve substantial risks and
uncertainties including, but not limited to, market acceptance of the Company's
products and new technologies, the sufficiency of financial resources available
to the Company, economic, competitive, governmental and technological factors
affecting the Company's operations, markets, services, and prices, and other
factors described in this Report and in prior filings with the Securities and
Exchange Commission. The Company's actual results could differ materially from
those suggested or implied by any forward-looking statements as a result of such
risks.
Item 2. Management's Discussion and Analysis or Plan of Operation.
<PAGE> 2
<TABLE>
<CAPTION>
INSTANT VIDEO TECHNOLOGIES, INC.
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
Assets December 31,
March 31, 1997 1997
--------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $532,935 20,551
Prepaid expenses 21,362 31,460
-------- --------
Total current assets 554,297 52,011
-------- --------
Property and equipment, net 97,537 85,611
Other assets 16,942 17,569
-------- --------
$668,776 155,191
======== ========
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
INSTANT VIDEO TECHNOLOGIES, INC.
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY December 31,
March 31, 1998 1997
----------------- --------------
<S> <C> <C>
Current liabilities:
Bank line of credit and credit facility $ -- 500,000
Notes payable 1,222,083 451,773
Accounts payable 73,210 34,026
Accrued expenses 111,894 92,782
Accrued interest 13,695 43,044
----------- -----------
Total current liabilities 1,420,882 1,121,625
----------- -----------
Notes payable -- 16,833
----------- -----------
Stockholders' (deficiency) equity:
Preferred stock, $.00001 par value, 20,000,000 shares authorized:
Series D, 936,000 shares issued, none outstanding -- --
Series E, zero and 500,000 shares issued and outstanding in -- --
1997 and 1996, respectively, liquidation preference of
$1.00 per share
Series F, 5,000,000 shares authorized, 2,125,000 and 22 22
1,475,000 shares issued and outstanding in 1997 and 1996,
respectively
Common stock, $.00001 par value, 100,000,000 shares
authorized; 5,703,553 and 4,803,553 shares issued and
outstanding in 1997 and 1996 63 59
Additional paid in capital 8,663,469 7,795,972
Accumulated deficit (9,415,660) (8,779,320)
----------- -----------
Stockholders' (deficiency) equity (752,106) (983,267)
----------- -----------
$ 668,776 155,191
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
INSTANT VIDEO TECHNOLOGIES, INC.
Consolidated Statements of Operations
For the period ended March 31, 1998 and 1997
1998 1997
----------- -----------
<S> <C> <C>
Revenue $ -- 295,983
Cost of revenues -- --
----------- -----------
-- 295,983
Costs and expenses:
Research and development 130,521 28,007
Sales and marketing 45,055 115,338
General and administrative 304,093 289,548
----------- -----------
Total costs and expenses 479,669 432,893
----------- -----------
Loss from operations (479,669) (136,910)
----------- -----------
Other income (expense):
Interest, net (155,867) (5,950)
----------- -----------
(155,867) (5,950)
----------- -----------
Loss before income taxes (635,536) (142,860)
Income taxes (800) --
----------- -----------
Net loss $ (636,336) (142,860)
=========== ===========
Net loss per common share:
Basic $ (0.11) (0.03)
=========== ===========
Diluted $ (0.11) (0.03)
=========== ===========
5,791,465 4,803,553
Weighted average shares outstanding
=========== ===========
Weighted average shares outstanding assuming dilution 5,791,465 4,803,553
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
Instant Video Technologies, Inc.
Consolidated Statements of Cash Flows
For the period ended March 31, 1998 and 1997
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (636,336) (142,860)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 9,674 13,872
Write off patent costs and other assets -- --
Warrant expense issued with debt 77,500 --
Interest expense issued with debt 65,000 --
Stock option compensation 156,850
Decrease (increase) in accounts receivable -- (65,000)
Decrease (increase) in costs and estimated earnings in
excess of billings on uncompleted contracts -- 114,301
Decrease in prepaid expenses 10,098 2,964
(Increase) decrease in other assets -- (1,200)
Increase (decrease) in accounts payable 39,184 79,085
Increase (decrease) in accrued expenses 19,112 (6,896)
Increase (decrease) in accrued interest (29,349) 4,120
----------- -----------
Net cash used in operating activities (288,267) (1,614)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net (21,625) (17,846)
----------- -----------
Net cash used in investing activities (21,625) (17,846)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of stock 300,000 --
Proceeds from debt 1,059,519 --
Repayment of debt (537,243) (25,000)
----------- -----------
Net cash provided by financing activities 822,276 (25,000)
----------- -----------
Increase (decrease) in cash and cash equivalents 512,384 (44,460)
Cash and cash equivalents, beginning of year 20,551 208,613
----------- -----------
Cash and cash equivalents, end of year $ 532,935 164,153
=========== ===========
(Continued)
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 6
<TABLE>
<CAPTION>
INSTANT VIDEO TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows, Continued
For the period ended March 31, 1998 and 1997
1998 1997
------- -------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 800 --
======= =======
Cash paid for interest $15,868 6,364
======= =======
Supplemental schedule of non-cash investing and financing
activities:
During 1996, debt of $150,000 and accrued interest of $20,000
were converted to common stock
During 1996, 936,000 shares of preferred stock were converted to 66,857
shares of common stock
During 1996, the Company granted stock options to various consultants, which
resulted in $150,000 of compensation expense
During 1997, the Company financed a prepaid insurance premium of $29,794
During 1997, 500,000 shares of preferred stock were converted into 500,000
shares of common stock
During 1998, the Company granted stock options to various consultants and
employees, which resulted in $156,850 of compensation expense
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
INSTANT VIDEO TECHNOLOGIES, INC.
Notes to Unaudited Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Instant Video Technologies, Inc. (the Company) licenses burst transmission
software for use within commercial, multimedia and interactive environments. The
burst technology allows for time compression and burst transmission of
video/audio programming that results in time-savings, network efficiency and
superior quality products.
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Instant Video
Technologies, Inc. and its wholly-owned subsidiary, Explore Technology, Inc. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
INTERIM FINANCIAL INFORMATION
The accompanying financial statements have been prepared in accordance with
Generally Accepted Accounting Principles for interim financial information and
the instructions for Form 10-QSB and Article 10 of Regulation S-X. In the
Company's opinion, the financial statements include all adjustments, consisting
of normal recurring adjustments, which the Company considers necessary to fairly
state the Company's financial position and the results of operations and cash
flows. The balance sheet at December 31, 1997, has been derived from the audited
financial statements at that date but does not include all of the necessary
informational disclosures and footnotes as required by Generally Accepted
Accounting Principles. The accompanying financial statements should be read in
conjunction with the financial statements and notes thereto included with the
Company's annual reports on Form 10-KSB and other documents filed with the
Securities and Exchange Commission. The results of the Company's operations for
any interim period are not necessarily indicative of the results of the
Company's operations for any other interim period or for a full fiscal year.
NET LOSS PER SHARE
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standard ("SFAS") No. 128, Earnings per Share, which
requires the presentation of basic net income per share, and, for companies with
complex capital structures, diluted net income per share. Basic and diluted net
loss per share are computed using the weighted average number of common shares
outstanding. The Company has net losses for all periods presented and there is
no difference between previously reported primary loss per share amounts and the
amounts currently reported as basic and diluted loss per share.
<PAGE> 7
Results of Operations
During the three months ended March 31, 1998, the Company had no
revenues as compared to $295,983 during the three months ended March 31, 1997.
Costs and expenses during the three months ended March 31, 1998, totaled
$479,669 as compared to $432,893 during the three months ended March 31, 1997.
The Company had a net loss of ($636,336) during the three months ended
March 31, 1998, as compared to a net loss of ($142,860) during the three months
ended March 31, 1997. The loss resulted from expenditures for operations and
product development. The Company also recognized expense for employee
compensation of $156,850. The Company also recognized a charge of $142,500 for
warrants and discounts related to debt financing.
Liquidity and Capital Resources
As of March 31, 1998, the Company had a working capital deficit of
($866,585) as compared to a working capital deficit of ($162,132) at December
31, 1997, which was due to increases in short term debt financing.
Net cash used in operating activities totaled $288,267 during the three
months ended March 31, 1998, as compared to net cash used in operating
activities of $1,614 during the three months ended March 31, 1997.
Cash flow provided by financing activities during the three month period ending
March 31, 1998 totaled $822,276, as compared to ($25,000) during the three month
period ending March 31, 1997.
Net cash used in investing activities during the three month period
ending March 31, 1998 totaled $21,625, as compared to $17,846 during the three
month period ending March 31, 1997.
Repayment of Debt during the three months ended March 31, 1998 equaled
$537,243 as compared to $25,000 during the three months ended March 31, 1997.
The Company presently has no commitments for material capital
expenditures.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As a result of the alleged misappropriation of over $400,000 in cash and
tangible assets of the Company by Gary R. Familian and Therese Stacy, the
Company's former Chairman and CEO and Executive Vice President of Business
Development, respectively, the Company filed for arbitration as specified in Mr.
Familian's and Ms. Stacy's employment contracts in order to obtain a judgment to
recover certain of the Company's cash and assets. The arbitration was filed with
the American Arbitration Association in San Francisco, California on April 14,
1998. At this time, the Company estimates that its exposure for legal and court
costs will not be material.
Item 2. Changes in Securities.
On February 27, 1998, the exercise price on certain Warrants to purchase
Common Stock of the Company that were issued as part of an investment unit
consisting of Series F Convertible Preferred Stock and warrants to purchase
Common Stock ("Series F Warrants"), was due to increase from $1.00 per share to
$1.50 per share. On February 2, 1998 the Board of Directors of the Company voted
to reduce the exercise price of the Series F Warrants from $1.00 per share to
<PAGE> 8
$.75 per share from February 19, 1998 to March 12,1998. During that time,
400,000 of said warrants were exercised, resulting in $300,000 dollars of
funding for the Company. As of March 13, 1998, the exercise price of the
remaining 1,525,000 outstanding Series F Warrants increased to $1.50 per share
as provided for in the warrant extension dated February 26, 1997. These warrants
are due to expire on February 26, 1999.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
FINANCING
During the first quarter of 1998, the Company raised $1,175,000 in
financing through the exercise of warrants to purchase common stock (see Item 2
above) and the issuance of short-term debt. The Company raised $500,000 in
proceeds from a $300,000 loan from David Morgentstein ("Morgenstein"), the
Company's Vice President of Operations, and a $200,000 loan from Mercer
Management, Inc. These notes bear interest at the rate of prime plus 2% payable
monthly in arrears and mature on July 15, 1998. The lenders also received an
aggregate of 100,000 shares of the Company's common stock and a warrant to
purchase an additional 100,000 shares of Common Stock at the exercise price of
$1.00 per share. The notes evidencing the loans also provide the Company with
the ability to extend the maturity date of the loan until December 31, 1998 in
exchange for additional consideration in the form of an additional 100,000
shares of the Company's common stock and a warrant to purchase an additional
100,000 shares of Common Stock at the exercise price of $1.00 per share. The
proceeds from these notes were used to pay off a $500,000 line of credit with
Imperial Bank.
Also during the first quarter of 1998, the Company raised an additional $525,000
through the issuance of convertible promissory notes. $375,000 was issued in two
notes of $225,000 and $150,000 with an interest rate of Prime plus two percent
(2%), a maturity of 6 months, and a conversion price of $.75 per share. $150,000
was issued in two notes of $100,000 and $50,000 with an interest rate of Prime
plus two percent (2%), a maturity of 6 months, and a conversion price of $1.00
per share.
MANAGEMENT
In April 1998, the Company retained Mary M. Schetter, a consultant, as
the Company's Vice President of Sales. Ms. Schetter was recently Programming
Director for NetChannel, Inc. where she secured contracts with media content
providers and developed advertising cross-promotion and marketing strategies for
NetChannel's media partners' online properties. Prior to NetChannel, Ms.
Schetter worked as a Senior Account Executive for CNN Networks.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Location Page No.
- ------ ------------ --------- ---------
<S> <C> <C> <C>
27 Financial Data Schedule Attached
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended March 31, 1998.
<PAGE> 9
SIGNATURES
In accordance with the Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INSTANT VIDEO TECHNOLOGIES, INC.
Date: May 15, 1998 By: /s/ Richard Lang
-------------------------------------
Richard Lang, Chairman,
Chief Executive Officer and President
/s/ Eric J. Hall
-------------------------------------
Eric J. Hall
Chief Financial Officer and
Principal Accounting Officer
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Location Page No.
- ------- ----------- -------- ----------
<S> <C> <C> <C>
27 Financial Data Schedule Attached
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 532,935
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 554,297
<PP&E> 97,537
<DEPRECIATION> 0
<TOTAL-ASSETS> 668,776
<CURRENT-LIABILITIES> 1,420,882
<BONDS> 0
0
22
<COMMON> 63
<OTHER-SE> (752,191)
<TOTAL-LIABILITY-AND-EQUITY> 668,776
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 479,669
<OTHER-EXPENSES> 155,867
<LOSS-PROVISION> (635,536)
<INTEREST-EXPENSE> 800
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (636,336)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
