<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 SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______, 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.
[X] YES [ ] NO
There were 6,954,365 shares of the Issuer's $.00001 par value common stock
outstanding as of September 30, 1998.
<PAGE> 2
INSTANT VIDEO TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $100,101 $ 20,551
Prepaid expenses 6,210 31,460
-------- --------
Total current assets 106,311 52,011
-------- --------
Property and equipment, net 115,209 85,611
Other assets 16,812 17,569
-------- --------
$238,332 $155,191
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 3
INSTANT VIDEO TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Current liabilities:
Bank line of credit and credit facility $ -- 500,000
Notes payable 1,637,778 451,773
Accounts payable 162,158 34,026
Accrued expenses 56,680 92,782
Accrued interest 38,818 43,044
------------ ----------
Total current liabilities 1,895,434 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, 500,000 shares issued, none outstanding -- --
Series F, 5,000,000 shares authorized, 2,125,000 shares issued and 22 22
outstanding in 1997 and 1998
Common stock, $.00001 par value, 100,000,000 shares authorized; 6,954,365
and 5,703,553 shares issued and outstanding in 1998 and 1997 70 59
Additional paid in capital 10,470,967 7,795,972
Note payable discount (75,734) --
Accumulated deficit (12,052,427) (8,779,320)
------------ ----------
Stockholders' (deficiency) (1,657,102) (983,267)
------------ ----------
$ 238,332 155,191
============ ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 4
INSTANT VIDEO TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
3 MONTHS ENDED SEPTEMBER 30, 9 MONTHS ENDED SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue $ -- $ (196,750) $ 15,000 $ 240,983
Cost of revenues -- -- -- --
------------ ----------- ------------ -----------
-- (196,750) -- 240,983
Costs and expenses:
Research and development 196,535 -- 446,493 49,559
Project Costs -- 63,290 -- 303,225
Sales and marketing 208,766 118,780 381,906 341,795
General and administrative 419,431 381,016 1,305,509 1,033,916
------------ ----------- ------------ -----------
Total costs and expenses 824,732 563,086 2,133,908 1,728,495
------------ ----------- ------------ -----------
Loss from operations (824,732) (759,836) (2,118,908) (1,487,512)
------------ ----------- ------------ -----------
Other income (expense):
Interest, net (582,352) (24,587) (1,153,399) (53,454)
------------ ----------- ------------ -----------
Loss before income taxes (1,407,084) (784,423) (3,272,307) (1,540,966)
------------ ----------- ------------ -----------
Income taxes -- -- (800) --
------------ ----------- ------------ -----------
Net loss $ (1,407,084) $ (784,423) $ (3,273,107) $(1,540,966)
============ =========== ============ ===========
Accumulated deficit, beginning (10,645,343) (7,466,594) (8,779,320) (6,716,947)
Accumulated deficit, ending $(12,052,427) $(8,251,017) $(12,052,427) $(8,257,913)
============ =========== ============ ===========
Net loss per common share-- Basic $ (0.23) $ (0.16) $ (0.53) $ (0.31)
============ =========== ============ ===========
Net loss per common share-- Diluted $ (0.23) $ (0.16) $ (0.53) $ (0.31)
============ =========== ============ ===========
Weighted average shares outstanding 6,132,093 4,900,981 6,132,093 4,900,981
Weighted average shares outstanding assuming dilution 6,132,093 4,900,981 6,132,093 4,900,981
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 5
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ending September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,273,107) (1,540,966)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 34,828 68,991
Interest expense issued with debt 788,901 --
Amortization of notes payable discount 318,780 --
Stock option compensation 436,108 --
Decrease in unbilled revenue -- 143,296
Decrease in prepaid expenses 25,250 8,648
Decrease in patents, net -- 25,111
Decrease in other assets 757 34,428
Increase (decrease) in accounts payable 128,132 (57,837)
(Decrease) in accrued expenses (36,102) (152,000)
(Decrease) increase in accrued interest (4,226) 13,124
----------- ----------
Net cash used in operating activities (1,580,679) (1,457,205)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment, net (71,317) (125,021)
Disposal of Fixed Assets
Assets 37,423 --
Accumulated depreciation (30,530) --
----------- ----------
Net cash used in investing activities (64,424) (125,021)
----------- ----------
Cash flows from financing activities:
Proceeds from sale of preferred stock -- 750,000
Proceeds from sale of common stock 10,000 --
Conversion of preferred stock to common stock -- 2
Exercise of warrants-- common 750,000 --
Proceeds from debt 1,550,000 570,000
Repayment of debt (585,347) --
Increase in long term notes payable -- 73,210
----------- ----------
Net cash provided by financing activities 1,724,653 1,393,212
----------- ----------
Increase (decrease) in cash and cash equivalents 79,550 (189,014)
Cash and cash equivalents, beginning of year 20,551 208,613
----------- ----------
Cash and cash equivalents, end of quarter $ 100,101 19,599
=========== ==========
</TABLE>
(Continued)
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 6
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows, Continued
For the nine months ending September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------- ------
Supplemental disclosure of cash flow information:
<S> <C> <C>
Cash paid for income taxes $ 800 --
======= ======
Cash paid for interest $46,395 22,645
======= ======
</TABLE>
Supplemental schedule of non-cash investing and financing activities: 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, $330,000 of convertible debt and $17,812 of accrued interest
was converted into 347,812 shares of common stock.
During 1998, the Company granted stock options to various consultants and
employees, which resulted in $436,108 of compensation expense.
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 7
INSTANT VIDEO TECHNOLOGIES, INC.
Notes to Unaudited Condensed 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.
(2) 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 is 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. Because their
effects would be anti-dilutive, stock options to acquire 1,563,225 shares
and a warrant to acquire 1,019,913 shares of common stock at weighted
average exercise prices of $1.31 and $1.07, respectively, have been
excluded from the computation of basic and diluted earnings per share for
the quarter ended September 30, 1998.
(3) NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 131 establishes annual and interim reporting standards relating
to the disclosure of an enterprise's business segments, products,
services, geographic areas, and major customers. Adoption of these
standards is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
The FASB recently issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 addresses the accounting
for derivative instruments, including certain derivative instruments
embedded in other contracts. Under SFAS No. 133, entities are required to
carry all derivative instruments in the balance sheet at fair value. The
accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and, if so, the reason for
holding it. The Company must adopt SFAS No. 133 by January 1, 2000. The
Company has determined that SFAS No. 133 will have no effect on its
financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. SOP No. 98-1
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated
useful life of the software. SOP No. 98-1 is effective for financial
statements issued for fiscal years beginning after December 15, 1998. The
Company does not expect the adoption of SOP No. 98-1 to have a material
impact on its results of operations.
(4) YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code
and embedded technology in existing systems as the year 2000 approaches.
The "Year 2000 Issue" arises from the potential for computers to fail or
operate incorrectly because their programs incorrectly interpret the two
digit date fields "00" as 1900 or some other year, rather than the year
2000. The year 2000 issue creates risk for the Company from unforeseen
problems in its own computer systems and from third parties, including
customers, vendors and manufacturers, with whom the Company deals.
Failures of the Company's and/or third parties' computer systems could
result in an interruption in, or a failure of certain normal business
activities or operations. Such failures could materially and adversely
affect the Company's results of operations, liquidity, and financial
condition, though the impact is unknown at this time.
To mitigate this risk, the Company has established a formal year 2000
program to oversee and coordinate the assessment, remediation, testing
and reporting activities related to this issue. The Company believes that
with the completion of the project as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
The Company is currently in the assessment phase of its year 2000
program. As part of this assessment, the Company's application systems
(e.g., financial systems, various custom-developed business
applications), technology infrastructure (e.g., networks, servers,
desktop equipment), facilities (e.g., security systems, fire alarm
systems), vendors/partners and products will be reviewed to determine
their state of year 2000 compliance. This review will include the
collection of documentation from software and hardware manufacturers, the
detailed review of programming code for custom applications, the physical
testing of desktop equipment using software designed to test for year
2000 compliance, the examination of key vendors'/partners' year 2000
programs and the ongoing testing of the Company's products as part of
normal quality assurance activities.
Subsequent to the completion of the Company's assessment phase the
Company will implement both a certification testing phase of its program.
Testing of the Company's internal software will be accomplished through
simulation situations. The Company will simulate January 1, 2000 on its
network, servers and desktop equipment to ensure compliance with year
2000 readiness. It is forecast that all important systems (both computer
systems and systems dependent on embedded technologies) will be tested by
June 30, 1999. All other testing will be done by December 31, 1999.
The Company has not made estimates for the costs associated with
completing its year 2000 program, but will do so after completion of the
assessment phase of the project. There can be no assurance that the
Company will not experience serious unanticipated negative consequences
and/or additional material costs caused by undetected errors or defects
in the technology used in its internal systems, or by failures of its
vendors/partners to address their year 2000 issues in a timely and
effective manner.
Should miscalculations or other operational errors occur as a result of
the year 2000 issue, the Company or the parties on which it depends may
be unable to produce reliable information or to process routine
transactions. Furthermore, in the worst case, the Company or the parties
on which it depends may, for an extended period of time, be incapable of
conducting critical business activities which include, but are not
limited to, the production and delivery of the companies' products
invoicing customers and paying vendors.
<PAGE> 8
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.
Results of Operations
During the nine months ended September 30, 1998, the Company had
$15,000 revenue as compared to $240,983 during the nine months ended September
30, 1997. The Company is still in development of its Burstware(R) suite of
products and has not begun shipping its products to customers.
Costs and expenses during the nine months ended September 30, 1998,
totaled $2,133,908 as compared to $1,728,495 during the nine months ended
September 30, 1997. The increase was due to higher spending for Research &
Development and Sales & Marketing. Costs were primarily related to headcount.
The Company had a net loss of ($3,273,107) during the nine months ended
September 30, 1998, as compared to a net loss of ($1,540,966) during the nine
months ended September 30, 1997. The loss resulted from expenditures for
operations, product development, and interest expense resulting from increased
debt financing and convertible securities.
Liquidity and Capital Resources
As of September 30, 1998, the Company had a working capital deficit of
($1,789,123) as compared to a working capital deficit of ($1,069,614) at
December 31, 1997, which was due to increases in short term notes payable and
accounts payable to provide working capital to fund operations.
Net cash used in operating activities totaled $1,580,679 during the
nine months ended September 30, 1998, as compared to net cash used in operating
activities of $1,457,205 during the nine months ended September 30, 1997.
Cash flow provided by financing activities during the nine month period
ending September 30, 1998 totaled $1,724,653, as compared to $1,393,212 during
the nine month period ending September 30, 1997.
Net cash used in investing activities during the nine month period
ending September 30, 1998 totaled $64,424, as compared to $125,021 during the
nine month period ending September 30, 1997.
Repayment of Debt during the nine months ended September 30, 1998
equaled $585,347 as compared to none during the nine months ended September 30,
1997.
<PAGE> 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported in the Company's Form 10-QSB for the quarter
ended June 30, 1998, the Company is in arbitration against its former CEO &
President, Gary Familian, and its former EVP of Business Development, Therese
Stacy, for their alleged misappropriation of Company assets. The Company
estimates that the legal fees to date, and the anticipated costs involved with
this arbitration are not material.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
PRODUCT DEVELOPMENT
During the third quarter of 1998, the company released its Burstware(R) Beta
Version 1.03. The Beta product has been distributed to several companies for
testing including major telecommunications providers, multi-media content
aggregators, and Internet content providers.
<PAGE> 10
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 September 30, 1998.
SIGNATURES
In accordance with the requirements 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: November 14, 1998 By: /s/ Richard Lang
-------------------------------------
Richard Lang, Chairman,
Chief Executive Officer and President
By: /s/ Eric J. Hall, CFA
-------------------------------------
Eric J. Hall, Chief Financial Officer
and Chief Accounting Officer
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit # Description
- --------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 100,101
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 106,311
<PP&E> 153,927
<DEPRECIATION> 38,718
<TOTAL-ASSETS> 238,332
<CURRENT-LIABILITIES> 1,895,434
<BONDS> 0
0
22
<COMMON> 70
<OTHER-SE> (1,657,194)
<TOTAL-LIABILITY-AND-EQUITY> 238,332
<SALES> 15,000
<TOTAL-REVENUES> 15,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,133,908
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,153,399
<INCOME-PRETAX> (3,272,307)
<INCOME-TAX> 800
<INCOME-CONTINUING> (3,273,107)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,273,107)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
