<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended MARCH 31, 1999
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 9,225,527 shares of the Issuer's $.00001 par value common stock
outstanding as of May 12, 1999
1
<PAGE> 2
INSTANT VIDEO TECHNOLOGIES, INC.
FORM 10-Q
MARCH 31, 1999
<TABLE>
TABLE OF CONTENTS
<S> <C>
PART I - FINANCIAL INFORMATION..................................................................3
ITEM 1. FINANCIAL STATEMENTS................................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..........................................................................8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................9
PART II - OTHER INFORMATION....................................................................10
ITEM 1. LEGAL PROCEEDINGS..................................................................10
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..........................................10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................10
ITEM 5. OTHER INFORMATION..................................................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................11
SIGNATURES.....................................................................................12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,655,311 $ 2,212,141
Prepaid expenses and other current assets 148,695 26,053
Receivable - Series B Convertible Preferred Stock -- 810,000
------------ ------------
Total current assets 2,804,006 3,048,194
------------ ------------
Property and equipment, net 383,728 184,616
Other assets 16,812 16,812
------------ ------------
Total assets $ 3,204,546 $ 3,249,622
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 14,801 $ 22,736
Accounts payable 643,308 252,044
Accrued expenses 57,577 181,484
------------ ------------
Total current liabilities 715,686 456,264
------------ ------------
Stockholders' equity:
Preferred stock, $.00001 par value, 20,000,000 shares
authorized:
Series A, 2,025,000 shares issued and outstanding in 1999
and 1998, respectively 20 20
Series B, 2,476,609 shares issued and outstanding in 1999
and 1998, respectively 25 25
Common stock, $.00001 par value, 100,000,000 shares
authorized; 9,218,727 and 7,940,966 shares issued and
outstanding in 1999 and 1998, respectively 92 79
Additional paid-in capital 28,519,387 27,251,399
Accumulated deficit (26,030,664) (24,458,165)
------------ ------------
Total stockholders' equity 2,488,860 2,793,358
------------ ------------
Total liabilities and stockholders' equity $ 3,204,546 $ 3,249,622
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Costs and expenses:
Research and development $ 460,902 $ 130,521
Sales and marketing 448,818 45,055
General and administrative 669,401 304,893
------------ ------------
Total costs and expenses 1,579,121 480,469
------------ ------------
Loss from operations (1,579,121) (480,469)
------------ ------------
Other income (expense):
Interest expense (365) (155,867)
Other, net 6,987 --
------------ ------------
Total other income net 6,622 (155,867)
------------ ------------
Net loss (1,572,499) (636,336)
Accumulated deficit, beginning of the year (24,458,165) (8,779,320)
------------ ------------
Accumulated deficit, end of quarter $(26,030,664) $ (9,415,656)
============ ============
Basic and diluted net loss per common share $ (0.18) $ (0.11)
============ ============
Shares used in per share computation 8,532,685 5,791,465
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,572,499) $ (636,336)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 28,887 9,674
Warrant expense issued with debt -- 77,500
Interest expense issued with debt -- 65,000
Stock option compensation 30,501 156,850
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other current (122,642) 10,098
assets
Decrease in receivable - Series B Convertible Preferred 810,000 --
Stock
Increase in accounts payable 391,264 39,184
Increase (decrease) in accrued expenses (123,907) 19,112
(Decrease) in accrued interest -- (29,349)
----------- -----------
Net cash used in operating activities (558,396) (288,267)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net (227,999) (21,625)
----------- -----------
Net cash used in investing activities (227,999) (21,625)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock -- 300,000
Proceeds from debt -- 1,059,519
Exercise of warrants for common stock 1,237,500 --
Repayment of debt (7,935) (537,243)
----------- -----------
Net cash provided by financing activities 1,229,565 822,276
----------- -----------
Increase in cash and cash equivalents 443,170 512,384
Cash and cash equivalents, beginning of year 2,212,141 20,551
----------- -----------
Cash and cash equivalents, end of quarter $ 2,655,311 $ 532,935
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows, Continued
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 365 15,868
================ ======
Supplemental schedule of non-cash financing activities:
In a series of cashless exercises, a financial institution exercised 250,000
warrants to purchase 226,140 shares of the Company's common stock at $1.00
per share during 1999. This same institution also exercised 31,250 warrants
to purchase 26,122 shares of the Company's common stock at $1.60 per share
During 1999, a contractor received 499 shares for services resulting in $4,054
compensation expense to the Company
During 1999, and 1998, the Company granted stock options to various
consultants and employees, which resulted in compensation expense of
$26,447 and $156,850 respectively
During 1999, a holder of the Company's Series A (formerly Series F)
convertible Preferred Stock, exercised a warrant issued with that stock to
purchase 200,000 shares of the Company's common stock at $1.50 per share
The $300,000 subscription receivable associated with that exercise has been
deducted from additional paid-in capital
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
INSTANT VIDEO TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Instant Video Technologies, Inc. ("IVT" or the "Company") is an
independent provider of client/server network software for the delivery of
video and audio information over networks. IVT's Burstware(R) suite of
software products enables companies to transmit video and audio files at
faster-than-real-time speed. The result is full-motion video and
CD-quality audio to the end-user. The Company's software incorporates its
portfolio of patented intellectual property to achieve this result.
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-Q 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, 1998, 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 1998 annual report 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
Basic and diluted net loss per share is computed using the weighted
average number of common shares outstanding. Because their effects would
be anti-dilutive, stock options to acquire 4,421,543 shares and warrants
to acquire 569,297 shares of common stock at a weighted average exercise
price of $2.55 and $1.62, respectively, have been excluded from the
computation of diluted earnings per share for the quarter ended March 31,
1999. In 1998, anti-dilutive stock options to acquire 513 shares of common
stock with a weighted average exercise price of $.90 have been excluded
from the computation of diluted earnings per share for the quarter.
(3) COMPREHENSIVE INCOME
The Company has no component of comprehensive income other than its
reported amounts of net loss applicable to holders of common stock.
(4) SEGMENT DISCLOSURES
We have adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about segments of an enterprise and
related information". The Company operates in one segment and accordingly
has provided only the required enterprise wide disclosure.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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. The Company's headquarters is located in San Francisco, California, with
offices in Detroit, Michigan, and Phoenix, Arizona. The Company expects to
increase its sales offices in 1999 with additional locations in the United
States and Europe.
The Company's prospects must be considered and evaluated in light of the risks,
operating and capital expenditures required, and uncertainty of economic
conditions that may impact its customers. Emerging companies are characterized
by a high degree of market and financial risk and investors should take this
into account in their evaluation of financial results and future prospects. To
achieve and sustain profitability, the Company must successfully launch, market,
and establish its software products, successfully develop new products and
services, meet the demands of its customers, respond quickly to changes in its
markets, attract and retain qualified employees, and control expenses and cash
usage.
The Company believes that period-to-period comparisons of its operating results,
including its revenues, cost of sales, gross margins, expenses, and capital
expenditures may not necessarily provide meaningful results and should not be
relied upon as indications of future performance. The Company does not believe
that its historical growth rates are indicative of future growth or trends.
The Company has incurred significant losses since its inception, and as of March
31, 1999, it had an accumulated deficit of $26,030,664. There can be no
assurance that the Company will achieve or sustain profitability and the Company
believes that it will continue to incur net losses in 1999.
Results of Operations
The Company had no revenue nor cost of revenue for the three months
ended March 31, 1999 and 1998. The Company recently completed commercial release
of its Burstware(R) suite of products but has not yet begun shipping its
products to customers.
Costs and expenses during the three months ended March 31, 1999, totaled
$1,579,121 as compared to $480,469 during the three months ended March 31, 1998.
The $1,098,652 increase was due to a $330,381, or 253% increase in Research &
Development expenditures, a $403,763 or 896% increase in Sales & Marketing, as
well as a $364,508, or 120% increase in General and Administrative Expense. The
increased costs were primarily related to increased personnel, as well as a
targeted advertising campaign.
The Company had a net loss from operations of $1,579,121 during the
three months ended March 31, 1999, as compared to $480,469, a 229% increase over
the same three months in 1998. The increased loss resulted from the increased
expenditures discussed above. Other income, net was $6,622, as compared to
$155,867 net expense for the three months ended March 31, 1999 and 1998,
respectively. This $162,489 decrease was principally due to the $155,502
decrease in interest expense associated with debt converted to equity or that
was retired during the first quarter of 1998.
8
<PAGE> 9
Liquidity and Capital Resources
As of March 31, 1999, the Company had working capital of $2,088,320 as
compared to $2,591,930 at December 31, 1998. This $503,610 decrease was due to a
$244,188 reduction in current assets, an increase in current liabilities of
$259,422, and the Company's net loss for the quarter, partially offset by the
$1,237,500 proceeds from the exercise of warrants to purchase the Company's
common stock.
Net cash used in operating activities totaled $558,396 during the three
months ended March 31, 1999, as compared to net cash used in operating
activities of $228,267 during the three months ended March 31, 1998.
Net cash used in investing activities during the three month period
ended March 31, 1999 totaled $227,999 as compared to $21,625 during the three
month period ended March 31, 1998.
Cash flow provided by financing activities during the three month period
ended March 31, 1999 totaled $1,229,565 as compared to $822,276 during the same
period in 1998. This increase was primarily as a result of $1,237,500 proceeds
from the exercise of warrants to purchase common stock associated with the
Company's Class A Preferred Stock, and the collection of an $810,000 receivable
related to a sale of the Company's Class B Convertible Preferred Stock.
The Company retired no debt in 1999, while it retired $537,243 during
the three months ended March 31, 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No change from legal proceedings reported in the Company's December 31,
1998 Form 10KSB.
Item 2. Changes in Securities.
Since January 1, 1999, the Company has sold unregistered securities as
follows:
During the three months ended March 31, 1999, the holders of the
Company's Series A (formerly Series F) convertible Preferred Stock
exercised warrants issued with that stock to purchase 1,025,000 shares
of the Company's common stock at $1.50 per share, resulting in cash
proceeds of $1,237,500 and a $300,000 stock subscription receivable to
the Company.
In a series of cashless exercises, a financial institution exercised
250,000 warrants to purchase 226,140 shares of the Company's common
stock at $1.00 per share. This same institution also exercised 31,250
warrants to purchase 26,122 shares of the Company's common stock at
$1.60 per share.
Two employees received options to purchase 9,621 shares of common stock
at prices of $2.19 and $2.91 per share in exchange for services
rendered, resulting in compensation expense of $26,448 to the Company.
A contractor received 499 shares of common stock for services resulting
in $4,054 of compensation expense to the Company.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On April 14, 1999, the Company's stockholders adopted the 1998 and 1999
stock option plans by written consent. Additionally, the stockholders
voted to increase the aggregate number of shares issuable under the
1992, 1998 and 1999 plans.
Effective April 15, 1999, Eric Hall resigned as Interim Chief Financial
Officer. On May 11, 1999, the Company's Board of Directors appointed
Charles Swan as Interim Chief Financial Officer. The Company is
searching for a permanent Chief Financial Officer.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Description Location Sequential
No. ----------- -------- 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, 1999.
10
<PAGE> 11
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: May 14, 1999 By: /s/ Richard Lang
-----------------------------------
Richard Lang, Chairman,
Chief Executive Officer and President
By: /s/ Charles Swan
-----------------------------------
Chief Financial Officer
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED BALANCE SHEETS AND UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,655,311
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,804,006
<PP&E> 474,186
<DEPRECIATION> 90,458
<TOTAL-ASSETS> 3,204,546
<CURRENT-LIABILITIES> 715,686
<BONDS> 0
0
45
<COMMON> 92
<OTHER-SE> 2,488,833
<TOTAL-LIABILITY-AND-EQUITY> 3,204,546
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,579,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 365
<INCOME-PRETAX> (1,572,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,572,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,572,499)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
