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 September 30, 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 9,435,527 shares of the Issuer's $.00001 par value common stock
outstanding as of November 19, 1999
<PAGE>
INSTANT VIDEO TECHNOLOGIES, INC.
FORM 10-Q
September 30, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PART I - FINANCIAL INFORMATION..........................................................................3
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ITEM 1. FINANCIAL STATEMENTS.........................................................................3
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........9
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................13
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PART II - OTHER INFORMATION............................................................................14
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ITEM 1. LEGAL PROCEEDINGS.......................................................................14
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ITEM 2. CHANGES IN SECURITIES...................................................................14
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................................15
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................15
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ITEM 5. OTHER INFORMATION.......................................................................15
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................15
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SIGNATURES.............................................................................................16
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INDEX TO EXHIBITS......................................................................................17
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</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
<TABLE>
ASSETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 648,394 $2,212,141
Prepaid expenses and other current assets 23,977 26,053
Receivable - Series B Convertible Preferred Stock -- 810,000
---------- ----------
Total current assets 672,371 3,048,194
Property and equipment, net 607,013 184,616
Other assets 35,352 16,812
---------- ----------
Total assets $1,314,736 $3,249,622
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Notes payable $2,970,000 $ 22,736
Accounts payable 475,201 252,044
Accrued expenses 213,412 181,484
Accrued interest 41,588 --
Deferred revenue 51,000 --
---------- ----------
Total current liabilities 3,751,201 456,264
Stockholders' equity:
Preferred stock, $.00001 par value, 20,000,000
shares authorized:
Series A, 2,020,000 and 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 25 25
Common stock, $.00001 par value, 100,000,000
shares authorized; 9,435,527 and 7,940,966
shares issued and outstanding in 1999 and 1998,
respectively 94 79
Additional paid-in capital 31,119,853 27,251,399
Accumulated deficit (33,556,457) (24,458,165)
------------ ------------
Total stockholders' equity (deficiency) (2,436,465) 2,793,358
------------ ------------
Total liabilities and stockholders' equity (deficiency) $ 1,314,736 $ 3,249,622
============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations
<CAPTION>
Three months ended September 30, Nine Months ended September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ -- $ -- $ -- $15,000
Costs and expenses:
Research and development 2,156,982 196,535 3,085,540 446,493
Sales and marketing 1,213,867 208,766 2,781,692 381,906
General and administrative 719,769 419,431 2,412,088 1,305,509
------------ ------------ ------------ ------------
Total costs and expenses 4,090,618 824,732 8,279,320 2,133,908
------------ ------------ ------------ ------------
Loss from operations (4,090,618) (824,732) (8,279,320) (2,118,908)
Other expense:
Interest, net (828,239) (582,352) (795,272) (1,153,399)
Other expense (10,033) -- (22,100) --
------------ ------------ ------------ ------------
Total other expense, net (838,272) (582,352) (817,372) (1,153,399)
------------ ------------ ------------ ------------
Loss before income taxes (4,928,890) (1,407,084) (9,096,692) (3,272,307)
------------ ------------ ------------ ------------
Income taxes -- -- (1,600) (800)
------------ ------------ ------------ ------------
Net loss $ (4,928,890) $ (1,407,084) $ (9,098,292) $ (3,273,107)
============ ============ ============ ============
Accumulated deficit, beginning of period (28,627,567) (10,645,343) (24,458,165) (8,779,320)
------------ ------------ ------------ ------------
Accumulated deficit, end of period $(33,556,457) $(12,052,427) $(33,556,457) $(12,052,427)
============ ============ ============ ============
Basic and diluted net loss per common share $ (0.53) $ (0.23) $ (1.01) $ (0.53)
============ ============ ============ ============
Shares used in per share computation 9,233,625 6,132,093 9,006,714 6,132,093
============ ============ ============ ============
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
INSTANT VIDEO TECHNOLOGIES, INC.
<TABLE>
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(9,098,292) $(3,273,107)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 137,869 34,828
Gain on disposal of fixed assets -- 6,893
Non-cash interest expense 797,330 1,107,681
Stock-based compensation 191,089 436,108
Purchased research and development 1,330,000 --
Changes in operating assets and liabilities:
Decrease in prepaid expenses and other current assets 2,076 25,250
(Increase) decrease in other assets (18,540) 757
Increase in accounts payable 223,157 128,132
Increase (decrease) in accrued expenses 31,928 (36,102)
Increase (decrease) in accrued interest 41,588 (4,226)
Increase in deferred revenue 51,000 --
----------- -----------
Net cash used in operating activities (6,310,795) (1,587,572)
Cash flows from investing activities:
Purchases of property and equipment, net (560,266) (71,317)
----------- -----------
Net cash used in investing activities (560,266) (71,317)
Cash flows from financing activities:
Proceeds from sale of common stock -- 10,000
Exercise of stock options 12,550 --
Collection of receivable - Series B Convertible Preferred Stock 810,000 --
Proceeds from issuance of debt 2,970,000 1,550,000
Exercise of warrants for common stock 1,537,500 750,000
Repayment of debt (22,736) (585,347)
----------- -----------
Net cash provided by financing activities 5,307,314 1,724,653
----------- -----------
(Decrease) increase in cash and cash equivalents (1,563,747) 79,550
Cash and cash equivalents, beginning of period 2,212,141 20,551
----------- -----------
Cash and cash equivalents, end of period $ 648,394 $ 100,101
=========== ===========
<FN>
See accompanying notes to condensed consolidated financial statements
</FN>
</TABLE>
<PAGE>
INSTANT VIDEO TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows, Continued
For the Nine Months Ended September 30, 1999 and 1998
1999 1998
------- -------
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 1,600 $ 800
======= =======
Cash paid for interest $ 1,300 $46,395
======= =======
Supplemental schedule of non-cash financing activities:
During 1998, $330,000 of convertible debt and $17,812 of accrued interest
was converted into 347,812 shares of common stock.
During 1999, 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.
During 1999, a contractor received 499 shares of the Company's common stock
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 $436,108 respectively.
During 1999, 5,000 shares of Series A convertible Preferred Stock was
converted to 5,000 shares of common stock.
During 1999, a vendor was granted options to purchase 36,000 shares of the
Company's common stock resulting in compensation expense of $160,588.
During 1999, the Company acquired Timeshift-TV, Inc. in exchange for
200,000 shares of common stock, which resulted in purchased research and
development expense of $1,330,000.
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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 subsidiaries, Explore Technology,
Inc. and Timeshift-TV. All significant intercompany transactions and
accounts have been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated 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 4,037,626 and 4,171,213 shares at
weighted average prices of $2.71 and $2.65, respectively, and warrants to
acquire 695,449 and 705,723 shares of common stock at a weighted average
exercise price of $1.60 for each period, respectively, have been excluded
<PAGE>
from the computation of diluted earnings per share for the three and nine month
periods ended September 30, 1999.
(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
The Company has 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.
(5) EQUITY
Notes convertible to the Company's common stock were issued in exchange for
$2,970,000 in cash. Notes are due in one year and are convertible at a price
which shall be the lower of (1) $6.50, (2) 80% of the average closing price
of the Company's publicly traded shares in the 20 trading days immediately
preceding the closing of an ongoing private placement, or (3) the price
agreed in that private placement. Interest expense of $797,330 has been
recorded for the beneficial conversion feature of these notes.
(6) RELATED PARTY TRANSACTIONS
On August 3, 1999, the Company acquired Timeshift-TV, Inc. for 200,000
shares of common stock in a stock only transaction from Richard Lang, the
Company's Chairman and CEO, Earl Mincer and Eric Walters, who are employees
of the Company. Mr. Walters is Mr. Lang's brother in law. Mr. Lang and the
other parties were not employed by the Company at the time they formed
Timeshift-TV. The Company's board of directors unanimously approved the
acquisition of Timeshift-TV. Timeshift-TV assets consist of intellectual
property in the area of time-shifted real-time broadcasting, which we plan
to integrate into our advanced video and audio delivery solutions. We also
plan to license the Timeshift-TV intellectual property to other parties for
various applications. The Company expensed $1,330,000 of purchased research
and development costs in connection with this aquisition.
(7) SUBSEQUENT EVENTS
Subsequent to September 30, 1999, the Company has received $600,000 in
exchange for notes payable convertible into the Company's common stock.
Notes are due in one year and are convertible at a price which shall be the
lower of (1) $6.50, (2) 80% of the average closing price of the Company's
publicly traded shares in the 20 trading days immediately preceding the
closing of an ongoing private placement, or (3) the price agreed in that
private placement.
<PAGE>
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 six other domestic metropolitan areas.
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
September 30, 1999, it had an accumulated deficit of $33,556,457. 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
Nine month periods ended September 30, 1999 vs. 1998
The Company had no revenue or cost of revenue for the nine months ended
September 30, 1999 compared with $15,000 revenue for the same period in 1998.
The Company released the commercial version of its Burstware(R) suite of
products this year, has signed agreements with three resellers for distribution
of Burstware(R) and has shipped evaluation copies to potential customers.
During the nine months ended September 30, 1999 expenses increased to
$8,279,320 as compared to $2,133,908 during the nine months ended September 30,
1998. This $6,145,412
<PAGE>
increase was a result of an overall expansion in business activity, including
growth in the research and development, sales and marketing departments as well
as a non-recurring charge to expense related to the acquisition of Timeshift-TV.
The $2,639,047, or 591% increase in Research & Development expenditures,
resulted from the ramp-up in preparation for the initial commercial release and
development and testing of enhanced features planned for subsequent releases of
the product as well as $1,330,000 of in-process research and development
acquired from Timeshift-TV which was charged to expense. The Quality Assurance
and Release Management Department was established in 1999 to support subsequent
releases of Burstware products. Personnel were added to develop, test and
complete documentation of the product releases. Major development activities
began and continued to expand in the areas of player scripting, incorporation of
a database for replication, and various other features to be included in
subsequent releases.
The $2,399,786 or 628% increase in Sales & Marketing was primarily a result
of the commercial release of the Company's Burstware(R) product suite. The
Company has added marketing staff and has engaged in a targeted marketing
campaign including print, radio and billboard advertising, public relations,
collateral development, and participation in a number of major trade shows. The
Company believes that these promotional activities will allow the Company to
reach specific vertical markets cost-effectively, to support the efforts of the
direct sales force, and to generate publicity for the Company as a whole.
The program's objectives are to build brand awareness, facilitate name
recognition, educate the market, generate sales leads and develop relationships
with technology partners, systems integrators and resellers. These expenditures
will continue as part of an overall plan to build upon and expand the brand
awareness the Company has created in the marketplace.
Sales expenditures have increased as a result of the expansion of the
Company's sales force in conjunction with the launch of the Burstware(R) suite
of products. The company currently has sales offices in Virginia, Colorado,
Michigan, New York metropolitan area and Florida. The Company has also partnered
with The EMS Group, Ltd to develop sales and marketing channels in Europe.
The Company incurred a $1,106,579, or 85% increase in General and
Administrative Expense which resulted from additional personnel, equipment and
facilities costs to support the increased operations.
The Company had a net loss from operations of $8,279,320 during the nine
months ended September 30, 1999, as compared to $2,118,908, a 291% increase over
the same nine months in 1998. The increased loss resulted from the increased
expenditures discussed above. Net other expenses were $817,372, as compared to
$1,153,399 net other expense for the nine months ended September 30, 1999 and
1998, respectively. This $336,027 decrease was principally due to the decrease
in interest expense associated with debt converted to equity or that was retired
at the end of 1998.
Quarters ended September 30, 1999 vs. 1998
<PAGE>
The Company had no revenue or cost of revenue for either the three months
ended September 30, 1999 or September 30, 1998. The Company released the
commercial version of its Burstware(R) suite of products this year, and has
shipped evaluation copies to potential customers. Three reseller agreements were
signed in 1999 and these resellers have now engaged in marketing the
Burstware(R) product suite.
Costs and expenses during the three months ended September 30, 1999, totaled
$4,090,618 as compared to $824,732 during the three months ended September 30,
1998. The increased costs were primarily related to a one-time charge related to
the acquisition of Timeshift-TV, increased personnel, as well as expanded market
promotion activities. The $3,265,886 increase was due to a $1,960,447, or 998%
increase in Research & Development expenditures, including a write-off of the
$1,330,000 of in-process research and development acquired from Timeshift-TV; a
$1,005,101 or 481% increase in Sales & Marketing, as well as a $300,338, or 72%
increase in General and Administrative Expense.
The Company had a net loss from operations of $4,090,618 during the three
months ended September 30, 1999, as compared to $824,732, a 396% increase over
the same three months in 1998. The increased loss resulted from the increased
expenditures discussed above. Net other expense was $838,272, as compared to
$582,352 net other expense for the three months ended September 30, 1999 and
1998, respectively. This $255,920 increase was principally due to the increase
in interest expense associated with issuance of convertible debt with beneficial
conversion features during 1999.
Changes in Financial Condition
As of September 30, 1999, the Company had a working capital deficiency of
$3,078,830 as compared to working capital of $2,591,930 at December 31, 1998.
This $5,670,760 decrease was due to a $2,375,823 reduction in cash used to fund
operations, and an increase in current liabilities of $3,294,937. These uses of
current assets were partially offset by the $1,537,500 proceeds from the
exercise of warrants to purchase the Company's common stock and the $810,000
collection of a receivable relating to the exercise of warrants related to
Series B Preferred Stock.
Net cash used in operating activities totaled $6,310,795 during the nine
months ended September 30, 1999, as compared to net cash used in operating
activities of $1,587,572 during the nine months ended September 30, 1998. This
increase was due to the expansion of operations and increases in expenditures
discussed above.
Net cash used in investing activities during the nine-month period ended
September 30, 1999 totaled $560,266 as compared to $71,317 during the nine-month
period ended September 30, 1998. The increase was primarily attributable to
purchases of computer equipment and software used in development activities; to
expand the network infrastructure and provide required personal computers for
new employees.
Cash flow provided by financing activities during the nine-month period
ended September 30, 1999 totaled $5,307,314 as compared to $1,724,653 during the
same period in 1998. The increase resulted from issuance of convertible notes in
the amount of $2,970,000 to fund
<PAGE>
operations during 1999. The Company retired a $22,736 note during the nine
months ended September 30, 1999, while it retired $585,347 in debt during the
nine months ended September 30, 1998.
Subsequent to September 30, 1999, the Company received $600,000 in exchange
for notes payable convertible to the Company's common stock. These notes are due
on October 26, 2000 and November 10, 2000, but are expected to be converted to
common stock prior to that maturity date.
Liquidity
IVT received a "going concern" opinion from its independent auditors in 1998.
Although the Company has been successful in its fundraising efforts to meet
prior operating requirements, and is currently engaged in negotiations relating
to additional funding, there can be no guarantee that the Company will be
successful in these or future fundraising efforts. At the time of this report
IVT had insufficient cash reserves and receivables necessary to meet current
operating requirements. In the event the Company were to be unsuccessful in its
fundraising, it would be required to significantly reduce cash outflows through
the reduction or elimination of marketing and sales, development, capital, and
administrative expenditures resulting in decreased potential revenue and
potential cessation of operations.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the application year. Programs or products
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. In addition, the year 2000 is a leap year, which
may also lead to incorrect calculations, functions or systems failure. As a
result, this year, computer systems and software used by many companies may need
to be upgraded to comply with such Year 2000 requirements. In 1998, the Company
began a project to determine if any actions were required regarding date-related
effects to: (i) the Company's software products; (ii) the Company's internal
operating and desktop computer systems and non-information technology systems;
and (iii) the readiness of the Company's third-party vendors and business
partners.
The Company has formed a team consisting of operations, development, marketing,
and finance members to determine the impact of Year 2000 and to take corrective
action. As of February 1999, the Company had completed testing of its suite of
Burstware(R) software products and has found no known Year 2000 issues. The
Company has also tested its internal operating and desktop hardware and software
and has found that all its software is Year 2000 compliant and appears to have
no known Year 2000 issues. The Company has also confirmed with its third-party
vendors and business partners to ensure that their software and hardware will
not impact IVT operations. At this time, the Company knows of no known Year 2000
issues or problems with its vendors, or business partners.
The majority of the costs associated with this project is not incremental to the
Company, but represents a reallocation of existing resources. The Company
believes that modifications deemed necessary will be made on a timely basis and
does not believe that the cost of such modifications
<PAGE>
will have a material effect on the Company's operating results. To date, the
Company's costs related to the year 2000 issues have not been material, and the
Company does not expect the aggregate amount spent on the year 2000 issue to be
material. In addition, the Company is in the process of evaluating the need for
contingency plans with respect to year 2000 requirements. The necessity of any
contingency plan must be evaluated on a case-by-case basis and may vary
considerably in nature depending on the year 2000 issue it may address.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve year 2000 compliance is a forward-looking statement
subject to risks and uncertainties. Actual results may vary materially as a
result of a number of factors, including, among others, those described above in
this section. There can be no assurance that unexpected delays or problems,
including the failure to ensure year 2000 compliance by systems or products
supplied to the Company by third parties, will not have an adverse effect on the
Company, its financial performance and results of operations. In addition, the
Company cannot predict the effect of the year 2000 issues on its customers or
other third party business partners or the resulting effect on the Company. As a
result, if such third parties do not take preventative and/or corrective actions
in a timely manner, the year 2000 issue could have an adverse effect on their
operations and accordingly have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, the
Company's current understanding of expected costs is subject to change as the
project progresses and does not include the cost of internal software and
hardware replaced in the normal course of business whose installation otherwise
may be accelerated to provide solutions to year 2000 compliance issues.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to market risk is minimal as the Company has no
investments in the market.
<PAGE>
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 nine months ended September 30, 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 $1,537,500.
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.
A vendor received options to purchase 36,000 shares of common stock at
$9.72 per share in exchange for services, resulting in compensation
expense of $160,588 to the Company.
Options to purchase 11,800 shares of the Company's common stock were
exercised by employees at an average price of $1.06 per share,
resulting in $12,550 proceeds to the Company.
A holder of Series A, (formerly Series F) Convertible Preferred Stock
converted 5,000 shares of that stock into 5,000 shares of common stock.
Notes convertible to the Company's common stock were issued in exchange
for $2,970,000 in cash. Notes are due in one year and are convertible
at a price which shall be the lower of (1) $6.50, (2) 80% of the
average closing price of the Company's publicly traded shares in the 20
trading days immediately preceding the closing of an ongoing private
placement, or (3) the price agreed in that private placement. Interest
expense of $797,330 has been booked for the beneficial conversion
feature of these notes.
<PAGE>
Related Party Transactions - During 1999, the Company acquired
Timeshift-TV, Inc. for 200,000 shares of common stock (see Item 5 -
Other Information for further details).
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
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.
Item 5. Other Information
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. On September 16, 1999
Richard Jones was hired as Chief Financial Officer.
On August 3, 1999, the Company acquired Timeshift-TV, Inc. for 200,000
shares of common stock in a stock only transaction from Richard Lang,
the Company's Chairman and CEO, Earl Mincer and Eric Walters, who are
employees of the Company. Mr. Walters is Mr. Lang's brother in law. Mr.
Lang and the other parties were not employed by the Company at the time
they formed Timeshift-TV. The Company's board of directors unanimously
approved the acquisition of Timeshift-TV. Timeshift-TV assets consist
of intellectual property in the area of time-shifted real-time
broadcasting, which we plan to integrate into our advanced video and
audio delivery solutions. We also plan to license the Timeshift-TV
intellectual property to other parties for various applications. The
Company booked $1,330,000 of expense for the purchased research and
development costs in connection with this aquisition.
Subsequent to September 30, 1999, the Company has received $600,000 in
exchange for notes payable convertible into the Company's common stock.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
No Description Location Page No
-- ----------- -------- -------
27 Financial Data Schedule Attached
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended September 30, 1999.
<PAGE>
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 19, 1999 By: /s/ Richard Lang
-----------------------------
Richard Lang, Chairman,
Chief Executive Officer and
President
By: /s/ Richard Jones
-----------------------------
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
<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 SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 648,394
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 672,371
<PP&E> 806,453
<DEPRECIATION> 199,440
<TOTAL-ASSETS> 1,314,736
<CURRENT-LIABILITIES> 3,751,201
<BONDS> 0
0
45
<COMMON> 94
<OTHER-SE> (2,436,465)
<TOTAL-LIABILITY-AND-EQUITY> 1,314,736
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,090,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 828,239
<INCOME-PRETAX> (4,928,890)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,928,890)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,928,890)
<EPS-BASIC> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
