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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to________________
Commission file number: 0-26302
VIDEOLAN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1283466
(State of incorporation) (I.R.S. Employer Identification No.)
100 Mallard Creek Road, Suite 250, Louisville, Kentucky 40207
(Address of principal executive offices) (Zip Code)
502-895-4858
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding at September 30, 1996
- ---------------------- --------------------------------------
Common stock, $.01 par value per share 14,018,398
This document contains 15 pages.
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INDEX
Page
PART I. Financial Information
ITEM 1. Financial Statements
Unaudited Condensed Balance Sheet as of September 30, 1996 3
Unaudited Condensed Statements of Operations for the three months
ended September 30, 1995 and 1996, the nine months ended September
30, 1995 and 1996, and for the period from May 11, 1994(Inception)
to September 30, 1996. 4
Unaudited Condensed Statement of Stockholders' Equity for the
Nine Months ended September 30, 1996. 5
Unaudited Condensed Statements of Cash Flows for the three months
ended September 30, 1995 and 1996, the nine months ended September
30, 1995 and 1996, and for the period from May 11, 1994(Inception)
to September 30, 1996. 6
Notes to Unaudited Condensed Financial Statements 8
ITEM 2 Management's Discussion and Analysis or Plan of
Operations 11
PART II. Other Information 13
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES 15
2 of 15
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED BALANCE SHEET
September 30, 1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ............................. $ 712,100
Accounts receivable ................................... 474,145
Inventories ........................................... 1,352,877
Prepaid expenses and other current assets ............. 281,631
-------
Total Current Assets ............................... $ 2,820,753
Property and equipment, net ................................... 582,340
Other assets:
Patents pending or granted ............................ 89,722
Notes receivable ...................................... 33,800
Deferred offering cost ................................ 186,553
Security deposits ..................................... 102,782
-------
412,857
-------
$ 3,815,950
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities .............. $ 631,498
Capital lease obligations-current ..................... 113,894
-------
Total Current Liabilities .......................... $ 745,392
Long term liabilties:
Capital lease obligations-non current ................. 25,359
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value 5,000,000
shares authorized, none issued
Common stock, $.01 par value; 20,000,000 shares
authorized; 14,018,398 shares issued and outstanding 140,184
Additional paid-in-capital ............................ 16,722,132
Deficit accumulated during the development stage ...... (13,817,117)
-----------
Total Stockholders' Equity ......................... 3,045,199
---------
$ 3,815,950
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3 of 15
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Period from
May 11, 1994
(Inception)
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
1995 1996 1995 1996 1996
---- ---- ---- ---- ----
Net sales ................................... $ 50,053 $ 488,947 $ 50,053 $ 488,947 $ 539,000
Cost of sales ............................... 37,372 283,444 37,372 283,444 320,816
------------ ------------ ------------ ------------ ------------
Gross profit ................................ 12,681 205,503 12,681 205,503 218,184
Selling, general and administrative expenses:
Salaries .............................. 154,385 417,646 356,206 1,397,920 2,162,591
Compensation expense .................. - 1,125,000 3,254,875
Payroll taxes ......................... 30,163 43,855 74,875 133,767 278,481
Consulting fees ....................... 86,805 47,430 134,641 328,851 1,199,964
Marketing cost ........................ 16,995 30,218 97,410 171,523 370,313
Professional fees ..................... 110,932 175,923 192,362 340,018 780,229
Travel and entertainment .............. 94,133 111,981 262,018 337,001 805,915
Research and development .............. 494,603 488,879 985,124 1,343,543 3,857,533
Equipment Expense ..................... 23,186 121,102 73,090 344,079 500,023
Rent .................................. 21,750 52,663 50,205 125,489 244,407
Insurance ............................. (2,014) 65,465 30,253 153,891 198,832
Office ................................ 26,313 60,905 91,416 151,096 326,065
Depreciation and amortization ......... 6,605 33,703 14,915 77,885 111,274
Stock Administration Charges .......... - 29,394 - 67,293 67,293
Other ................................. 6,581 73,903 14,747 119,588 146,798
Franchise Tax Expense ................. - - 5,242 -
------------ ------------ ------------ ------------ ------------
Total expenses ...................... 1,070,437 1,753,067 3,507,504 5,091,944 14,304,593
Other income (expense)
Interest income ....................... 21,357 37,060 33,614 161,878 297,121
Interest expense ...................... (6,317) (9,866) (8,498) (19,666) (28,164)
Other Income .......................... - (1,971) 335 335
------------ ------------ ------------ ------------ ------------
15,040 25,223 25,116 142,547 269,292
Net loss ............................ $ (1,042,716) $ (1,522,341) $ (3,469,707) $ (4,743,894) $(13,817,117)
============ ============ ============ ============ ============
Loss per share .............................. $ (0.08) $ (0.11) $ (0.30) $ (0.34) $ (1.13)
============ ============ ============ ============ ============
Weighted average common
shares outstanding ........................ 12,405,998 13,986,328 11,447,665 13,913,791 12,178,705
============ ============ ============ ============ ============
4 of 15
VideoLan Technologies, Inc.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1996
(Unaudited)
Deficit
Accumulated
Common Stock Additional During Total
Preferred ------------------------- Paid-In Development Stockholders'
Stock Shares Amount Capital Stage Equity
----------- ---------- ------------ --------------- ------------ ------------
Balance at January 1, 1996 .......... $ 13,843,498 $ 138,435 $ 16,424,980 $ (9,073,223) $ 7,490,192
Warrants converted to Common Stock .. 5,000 50 34,950 35,000
Employee stock options exercised .... 169,900 1,699 262,202 263,901
Net loss ............................ (4,743,894) (4,743,894)
----------- ---------- ------------ --------------- ------------ ------------
Balances at September 30, 1996 ...... $ 14,018,398 $ 140,184 $ 16,722,132 $(13,817,117) $ 3,045,199
----------- ========== ============ =============== ============ ============
5 of 15
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
May 11, 1994
(Inception)
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
1995 1996 1995 1996 1996
---- ---- ---- ---- ----
Cash flows from operating and
development stage activities:
Net loss $(1,042,716) $(1,522,341) $(3,469,707) $(4,743,894) $(13,817,117)
Adjustments to net loss:
Issuances of common stock for
Services rendered 1,125,000 1,146,875
Issuances of common stock for
consulting services rendered 665,000
Issuances of common stock for purchased
research and development 709,125
Issuances of stock options to consultants 2,108,000
Depreciation and amortization 6,605 33,703 14,915 77,885 111,274
Gain on sale of assets 1,972 1,884 1,884
Increase in accounts receivable (27,391) (449,558) (27,391) (449,481) (474,145)
Increase in interest receivable (2,500)
Increase(decrease) in inventories (155,836) 84,733 (542,879) (536,167) (1,356,536)
Increase in prepaid expenses and other
current assets (13,913) (83,656) (26,733) (119,490) (277,971)
Increase(decrease) in security deposits (1,977) 19,977 (10,517) (77,121) (102,782)
Increase in accounts payable and
accrued liabilities 1,323 231,990 221,757 286,657 631,499
----------- ----------- ----------- ----------- ------------
Net cash used in operating and
development stage activities (1,233,905) (1,683,180) (2,718,055) (5,559,727) (10,654,894)
----------- ----------- ----------- ----------- ------------
Cash flow from investing activities:
Acquisition of property and equipment (39,700) (89,596) (86,052) (205,729) (446,495)
Proceeds from sale of assets 1,230 (99,745) 1,730 1,730
Patent application costs (1,006) (4,452) (54,506) (89,721)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities: (39,700) (89,372) (190,249) (258,505) (534,486)
----------- ----------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock
in private placement 2,202,747 2,655,647
Offering costs (158,805) (288,703) (326,263)
Proceeds from the exercise of stock options
by employees 156,901 298,901 298,901
Proceeds from initial public offering 11,500,000 11,500,000 11,500,000
Underwriter's commissions and expense allowances (1,449,000) (1,449,000) (1,449,000)
Offering costs (234,812) (445,970) (186,553) (632,523)
Proceeds from exercise of common stock warrants -
Proceeds from notes payable (331,000) 331,000
Repayment of notes payable (331,000)
Repayment of capital lease obligations (4,056) (45,861) (12,881) (91,013) (111,482)
Proceeds from bridge loans 900,000 900,000
Repayment of bridge loans (450,000) (900,000) (900,000)
Loans to employees, net 35,311 (33,800)
Cash overdraft (31,003)
----------- ----------- ----------- ----------- ------------
Net cash provided by(used in)
financing activities: 9,362,132 (47,765) 11,179,501 21,335 11,901,480
----------- ----------- ----------- ----------- ------------
Increase(decrease) in cash and cash equivalents: 8,088,527 (1,820,317) 8,271,197 (5,796,897) 712,100
Cash and cash equivalents at beginning of period 182,670 2,532,417 - 6,508,997 -
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period $ 8,271,197 $ 712,100 $ 8,271,197 $ 712,100 $ 712,100
=========== =========== =========== =========== ============
Supplemental disclosure of cash flow information: Capital lease obligations of
$140,071 were incurred when the Company entered into new leases for testing
equipment. Interest expense paid in cash was $2,785.
6 of 15
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
NOTE A-DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
VideoLan Technologies, Inc. (the "Company"), is a development stage
enterprise established to acquire certain technology and the rights to a U.S.
Patent application and several pending foreign patent applications for an
analog video distribution communications system designed to provide real-time,
interactive video, to and from a desktop personal computer over local and wide
area networks ("VideoLan Technology"). Since inception, the Company has
primarily been engaged in research and development.
In the course of its development stage activities, the Company has
incurred significant losses which have been funded with resources from the
Chairman, bridge loan financing, proceeds from a private placement, and
proceeds from an initial pubic offering.
Unless income from sales of the VideoLan VL2000 System is obtained,
the timing, sufficiency and receipt of which the Company cannot predict, future
development and commercialization of the Company's technology will depend upon
arrangements with third parties to finance research and development projects,
or the Company's ability to obtain other additional financing on terms
satisfactory to the Company. The Company's inability to obtain such financing
could have a material adverse effect on the Company`s operations.
During October 1996, the Company completed a $5,200,000 financing
through the sale of preferred shares in a Regulation D private placement. The
Company is evaluating whether to seek an additional $2,300,000 more in gross
proceeds from the same private placement. The net proceeds of the $5,200,000
private placement after commissions will be $4,888,000.
NOTE B-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Research and Development Costs
Research and development costs are expensed as incurred.
2. Net Loss Per Share of Common Stock
The computation of loss per common share is based on the weighted
average number of outstanding shares. Stock options and warrants have not been
included in the calculation as their inclusion would be antidilutive.
3. Cash and Cash Equivalents
Cash equivalents consist of short-term government obligations. These
securities have original maturity dates not exceeding three months. Such
investments are carried at cost which approximates market, and are considered
cash equivalents for purposes of reporting cash flows.
4. Interim Financial Statements
The unaudited balance sheet as of September 30, 1996 and the unaudited
statements of operations and cash flows for the three months and the nine
months ended September 30, 1996 and 1995 as well as the period May 11, 1994
(inception) through September 30, 1996 and the statement of stockholders'
equity for the nine months ended September 30, 1996 contain all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
the Company's management, necessary to present the financial position of the
Company as of September 30, 1996 and results of operations and the cash flows
for the three months, and the nine months ended September 30, 1996 and 1995,
and the period May 11, 1994 (inception) through September 30, 1996.
7 of 15
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
5. Patents Pending or Issued
Patent pending applications consist of filing fees and certain legal
costs relating to the filing of domestic and international patent applications
for the VideoLan technology.
NOTE C-COMMITMENTS AND CONTINGENCIES
Employee Compensation
On January 17, 1996, Mr. John Haines' employment as CEO of the Company
ceased. As a result of his termination and release agreement with the Company,
Mr. Haines received $15,625 per calendar month, prorated for partial months,
through September 24, 1996. The termination and release agreement allows Mr.
Haines to retain vested options to purchase 150,000 shares of common stock at
$3 per share granted to him under his consulting agreement. The termination and
release agreement also required the Company to register 50,000 of the 150,000
shares on June 20, 1996 and provides Mr. Haines certain piggyback registration
rights for the remaining 100,000 options. Upon entering the termination and
release agreement, Mr. Haines resigned as a director of the Company.
Effective February 15, 1996, Richard Dean Jackson resigned as
Executive Vice President of the Company. As part of his severance and release
agreement with the Company, Mr. Jackson received $125,000 paid over a four
month period, commencing March 1996. Mr. Jackson concurrently signed a
marketing representative agreement to serve as a commissioned marketing
representative of the Company. Additionally, he was issued options to purchase
150,000 shares of the Company's common stock at $12 per share.
On September 27, 1996 Mr. Jack Shirman joined the Company as CEO. His
employment contract is for a two year term. Mr. Shirman's annual base salary
will be $200,000 with possible bonuses which are to be determined at a later
date. Mr. Shirman was also granted 300,000 stock options at an exercise price
of $6.12 per share. Mr. Shirman may exercise 100,000 stock options on September
27, 1997 and 1998 and 50,000 shares on September 27, 1999 and 2000. The options
expire on September 27, 2001. Effective with Mr. Shirman taking over as CEO,
Mr. Ted Ralston resigned as interim CEO. Mr. Ralston remains Chairman of the
Board of Directors
New Facility
In May 1996, the Company leased a 9,778 square foot facility in
Jeffersontown, Kentucky. The Company relocated the Product Engineering and the
Research and Development Departments from the Corporate Office to this new
facility. The minimum annual lease payments under this five year lease are as
follows:
1996 $ 15,282
1997 61,128
1998 73,128
1999 77,128
2000 85,128
Thereafter 28,376
============
$ 340,170
============
8 of 15
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
Patents Pending or Issued
The claims under VideoLan's U.S. Patent application for
"bi-directional transport of video bandwidth signals have been approved by the
U.S. Patent and Trademark Office. The U.S. Patent (No. 5537142) was issued July
16, 1996.
The Company's remaining pending international patent applications
claim an efficient network for the real time, simultaneous, bi-directional
transmission of voice, video, and data among a plurality of users connected to
a plurality of hubs.
Patents and patent applications involve complex legal and factual
issues. A number of companies have filed applications for, or have been issued,
patents relating to products or technology that is similar to some of the
products or technology being developed or used by the Company. There can be no
assurance that the Company's patent will afford protection against the
development of similar or related technology by competitors.
Although the Company believes that its VideoLan VL2000 System and
technology do not and will not infringe on patents or proprietary rights of
others, it is possible that such infringement or violation has occurred or may
occur or that others may infringe on the Company's patents.
In the event that the Company's products or technologies infringe on
patents or other proprietary rights of others, the Company could be required to
discontinue the sale of its products, including the VideoLan VL2000 System, and
redesign its product or obtain licenses. There can be no assurance that the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all, or that the failure to do any of the foregoing would not
have a material adverse effect on the Company. If any of the Company's products
or technologies are deemed to infringe on patents or other proprietary rights
of others, the Company could, under certain circumstances, become liable for
damages, which could also have a material adverse effect on the Company.
In June 1996, Datapoint Corporation ("Datapoint") filed a lawsuit
against the Company in the United States District Court for the District of New
Jersey claiming patent infringement, contributory infringement and inducing
infringement. No claims are made in the lawsuit regarding the validity of the
Company's patent. Datapoint, which is currently experiencing financial
difficulties, has made similar claims in lawsuits filed against other
videoconferencing companies. However, to the Company's knowledge, Datapoint has
not obtained a final verdict of infringement against any of these companies.
The Company's independent outside patent counsel has reviewed Datapoint's
claims and believes that they are without merit. Accordingly, management does
not believe the lawsuit will have a material adverse effect on the Company's
results of operations or financial condition.
Sales Agency Agreement
In July of 1996, the Company entered into a Sales Agency Agreement
with Quest Enterprises, Inc. ("QEI"). QEI was appointed a nonexclusive
authorized sales agent of the Company to sell to approved accounts in the
United States. The Company will pay a sales commission equal to five percent of
net sales to QEI on these approved accounts. The Company also granted to QEI an
option to purchase 75,000 shares of common stock at an exercise price of $16
per share. The option to purchase 25,000 of these shares is irrevocable and is
exercisable at any time prior to its expiration and is not be affected by the
termination of the Sales Agency Agreement. The option to purchase any or all of
the remaining shares will not be exercisable until and unless prior to the
termination of the Sales Agency Agreement (i) the Company has received net
sales from approved accounts of at least $5,000,000 or (ii) the Company obtains
equity financing of at least $5,000,000 through QEI on terms that are
acceptable to the Company.
9 of 15
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
Software Development Consulting Agreement
In July of 1996 the Company signed a one year consulting agreement
with Video Network Service, Inc. ("VNS") to provide full time software
supervision and development. The consulting agreement calls for VNS to be paid
$280,000 over the term of the one year contract. Additionally, 40,000 stock
options were granted to VNS and become executable at specific increments once
mutually agreed upon milestones are met.
NOTE D-CAPITAL STOCK
At the Annual Meeting of Stockholders in June 1996, the Company's
stockholders approved a proposal to increase the Company's authorized shares of
common stock from 20,000,000 to 80,000,000. The proposal permitted the
Company's management to defer the effectiveness of the increase to a later
date. The increase was made effective on October 16, 1996. Additionally, the
stockholders approved a proposal to increase the number of shares available
under the Company's 1995 Stock Option Plan from 1,000,000 to 2,000,000.
On August 9, 1996 the Company made a stock option grant totaling
182,000 shares to all of its employees as of that date, pursuant to the
restated VideoLan 1995 Stock Option Plan. These incentive stock options were
granted at an exercise price of $9.875. 50% of the options granted become
exercisable on August 9, 1998 and the balance on August 9, 1999.
NOTE E-SUBSEQUENT EVENTS
Private Placement
During October 1996, the Company completed a $5,200,000 financing
through the sale of preferred shares in a Regulation D private placement. The
Company is evaluating raising an additional $2,300,000 more in gross proceeds
from the same private placement. The net proceeds of the $5,200,000 private
placement after commissions will be $4,888,000. This offering could create
significant dilution if these preferred shares are converted at low prices.
10 of 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Introduction
The Company is a development stage enterprise engaged in the
continuing development of communications products which utilize their
proprietary technology to transmit and receive real time, interactive video,
voice and data signals over unshielded twisted pair copper wire ("UTP"), as
well as coaxial cable and fiber, to and from desktop personal computers over
local and wide area networks. On July 16, 1996 the US Patent and Trademark
office issued the Company a patent (No. 5537142) for a bi-directional
transmission of video banded signals, including a switching matrix. There are
several international patents still pending.
In August 1995, the Company concluded its initial public offering
("IPO") of 2,875,000 units, each unit consisting of one share of common stock
and one redeemable common stock purchase warrant exercisable for one share of
common stock at a price of $7.00 subject to certain adjustments based upon
anti-dilution provisions, at any time until August 10, 2000. The net proceeds
of the offering to the Company, after payment of underwriters discounts and
commissions, and other expenses of the offering were approximately $9,600,000,
and it was anticipated that the proceeds would be sufficient for at least 12
months after the date of the offering.
$750,000 of the proceeds of the IPO were originally budgeted to
accomplish the Company's marketing strategy for the VideoLan VL2000 System
($266,362 used as of September 30, 1996). This is reflecting the Company's plan
to rely in part on the marketing organizations of the original equipment
manufacturers ("OEM's"), value added resellers ("VARS's"), systems integrators
and distributors through which it intends to sell the VideoLan VL2000 System.
The Company plans to minimize operating expenses by subcontracting
manufacturing, installation and field maintenance services. Additionally,
approximately $3,000,000 of the proceeds of the offering were allocated to the
purchase of inventory ($1,256,610 used as of September 30, 1996), and
approximately $1,500,000 was allocated to enhancements of the VideoLan VL2000
System and development of the Company's technology for Video Services
($2,270,813 used as of September 30, 1996). Thereafter, the Company anticipated
that cash flow from the sales of the VideoLan VL2000 System and/or development
contracts with RBOC's, cable companies or other third parties would be required
to finance the integration of the Company's technology into existing RBOC or
cable company infrastructures for video services. The balance of the IPO
proceeds was allocated for general corporate working capital.
Originally, the Company budgeted $1,500,000 for research and
development to enhance the VideoLan VL2000 System and develop the Company's
technology for video services. The Company has exceeded the original budgeted
amount by $770,813. The Company is also devoting some of its resources to
developing new applications for the technology as well as additional features
for existing applications.
There can be no assurance that the Company will establish satisfactory
distribution channels for the VideoLan VL2000 System or that the VideoLan
VL2000 System will be accepted in the marketplace. There can also be no
assurance that the Company will enter into satisfactory development contracts
for video services and or that it can complete development before other
technologies are selected by video services providers.
11 of 15
Results of Operations
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Revenues. The Company has engaged in limited marketing of the VideoLan
VL2000 System and is currently beginning to implement its marketing strategy.
During the third quarter of 1996, the Company commenced shipping the VideoLan
VL2000 System which provided revenues of $488,947 as compared with $50,053 in
the comparable period in 1995. The Company's marketing efforts in the third
quarter of 1996 were significantly impaired by the sharp decline in the trading
price of the Company's common stock and the Company's low cash position. As a
result, the Company anticipates that revenues during the fourth quarter of 1996
will be nominal. The Company believes its improved cash position resulting from
a recent private placement will enhance the Company's ability to market the
VideoLan VL2000 System although significant revenues are unlikely to be
realized until the second quarter of 1997 at the earliest
In the third quarter of 1996, the Company invoiced Samsung Corporation
for $154,291.75 in sales of the VideoLan VL2000 System pursuant to Samsung's
August 26, 1995 Exclusive Distribution Agreement with the Company.
Subsequently, Samsung has notified the Company that Samsung has decided to
terminate the Agreement and return all VideoLan VL2000 System products to the
Company. Management of the Company has contacted officers of Samsung in an
attempt to reinstate the Agreement on its current terms or renegotiated terms.
There can be no assurance that the Company will be successful in doing so.
Accordingly, the Company has determined not to recognize as revenue any sales
to Samsung during the third quarter of 1996.
Selling, General and Administrative Expenses. Total selling, general
and administrative expenses for the nine months ended September 30, 1996 were
$5,091,944 as compared with $3,507,504 in the comparable period of the prior
year. Salaries, consulting fees and related payroll taxes increased by
$1,294,816 to $1,860,538 in the nine months ended September 30, 1996 compared
to $565,722 in the nine months ended September 30, 1995. Research and
development expenses for the nine months ending September 30, 1996 were
$1,343,543 as compared with $985,124 for the same period in 1995, and marketing
costs were $171,523 in 1996 as compared with $97,410 for the same period in
1995.
Net Loss. The net loss of the Company for the nine months ended
September 30, 1996 was $4,743,894 ($0.34) as compared with $3,469,707 ($0.30)
for the nine months ended September 30, 1995. The Company expects to incur
continuing losses until significant quantities of the VideoLan VL2000 System
are sold.
Liquidity and Capital Resources
Through September 30, 1996, an aggregate of $10,654,894 has been
expended in the operating and development stage activities of the Company,
principally for research and development, salaries and professional fees. An
additional $534,486 has been used to prepare the Company's patent applications
and purchase certain equipment. Additional funds will be necessary to pay for
additional engineers, technical personnel and increased marketing costs in
connection with the sale of the Company's products.
Through September 30, 1996, the Company financed its operations
primarily through investments by individual investors, the 1995 private
placement which raised net proceeds of approximately $1,900,000, and from the
IPO which was completed in August 1995 and generated net proceeds of
$9,600,000. As of September 30, 1996, the Company had approximately $712,000 in
cash and cash equivalents remaing from such financings. The Company initially
sought to raise additional funds as early as April of 1996 in a public offering
through Kensington Wells Incorporated, the underwriter for the Company's IPO.
Kensington Wells was unable to complete this public offering. In September
1996, the Company sought to raise additional funds through a common stock
private placement also through Kensington Wells.
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However, Kensington Wells was unable to complete this offering as well
in part because of the sharp decline in the trading price of the Company's
common stock and the circulation of adverse information concerning Kensington
Wells in various media. Management believes the decline in the trading price
was largely attributable to substantial short selling of the Company's stock
and the absence of support by the Company's principal market-maker, Kensington
Wells.
During October 1996, the Company completed a $5,200,000 financing
through the sale of convertible preferred shares in a private placement under
Regulation D. The Company is evaluating raising an additional $2,300,000 more
in gross proceeds from the same private placement. The net proceeds of the
$5,200,000 private placement after commissions will be $4,888,000. The
Preferred Stock sold in the Offering will be convertible into Common Stock on
or after January 17, 1997 at the lesser of $4.88 or the five day average
trading price of the Common Stock at the time of conversion less a discount of
between 15% and 20%. The Company may redeem the Preferred Stock upon conversion
under certain circumstances. The Company is required to register the Common
Stock issuable upon conversion of the Preferred Stock on or before January 17,
1997. If the Company fails to register the Common Stock by such date, the
amount of Common Stock issuable upon conversion will increase. In connection
with the private placement, the Company will issue a warrant to the broker for
6% of the aggregate amount raised at $4.88 per share. It is anticipated that
the proceeds from this offering will be sufficient to fund the Company's
operations into the second quarter of 1997. The Company may seek additional
financing to fund its activities in the fourth quarter of 1996 or the first or
second quarters of 1997.
The Company believes that, during the past year, inflation has not had
a significant impact on the Company's operating results.
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VideoLan Technologies, Inc.
(A Development Stage Enterprise)
Part II: Other Information
ITEM 1. Legal Proceedings
In June 1996, Datapoint Corporation ("Datapoint") filed a lawsuit
against the Company in the United State District Court for the
District of New Jersey claiming patent infringement, contributory
infringement and inducing infringement. No claims are made in the
lawsuit regarding the validity of the Company's patent. Datapoint,
which is currently experiencing financial difficulties, has made
similar claims in lawsuits filed against other videoconferencing
companies. However, to the Company's knowledge, Datapoint has not
obtained a final verdict of infringement against any of these
companies. The Company's independent outside patent counsel has
reviewed Datapoint's claims and determined that they are without
merit. Accordingly, management does not believe the lawsuit will
have a material adverse effect on the Company's results of
operations or financial condition.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6 Exhibits and Reports:
(a) Exhibits
10.9 Employment agreement and option agreement between the Company
and Jack Shirman
10.10 Registration Rights Agreement: Applicable to 7 Investors
10.11 Subscription Agreement: Applicable to 7 Investors
10.12 Registration Rights Agreement: Applicable to 2 Investors
10.13 Subscription Agreement: Applicable to 2 Investors
10.14 Certificate of Designation
27.0 Financial Data Schedule
(b) Reports
None
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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.
VideoLan Technologies, Inc.
Date: November 11, 1996 /s/ Jack Shirman
-------------------------------
Jack Shirman
Chief Executive Officer
Date: November 11, 1996 /s/ Steven B. Rothenberg
---------------------------------
Steven B. Rothenberg
Chief Financial and Accounting Officer
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