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 June 30, 1997
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.)
11403 Bluegrass Parkway, Suite 400, Louisville, Kentucky 40299
(Address of principal executive offices) (Zip Code)
502-266-0099
(Registrant's telephone number, including area code)
100 Mallard Creek Road, Suite 250, Louisville, Kentucky 40207
(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 June 30, 1997
- - ---------------------- --------------------------------------
Common stock, $.01 par
value per share 14,050,398
This document contains 17 pages.
INDEX
Page
PART I. Financial Information
ITEM 1. Financial Statements
Unaudited Condensed Balance Sheet as of June 30, 1997 3
Unaudited Condensed Statements of Operations for the
three months ended June 30, 1996 and 1997, the six months
ended June 30, 1996 and 1997, and for the period from May
11, 1994(Inception) to June 30, 1997. 4
Unaudited Condensed Statement of Stockholders' Equity for
the Period from January 1, 1996 through June 30, 1997 5
Unaudited Condensed Statements of Cash Flows for the
three months ended June 30, 1996 and 1997, the six months
ended June 30, 1996 and 1997, and for the period from May
11, 1994(Inception) to June 30, 1997. 6
Notes to Unaudited Condensed Financial Statements 7
ITEM 2. Management's Discussion and Analysis or Plan of Operations 12
PART II. Other Information 16
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
ITEM 6. Exhibits and Reports
SIGNATURES 17
2 of 17
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED BALANCE SHEET
June 30, 1997
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 790,181
Accounts receivable 176,581
Inventories 725,364
Prepaid expenses and other current assets 92,514
___________
Total Current Assets $1,784,640
Property and equipment, net 539,804
Other assets:
Patent pending or granted 86,730
Restricted Cash 90,000
Deferred offering cost 1,446
Security deposits 25,782
203,958
__________
$2,528,402
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 757,635
Capital lease obligations-current 42,478
___________
Total Current Liabilities $ 800,113
Long term liabilities:
Capital lease obligations-non current 5,903
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value 5,000,000
shares authorized, 5500 shares
issued and outstanding 55
Common stock, $.01 par value, 20,000,000
shares authorized; 14,050,398 shares
issued and outstanding 140,504
Additional paid-in-capital-Preferred stock 4,978,287
Additional paid-in-capital-Common stock 16,863,592
Deficit accumulated during the development
stage (20,260,052)
___________
Total Stockholders' Equity 1,722,386
__________
$2,528,402
==========
3 of 17
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Period from
May 11, 1994
(Inception)
Three Months Ended Six Months Ended through
June 30, June 30, June 30,
1996 1997 1996 1997 1997
------------- ------------- ------------- ------------ -------------
Net Sales $ - $ 11,205 $ - $ 295,720 $ 673,576
Cost of sales - 10,875 - 164,151 936,549
------------- ------------- ------------- ------------ -------------
Gross profit - 330 - 131,569 (262,973)
Selling, general and administrative expenses:
Salaries 491,288 436,674 980,273 872,560 3,183,888
Compensation expense - - 3,640,855
Payroll taxes 16,446 30,786 89,912 73,105 362,038
Consulting fees 135,866 69,616 281,422 204,432 1,574,319
Marketing cost 87,949 19,208 141,305 37,994 534,358
Professional fees 115,576 146,780 164,095 289,426 1,263,734
Travel and entertainment 150,118 102,753 225,020 214,551 1,188,275
Research and development 399,532 472,245 854,664 988,254 6,141,946
Equipment Expense 174,554 17,719 222,977 53,143 534,167
Rent 38,896 50,115 72,826 95,476 385,244
Insurance 42,507 81,310 88,426 143,509 420,299
Office 50,483 50,637 90,191 110,580 512,752
Depreciation and amortization 26,237 36,994 44,182 71,345 215,584
Stock Administration Charges 27,837 25,783 37,898 50,101 131,259
Other 25,806 19,711 45,686 45,241 223,591
------------- ------------- ------------- ------------ -------------
Total expenses 1,783,095 1,560,331 3,338,877 3,249,717 20,312,309
Other income (expense)
Interest income(expense)-net 48,889 22,651 115,018 52,802 357,789
Other Income 88 59 2,306 633 (42,559)
------------- ------------- ------------- ------------- -------------
48,977 22,710 117,324 53,435 315,230
Net loss $ (1,734,118) $ (1,537,291) $ (3,221,553) $ (3,064,713) $(20,260,052)
============= ============= ============= ============= =============
Loss per share $ (0.12) $ (0.11) $ (0.23) $ (0.22) $ (1.59)
============= ============= ============= ============= =============
Weighted average commmon shares outstanding 13,898,883 14,050,398 13,877,124 14,054,111 12,764,631
============= ============= ============= ============= =============
4 of 17
VideoLan Technologies, Inc.
(a development stage enerprise)
STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1997
(Unaudited)
Deficit
Additional Additional Accumulated
Common Stock Paid-In Paid-In During Total
Preferred ----------------------- Capital Capital Development Stockholders'
Stock Shares Amount Preferred Stock Common Stock Stage Equity
-------- ---------- ---------- --------------- ------------ -------------- ------------
Balance at January 1, 1997 $ 55 14,046,398 $ 140,464 $ 4,978,287 $16,859,632 $ (17,195,339) $ 4,783,099
Employee stock options
exercised 4,000 40 3,960 4,000
Net loss (3,064,713) (3,064,713)
-------- ---------- ---------- ----------- ----------- ------------- -----------
Balances at June 30, 1997 $ 55 14,050,398 $ 140,504 $ 4,978,287 $16,863,592 $ (20,260,052) $ 1,722,386
======= ========== ========== =========== =========== ============= ===========
5 of 17
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
May 11, 1994
(Inception)
Three Months Ended Six Months Ended through
June 30, June 30, June 30,
1996 1997 1996 1997 1997
------------ ------------ ------------ ------------- -------------
Cash flows from operating and development
stage activities:
Net loss $(1,734,118) $(1,537,291) $(3,221,553) $(3,064,713) $(20,260,052)
Adjustments to net loss:
Issuances of common stock for services
rendered 1,146,875
Issuances of common stock for consulting
services rendered 665,000
Issuances of common stockl for purchased
research and development 709,125
Issuances of stock options to consultants 2,197,780
Depreciation and amortization 26,237 36,994 44,182 71,346 215,585
Gain on sale of assets (88) (88) 45,411
(Increase) decrease in accounts receivable. 77 47,306 77 (95,339) (176,581)
Increase in interest receivable 33,800
Increase in inventories (183,893) (4,739) (617,241) 61,051 (725,364)
(Increase) decrease in prepaid expenses
and other current assets 16,478 82,674 (39,494) (28,085) (92,514)
Increase in security deposits (93,540) (97,098) 4,425 (25,782)
(Increase) decrease in accounts payable
and accrued liabilities (207,003) (84,771) 54,665 (17,490) 757,635
------------ ------------ ----------- ----------- -----------
Net cash used in operating and
development stage activities (2,175,850) (1,459,827) (3,876,550) (3,068,805) (15,509,082)
------------ ------------ ----------- ----------- -----------
Cash flow from investing activities:
Acquisition of property and equipment (73,429) (59,425) (116,133) (91,840) (576,791)
Investment in certificate of deposit (90,000)
Proceeds from sale of assets 500 500 1,730
Patient application costs (13,400) (53,500) (89,722)
----------- ----------- ---------- ---------- -----------
Net cash used in investing activities: (86,329) (59,425) (169,133) (91,840) (754,783)
----------- ----------- ---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock in
private placement 2,655,647
Offering costs (1,446) (1,446) (327,709)
Proceeds from the exercise of stock options
by employees 71,000 107,000 4,000 350,900
Proceeds from initial public offering 11,500,000
Underwriter's commissions and expense
allowances (1,449,000)
Offering costs (27,749) (27,749) (445,970)
Proceeds from exercise of common stock
warrants 35,000
Proceeds from issuance of preferred stock
in private placement 5,500,000
Offering costs (521,658)
Proceeds from notes payable 331,000
Repayment of notes payable (331,000)
Repayment of capital lease obligations (34,436) (17,311) (45,148) (37,198) (174,364)
Proceeds from bridge loans 900,000
Repayment of bridge loans (900,000)
Loans to employees, net (33,800)
Cash overdraft
------------ ------------ ----------- ----------- -----------
Net cash provided by financing activities: 8,815 (18,757) 69,103 (34,644) 17,054,046
------------ ------------ ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents: (2,253,364) (1,538,009) (3,976,580) (3,195,289) 790,181
Cash and cash equivalents at beginning
of period 4,785,781 2,328,190 6,508,997 3,985,470 --
------------ ------------ ----------- ----------- -----------
Cash and cash equivalents at end of period $2,532,417 $ 790,181 $ 2,532,417 $ 790,181 $ 790,181
============ ============ =========== =========== ===========
6 of 17
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(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.
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has been in the development stage
since its inception on May 11, 1994, has suffered significant losses and has an
accumulated deficit that raises substantial doubt about its ability to continue
as a going concern. The losses have been funded with resources from bridge loan
financing, proceeds from private placements, and proceeds from an initial public
offering. Unless income from the sales of VideoLan's series of products can be
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. The Company's ability to continue as a going concern is dependent
upon the success of the future sale of VideoLan's series of products and
obtaining additional financing on terms satisfactory to the Company.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
NOTE B-ACQUISITION AND 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
The Company considers highly liquid investments with an original maturity of
three months or less to be cash and cash equivalents.
4. Inventories
Inventories consist of the Company's finished products and subcomponents
necessary to manufacture the Company's product and are valued at the lower of
average actual cost or market. The Company has entered into an arrangement to
subcontract the assembly of certain parts of the product.
7 of 17
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(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. Patents are stated at cost less amortization on the
straight-line method over the estimated useful lives.
6. Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
respective assets.
7. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
8. Fair Value of Financial Instruments and Concentration of Credit Risk
The carrying value of financial instruments potentially subject to valuation
risk, consisting of cash and cash equivalents, accounts receivable, and accounts
payable and accrued liabilities, approximate fair value, principally because of
the short maturity of these items.
The Company maintains its cash balances in one financial institution located in
the United States, which at times, may exceed federally insured limits. The
Company has not experienced any losses in such account and believes it is not
exposed to any significant credit risk on cash and cash equivalents.
9. Stock-Based Compensation
Stock-based compensation is accounted for under the intrinsic value based method
as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." Included in these notes to the financial
statements are the pro forma disclosures required by SFAS No. 123, "Accounting
for Stock-Based Compensation," which assumes the fair value based method of
accounting had been adopted.
10. Interim Financial Statements
The unaudited balance sheet as of June 30, 1997 and the unaudited
statements of operations and cash flows for the three months ended June 30, 1997
and 1996 as well as the period May 11, 1994 (inception) through June 30, 1997
and the statement of stockholders' equity for the three months ended June 30,
1997 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 June 30, 1997 and results of operations
and the cash flows for the three months ended June 30, 1997 and 1996, and the
period May 11, 1994 (inception) through June 30, 1997.
8 OF 17
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
NOTE C - RESTRICTED CASH
On April 12, 1996, the Company invested $90,000 in a certificate of deposit at
Bank One as collateral for the lease on their new facility. The certificate of
deposit will mature on April 12, 1998 at an annual interest rate of 4.4%. The
Company is required to reinvest this certificate of deposit as collateral for
the remainder of the lease.
NOTE D-CAPITAL STOCK TRANSACTIONS
During January, 1997, 4,000 employee stock options were exercised at $1
per share.
NOTE E-COMMITMENTS AND CONTINGENCIES
Leases
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. In June
1997, the Company leased additional space expanding the Jeffersontown facility
by 3220 square feet. The corporate and sales offices have moved into the
additional space. The Company is in the process of subletting the vacant
corporate space.
On May 15, 1995, the Company entered into a five-year lease agreement for
approximately 6,700 square feet of space in Louisville, Kentucky, at an annual
rental of $102,480. The space was utilized for the corporate and sales offices.
At this time the Company is seeking new tenants to occupy this location,
releasing VideoLan from any further responsibility for this lease.
Future minimum lease payments on noncancellable operating leases are as follows:
1997 99,036
1998 209,072
1999 213,072
2000 179,372
2001 119,592
2002 69,762
----------
889,906
==========
9 of 17
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(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 on July 16, 1996.
The Company's remaining pending international patent applications claim is 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 series of VideoLan products 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 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. 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.
Litigation
Two class action lawsuits have been filed against the Company by investors who
purchased the Company's securities. The period covered in the first lawsuit is
from November 7, 1995 through May 28, 1996. The period covered in the second is
from November 7, 1995 through November 14, 1996. The Company believes that the
claims asserted in these lawsuits are without merit, and therefore the Company
intends to vigorously defend them.
From time to time, the Company is also party to what it believes is routine
litigation and proceedings that may be considered as part of the ordinary course
of its business. Currently, the Company is not aware of any other current or
pending litigation or proceedings that would have a material effect on the
Company's results of operations or financial condition.
10 of 17
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
NOTE H-SUBSEQUENT EVENTS
ImageLink Acquisition
Videolan Technologies completed the acquisition of the assets of ImageLink,
Inc., located in Pittsburgh, PA. As a result of this acquisition, VideoLan will
have access to a complete line of desk-top, portable and conference room video
conferencing technology, based on one of the most robust codecs in the industry.
The acquisition also provides access to an established sales capability in
support of the desktop video conferencing market.
Additional Funding
On August 1, 1997, the Company completed the first phase for its next financing
requirements. The Company received initial gross proceeds of $1.2 million and is
in the process of final negotiations for up to an additional $4 million. The
Company expects these funds to provide sufficient financing to continue its R&D,
marketing, and sales efforts through mid-1998.
11 of 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Introduction
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. 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.
VideoLan's mission is to be the leading supplier of end-to-end high bandwidth
multi-media distribution networking systems, providing cost effective visual
communications solutions via transparent broadband switching and dynamic
gateways to local and worldwide area networks.
Description of Business
VideoLan Technologies, Inc. is a premier developer of video conferencing and
video broadcast solutions based upon its Metallic Fiber(TM) transmission and
broadband switching technology. VideoLan's technology enables broadcast-quality
transport of high-speed, bi-directional, real-time voice, data and video over
existing unshielded twisted pair ("UTP") copper wire infrastructures. The
Company's business strategy is to market the VideoLan System and to develop
additional products utilizing its proprietary technology. Since the Company's
technology could be adaptable to additional applications, including home to home
video, voice and data conferencing, it may undertake other initiatives in the
future.
Once the VideoLan System is installed, users at their PCs can initiate and
control multi-party, real time, interactive, video, voice and data conferences.
Up to four full motion (30 frames per second) video images can be displayed on
the PC monitor, and multiple real time data applications can be performed
interactively. Users also can access and control at their PCs the functionality
of remote multimedia devices, such as cameras, video monitors, video cassette
recorders ("VCRs") and laser discs. The VideoLan System is a PBX-like hub
network, integrated into a local area network environment("LAN"), which
transports uncompressed real time analog video, voice and data signals
independently of and parallel to the LAN. A communications network solution, the
VideoLan System accesses data from a client/server and transports the data
signals, along with the video and voice signals, using the existing LAN UTP
infrastructure. UTP has four pairs of wires (8 individual wires). The VideoLan
System transmits video, voice and data signals over one of the pairs, while real
time video, voice and data signals are received interactively over a second
pair. The LAN can use the remaining two pairs for data only applications.
The Company believes that the VideoLan System has a greater array of features
and is simpler and less expensive to install and integrate along side of, and
independent of, the LAN environment than competitive products. It allows more
users simultaneously to access and participate in conferences, using multiple
data and multimedia applications, without compromising the performance of the
LAN or the quality of the signals received. Designed with an open architecture,
the VideoLan System operates on IBM compatible PCs running Microsoft(C)
Windows(TM) operating software, and is capable of being equipped with
application programming interfaces which also adapt to support MacIntosh(TM) and
Unix(TM) software platforms.
12 of 17
Marketing of the VideoLan System
The Company intends to market the VideoLan System to original equipment
manufacturers("OEMs"), value added resellers("VARs"), systems integrators and
distributors whose markets and market presence will provide significant sales
channels. The Company will also market directly to end users in targeted niche
markets. The Company has completed the initial phase of an extensive marketing
and competitive analysis survey in conjunction with a leading consulting firm.
As a result of the information derived from this study, the Company has targeted
specific vertical markets that should benefit from its broadband video
technology. These markets include telemedicine, distance learning and high end
business applications. As a result of targeting these markets, the Company has
systems presently sold to, or in evaluation at, a leading technology hospital, a
southern university and several military bases. The Company believes that by
targeting a broader market than the traditional desktop video conferencing
market, it can better position itself against the competition. In addition to
this traditional market, the Company's technology provides new opportunities for
image file transfer and real time business applications. These markets provide
the greatest opportunity for rapid growth at sustainable high margins.
The Company has announced its series of new broadband video communication
products, and a price reduction on its existing VL2000 system. The new products
include the VL1000, a campus wide full motion desk-top video conferencing
system; the VL1500, a multi-media desk-top video conferencing system, including
multi-party calling; and the VL3000, a full-featured video communication
exchange system providing desk-top video conferencing for campus and wide area
network applications. The VL3000 will also include multi-user capability,
archiving features, and other high end multi-media features. Each of the new
models are fully inter-operable and upwards compatible.
There can be no assurance that the Company will establish satisfactory
distribution channels for the VideoLan Systems or that the VideoLan Systems 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.
Revenues.
The Company has engaged in limited marketing of the VideoLan VL2000 System and
is currently beginning to implement its marketing strategy. It was expected that
the Company would have nominal sales for the first and second quarters of 1997
due to publicity problems experienced by the Company during the last half of
1996. However, the Company had revenues of $295,720 for the six months ended
June 30, 1997. VideoLan had not yet begun shipping its product in the comparable
period of 1996.
Operating Expenses:
Total operating expenses for the six months ended June 30, 1997 were $3,249,717
as compared with $3,338,877 for the six months ended June 30, 1996.
Salaries and payroll taxes decreased by $107,713 to $872,560 during the
six months ended June 30, 1997 compared to $980,273 in the six months ended June
30, 1996. As of July 31, 1996 VideoLan had 34 employees. These employees were
engaged in research and development and selling and administrative capacities.
As of July 31, 1997 VideoLan had 42 employees. These employees are in
production, marketing, sales, administration, research and development, and
customer service. The salaries in 1996 represented several severance payments to
terminated employees and therefore were higher even though there were fewer
employees.
13 of 17
Research and development expenses for the six month period ending June
30, 1997 were $988,254 as compared with $854,664 for the same period in 1996. In
1996 the Research and Development department was developing the original
product, the VL2000. In 1997 the efforts expanded to the development of VideoLan
software and a Gateway. This required additional personnel such as engineers,
programmers, and technicians. It also required additional equipment and
consulting services.
Marketing costs for the six months ended June 30, 1997 were $37,994 as
compared with $141,305 for the same period in 1996. The decrease in marketing
cost is a result of the Company discontinuing a contract for public relations
services which was running about $15,000 to $40,000 per month.
Consulting and Professional Fees decreased $76,990 to $204,432 for the
six month period ending June 30, 1997 from $281,422 for the six month period
ending June 30, 1996. The majority of the decrease in this area is due to legal
fees incurred in the process of defending the Company against lawsuits and legal
compliance activities required by a publicly held company.
Travel and Entertainment for the six month period ending June 30, 1997
was $214,551 as compared with $225,020 for the same period in 1996. The decrease
in travel and entertainment is mainly due to decrease in sales while the new
version is being perfected. A decrease in sales results in a decrease in
installations, therefore, there are fewer people traveling.
Rent and Office expenses for the six months ended June 30, 1997 were
$206,056. They increased by $43,039 from $163,017 for the comparable period in
1996. During 1996, the Company moved its research and development and its
operations departments from the corporate offices to a larger, better equipped
facility. The Company also added an outside sales office in Massachusetts.
Currently, the rent and office expenses include the expenses of three
facilities. The Company combined the corporate offices and the research and
development/operations facility in the June of 1997 to minimize overhead.
Insurance increased by $55,083 from $88,426 for the period ending June
30, 1996 to $143,509 for the period ending June 30, 1997. The majority of this
increase is due to a significant increase in the officers and directors
insurance coverage to comply with industry standards. An increase in personnel
has also caused increases in health and workers compensation premiums.
Stock administration charges were $50,101 for the period ending
June 30, 1997. Stock administration for the six month period ending June 30,
1996 were $37,898.
Other expenses. The significant expenses in this category are supplies,
repairs and maintenance, employee relations and training, bad debts expense, and
other miscellaneous expenses. There was no significant change in other expenses.
Net Loss:
The net loss of the Company for the six months ended June 30, 1997 was
$3,064,713 ($0.22 per share) as compared with $3,221,553 ($0.23 per share) for
the six months ended June 30, 1996. The Company has made nominal sales and
implemented a rigid budget to cut costs during the first quarter of 1997. The
Company had 15 more employees, 3 more departments, and two more locations at
June 30, 1997 than the Company had at June 30, 1996, and a had a decrease in the
net loss of $156,840. The Company expects to incur continuing losses until
significant quantities of the VideoLan VL2000 System are sold
14 of 17
Liquidity and Capital Resources:
Through June 30, 1997, an aggregate of $15,509,082 has been expended in the
operating and development stage activities of the Company, principally for
research and development, salaries and professional fees. An additional $754,783
has been used primarily to acquire the Company's proprietary technology, prepare
the Company's patent applications and purchase certain equipment. Additional
funds will be necessary to pay for additional engineers, technical people and
increased marketing costs in connection with the sale of the Company's products.
Through June 30, 1997, the Company financed its operations primarily through
investments by individual investors, a 1995 private placement which raised net
proceeds of approximately $1,900,000, and from its initial public offering which
was completed in August 1995 and generated net proceeds of $9,600,000.
During October and November 1996, the Company completed a $5,500,000 financing
through the sale of convertible preferred shares in a private placement under
Regulation D. The net proceeds of the $5,500,000 private placement after
commissions and offering cost was $4,978,342. The Preferred Stock sold in the
Offering was 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 was required to register for public resale the Common Stock issuable
upon conversion of the Preferred Stock on or before January 17, 1997, or issue
increasingly higher amounts upon conversion. The Company has not registered that
Common Stock. As of the date hereof, holders of preferred stock have converted
shares of preferred stock into shares of common stock. In connection with the
private placement, the Company issued a warrant to the broker for 6% of the
aggregate amount raised at $4.88 per share.
On August 1, 1997, the Company completed the first phase for its next financing
requirements. The Company received initial gross proceeds of $1.2 million and is
in the process of final negotiations for up to an additional $4 million. The
Company expects these funds to provide the Company with sufficient financing to
continue its R&D, marketing, and sales efforts through mid-1998.
As of August 4, 1997 the Company's current cash position was $1,300,000. The
Company is utilizing approximately $450,000 of that cash per month for operating
and research and development activities. It is anticipated that the Company's
current cash position will be sufficient to fund the Company's operations
through the third quarter of 1997. Due to the acquisition of the ImageLink
assets, the Company has been issued a sizable purchase order. The Company
expects a cash flow to materialize from this purchase order in the next couple
of months. The Company is actively seeking additional financing to fund its
activities for the balance of 1997 and into 1998. The Company cannot anticipate
what the terms of this additional funding will be. There can be no assurance
that such financing will be available. Failure to receive such financing could
require the Company to cease operations. Even if such financing is obtained,
unless and until adequate income from sales of the Company's initial product
which is a stand-alone video, voice and data communications network solution for
the desktop personal computer is realized, the timing, sufficiency and receipt
of which cannot be predicted, future development and commercialization of the
Company's technology will require the Company to continue to seek further
financing in the future.
As of this date, the Company has no long-term debt or material commitments for
capital expenditures.
The Company believes that, during the past year, inflation has not had a
significant impact on the Company's operating results.
15 of 17
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 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. 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.
A class action lawsuit has been filed against the Company by
investors who purchased the Company's securities over a period
beginning November 7, 1995 and ending May 28, 1996. The Company
believes that the claims asserted in the lawsuit are without
merit and therefore the Company intends to vigorously defend the
lawsuit.
From time to time, the Company is also party to what it believes
is routine litigation and proceedings that may be considered as
part of the ordinary course of its business. Currently, the
Company is not aware of any other current or pending litigation
or proceedings that would have a material 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
(b) Reports
16 of 17
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: August 11, 1997 /s/ Jack Shirman
-----------------------------
Jack Shirman
Chief Executive Officer
Date: August 11, 1997 /s/ Steven B. Rothenberg
-----------------------------
Steven B. Rothenberg
Chief Financial and
Accounting Officer
17 of 17