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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
(Mark One) 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: 34-19218
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VIDIKRON TECHNOLOGIES GROUP, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3499909
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
One Evertrust Plaza, 11th Floor
Jersey City, New Jersey 07302
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(Address of principal executive offices) Zip Code
(201) 938-0099
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, Par Value $.004 Per Share
Redeemable Warrants
Series B Preferred Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On April 9, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $1,248,987 based upon the average of the
closing bid and asked prices of $1.06 as of April 9, 1999.
As of April 9, 1999, 1,178,290 shares of the Registrant's Common Stock
were outstanding.
Documents Incorporated By Reference
Document Where Incorporated
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None. N/A
SPECIAL CAUTINARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. Such
forward-looking statements are principally contained in the sections "Part 1 -
Item 1 - Business," and "Part 2 - Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations" and include, without
limitation, the Company's expectations and estimates as to: the Company's
integration of the Vidikron Acquisition; the Company's ability to successfully
address Year 2000 issues and the costs and timing of the steps it expects to
take; the Company's future financial performance, including its ability to
generate sufficient cash flow and meet working capital requirements; the
introduction of new products; the market for the Company's products; and the
Company's business operations in general. In addition, in those and other
portions of this Form 10-K, the words "anticipates," "believes" "estimates,"
"expects" "plans," "intends" and similar words or phrases, as they relate to the
Company and its subsidiaries, are intended to identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks and uncertainties and
that could cause the actual results to differ materially from those expressed in
any forward-looking statements made by the Company. The Company does not intend
to update these forward-looking statements.
1
PART I
Item 1. BUSINESS.
General
The Company - Effective on December 7, 1998, Vidikron Technologies Group, Inc.
(the "Company", formerly known as Projectavision, Inc.) acquired (the "Vidikron
Acquisition") substantially all of the video assets of Vidikron Industries
S.p.A. ("Vidikron") and all of the issued and outstanding shares of Vidikron's
U.S. subsidiary, Vidikron of America, Inc. Upon closing of the Vidikron
Acquisition, the Company believes that it became one of the leading marketing
and distribution companies in the high-end segment of the home theater industry;
obtaining a highly regarded brand name, an array of video products, an
established international sales and distribution infrastructure, and an
experienced management team. Approximately 60% of the Company's sales are
conducted through its wholly owned United States subsidiary, Vidikron of
America, Inc., and 40% through its recently formed Italian based subsidiary,
Vidikron S.r.L. The Vidikron brand name is one of the premiere brands in the
high-end of the home theater market and enjoys significant name recognition
worldwide. The Company believes that the Vidikron Acquisition will provide it
with greater access to capital for the expansion of it markets as well as for
growth and expansion of its current product offerings. The Company recently
consolidated its operations at the Jersey City, NJ offices of Vidikron of
America, Inc. and has significantly reduced the staff and overhead expenses of
its U.S. operations. The Company's European subsidiary Vidikron S.r.L. is
located in Misinto, near Milan, Italy.
Company Name Change - The Company changed its name to Vidikron Technologies
Group, Inc. upon receiving stockholder approval at the annual meeting held on
February 19, 1999. By changing its name, the Company believes that it can better
position its various product offerings and expand and improve its sales and
marketing activities. The Company intends to further leverage the Vidikron brand
name, which the Company believes is well respected throughout the world, by
extending Vidikron's product offerings to include other video products such as
plasma screens, accessories, rear screen television, and cinema projectors, as
well as possibly entering other markets, including the audio market. The Company
may also seek to make selective add-on acquisitions to further leverage its
recognized brand name presence in the high-end video market.
Products - The Company offers a wide array of high-end video products for the
home theater market utilizing Cathode Ray Tube (CRT), Liquid Crystal Display
(LCD) and Digital Light Processing (DLP(R)) technologies (DLP(R) is a registered
trademark of Texas Instruments). The Company intends to employ a multi-brand
strategy marketing its products under both the Vidikron and Projectavision brand
names. The Vidikron brand is focused exclusively on the premier high-end home
theater and the Company believes the Projectavision brand name is positioned to
exploit the commercial data projector and lower tiered home theater markets.
A number of the Company's Vidikron brand products are manufactured by
Novavision. Novavision is an Italian company controlled by the former owners of
Vidikron, who, in connection with the Vidikron Acquisition became executives of
the Company and members of its Board of Directors. Novavision is located on the
same premises as the Company's facilities in Misinto. The Company leases the
facilities from the same former owners of Vidikron. See Item 13 Certain
Relationships and Related Transactions. Novavision and the Company's Misinto
operations have the distinction of being qualified under ISO 9001.
The cabinets for the Company's Helios, Image Two and VPF 50 HD projectors, all
Vidikron brand products, are designed under exclusive contract by Pininfarina,
designer of the Ferrari automobile. The Company believes that its Vidikron's
top-of-the-line Vision series CRT is the pinnacle of high quality home theater
projectors. This series of products was created for aficionados seeking the
ultimate in home theater and high definition television (HDTV) resolution. The
Company offers a whole family of high-end CRT projector products under the
Vidikron brand name retailing at prices up to $50,000.
The Company also offer a series of LCD based projectors under the Vidikron brand
name for the mid-range home theater at prices from $9,500 to $15,000.
2
The Company has a series of DLP products under the Projectavision and Vidikron
brand names retailing at prices from $8,000 to $14,000. These DLP products use a
two chip light engine developed by Texas Instruments ("TI"). TI informed the
Company that it plans to phase out the two chip light engine in favor of a
single chip during 1999. The Company's DHT product is configured to run on the
two-chip engine. The Company plans on meeting with TI to secure enough of the
two chip engines to meet product commitments and will transition to a single
chip engine for future products. The switch in engines will upgrade the DLP
product to the new high definition television (HDTV) standards and reduce the
products cost to manufacture. However, the transition will also necessitate
significant changes to the design, tooling and molds of the current DLP product
causing the Company to write down the value of its molds at December 31, 1998
(See Note II to the Notes to Consolidated Financial Statements). The Company
believes that these products will extend the market potential from high-end home
theater to commercial data presentation projectors, including a unique Digital
Home Theater (DHT) that doubles as a stand-alone 60" rear screen projector and a
front projector with SVGA computer monitor capabilities.
The Company completes its current product offering with a series of high-end
video processors, plasma screens, and a wide array of accessories from projector
screens to mechanical lifts for ceiling mounted products, all of which are
marketed under the Vidikron brand name.
Growth of Home Theater Industry - Over the last decade, consumer interest in
home theaters and large screen televisions has increased dramatically, fueled by
consumer demand for big picture and big sound plus an ever expanding universe of
movies, sporting events and other programming available via cable television,
direct broadcast satellite, laser disc, VCRs, and most recently, digital video
disc (DVD). All of the Company's products can display digital TV signals and six
of the Company's eight projectors are HDTV (High Definition Television)
compatible. As a result of this demand, the Company believes that its products
are well positioned to exploit the expected growth of home theaters. The home
theater industry encompasses numerous products, and the Company currently offers
two types of products: (i) front projection systems and (ii) rear projection
television (big screen TVs).
Proprietary Technology - The unique, dual-use design of the Company's
Projectavision brand DHT utilizes the Company's proprietary technology and
engineering innovations. The Company holds a number of patents for its
innovative technologies in the U.S. and in various foreign countries. The
Company is aware of the development by other companies of innovative flat panel
and television systems. These technologies do not use a CRT or video projection
to produce an image, but instead rely on other technologies including plasma,
thin film electro-luminescence, solid-state lasers, light pipe systems,
vibrating mirror systems, cold cathode screens, PLZT, FED (field emission
display) and others. The Company believes that flat-panel displays using certain
of these technologies ultimately may be usable as receivers, and, if so, may be
competitive with the Company's technologies.
Partnerships and Alliances - The Company sources a number of its products and
components. The Company customizes its products internally via its proprietary
designs and externally through the unique high-end industrial design of
Pininfarina, one of the Company's significant alliance partners. This external
industrial design gives its Vidikron brand products the distinctive Vidikron
style that the Company believes sets it apart from its competitors. All of the
Company's strategic alliances, including Pininfarina, and its OEM agreements
with manufacturing, marketing and distribution partners are critical to the
Company's success and, the Company believes, provide it with a distinct
advantage over its competition. The Company currently has business alliances
with C-MAC Electronic Systems and the Hamilton Group. Tandy Corporation is a
field service supplier for the Company's Projectavision brand products and the
Company has an OEM relationship with Texas Instruments, Electrohome, Matsushita,
Sanyo, Fujitsu and Faroudja Laboratories. Because of the Company's various
relationships and alliances, the Company has access to virtually all major
projection television technologies.
Leading Edge Positioning - The Company believes that it has positioned itself at
the leading edge of the home theater industry by continually sourcing and
developing new products and technologies. In order to provide the quality for
which Vidikron is known, the higher end products are custom installed and
technically adjusted on the customer's premises. Therefore, all distributors
have to participate in on-site technical classes with respect to the Company's
Vidikron brand products. The Company continues to solidify its position as a
leading edge developer and marketer of high-end video display home theater
products through a program of updating products and maintaining a regimen of
technological instructions with its dealers.
3
Focused Acquisition Strategy - The Company believes there are opportunities for
selective acquisitions in the highly fragmented video display and home theater
industry. As a result, the Company presently intends to undertake a focused
acquisition strategy and seeks to acquire products and technologies that provide
a good strategic fit with, or natural extension of, its core product offerings
such as compatible audio and accessories (screen companies) plus picture
enhancement companies (line-doublers).
Focus for 1999 - The primary objective for 1999 will be to profitably integrate
the businesses represented by the Vidikron and Projectavision brands and to
extend the Company's product offerings and markets. The focus of this
market-driven company will be on the quality of the sale, not just the quantity,
and streamlining operations with a prime focus on customer service and
unparalleled product quality.
Sales and Distribution
The Company distributes its products in over 46 countries worldwide. The
Company's products are distributed in the U.S. through specialty audio/video
retail stores and custom audio/video installers. The Company employs 26
independent sales/representative firms for its U.S. distribution. Additionally,
the Company has international distribution in South America, the Far East,
Australia and New Zealand. The Company's Italian based subsidiary, Vidikron
S.r.L., handles all distribution in Europe and the Near Eastern Countries.
Projection Systems
The Company has front and rear projection television products. The front
projection television products use either Cathode Ray Tube (CRT), Liquid Crystal
Display (LCD) screens or Digital Light Processing (DLP) technology developed by
Texas Instruments. The rear projection television offering is comprised of its
Projectavision brand DHT product which uses DLP technology.
Front Projection
The front projection market is dominated by CRT & LCD based products.
CRT Displays
The major suppliers of CRT based front video projectors include Sony, NEC,
Electrohome, Ltd., Zenith Electronics, Runco International ("Runco") and Barco
Inc. ("Barco"). Sony, NEC and Barco are the leaders in the data category and the
Company's Vidikron brand, Sony and Runco are strongly positioned in the
high-resolution CRT home theater. Although the Company believes it is a strong
competitor in its market niche with a recognized product, competition may have
greater resources, financial and otherwise, in a very competitive market, and
there is no guarantee that the Company will be able to effectively compete and
grow or retain its market share.
LCD Displays
Over the last few years, the number of LCD projector companies has risen
dramatically. Many large electronics firms with LCD manufacturing experience and
large consumer electronics firms with office products divisions decided that the
LCD projector market offered attractive opportunities. Sharp Corporation was the
leader in LCD projection, introducing LCD-based front projectors in 1989.
Toshiba Corp. entered the U.S. market in 1996. In addition, companies such as
Sony, Panasonic Broadcast and Television Systems Co. and Philips Consumer
Electronic Company ("Philips") have revamped their small LCD projector product
lines and sales efforts to become major players. The total number of companies
offering LCD front projectors under their own brand name increased from 10 in
1992 to 34 in 1996. The Company is looking to expand its market share in this
area against strongly entrenched competitors that are better financed and with
greater resources and the Company may not be able to effectively compete with
these other entities.
4
Rear Projection
CRT-based products dominate the rear projection television market. Chip-based
systems, like Projectavision's DHT, were introduced in 1997. The Company has yet
to establish its market niche in this category and will seek to do so during
1999. Existing competition, which includes a number of large, well-established
companies may prove too resourceful for the Company to effectively compete.
Personnel
As of March 15, 1999, the Company employed forty-eight (48) people, all of whom
provide management, sales, engineering, technical and administrative services on
a full-time basis. The Company also has consulting arrangements with a number of
engineers who assist the Company in research and development. The Company
believes that its employee relations are satisfactory.
Item 2. PROPERTIES
The Company presently leases approximately 14,000 square feet of office and
warehouse space for executive facilities and operations respectively at one
Evertrust Plaza and at 150 Bay Street, Jersey City, New Jersey and leases
approximately 8,000 square feet of office and warehouse space at Via Dei Guasti,
Misinto, Italy. The office and warehouse space in Misinto is leased from the
former owners of Vidikron who, in connection with the Vidikron acquisition,
became executive officers of the Company and members of its Board of Directors.
The combined annual lease expense for all of the Company's facilities is
approximately $ 222,000. The lease for the Company's former premises at Two Penn
Plaza, Suite 640, New York, NY terminated on December 31, 1998.
Item 3. LEGAL PROCEEDINGS
In December 1998, a stockholder of the Company initiated an action in Supreme
Court, State of New York, alleging common law fraud, negligence and breach of
fiduciary duty claims against the Company and its Directors. In February, 1999,
the Company and the Defendant Directors moved to dismiss this action based upon
undisputed documentary evidence and based upon an assertion that the Complaint
failed to state a cause of action. The Plaintiffs' responsive papers are due in
April, 1999 and reply papers are due to be submitted by the Company and the
Defendant Directors in May 1999. Based upon discussions with counsel, the
Company's management believes that the motion to dismiss is well-founded. In the
event, however, that the motion were not granted the Company's management
believes that it has meritorious defenses and will vigorously defend the claims
if they are not dismissed pursuant to the motion.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on The Nasdaq Stock Market under the
following symbol:
Common Stock: VIDI
5
The Company's Series B Preferred Stock was quoted on Nasdaq until March 1998
under the following symbol.
Series B Preferred Stock VDIP
At the Company's Annual Meeting of stockholders on February 19, 1999 the
stockholders passed a resolution authorizing the Company's Board of Directors to
effect a forty-for-one reverse stock split. In February 1999 the Company`s Board
of Directors unanimously approved a forty-for-one reverse stock split effective
March 2, 1999. Accordingly, all quoted prices for the Company's common stock and
per share amounts have been restated herein to reflect the March 1999
forty-for-one reverse stock split.
The Common Stock of the Company is quoted on The Nasdaq Small Cap Market. There
is currently no public trading market for any of the Company's Preferred
Securities. The high and low bid quotations for the Common Stock and Series B
Preferred Stock for each full quarterly period for the fiscal year ending
December 31, 1997 and the Common Stock for each full quarterly period for the
fiscal year ending December 31, 1998 and for the first quarter of 1999 through
March 29, 1999 are listed below:
COMMON STOCK SERIES B PREFERRED STOCK
1997 Calendar Quarter Quoted Bid Price (1) Quoted Bid Price
- --------------------- ---------------- ----------------
High Low High Low
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First Quarter $141.25 $77.50 $3.75 $2.25
Second Quarter $108.75 $65.00 $3.00 $2.00
Third Quarter $86.25 $57.50 $2.75 $2.00
Fourth Quarter $82.50 $30.00 $2.00 $1.06
COMMON STOCK
1998 Calendar Quarter Quoted Bid Price
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High Low
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First Quarter $62.25 $25.00
Second Quarter $46.25 $6.25
Third Quarter $23.75 $2.50
Fourth Quarter $15.00 $1.25
COMMON STOCK
1999 Calendar Quarter Quoted Bid Price
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High Low
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First Quarter (through
March 29, 1999) $2.50 $0.63
(1) All prices reflect a forty-for-one reverse split effective March 2,1999.
On April 9, 1999 the closing bid and asked prices of Common Stock as reported on
the NASDAQ system were $1.00 and $1.13 per share, respectively. On March 6,
1998, the last day prices were quoted for the Series B Preferred Stock, the
closing bid and asked prices of Series B Preferred Stock on the NASDAQ system
were $0.94 and $0.94, respectively.
On April 9, 1999 there were 417 holders of record of Common Stock and 1,178,290
shares of Common Stock issued and outstanding, and there were 9 holders of
record of Series B Preferred Stock and 351,258 shares of Series B Preferred
Stock issued and outstanding.
No cash dividends have been paid by the Company, and management does not
anticipate paying cash dividends in the foreseeable future.
Item 6. SELECTED FINANCIAL DATA
The selected financial information set forth below is derived from the more
detailed financial statements and related notes thereto included elsewhere in
this Annual Report on Form 10-K. This information should be read in conjunction
with such financial statements and related notes.
6
Statements of Operations Data
For the Years Ended December 31,
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1994 1995 1996 1997 1998
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Revenues $ -0- $ 200,000 $ 150,000 $ 1,017,645 $ 3,020,874
Research and Development 827,660 608,651 2,389,329 1,240,578 1,677,647
Net Loss (5,632,283) (6,471,638) (10,880,893) (8,289,920) (9,312,278)
Basic and Diluted Net Loss per Share
Attributable to Common Stockholders $ (18.80) $ (20.40) $ (39.79) $ (25.48) $ (17.04)
Average Number of Shares Outstanding 297,391 315,167 339,668 449,222 679,422
Balance Sheet Data
December 31,
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1994 1995 1996 1997 1998
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Working capital $ 6,659,132 $ 3,341,425 $ 3,421,387 $ 1,016,223 $ (4,992,121)(1)
Total assets 9,850,523 4,168,415 10,132,488 10,412,357 19,230,400
Total liabilities 236,473 485,710 3,690,443 4,475,394 15,127,044 (1)
Long Term Debt 1,600,000 900,000 9,710,776 (1)
Accumulated deficit (14,015,013) (20,641,044) (34,157,268) (45,604,454) (57,179,688)
Stockholders' equity 9,614,050 3,682,705 6,442,045 5,686,963 4,103,356 (1)
(1) On February 19,1999 $6.0 million in
Notes were converted into Preferred
Stock.
Computation of Per Share Loss
For the Years Ended December 31,
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1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Average number of shares outstanding 297,391 315,167 339,668 449,222 679,422
Net Loss $ (5,632,283) $(6,471,638) $(10,880,893) $ (8,289,920) $ (9,312,278)
Dividends on Preferred Stock - - (2,635,331) (3,157,266) (2,262,929)
Net Loss attributable to Common $ (5,632,283) $(6,471,638) $(13,516,224) $(11,447,176) $(11,575,207)
Stockholders
Basic and Diluted Net Loss per Share
Attributable to Common Stockholders
$(18.80) $(20.40) $(39.79) $(25.48) $(17.04)
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management discussion and analysis should be read in conjunction
with the financial statements and notes thereto in Item 14 hereof.
Year 2000
Substantially all of the Company's business computer systems were acquired after
the year 2000 issue became widely publicized. Consequently, the Company has
endeavored to ensure that computer systems acquired were Year 2000 compliant at
the time of their purchase. The Company believes that it has been substantially
successful in that goal. The Company does not anticipate that the costs of final
testing of its systems to assure Year 2000 compliance will exceed $ 25,000.
7
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity, and financial condition. Due to the general
uncertainty of the Year 2000 problem, resulting in part form the uncertainty of
the Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity,
or financial condition.
The Company is in the process of verifying that all key suppliers are year 2000
compliant and has ascertained that at least one major supplier is Year 2000
compliant. The Company at present has no individual customer which could have a
material adverse effect on the Company's operations should such customer not be
Year 2000 compliant. In addition, the Company intends to evaluate the Year 2000
readiness of any future significant customers or suppliers.
Recent Accounting Developments
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes rules for the reporting of comprehensive income
(loss) and its components. The Company's comprehensive income (loss) consists of
results from operations and foreign currency translation adjustments and is
presented in the consolidated statement of changes in stockholders' equity.
Since this statement applies only to the presentation of comprehensive income
(loss), it does not have any impact on the Company's financial position, results
of operations, or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This standard requires enterprises to
report certain information about their operating segments in a complete set of
financial statements to stockholders; to report certain enterprise-wide
information about products and services, activities in different geographic
areas, and reliance on major customers and to disclose certain segment
information in their interim financial statements. The basis for determining an
enterprise's operating segments is the manner in which financial information is
used internally by the enterprise's chief operating decision-maker. The Company
operates in one business segment: manufacturing, distribution and marketing of
home theater products.
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal periods
beginning after June 15, 1999. The Company is currently evaluating the impact,
if any, of this statement.
Liquidity and Capital Resources
As of December 31, 1998, the Company had cash and cash equivalents of $2,280,107
and negative working capital of $4,492,121. The negative working capital arose
from the $6,000,000 in Notes payable classified as a current liability. These
notes were automatically, by terms set forth in the Company's proxy statement
with respect to its Annual Meeting of Stockholders held on February 19, 1999
converted into preferred stock in the Company on February 19, 1999.
The Company had outstanding as of December 31, 1998 a loan of $1,247,400 bearing
interest of 10.45%, which was scheduled to mature on June 30, 1999. This loan
was assumed by the Company in connection with the Vidikron Acquisition. On
December 28, 1998 the lender sent notice of their intention to accelerate the
loan due to the breach of a change in control covenant. The Company is in
negotiations with the lender and is seeking to substitute a new facility to pay
down this obligation. Although discussions are currently taking place with
another lender, there can be no assurances that the Company will be successful
in attracting a substitute lender. Failure to find a substitute lender could
have a material adverse effect on the Company.
To date, the Company has funded its operations primarily from sales of capital
stock and convertible debt. In February 1998, the Company completed a private
placement of preferred stock of $2.85 million. In May 1998 the Company completed
a second private placement of preferred stock of $2.4 million and a private
placement of common stock of $500,000. In December 1998 the Company completed a
private placement of convertible Notes totaling $6 million in connection with
financing the Vidikron Acquisition.
8
In January 1997, the Company completed a private placement of preferred stock of
$3.5 million. In July 1997 the Company completed a second private placement of
preferred stock of $1.0 million, and in December 1997 the Company completed two
more private placements of preferred stock totaling $2.25 million. In addition,
the sale of government securities was used to fund working capital and to
purchase production tooling for the Digital Home Theater.
As of December 31, 1998, the Company had available for Federal income tax
purposes net operating and capital loss carry-forwards of approximately
$39.8 million. The Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), may impose certain restrictions on the amount of net operating
loss carry-forwards which may be used in any year by the Company.
Results of Operations
1998 Compared With 1997
The Company had revenues of $3,020,874 for the year ended December 31, 1998
compared to revenues of $1,017,645 for the year ended December 31, 1997, an
increase of $2,003,229 or 196.8%. Approximately $1,214,215, or 40%, of the
revenue in 1998 was attributable to sales of Vidikron brand products subsequent
to the Vidikron Acquisition. Cost of goods sold of $2,481,763 was $1,491,719 or
150.7% higher than the previous year and was adversely affected by a write-off
of $373,372 in inventory associated with the first generation DHT projector.
Gross profit for the year ended December 31, 1998 was $539,111 compared to
$27,601 for the previous year, an increase of $511,510, a nineteen-fold
improvement.
Operating expenses for the year ended December 31, 1998 were $12,196,175
compared to operating expenses for the previous year of $8,228,546, which
included $ 483,448 attributable to Vidikron, an increase of $3,967,629, or
48.2%. General and administrative expenses of $8,083,222, which included
$344,742 attributable to Vidikron, grew by $3,505,334, or 76.5%, from the
previous year principally due to the write down of tooling of $2.9 million for
the DHT tooling and molds and advances of $785,000 made to a supplier. Salaries
of $1,664,432, which included $132,306 attributable to Vidikron, were $145,737
or 9.6% higher than the year ended December 31, 1997. Depreciation for 1998 was
$682,040, an increase of $73,685, or 12.1%, over 1997. Research and development
for 1998 was $1,677,647, an increase of $437,069, or 35.2%, over 1997. Patent
and license expenses decreased $194,196 to $88,834 from 1997 to 1998 as the
Company was winding down its patent application program.
Other income for the year ended December 31, 1998 was $2,344,786, an increase of
$2,333,760 over year ended December 31, 1997 The primary reason for the increase
was the sale of approximately 43 million shares of Manhattan Scientific, Inc.
(formerly Tamarack Storage Devices, Inc.) stock for $2,500,000. This stock had
been written down to $150,000 in prior years. Interest income of $41,408 in 1998
was offset by interest expense of $46,622. A net loss of $9,312,278 for the year
ended December 31, 1998 was $1,022,358, or 12.3%, greater than the previous
year.
The Company also recorded $2,262,929 in dividends (i) on the Series B Preferred
Stock (ii) on the amortization of the discount on the conversion feature the
Series D, E, F and G Convertible Preferred Stock and (iii) for warrants issued
in connection with the Series F and G Convertible Preferred Stock.
1997 Compared With 1996
The Company had revenues of $1,017,645 for the year ended December 31, 1997
compared to revenue for the previous year of $150,000, an increase of 678%. All
of the revenue in 1997 was from the sale of the Digital Home Theater, whereas in
1996 all revenue was royalty income. Cost of goods sold in 1997 was $990,044.
Gross profit for the year ended December 31, 1997 was $ 27,601.
9
Operating expenses for the year ended December 31, 1997 were $8,228,546 compared
to operating expenses for the previous year of $7,306,908, an increase of
$921,638, or 12.6%. General and administrative expenses at $4,577,888, exceeding
the previous year's general and administrative expenses by $1,380,847, or 43.2%,
due to increased participation in trade shows and to higher advertising and
travel expenses. Salaries of $1,518,695 in 1997 grew by $252,408, or 19.9%, over
calendar year 1996. Legal fees of $1,347,146 were $329,237, or 32.3%, higher
than the previous year due to on-going litigation with a former officer, founder
and Director of the Company. Depreciation of $608,355 was $517,071 greater than
the previous year because the Company began to depreciate in 1997 the tooling
developed to build the Company's Digital Home Theater. Research and development
expenses of $1,240,578 for calendar year 1997 was $1,148,751, or 48.1%, less
than calendar year 1996.[Why?] Patent and license expense for year-end December
31, 1997 at $283,030 was $79,937, or 22.0%, less than the previous year.
The Company also recorded $3,157,266 in dividends on the Series C, D, and E
Convertible Preferred Stock in connection with recognizing the discount on the
conversion feature, for warrants issued in connection with the issuance of
Series D and E Convertible Preferred Stock, and for Series B Preferred Stock
Dividends.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements following Item 14 of this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are listed below, followed
by a brief description of their business experience during the past five years.
Term
Name Age Position Expires
- ---- --- -------- -------
Marvin Maslow 61 Chairman of the Board 1999
of Directors
Phillip Siegel 56 Vice Chairman of the Board 2001
of Directors
Martin Holleran 56 President, Chief Executive
Officer and Director 2000
Emilio Baj Macario 53 Director 2002
Tomaso Barbini 38 Director 2000
Martin D. Fife 71 Director 2000
E. Bruce Fredrikson, Ph.D. 61 Director 2001
Claudio Guazzoni 36 Director 2002
Flavio Peralda 47 Director 2002
10
Marvin Maslow. Mr. Maslow, a co-founder of the Company, has served as Chairman
of the Board of Directors of the Company since its inception. Mr. Maslow also
served as the Company's Chief Executive Officer from inception through September
30, 1996, when he voluntarily resigned as Chief Executive Officer of the
Company, endorsing the appointment by the Board of Mr. Martin Holleran as Chief
Executive Officer of the Company. Mr. Maslow also served as an officer and a
director of DKY, Inc. ("DKY"), the Company's predecessor in interest from
October 1988 until June 12, 1990, when DKY was merged into the Company. Mr.
Maslow also served as Chief Financial Officer of the Company from its inception
until the consummation of its initial public offering in August, 1990. Mr.
Maslow is also a Director [and an Officer] of Manhattan Scientific, Inc., which
was formerly the Company's majority owned subsidiary Tamarack Storage Devices,
Inc. and was spun off in July 1998.
Phillip Siegel. Mr. Siegel is an independent business consultant. He joined the
Company's Board of Directors on February 19, 1999 and was elected to Vice
Chairman of the Board on March 25, 1999. Mr. Siegel served as Vice President and
Chief Financial Officer of Health Management Systems, Inc., a health care
information systems company, from May 1996 until March 1998. He was an
independent business consultant from February 1993 until May 1996. He served as
a senior executive officer of Presidential Life Insurance Company from December
1989 until February 1993, most recently as its Senior Vice President. During
1988, Mr. Siegel served as Chief Operating Officer and Chief Financial Officer
of Sherwood Group and Sherwood Securities. Mr. Siegel is an Independent General
Partner of Fiduciary Capital Partners, L.P. and Fiduciary Capital Pension
Partners, L.P. and is a Director of WestPoint Stevens, Inc. (and Chairman of the
Audit Committee).
Martin J. Holleran. Mr. Holleran has served as President of the Company since
November, 1993. On September 30, 1996, Mr. Holleran became Chief Executive
Officer of the Company, at which time, he retained the title of President but
resigned as the Chief Operating Officer of the Company, a position which he had
also held since November, 1993. From 1992 until 1993, Mr. Holleran was President
and Chief Operating Officer of Emerson Radio. Prior thereto, Mr. Holleran served
as President and Chief Executive Officer of Thomson Consumer Electronics
Marketing and Sales Company ("Thomson") from 1988 to 1992. Mr. Holleran was also
a Director of Manhattan Scientific, Inc. which was formerly the Company's
majority owned subsidiary Tamarack Storage Devices, Inc. and was spun off in
January 1998, until February 12, 1999.
Emilio Baj Macario. Mr. Baj Macario is the Managing Director of Vidikron S.r.L.
and had been Managing Director of Vidikron Industries S.p.A. for the 10 years
immediately prior to the Vidikron Acquisition. From 1985 to 1990 Dr. Baj Macario
was Managing Director of C.I.D. which was an exclusive distributor of JVC
consumer goods in Italy. Prior to 1985 he held various senior positions with
Panasonic Consumer Electronics.
Tomaso Barbini. Mr. Barbini is Vice Chairman of Rothschild Italia, where he has
been working since 1992. Prior to joining Rothschild he worked for four years at
UBS.
Martin D. Fife. Mr. Fife a founder of the Company, has served on the Board of
Directors since its inception. In addition, Mr. Fife was the Secretary of the
Company from its inception until January 1993. Mr. Fife served as an officer and
a director of DKY from August 1988 until July 12, 1990 when DKY was merged into
the Company. Mr. Fife has been the Chairman of the Board of Directors of Skysat
Communication Network Corporation, a public company, since its inception in July
1992. Since 1987, Mr. Fife has been Chairman of the Board of Magar Inc., a
company of which he is a founder specializing in financial products and the
development of early stage companies. From 1985 to 1989, Mr. Fife was President
of Intergold USA, Inc., a Company involved in the sale and processing of
precious metals. From 1986 to 1989, Mr. Fife was President of Agremp Holdings
Incorporated, an operator of storage elevators. Since April 1992, Mr. Fife has
been a director of the Nova Group, a company engaged in the recycling of
industrial plastics. Since 1974, Mr. Fife has served as a director or trustee of
several investment companies advised by the Dreyfus Corporation, a registered
investment adviser, and currently serves as a director or trustee of the
following thirteen investment companies: The Dreyfus Fund Incorporated, Dreyfus
Liquid Assets, Inc., Dreyfus Municipal Income, Inc., Dreyfus New York Municipal
Income, Inc., Dreyfus California Municipal Income, Inc., Dreyfus Worldwide
Dollar Money Market Fund, Inc., Dreyfus Short-Term Fund, Inc., Dreyfus
Short-Term Income Fund, Inc., Dreyfus Asset Allocation Fund, Inc., Dreyfus
Growth Allocation Fund, Inc., Dreyfus Institutional Short-Term Treasury Fund,
Dreyfus Short-Intermediate Government Fund and Dreyfus Short-Intermediate
Municipal Bond Fund.
11
E. Bruce Fredrikson. Mr. Fredrikson is Professor of Finance at Syracuse
University School of Management. He was chairman of the finance department from
1978 to 1981 and has served in various teaching positions at the University
since 1966. Mr. Fredrikson is an Independent General Partner of Fiduciary
Capital Partners, L.P. and Fiduciary Capital Pension Partners, L.P. He is a
Director of Track Data Corporation and Innodata Corporation and Chairman of the
Audit Committee of these two companies.
Claudio M. Guazzoni. Mr. Guazzoni co-founded The Zanett Securities Corporation
in 1993 where he is currently employed. He previously worked for Salomon
Brothers from 1985 until 1991. Mr. Guazzoni is a Director of SmartServe OnLine,
Inc.
Flavio Peralda. Mr. Peralda the President of Vidikron S.r.L. was
Founder/Chairman and President of Vidikron Industries S.p.A. for the past 20
years immediately prior to the Vidikron Acquisition.
Board Classification and Committees
The Company adopted a classified Board of Directors in February 1990. The Board
of Directors presently consists of nine members divided into three classes. The
Company currently has one (1) Director whose term expires in 1999, three (3)
Directors whose term expires in 2000, two (2) Directors whose term expires in
2001 and three (3) Directors whose term expire in 2002. Having a classified
Board of Directors may be viewed as inhibiting a change in control of the
Company and having possible anti-takeover effects. Officers of the Company serve
at the discretion of the Board of Directors.
The Company has an Audit Committee and a Compensation Committee.
The Audit Committee
Among other things, the Audit Committee
(i) reviews the internal control procedures and accounting procedures of the
Company;
(ii) consults with the Company's independent auditors;
(iii) reviews the reports submitted by the Company's independent auditors;
(iv) reviews with the Company's management compliance reporting and accounting;
and
(v) makes reports and recommendations to the Board of Directors, as it deems
appropriate regarding, among other matters appointment of independent
auditors.
The Audit Committee is presently comprised of E. Bruce Fredrikson (the Chairman)
and Claudio M. Guazzoni.
The Audit Committee held one (1) meeting during 1998.
The Compensation Committee
The Compensation Committee establishes and administers salaries, bonuses and
other incentive plans in order to attract persons to serve as, and to retain,
motivate and reward qualified persons serving as, directors, executive officers
and key employees of the Company.
The Compensation Committee is presently comprised of Claudio M. Guazzoni (the
Chairman), E. Bruce Fredrikson and Martin D. Fife.
The Compensation Committee held one (1) meeting in 1998.
Each member of the Board of Directors who is not an officer or employee of the
Company receives an annual fee of $8,000 per year, plus $1,000 for each
scheduled Board meeting and $ 500 for each committee meeting attended for
serving as Director. As of March 25, 1999 each Director can elect in advance to
take equity in the Company in lieu of cash fees. The equity will be priced at
85% of the average closing bid price for the ten days preceding the applicable
meeting. The Company reimburses its Directors for out-of-pocket expenses
incurred in connection with meetings of the Board of Directors or committee
meetings attended. There are no family relationships among any Directors or
officers. All Directors attended at least 75% of the meetings in 1998.
12
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of its Common
Stock, to file reports of ownership and changes in ownership with the Securities
and Exchange Commission (the "Commission") and the National Association of
Securities Dealers, Inc. Officers, directors and greater than ten percent
stockholders are required by the Commission to furnish the Company with copies
of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no reports on Form 5
were required for those persons, the Company believes that during 1998 all
filing requirements applicable to its officers, directors and greater than ten
percent stockholders were complied with.
Executive Compensation
The following table sets forth the cash compensation paid by the Company to
executive officers of the Company for the year ended December 31, 1998 whose
total annual salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Other
Compen- Stock LTIP Compen-
Name and sation Awards Options/ Payouts sation
Principal Position Year Salary($) Bonus($) $ $ SARs(#) $ $
- ------------------ ---- --------- -------- ------- ---------- -------- ------- -------
Marvin Maslow, 1998 $150,000 $ -0- $63,676(6) $ -0- $ -0-
Chairman of the Board 1997 $150,000 $ -0- $41,676 $ -0- -0- $ -0- $ -0-
Of Directors 1996 $150,000 $ -0- $40,141 $ -0- 25,000(1) $ -0- $100,000(2)
Martin Holleran, 1998 $220,000 $ -0- $24,154 $ -0- 784,624(3) $ -0- $ -0-
President, Chief 1997 $220,000 $ -0- $24,115 $ -0- -0- $ -0- $ -0-
Executive Officer 1996 $180,000 $ -0- $ 9,403 $ -0- 25,000(4) $ -0- $100,000(5)
And Director
Sherman Langer (7) 1998 $165,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Senior Vice President 1997 $165,000 $ -0- $ -0- $ -0- -0- $ -0-
Of Marketing and 1996 $130,000 $30,000 $ -0- $ -0- $ 2,500 $ -0- $ -0-
Sales And Director
(1) On March 12, 1996, the Company cancelled 4,688 unvested stock options
granted in 1994 having an exercise price of $215.00 per share and granted
Mr. Maslow 25,000 non-qualified stock options having an exercise price of
$175.00 per share, which exercise price was subsequently reduced to $120.00
on January 9, 1997.
(2) Represents a one-time cost-of-living adjustment made to Mr. Maslow's July
1990 employment agreement with the Company.
(3) On December 8, 1998 Mr. Holleran was granted options representing 7% of the
company's issued and outstanding common stock, on a fully diluted basis,
after giving effect to the transactions approved at the Company's Meeting
of Stockholder held on February 19, 1999.
(4) On March 12, 1996, the Company cancelled 3,125 unvested stock options
granted in 1994 having an exercise price of $215.00 per share and granted
Mr. Holleran 25,000 non-qualified stock options having an exercise price of
$175.00 per share, which exercise price was subsequently reduced to $120.00
on January 9,1997. On December 8, 1998, Mr. Holleran returned all of these
stock options to the company.
13
(5) Represents a one-time cost-of-living adjustment made to Mr. Holleran's 1993
employment agreement with the Company.
(6) Includes $25,000 received from Manhattan Scientific, Inc. (See Item 13
Certain Relationships and Related Transactions)
(7) Mr. Langer resigned as of March 16, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Value of
Unexercised
Number of In-the-Money
Options/SARs Options/SARs
At Fiscal At Fiscal
Year End (#) Year End (#)
Shares
Name and Acquired on Value Exercisable Exercisable
Principal Position Exercise (#) Realized ($) Unexercisable Unexecisable
- ------------------ ------------ ------------ ------------- ------------
Marvin Maslow -0- N/A 34,375 Exercisable 0/0
Chairman of the Board
Of Directors
Martin Holleran, -0- N/A 261,541 Exercisable 0/0
President and Chief
Executive Officer
Sherman Langer -0- N/A 3,800 Exercisable 0/0
Senior Vice President
Of Marketing and
Sales and Director
Jules Zimmerman -0- N/A 3,000 Exercisable 0/0
Chief Financial Officer
And Director
Martin Fife, -0- N/A 375 Exercisable 0/0
Vice Chairman of the
Board of Directors
Executive Employment Agreements
The Company entered into an employment agreement in July 1990 with Marvin Maslow
to serve as Chief Executive Officer of the Company. Mr. Maslow's employment
agreement, which was to initially expire in July, 1995, was automatically
extended in January 1995 by its terms for an additional 30 months. That
employment agreement was terminated and replaced with a new executive employment
agreement effective March 1, 1997 when Mr. Maslow resigned his position as Chief
Executive Officer and remained Chairman of the Board. The terms of Mr. Maslow's
employment agreement set forth a salary of $150,000 per annum, a $2,000 per
month non-accountable expense allowance, lease of an automobile and other
perquisites. The term of Mr. Maslow's new employment agreement is six (6) years
with a two-year extension, and it contains change in control provisions.
The Company entered into a three (3) year employment agreement with Mr. Martin
Holleran in November 1993 to serve as the Company's President and Chief
Operating Officer at a salary of $180,000 per year. Upon the expiration of this
agreement (which was orally extended by the parties subsequent to its term), the
Company entered into a new executive employment agreement with Mr. Holleran
effective March 1, 1997. At that time Mr. Holleran resigned his position as
Chief Operating Officer and assumed the position of Chief Executive Officer. The
terms of Mr. Holleran's employment agreement set forth a salary of $220,000 per
annum plus lease of an automobile and other perquisites. The term of Mr.
Holleran's new executive employment agreement is six (6) years with a two-year
extension, and it contains change in control provisions.
14
Effective December 8, 1998, the Company entered into a one (1) year employment
agreement with Mr. Flavio Peralda initially to act as Attorney for Vidikron
S.r.L. and a two (2) year employment agreement with Emilio Baj Macario also to
act as Attorney for Vidikron S.r.L. at salaries of $180,000 per year each. The
Company is in the process of converting Vidikron S.r.L. into Vidikron S.p.A. At
the time of conversion, Mr. Peralda will become President and Mr. Baj Macario
Managing Director of Vidikron S.p.A. in accordance with the terms of their
employment agreements. The Company has also entered into an employment agreement
with Giovanni Cozzi, President of Vidikron of America, for a period of (4)
months at an annual salary of $146,000 and with James Wellnitz, Executive Vice
President of Vidikron of America, for one year at a salary of $85,000 per year.
Messrs. Cozzi and Wellnitz also receive a percentage of revenue earned in the
U.S. At the expiration of Mr. Cozzi's employment agreement he became an employee
at will under the same terms and conditions as before.
Each of Messrs. Maslow, Holleran, Peralda and Baj Macario have agreed not to
compete with the Company during the term of his respective employment agreement
and for a period of two years after the termination thereof. Each of Messrs.
Cozzi and Wellnitz have agreed not to compete with company during the term of
their employment agreement. All of the executive employment agreements contain
termination for cause provisions.
Effective January 1, 1997, the Company entered into an employment agreement with
Mr. Sherman Langer. The term of Mr. Langer's employment agreement was three (3)
years and provided for a salary of $165,000 per year and also contains certain
change in control provisions. The employment agreement was terminated as of
March 16, 1999, by mutual consent. Under the terms of the agreement Mr. Langer
resigned as an Officer and Director of the Company with the Company agreeing to
pay his salary and benefits for up to six months or until thirty (30) days after
Mr. Langer becomes reemployed, which ever comes earlier.
Subsequent to the closing of the Company's initial public offering in 1990, the
Company retained Jules Zimmerman as Chief Financial Officer of the Company. In
connection therewith, the Company entered into a consulting agreement with Mr.
Zimmerman and Hickok Associates whereby the Company is billed on an hourly basis
for the work performed by Mr. Zimmerman. Hickok Associates discontinued
operations as of December 31, 1996. Since that time Mr. Zimmerman has continued
to provide his services to the Company as Chief Financial Officer on an hourly
basis. Mr. Zimmerman resigned as Chief Financial Officer to the company on
February 19, 1999 and as a Director as of March 15, 1999.
Indemnification Agreements
The Company has entered into an Indemnification Agreement with each of its
Directors and any officer, employee, agent or fiduciary designated by the Board
of Directors which provides that the Company indemnify the Director or other
party thereto to the fullest extent permitted by applicable law. The agreement
includes indemnification, to the extent permitted by applicable law, against
expenses, including reasonable attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by the indemnified
party in connection with any civil or criminal action or administrative
proceeding arising out of the indemnitee's performance of his duties as a
Director or officer of the Company. Such indemnification is available if the
indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Company, and, with respect to any
criminal action, had no reasonable cause to believe his conduct was unlawful.
15
Under the Indemnification Agreement, the entitlement of a Director or officer to
indemnification will be determined by a majority vote of a quorum of
disinterested Directors, or if such quorum either is not obtainable or so
directs, by independent counsel or by the stockholders of the Company, as
determined by such disinterested Directors. If a change of control of the
Company has occurred, the entitlement of such Director or officer to
indemnification shall be determined by independent counsel selected by such
Director or officer, unless such Director or officer requests that either the
Board or the stockholders make such determination.
Each Indemnification Agreement requires the Company to advance litigation
expenses at the request of the Director or officer who is a party thereto,
whether prior to, or after final resolution of a proceeding, provided that the
indemnitee undertakes to repay such advances if it is ultimately determined that
he is not entitled to indemnification for his expense. The advance of litigation
expenses is therefore mandatory upon satisfaction of certain conditions by such
Director or officer.
The Company has entered into an Indemnification Agreement with all of its
Directors and officers. The Company has obtained officers' and directors'
liability insurance, which provides a maximum of $6,000,000 of coverage, subject
to a $100,000 deductible payable by the Company except under certain
circumstances for securities related matters in which case the deductible is
$150,000. Any payments made by the Company under an Indemnification Agreement
which are not covered by the insurance policy may have an adverse impact on the
Company's earnings.
Stock Option Plans and Agreements
At the Annual Meeting on February 19, 1999 the stockholders approved the
adoption of the Company's 1999 Incentive Stock Option Plan (the "1999 Option
Plan") inasmuch as the Company's currently existing 1990 Incentive Stock Option
and Allocation Plan (the "1990 Option Plan") will, by its terms in accordance
with applicable Federal Income Tax provisions, expire in February 2000.
The purpose of the 1999 Option Plan, like the 1990 Plan, is to encourage and
enable employees and consultants of the Company and its subsidiaries to acquire
a proprietary interest in the Company through the ownership of the Company's
Common Stock. The Option Plan is designed to provide employees and consultants
with a more direct stake in the Company's future welfare and an incentive to
remain with the Company.
The 1999 Option Plan is, in most material respects, substantially similar if not
identical to the 1990 Option Plan. Like the 1990 Option Plan, the 1990 Option
Plan will provide for grants of "Incentive Stock Options," meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and "Non-qualified Stock Options".
The 1999 Option Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee") which is comprised of not less than two
disinterested directors within the meaning of Rule 16b-3 of the Exchange Act.
The Option Plan permits the Committee to determine which employees or
consultants or other eligible personnel shall receive options and the times when
options are to be granted. The Committee also determines the purchase price of
Common Stock covered by each option, the term of each option, the number of
shares of Common Stock to be covered by each option and any performance
objectives or vesting standards applicable of each option. The Committee also
designates whether the options shall be Incentive Stock Options or Non-qualified
Stock Options. The Plan has a term of ten (10) years and expires in February
2009.
The purchase price per share under each Incentive Stock Option or Non-qualified
Stock Option is the "Market Price" (i.e., the average of the high and low
reported consolidated bid price for such day) of the Common Stock on the date
the option is granted, except that the exercise price for an Incentive Stock
Option granted to a 10% stockholder may not be less than 100% of the Market
Price of the Common Stock on the date of the grant. The aggregate Market Price
of the Common Stock exercisable under Incentive Stock options held by any
optionee during any calendar year may not exceed $100,000. Incentive Stock
Options granted to employees under the Option Plan have a maximum term of ten
years. Options are not transferable except by will or pursuant to the applicable
laws of descent and distribution. Notwithstanding the general restriction on
transferability, in the sole discretion of the Committee, Non-qualified Stock
Options may be made transferable subject to the requirements of Rule 16b-3.
16
In the event that an employee is terminated for any reason other than death,
Disability, Retirement for Cause (as such terms are defined in the Option Plan),
to the extent that the employee had the right to exercise an option, such option
will be exercisable until the earlier of the expiration date of the option, or
within 30 days of the date of such termination. Options held on the date of
Disability or Retirement, whether or not exercisable on such date, are
exercisable within one year of the date of Disability or Retirement. Options
held by an employee at the date of death, whether or not exercisable on the date
of death, are exercisable by the beneficiary of the employee within one year
from the date of death. The Committee may, in its sole discretion, cause any
option to be forfeited upon an employees termination for Cause (as defined in
the Option Plan). In the event of a Change of Control (as such term is defined
in the Plan) of the Company, all outstanding options will vest and appropriate
provisions shall be made for the protection of options by substitution on an
equitable basis of appropriate stock of the Company or appropriate stock of the
merged, consolidated or otherwise reorganized corporation, as the case may be.
The Board of Directors is permitted to suspend, terminate, modify or amend the
Option Plan, provided that any amendment that would (I) materially increase the
aggregate number of shares, (ii) materially increase benefits accruing to
employees, or (iii) materially modify the eligibility requirements for
participation shall be subject to stockholder approval, provided, however, that
stockholder approval is not required for adjustments to the Option Plan or to
the number of shares available thereunder which are deemed appropriate by the
Committee to prevent dilution or expansion of rights.
The Company's 1999 Option Plan would have available options exercisable for
shares of common Stock of the Company in an amount equal to twenty percent (20%)
of the company's issued and outstanding shares after giving effect to the
transactions approved at the February 19, 1999 stockholders meeting.
Performance Graph
Comparison of Five-Year Cumulative Total Returns
Performance Report for
Vidikron Technologies Group, Inc.
Prepared by the Center for Research in Security Prices
Produced on 04/14/1999 including data to 12/31/1998
Company Index: CUSIP Ticker Class Sic Exchange
74339110 PJTV 3660 NASDAQ
Fiscal Year-end is 12/31/1998
market Index; Nasdaq Stock Market (US Companies)
Peer Index: NASDAQ Stocks (SIC 3660-3669 US Companies)
Communications Equipment
Date Company Index Market Index Peer Index
12/31/1993 100.000 100.000 100.000
01/31/1994 80.682 103.035 100.788
02/28/1994 62.500 102.073 98.085
03/31/1994 61.364 95.798 91.886
04/29/1994 61.364 94.554 95.175
05/31/1994 45.455 94.785 85.228
06/30/1994 55.682 91.319 79.834
07/29/1994 47.727 93.192 84.114
08/31/1994 50.000 99.135 93.740
09/30/1994 46.591 98.881 93.278
10/31/1994 52.273 100.824 105.370
11/30/1994 45.455 97.479 104.840
12/30/1994 39.205 97.752 113.428
01/31/1995 31.818 98.309 109.964
02/28/1995 29.545 103.509 118.085
03/31/1995 30.682 106.579 123.902
04/28/1995 23.295 109.937 131.144
05/31/1995 21.591 112.775 132.896
06/30/1995 28.409 121.914 157.365
07/31/1995 27.273 130.876 175.814
08/31/1995 30.114 133.531 177.400
09/29/1995 42.614 136.601 187.897
10/31/1995 51.136 135.813 173.262
11/30/1995 34.091 139.004 186.370
12/29/1995 43.182 138.265 175.935
01/31/1996 40.909 138.944 171.886
02/29/1996 43.182 144.233 183.654
03/29/1996 36.932 144.708 181.159
04/30/1996 20.455 156.710 215.722
05/31/1996 26.136 163.906 243.372
06/28/1996 32.955 156.517 234.122
07/31/1996 26.705 142.559 188.855
08/30/1996 35.227 150.547 202.873
Comparison of Five-Year Cumulative Total Returns
Performance Report for
Vidikron Technologies Group, Inc.
Prepared by the Center for Research in Security Prices
Produced an 04/14/1999 including data to 12/31/1998
Date Company Index Market Index Peer Index
09/30/1996 36.364 162.062 213.700
10/31/1996 34.091 160.271 201.541
11/29/1996 30.682 170.179 208.784
12/31/1996 23.295 170.025 195.178
01/31/1997 27.557 182.109 207.294
02/28/1997 25.000 172.037 181.620
03/31/1997 23.864 160.804 164.429
04/30/1997 18.182 165.831 157.669
05/30/1997 17.330 184.696 197.998
06/30/1997 17.898 190.353 203.921
07/31/1997 13.352 210.432 224.948
08/29/1997 17.330 210.179 227.641
09/30/1997 17.614 222.580 233.837
10/31/1997 14.773 211.020 221.992
11/28/1997 13.636 212.164 219.291
12/31/1997 8.807 208.532 208.891
01/30/1998 10.369 215.158 195.827
02/27/1998 6.818 235.389 206.211
03/31/1998 10.227 244.025 215.148
04/30/1998 6.818 248.054 227.390
05/29/1998 4.545 234.261 212.203
06/30/1998 2.273 250.681 225.827
07/31/1998 3.409 247.694 221.964
08/31/1998 1.136 198.800 142.261
09/30/1998 0.852 226.450 140.172
10/30/1998 0.852 236.226 159.730
11/30/1998 0.852 260.132 174.648
12/31/1998 0.568 293.832 191.299
The index level for all series was set to 100.0 on 12/31/1993
17
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 9, 1999, known
to the Company regarding beneficial ownership of the Company's Common Stock by:
(i) any holder of more than five percent of the outstanding shares; (ii) the
Company's directors; and (iii) the directors and officers of the Company as a
group:
Shares Percentage Shares Percentage
Of (%) of of (%) of
Common Total Preferred Total
Stock Common Stock Preferred
Name Owned(1)(2) Stock(3) Owned Stock
- ---- ----------- ---------- --------- ----------
Marvin Maslow (5) 34,958 1.3% 25,000 7.1%
Manhattan Scientifics Inc.
641 5th Avenue
Suite 36-F
New York, NY 10022
Martin D. Fife (4) 8,750 -0- -0- -0-
405 Lexington Avenue
New York, NY 10174
Martin Holleran (6) 784,624 28.5% -0- -0-
Vidikron Technologies Group Inc.
One Evertrust Plaza
11th Floor
Jersey City, NJ 07302
Phillip Siegel (7) 100,000 3.6% -0- -0-
(Vidikron Technologies Group, Inc.)
Tomaso Barbini (8) 50,000 1.8% -0- -0-
(Vidikron Technologies Group, Inc.)
E. Bruce Fredrikson (8) 50,000 1.8% -0- -0-
(Vidikron Technologies Group, Inc.)
Claudio Guazzoni (8) 50,000 1.8% -0- -0-
(Vidikron Technologies Group, Inc.)
Emillio Baj Macario (9) 493,333 17.9% -0- -0-
Vidikron Industries S.p.A.
Via Dei Guasti, 29
20020 Misinto (Milano)
C.so Venezia, 16-20121
Milano, Italy
Flavio Peralda (9) 493,333 17.9% -0- -0-
Vidikron Industries S.p.A.
Via Dei Guasti, 29
20020 Misinto (Milano)
C.so Venezia, 16-20121
Milano, Italy
All Directors, Nominees and Officers Group
(consisting of 9 persons) (4)(5)(6)(7)(8)(9) 2,749,955 57.2% 25,000 7.1%
(1) Except as otherwise indicated, all shares of Common Stock are beneficially
owned, and sole investment and voting power is held, by the persons named.
(2) Gives effect to the reverse stock split of forty (40) for one (1) in March
of 1999.
(3) Outstanding Common Stock does not include any shares of Common Stock
issuable upon the exercise of any outstanding options or warrants, or the
conversion of any convertible preferred securities. The convertible
preferred securities are convertible into common stock. Should they be
converted the common stock would increase to approximately 10.5 million
shares.
(4) Includes 8,750 non-qualified options granted to and beneficially owned by
Mr. Fife to acquire 8,750 shares of Common Stock. Does not include (i) 100
shares of non-voting Series A Preferred Stock issued to Mr. Fife in
connection with the early financing of the Company.
(5) Includes (i) 34,375 shares of Common Stock subject to 34,375 non-qualified
stock options. Does not include 4,038 shares of Common Stock owned by Mr.
Maslow's adult child. Mr. Maslow disclaims beneficial ownership of the
shares of Common Stock owned by his adult child. Mr. Maslow received 25,000
shares of Series B Preferred Stock on May 15, 1992 for services rendered in
the second quarter of 1992.
(6) Includes non-qualified options granted to and beneficially owned by Mr.
Holleran to acquire shares of the Company's Common Stock.
18
(7) Includes incentive stock options granted to and beneficially owned by Mr.
Siegel to acquire shares of the Company's Common Stock.
(8) Includes non-qualified stock options granted to and beneficially owned by
Messrs. Barbini, Fredrikson and Guazzoni to acquire shares of the Company's
Common Stock.
(9) Represents shares issued to Grangeover, an Isle of Mann Entity, as partial
consideration for the transfer to the Company of certain trademarks and
intellectual property rights in connection with the Vidikron Acquisition.
Messrs. Peralda and Baj Macario are empowered to vote the shares issued to
this entity, but disclaim any beneficial ownership.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases space from Mssrs. Baj Macario and Peralda, two of the
Company's officers and directors, and purchases certain components used in the
manufacture of certain projectors and certain manufactured projectors from
Novavision, S.p.A., a company owned by Mssrs. Baj Macario and Peralda. For the
year ended December 31, 1998, the lease expense was $6,181. The lease was
negotiated as an arms length transaction at the time of the Vidikron
Acquisition and the transfer price for manufactured goods is subject to
competitive bids. Mssrs. Baj Macario and Peralda also hold a power of attorney
from Grangeover, an Isle of Mann entity, to vote the Company's common stock
owned by Grangeover.
In January of 1998 the Company merged its majority owned subsidiary, Tamarack
Storage Devices Inc., into a bulletin board shell company, changed the name of
the merged entity to Manhattan Scientifics, Inc. ("MSI") and simultaneously
therewith effected an offering of $1,000,000 of common stock of MSI in a Rule
504 offering. Upon the consummation of this transaction, after giving effect to
the merger and the Rule 504 offering, the Company owned approximately 77% of the
issued and outstanding common shares of MSI. On or about the same time MSI
issued 7,500,000 options each to Messrs. Maslow and Holleran to acquire MSI
common stock at an exercise price of $0.20 per share.
Marvin Maslow is an officer and director of MSI and Mr. Holleran is a director
of MSI. In July 1998, as part of the Company's sale of approximately 43.1
million shares of MSI common stock to an institutional investor, the
institutional investor required that it receive 10,000,000 of the 15,000,000
options owned by these two officers and directors and that the exercise price be
reduced to $0.05 per share. Each of the two officers and directors surrendered
options for 5,000,000 shares of MSI common stock and each had the exercise price
of their remaining options for 2,500,000 shares of MSI common stock similarly
reduced to $0.05 per share. In 1998, Mr. Maslow received $25,000 in compensation
from MSI. On February 12, 1999 Mr. Holleran resigned as a director of MSI.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the Company are incorporated
herein by reference to Part II, Item 8:
Independent Auditors' Report F - 1
Consolidated Balance Sheets at December 31, 1997 and 1998 F - 2
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997, 1998 F - 3
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997, 1998 F - 4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997, 1998 F - 5
Notes to Consolidate Financial Statements F - 6
19
(a) (2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
information required is included in the financial statements and notes thereto.
(a) (3) Exhibits
The following is a list of exhibits filed as part of the Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
Exhibit No.
- -----------
10.52 Acquisition Agreement and Related Agreements with Vidikron Industries,
S.p.A.
27 Financial Data Schedule
20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 15th day of April, 1999.
VIDIKRON TECHNOLOGIES GROUP, INC.
By: /s/ Martin Holleran
---------------------------------
Martin Holleran, President
Chief Executive Officer and Director
In accordance with the Exchange Act this report has been signed below by the
following persons in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
- ----------------------- Chairman of the Board April 15, 1999
Marvin Maslow of Directors
/s/ Phillip Siegel Vice Chairman of the Board April 15, 1999
- ----------------------- of Directors
Phillip Siegel
/s/ Martin Holleran President, Chief April 15, 1999
- ----------------------- Executive Officer and Director
Martin Holleran
/s/ Stuart D. Barlow Vice President of Finance April 15, 1999
- ----------------------- (principal financial officer)
Stuart D. Barlow
/s/ Emilio Baj Macario
- ----------------------- Director April 15, 1999
Emilio Baj Macario
/s/ Tomaso Barbini
- ----------------------- Director April 15, 1999
Tomaso Barbini
/s/ Martin D. Fife
- ----------------------- Director April 15, 1999
Martin D. Fife
/s/ E. Bruce Fredrikson
- ----------------------- Director April 15, 1999
E. Bruce Fredrikson
/s/ Claudio Guazzoni
- ----------------------- Director April 15, 1999
Claudio Guazzoni
/s/ Flavio Peralda
- ----------------------- Director April 15, 1999
Flavio Peralda
Item 14(c) Part IV
Exhibit Index
Exhibit Number Description
- -------------- -----------
3.1 Amendment to Certificate of Incorporation changing the
name of the Company to Vidikron Technologies Corp., Inc.
3.1.1 Amendment to Certificate of Incorporation amending
authorized capital
10.53 Amended Acquisition Agreement and Related Agreements
with Vidikron Industries, S.p.A.
10.54 Employment Agreement of Emilio Baj Macario
10.55 Employment Agreement of Flavio Peralda
21
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Vidikron Technologies Group. Inc.:
We have audited the accompanying consolidated balance sheets of Vidikron
Technologies Group, Inc. and its subsidiaries (the "Company") (formerly
Projectavision, Inc.) as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated the financial statements present fairly, in
all material respects, the financial position of the companies at December 31,
1998 and 1997 and the results of their operations and their cash flows for the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
New York, NY
April 8, 1998
F-1
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
December 31, December 31,
ASSETS 1997 1998
CURRENT ASSETS:
Cash and cash equivalents $ 1,331,925 $ 2,280,107
Accounts receivable 377,608 1,934,426
Inventory 1,857,604 4,617,680
Investments - 500,000
Other current assets 1,001,629 299,575
------------ ------------
Total Current Assets 4,568,766 9,631,788
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment 127,128 643,009
Tooling 5,907,288 2,134,237
Computers and software 259,048 320,270
Assets under capital leases 47,989 47,989
Leasehold improvements 185,030 8,824
------------ ------------
6,526,483 3,154,329
Less: Accumulated depreciation and amortization 851,250 290,662
------------ ------------
Property and equipment, net 5,675,233 2,863,667
GOODWILL - Net of accumulated amortization of $25,043 - 5,985,094
TRADEMARKS - Net of accumulated amortization of $3,769 - 599,216
OTHER ASSETS 168,358 150,635
------------ ------------
TOTAL ASSETS $ 10,412,357 $ 19,230,400
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,466,676 $ 3,597,729
Accrued liabilities 1,070,638 1,297,500
Notes payable - 7,889,197
Bank debt - 1,681,579
Convertible debt - 140,000
Current portion of capital lease obligations 15,229 17,904
------------- -------------
Total Current Liabilities 3,552,543 14,623,909
------------- -------------
LONG-TERM LIABILITIES
Long-term portion of capital lease obligations 22,851 4,947
Other long-term liabilities 250,000 498,188
Convertible debt 900,000 -
------------- -------------
Total Long-term Liabilities 1,172,851 503,135
------------- -------------
TOTAL LIABILITIES 4,725,394 15,127,044
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stocks
Series A Preferred Stock, $.01 par value
100 shares authorized, 100 shares issued ($100,000 liquidation preference) - -
Series B Preferred Stock, $.01 par value
434,667 shares authorized, 351,258 shares outstanding
as of December 31, 1998 ($1,756,290 liquidation preference) 3,512 3,512
Series D Preferred Stock, $100 par value 60,000 shares authorized; 51,000
shares issued as of December 31, 1997 and 36,900 shares issued as of
December 31, 1998; ($3,690,000 liquidation preference) 5,100,000 3,690,000
Series E Preferred Stock, $1000 par value
1,650 shares authorized; 1,650 shares issued as of December 31, 1997 and
1,510 shares issued as of
December 31, 1998; ($1,510,000 liquidation preference) 1,650,000 1,510,000
Series F Preferred Stock, $1000 par value
2,850 shares authorized; 2,850 shares issued as of
December 31, 1998; ($2,850,000 liquidation preference) 2,850,000
Series G Preferred Stock, $1000 par value
2,400 shares authorized; 2,400 shares issued as of
December 31, 1998; ($2,400,000 liquidation preference) 2,400,000
Common stock $.004 par value - 1,250,000 shares
authorized; 499,725 and 1,146,327 issued and
outstanding in 1997 and 1998 respectively 1,999 4,585
Cumulative Translation Adjustment - (21,353)
Additional paid-in capital 44,535,906 50,846,300
Accumulated Deficit (45,604,454) (57,179,688)
------------- ------------
Total Stockholders' Equity 5,686,963 4,103,356
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,412,357 $19,230,400
============= ============
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
F-2
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------------------------
1996 1997 1998
REVENUE $ 150,000 $ 1,017,645 $ 3,020,874
COST OF SALES - 990,044 2,481,763
------------ ------------ ------------
GROSS PROFIT 150,000 27,601 539,111
OPERATING EXPENSES
General and administrative 3,197,041 4,577,888 8,083,222
Salaries 1,266,287 1,518,695 1,664,432
Depreciation and amortization 91,284 608,355 682,040
Research and development 2,389,329 1,240,578 1,677,647
Patent and license expense 362,967 283,030 88,834
------------ ------------ ------------
Total Operating Expenses 7,306,908 8,228,546 12,196,175
------------ ------------ ------------
LOSS FROM OPERATIONS (7,156,908) (8,200,945) (11,657,064)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Recovery of allowances on advances 109,166 - -
Gain on sale of investment - - 2,350,000
Interest income 458,979 167,855 41,408
Interest expense (352,049) (117,524) (46,622)
Interest expense - Amortization of debt expense (3,868,016) (39,306) -
------------ ------------ ------------
Other income/(expense) - Net (3,651,920) 11,025 2,344,786
------------ ------------ ------------
Loss before Equity in Loss of
Unconsolidated Affiliate (10,808,828) (8,189,920) (9,312,278)
Equity in Loss of Unconsolidated Affiliate (72,065) (100,000) -
------------ ------------ ------------
Net Loss (10,880,893) (8,289,920) (9,312,278)
Dividends on Preferred Stock (2,635,331) (3,157,266) (2,262,929)
------------ ------------ ------------
Net Loss Attributable to Common Stockholders $(13,516,224) $(11,447,186) $(11,575,207)
-=========== ============ ============
Net Loss per Share Attributable to Common Stockholders $ (39.79) $ (25.48) $ (17.04)
============ ============ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 339,668 449,222 679,422
============ ============ ============
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements .
F-3
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE SERIES A SERIES B SERIES C
TRANSLATION PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
ADJUSTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 100 385,982 $3,859
NET LOSS
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
ISSUANCE OF SERIES C PREFERRED STOCK 7,500 8
SERIES C PREFERRED STOCK PLACEMENT FEE
CASH DIVIDEND ON SERIES C PREFERRED STOCK
EXERCISE OF STOCK OPTIONS
AMORTIZATION OF DISCOUNT ON 8% DEBENTURES
AMORTIZATION OF DISCOUNT (DIVIDEND)
ON SERIES C PREFERRED STOCK
ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES
--------------------------- ------- -------------- ----------- ------------ -------
BALANCE, DECEMBER 31, 1996 $ - 100 $ - 385,982 $3,859 7,500 $ 8
NET LOSS
CONVERSION OF SERIES B PREFERRED
STOCK INTO COMMON STOCK (34,724) (347)
SERIES C PREFERRED STOCK CONVERSION (7,500) (8)
ISSUANCE OF SERIES D PREFERRED STOCK
ISSUANCE OF SERIES E PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES C PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES D PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES E PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES D
PREFERRED STOCKHOLDERS
FINANCING COST FOR SERIES D PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES E PREFERRED
STOCKHOLDERS
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS
ISSUANCE OF COMMON STOCK FOR SERVICES
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
--------------------------- ------- -------------- ----------- ------------ -------
BALANCE, DECEMBER 31, 1997 0 100 0 351,258 3,512 0 0
NET LOSS
CUMULATIVE TRANSLATION ADJUSTMENT (21,353)
TOTAL COMPREHENSIVE LOSS
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS
CONVERSION OF SERIES D PREFERRED STOCK
FINANCING COST FOR SERIES D PREFERRED STOCK
CONVERSION OF SERIES E PREFERRED STOCK
ISSUE SHARES TO SERIES E PREFERRED
STOCKHOLDER
ISSUANCE OF SERIES F PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES F PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES F
PREFERRED STOCKHOLDERS
ISSUANCE OF SERIES G PREFERRED STOCK
FINANCING COST FOR SERIES G PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES G PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES G
PREFERRED STOCKHOLDERS
ISSUE SHARES TO SERIES G PREFERRED
STOCKHOLDER
ISSUANCE OF COMMON STOCK
ISSUANCE OF COMMON STOCK TO ACQUIRE
TRADEMARKS AND MINORITY INTEREST IN
VIDIKRON OF AMERICA, INC.
ISSUANCE OF COMMON STOCK FOR SERVICES
--------------------------- ------- -------------- ----------- ------------ -------
BALANCE, DECEMBER 31, 1998 ($21,353) 100 $ 0 351,258 $ 3,512 0 $ 0
=========================== ======= ============== =========== ============ =======
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
F-4
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES D SERIES E SERIES F SERIES G
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 0 $ - 0 $ - 0 $ - 0 $ -
NET LOSS
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
ISSUANCE OF SERIES C PREFERRED STOCK
SERIES C PREFERRED STOCK PLACEMENT FEE
CASH DIVIDEND ON SERIES C PREFERRED STOCK
EXERCISE OF STOCK OPTIONS
AMORTIZATION OF DISCOUNT ON 8% DEBENTURES
AMORTIZATION OF DISCOUNT (DIVIDEND)
ON SERIES C PREFERRED STOCK
ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES
--------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 0 - 0 - 0 - 0 -
NET LOSS
CONVERSION OF SERIES B PREFERRED
STOCK INTO COMMON STOCK
SERIES C PREFERRED STOCK CONVERSION
ISSUANCE OF SERIES D PREFERRED STOCK 51,000 5,100,000
ISSUANCE OF SERIES E PREFERRED STOCK 1,650 1,650,000
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES C PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES D PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES E PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES D
PREFERRED STOCKHOLDERS
FINANCING COST FOR SERIES D PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES E PREFERRED
STOCKHOLDERS
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS
ISSUANCE OF COMMON STOCK FOR SERVICES
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
--------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 51,000 5,100,000 1,650 1,650,000 0 0 0 0
NET LOSS
CUMULATIVE TRANSLATION ADJUSTMENT
TOTAL COMPREHENSIVE LOSS
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS
CONVERSION OF SERIES D PREFERRED STOCK (14,100) (1,410,000)
FINANCING COST FOR SERIES D PREFERRED STOCK
CONVERSION OF SERIES E PREFERRED STOCK (140) (140,000)
ISSUE SHARES TO SERIES E PREFERRED
STOCKHOLDER
ISSUANCE OF SERIES F PREFERRED STOCK 2,850 2,850,000
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES F PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES F
PREFERRED STOCKHOLDERS
ISSUANCE OF SERIES G PREFERRED STOCK 2,400 2,400,000
FINANCING COST FOR SERIES G PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES G PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES G
PREFERRED STOCKHOLDERS
ISSUE SHARES TO SERIES G PREFERRED
STOCKHOLDER
ISSUANCE OF COMMON STOCK
ISSUANCE OF COMMON STOCK TO ACQUIRE
TRADEMARKS AND MINORITY INTEREST IN
VIDIKRON OF AMERICA, INC.
ISSUANCE OF COMMON STOCK FOR SERVICES
--------- ------------ ------- ----------- ------- ----------- ------ ---------
BALANCE, DECEMBER 31, 1998 36,900 $3,690,000 1,510 $1,510,000 2,850 $2,850,000 2,400 $2,400,000
========= ============ ======= ==========- ======= =========== ====== =========
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL ACCUMULATED
COMMON STOCK PAID IN DEFICIT
SHARES AMOUNT CAPITAL TOTAL
--------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 309,720 $ 1,239 $ 24,318,651 $(20,641,044) $ 3,682,705
NET LOSS (10,880,893) (10,880,893)
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS 941 4 154,389 (154,393) 0
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 44,324 177 3,020,298 3,020,475
ISSUANCE OF SERIES C PREFERRED STOCK 7,499,992 7,500,000
SERIES C PREFERRED STOCK PLACEMENT FEE (500,000) (500,000)
CASH DIVIDEND ON SERIES C PREFERRED STOCK (123,750) (123,750)
EXERCISE OF STOCK OPTIONS 750 3 24,372 24,375
AMORTIZATION OF DISCOUNT ON 8% DEBENTURES 3,333,333 3,333,333
AMORTIZATION OF DISCOUNT (DIVIDEND)
ON SERIES C PREFERRED STOCK 2,357,188 (2,357,188) 0
ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES 385,800 385,800
--------- ------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 1996 355,735 1,423 40,594,023 (34,157,268) 6,442,045
NET LOSS (8,289,920) (8,289,920)
CONVERSION OF SERIES B PREFERRED
STOCK INTO COMMON STOCK 868 3 344 0
SERIES C PREFERRED STOCK CONVERSION 122,042 489 (481) 0
ISSUANCE OF SERIES D PREFERRED STOCK 5,100,000
ISSUANCE OF SERIES E PREFERRED STOCK 1,650,000
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES C PREFERRED STOCK 478,248 (478,248) 0
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES D PREFERRED STOCK 1,700,000 (1,700,000) 0
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES E PREFERRED STOCK 550,000 (550,000) 0
ISSUANCE OF WARRANTS TO SERIES D
PREFERRED STOCKHOLDERS 232,620 (232,620) 0
FINANCING COST FOR SERIES D PREFERRED STOCK (75,000) (75,000)
ISSUANCE OF WARRANTS TO SERIES E PREFERRED
STOCKHOLDERS 48,900 (48,900) 0
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS 1,669 6 147,492 (147,498) 0
ISSUANCE OF COMMON STOCK FOR SERVICES 1,250 5 96,870 96,875
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 18,161 73 762,890 762,963
--------- ------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 1997 499,725 1,999 44,535,906 (45,604,454) 5,686,963
NET LOSS (9,312,278) (9,312,278)
CUMULATIVE TRANSLATION ADJUSTMENT (21,353)
-------------
TOTAL COMPREHENSIVE LOSS (9,333,631)
CONVERSION OF 8% DEBENTURES INTO 43,851 175 866,915 867,090
COMMON STOCK
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS 8,739 34 140,451 (140,485) 0
CONVERSION OF SERIES D PREFERRED STOCK 98,897 396 1,409,604 0
FINANCING COST FOR SERIES D PREFERRED STOCK (317,490) (317,490)
CONVERSION OF SERIES E PREFERRED STOCK 20,741 83 139,917 0
ISSUE SHARES TO SERIES E PREFERRED
STOCKHOLDER 5,000 20 17,980 18,000
ISSUANCE OF SERIES F PREFERRED STOCK 2,860,000
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES F PREFERRED STOCK 950,000 (950,000) 0
ISSUANCE OF WARRANTS TO SERIES F
PREFERRED STOCKHOLDERS 67,500 (67,500) 0
ISSUANCE OF SERIES G PREFERRED STOCK 2,400,000
FINANCING COST FOR SERIES G PREFERRED STOCK (168,000) (168,000)
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES G PREFERRED STOCK 1,028,571 (1,028,571) 0
ISSUANCE OF WARRANTS TO SERIES G
PREFERRED STOCKHOLDERS 76,400 (76,400) 0
ISSUE SHARES TO SERIES G PREFERRED
STOCKHOLDER 62,500 260 224,750 225,000
ISSUANCE OF COMMON STOCK 103,333 414 499,586 500,000
ISSUANCE OF COMMON STOCK TO ACQUIRE
TRADEMARKS AND MINORITY INTEREST IN
VIDIKRON OF AMERICA, INC. 300,000 1,208 1,148,000 1,150,000
ISSUANCE OF COMMON STOCK FOR SERVICES 3,541 14 225,410 225,424
--------- ------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 1998 1,146,327 $ 4,585 $50,846,300 ($57,179,688) $4,103,356
--------- ------- ------------- ------------ -------------
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------
Full Year Ended December 31,
--------------------------------------------------------
1996 1997 1998
OPERATING ACTIVITIES
Net loss $ (10,880,893) $ (8,289,920) $ (9,312,278)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 3,959,300 647,661 682,040
Issuance of common stock for services - 96,875 225,424
Other noncash operating expenses - 115,690 243,000
Provision for allowances on advances (109,166) - -
Equity in loss of unconsolidated affiliate 72,065 - -
Gain recognized on the sale of investments - - (2,350,000)
Write off of fixed assets - - 2,781,934
Asset and liability management
Changes in accounts receivable (597,659) 15,255 (1,556,818)
Changes in inventory - (377,608) (2,760,076)
Changes in other operating assets - (1,857,604) 569,777
Changes in accounts payable - 1,897,914 1,131,053
Changes in other liabilities 1,441,770 - 459,821
----------------- ------------------ ------------------
Net cash used in operating activities (6,114,583) (7,751,737) (9,886,123)
----------------- ------------------ ------------------
INVESTING ACTIVITIES
Capital expenditures (4,322,105) (1,839,007) (727,330)
Payment for purchase of Vidikron, net of cash acquired - - (4,026,251)
Investment in and advances to unconsolidated affiliate - (150,000) -
Proceeds from sale of investments - - 2,500,000
Purchases and redemption of government securities (3,437,386) 3,437,386 -
----------------- ------------------ ------------------
Net cash (used in)/provided by investing activities (7,759,491) 1,448,379 (2,253,581)
----------------- ------------------ ------------------
FINANCING ACTIVITIES
Proceeds from notes payable 10,000,000 - -
Private placement costs (500,000) - -
Repayment of convertible debt (4,958,250) (100,000) -
Issuance of debt - - 7,823,376
Issuance of preferred stock 7,500,000 6,750,000 5,250,000
Issuance fees for preferred stock (500,000) (75,000) (485,490)
Issuance of common stock - - 500,000
Series C Preferred Stock Dividend (123,750) - -
Proceeds from stock options excercised 24,375 - -
----------------- ------------------ ------------------
Net cash provided by financing activities 11,442,375 6,575,000 13,087,886
----------------- ------------------ ------------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (2,431,699) 271,642 948,182
CASH AND CASH EQUIVALENTS-BEGINING OF PERIOD 3,491,982 1,060,283 1,331,925
----------------- ------------------ ------------------
CASH AND CASH EQUIVALENTS-END OF PERIOD $ 1,060,283 $ 1,331,925 $ 2,280,107
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 352,049 $ 1,834 $ 6,400
================= ================== ==================
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
F-5
VIDIKRON TECHNOLOGIES GROUP, INC.
SUPPLEMENTTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
- --------------------------------------------------------------------------------
In 1996, the Company issued 941 shares of its common stock with a value of
$154,393 as payment for the dividend on its Series B convertible preferred
stock. In addition, the Company issued 44,324 shares of its common stock and
paid $4,958,250 in cash in exchange for retiring $8.4 million of convertible
debt. Also, the Company issued 750 shares of its common stock in connection with
the exercise of stock options.
In 1997, the Company issued 1,669 shares of its common stock with a value of
$147,492 as payment for the dividend on its Series B convertible preferred
stock. In addition, the Company issued 122,042 shares of its common stock to
retire the entire issue of 7,500 shares of Series C convertible preferred stock.
The Company also issued 1,250 shares of its common stock for services rendered
by an officer and director of the Company. Finally, the Company issued 18,161
shares of common stock in connection with retiring $0.6 million of convertible
debt, leaving a face value on the debt of $ 900,000.
In 1998, the Company issued 8,739 shares of its common stock with a value of
$140,451 as payment for the dividend on its Series B convertible preferred
stock. The Company issued 98,897 shares of its common stock to retire 14,100
shares of Series D convertible preferred stock. The Company issued 20,741 shares
of its common stock to retire 140 shares of Series E convertible preferred stock
The Company issued 43,851 shares of common stock in connection with retiring
$760,000 of convertible debt, leaving a face value on the debt of $140,000.
3,750 warrants with a value of $ 67,500 were issued in connection with the
Series F Convertible Preferred Stock, and 6,250 warrants with a value of $
76,400 were issued in connection with the Series G convertible preferred stock.
5,000 shares were issued under the terms and conditions pertaining to the Series
F convertible preferred stock, and 62,500 shares were issued under the terms and
conditions pertaining to the Series G convertible preferred stock. 103,333
shares of common stock were sold for gross proceeds of $500,000. 3,541 shares of
common stock were issued for services. 258,333 shares were issued to acquire the
Vidikron trademark, and 41,667 shares were issued to acquire the minority
interest in Vidikron of America, Inc.
F-6
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Vidikron Technologies Group, Inc. (the "Company,"
formerly Projectavision, Inc.), a Delaware corporation, was
incorporated on September 9, 1988. The Company was originally formed to
complete the development of a unique proprietary solid state projection
television and related video display technology. With the Company
completing the acquisition of certain assets and assumption of certain
liabilities of Vidikron Industries, S.p.A. in December 1998, the
Company added a recognized name and now sells high-end home theater
projection televisions and accessories worldwide.
Use of 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 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.
Cash Equivalents - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
Inventories - Inventories are stated at the lower of cost or market.
Costs have been determined based on either the first-in, first out
(FIFO) or the average cost method.
Property and Equipment - Property and equipment is stated at cost and
depreciated on the straight-line basis over the estimated useful lives
of the respective assets. The estimated useful service lives of the
assets are as follows:
Furniture, fixtures and equipment 7 years
Tooling 5 years
Computers and software 5 years
Leasehold improvements lesser of 3 years or remaining term of lease
Goodwill and Trademarks - Goodwill is amortized over 15 years and
trademarks over their 10-year life.
Investments - The Company places its temporary cash with high credit
quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial institution.
Revenue Recognition - Revenues are recorded at the time of shipment of
products or performance of services. Revenue for the year ended
December 31, 1996 consisted of royalty income from licensing agreements
which is recognized when earned. Revenue for the years ended December
31, 1997 and 1998 consisted of product sales.
Net Loss Per Share - Net loss per share is computed based on the
weighted number of shares outstanding during the period after deducting
dividends on preferred stock. The effect of other potentially dilutive
securities is not included because their effect is anti-dilutive. The
fully diluted number of shares at December 31, 1996, 1997, and 1998 are
355,735, 499,726 and 1,146,327 respectively.
Income Taxes - Deferred income taxes are determined based on the
difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates, as well as any net operating or
capital loss, or tax credit carry forwards that are expected to reduce
taxes payable in future years.
Stock-Based Compensation - In October 1995, the FASB issued SFAS No.
123, "Accounting for Stock-Based Compensation," ("FASB 123")which
requires a fair value method for recognizing compensation cost as
measured at the grant date based on the fair value of the award which
is recognized over the service period. Pursuant to FASB 123, companies
are encouraged, but are not required, to adopt the fair value method of
accounting for employee stock-based transactions. The Company will
continue to account for such transactions under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," but
will disclose in a note to the financial statements pro forma net
income and per share amounts as if the Company had applied FASB 123.
Recent Accounting Pronouncements - During 1998, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income." This statement
establishes rules for the reporting of comprehensive income (loss) and
its components. The Company's comprehensive income (loss) consists of
results from operations and foreign currency translation adjustments
and is presented in the consolidated statement of changes in
stockholders' equity. Since this statement applies only to the
presentation of comprehensive income (loss), it does not have any
impact on the Company's financial position, results of operations, or
cash flows.
F-7
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." This standard requires
enterprises to report certain information about their operating
segments in a complete set of financial statements to stockholders; to
report certain enterprise-wide information about products and services,
activities in different geographic areas, and reliance on major
customers and to disclose certain segment information in their interim
financial statements. The basis for determining an enterprise's
operating segments is the manner in which financial information is used
internally by the enterprise's chief operating decision-maker. Although
the Company sells a variety of products, it is one business segment.
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal
periods beginning after June 15, 1999. The Company is currently
evaluating the impact of this statement.
Operations - The Company has incurred operating losses since its
formation in 1988, and has incurred net losses of $10,880,893,
$8,189,920, and $ 9,312,278 in 1996, 1997, and 1998, respectively. In
addition, at December 31, 1998, the Company had a working capital
deficiency of approximately $ 5 million. Management believes the
Company will be able to raise additional financing and generate
sufficient cash flow from its operations in 1999 to satisfy obligations
as they come due. The Company's cash expenditures will, in management's
opinion, be substantially lower in 1999 than in 1998 due to reductions
in the Company's cost structure and removal of costs that would have
otherwise been duplicated by the former Projectavision and Vidikron.
The Company is in discussions with bankers to obtain a new line of
credit and anticipates obtaining additional equity contributions from
its preferred stockholders.
The Company had outstanding as of December 31, 1998 a loan of
$1,247,400 bearing interest of 10.45%, which was scheduled to mature on
June 30, 1999. This loan was assumed by the Company in connection with
the Vidikron Acquisition. On December 28, 1998 the lender sent notice
of their intention to accelerate the loan due to the breach of a change
in control covenant. The Company is in negotiations with the lender and
is seeking to substitute a new facility to pay down this obligation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998, the fair values of cash, cash equivalents,
accounts receivable, investments, and accounts payable and accrued
liabilities approximated their carrying values because of the
short-term nature of these accounts. Convertible debt has a carrying
value of $140,000 and a fair value of $175,000.
3. ACCOUNTS RECEIVABLE
At December 31, 1997 and 1998 the allowance for bad debt was $11,540
and $212,040, respectively.
4. INVENTORY
At December 31, 1997, and 1998 inventories are summarized as follows:
Parts ............................. $ 797,297 $1,684,868
Work in Process ................... 678,882 991,235
Finished Goods .................... 381,425 1,941,577
---------- ----------
Total .................... $1,857,604 $4,617,680
5. UNCONSOLIDATED AFFILIATE/INVESTMENT
In 1993, the Company entered into an agreement with Tamarack Storage
Devices, Inc. ("Tamarack") under which the Company invested $3,000,000
in the aggregate in Tamarack and had accounted for this investment
under the equity method. The goodwill recorded with this investment,
which represented the excess of the Company's investment over the
underlying net assets of Tamarack, was $1,883,995. The Company issued
800 shares of common stock (valued at $109,120) for advisory services
received in connection with the acquisition. In 1994, the Company
loaned Tamarack $1,500,000 with interest payable at 6%.
In 1995, Tamarack received a commitment from the Company to fund its
cash needs through December 31, 1995 to continue its operations as then
constituted. Pursuant to this commitment, $94,240 was advanced to
Tamarack. The Company recorded a reserve against its investment in
Tamarack of $300,000 in 1994, and, at December 31, 1995, the Company
reduced its investment in and advances to Tamarack to zero recording an
additional reserve of $2,129,252 due to Tamarack's inability, to date,
to commercialize its holographic storage technology and its current
lack of prospects. In addition, in 1996 the Company classified its
investment in Tamarack as available for sale, and, in order to maximize
the recovery of its investment, loaned Tamarack an additional $ 100,000
in 1996 and was to have been repaid following receipt of funds from a
government agency. This loan was also fully reserved in 1997. After
eliminating the intercompany accounts and reflecting previous
write-offs, Tamarack's financial statements were not material to the
Company and were not consolidated prior to 1998.
In January 1998, Tamarack was acquired by Manhattan Scientific, Inc.
("MSI") (formerly Grand Enterprises, Ltd.) a NASDAQ bulletin-board
traded company. All of the shares of Tamarack (97% of which were
represented by the Company's holdings in Tamarack at the time of the
closing) were exchanged for 44 million shares of MSI. Simultaneously
therewith, an additional 5 million shares were sold to the public,
resulting in aggregate gross proceeds of $1 million. Further, in
connection with the transaction, the Company's $1,500,000 loan plus
accrued interest thereon was exchanged for 182,525 shares of
convertible preferred stock of MSI. Each share of convertible preferred
stock is convertible into 50 shares of MSI common stock. The Company
also received a warrant to purchase 750,000 shares of MSI common stock
at an exercise price of $0.20 per share. The Company's chief executive
officer and the chairman of its board of directors serve on the board
of directors of MSI.
F-8
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. UNCONSOLIDATED AFFILIATE/INVESTMENT (continued)
In July 1998, the Company sold its common shares in MSI to an
institutional investor for $2 million in net proceeds. The Company used
the proceeds from the sale of its MSI shares as working capital for
general operations, with the gain recognized in the third quarter of
1998. The Company also converted its preferred stock into approximately
9 million MSI common shares. The result of these transactions was to
reduce the Company's ownership position in MSI to approximately 12%
and, accordingly, at September 30, 1998, MSI was accounted for under
the cost method. In October 1998, the Company sold its remaining
ownership position in MSI to one of the owners of the Company's
preferred stock for $500,000 and recognized a gain. On December 7, 1999
the Company reacquired its ownership position of approximately 9
million MSI common shares as part of the financing obtained from the
owners of the Company's preferred stock for the acquisition of the
video business from Vidikron Industries, S.p.A.
6. COMMON STOCK
In 1997 and 1998 the Company issued 1,250 shares and 3,541 shares of
common stock respectively for legal, financial, and design services.
These shares were accounted for as an expense equal to the fair market
value of the stock, with a corresponding increase to capital stock and
additional paid in capital.
In April 1997 the Company's stockholders approved a resolution
increasing the number of shares authorized from 750,000 to 1,250,000.
In February 1999 the stockholders of the Company approved a
forty-for-one reverse split, the effect of which has been retroactively
stated.
7. PREFERRED STOCK
The Series B Convertible Preferred Stock provides for cumulative annual
stock dividends payable in common shares of 8 percent of the
liquidation value of $5 per share (for a total of $1,756,290) to be
paid semiannually and is convertible to one share of common stock,
subject to adjustment. In 1997, 34,724 shares of Series B Convertible
Preferred Stock were converted into common stock. This stock may be
redeemed by the Company if certain conditions are met for $1.00 per
share.
In 1996, the Company issued 7,500 shares of Series C Preferred Stock
for $7,500,000, resulting in net proceeds to the Company of $7,000,000
after fees. The Series C Preferred Stock converts into shares of Common
Stock at a 25% discount of the average closing bid price of the Common
Stock for the five (5) trading days immediately preceding the date of
conversion. The holder of the Series C Preferred Stock has the right to
convert into Common Stock as follows: 25% can be converted on or after
November 1, 1996; 25% may be converted on or after January 1, 1997; 25%
may be converted on or after March 1, 1997; and 25% may be converted on
or after May 1, 1997. The Company, in accordance with the terms and
conditions of the sale of the Series C Preferred Stock, registered the
shares of Common Stock into which the Series C Preferred Stock is
convertible in the third quarter of 1996. The Series C Preferred Stock
pays dividends semi-annually, seven (7) business days after each of
December 31st and June 30th of each year, which may be in cash or
shares of Common Stock at the election of the Company. The dividend
rate is 3% per annum of the liquidation value of $1,000.00 per share
until and through June 30, 1997; 6% per annum from July 1, 1997 through
June 30, 1998; and 8% per annum from July 1, 1998 and thereafter. The
Company recognized a dividend on the Series C Preferred Stock based on
the annualized pro-rata amount of the 25% discount on the conversion
into common stock and on the increase in the dividend rate. During
1997, the Series C Preferred Stock was converted into 122,042 shares of
Common Stock, which resulted in retiring the issue.
Original
Year Ended December 31, 1998 Total to Vest
------------------------------ -------------
Dividend accretion on Series C Preferred Stock $ -- $ 492,650
Amortization of Warrants on Series C Preferred Stock -- 290,000
Amortization of Discount on Series C Preferred Stock -- 2,500,000
F-9
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. PREFERRED STOCK (Continued)
In January 1997, the Company issued an aggregate of 35,000 shares of 6%
Series D convertible preferred stock to two foreign institutional
investors for an aggregate purchase price of $3,500,000, resulting in
net proceeds to the Company of $3,500,000. In October, 1997, these
35,000 Series D shares were sold to two other foreign institutional
investors. In December 1997, the Company issued an additional 16,000
shares of 6% Series D convertible preferred stock to the same
institutional investors for a purchase price of $1,600,000, resulting
in net proceeds to the Company of $1,525,000 after fees. Each share of
Series D Preferred Stock is convertible, at the option of the holder,
into shares of the Company's Common Stock at any time. The Series D
Preferred Stock is convertible into Common Stock at a 25% discount to
the then current market price of the Company's Common Stock at the time
of conversion. After giving effect to the conversion of an aggregate of
$1,410,000 of Series D Preferred Stock in 1998, there currently remains
$3,690,000 in Series D Preferred Stock outstanding.
Year Ended December 31, 1998 Total to Vest
---------------------------- -------------
Amortization of Warrants on Series D Preferred Stock $ -- $ 232,620
Amortization of Discount on Series D Preferred Stock -- 1,700,000
In July 1997, the Company issued 1,000 shares of 8% Series E
convertible preferred stock to one foreign institutional investor for a
purchase price of $1,000,000, resulting in net proceeds to the Company
of $1,000,000. In December 1997, the Company issued an additional 650
shares of 8% Series E convertible preferred stock to the same foreign
institutional investor for a purchase price of $650,000, resulting in
net proceeds to the Company of $650,000. Each share of Series E
Preferred Stock is convertible, at the option of the holder, into
shares of the Company's Common Stock at any time. The Series E
Preferred Stock is convertible into Common Stock at a 25% discount to
the then current market price of the Company's Common Stock at the time
of conversion. After giving effect to the conversion of an aggregate of
$140,000 of Series E Preferred Stock in 1998, there currently remains
$1,510,000 in Series E Preferred Stock outstanding.
Year Ended December 31, 1998 Total to Vest
---------------------------- -------------
Amortization of Warrants on Series E Preferred Stock $ -- $ 48,900
Amortization of Discount on Series E Preferred Stock -- 550,000
In February 1998, the Company issued 2,850 shares of 8% Series F
convertible preferred stock to one institutional investor for a
purchase price of $ 2,850,000, [Doesn't tie to cap. Table] resulting in
net proceeds to the Company of $ 2,532,510 after fees. The preferred
stock is convertible into the Company's Common Stock at $40.00 per
share in five equal installments every thirty days starting in August
1998. The Series F Preferred Stock is convertible into Common Stock at
a 25% discount to the then current market price of the Company's Common
Stock at the time of conversion. The Company had the right to
repurchase the preferred shares at a 12.5% premium over the issue price
within 90 days and at a 25% premium after 90 but before 180 days from
the issue date.
Year Ended December 31, 1998 Total to Vest
---------------------------- -------------
Amortization of Warrants on Series F Preferred Stock $ 67,500 $ 67,500
Amortization of Discount on Series F Preferred Stock 950,000 950,000
In May of 1998, the Company issued 2,000 shares of 8% Series G
convertible preferred stock to one foreign institutional investor for a
purchase price of $2,000,000, resulting in net proceeds to the Company
of $1,860,000 after fees. In June 1998 the Company completed another
private placement of preferred stock to a second foreign institutional
investor for gross proceeds of $400,000, [Doesn't tie to cap. Table]
resulting in net proceeds of $376,000. The Series G Preferred Stock is
convertible into Common Stock at a 30% discount to the then current
market price of the Company's Common Stock at the time of conversion.
Year Ended December 31, 1998 Total to Vest
---------------------------- -------------
Amortization of Warrants on Series G Preferred Stock $ 76,400 $ 76,400
Amortization of Discount on Series G Preferred Stock 1,028,571 1,028,571
8. CONVERTIBLE DEBT
In February 1996, the Company completed an offshore private placement
of $10,000,000 of convertible debt resulting in net proceeds to the
Company of $9,500,000. The convertible debt bears interest at the rate
of 8% per annum and pays interest quarterly in arrears on any unpaid or
unconverted debt. To the extent not previously converted, the
convertible debt is due in January 1999, and may be repaid in cash or
common stock of the Company at the sole option of the Company. All
conversions of convertible debt into common stock are based upon a 25%
discount of the price of the Company's common stock for five
consecutive trading days immediately prior to the date of conversion.
The Company recognized as interest expense the 25% discount on the
conversion into common stock equal to $3,333,333 in 1996. In 1996 the
Company issued 44,324 shares of its common stock and paid $4,958,250 in
cash in exchange for retiring $8,400,000 in convertible debt. In
January 1997, the Company retired $100,000 of convertible debt for
cash. During 1997, the Company issued an additional 11,901 shares of
its common stock in exchange for retiring $600,000 of convertible debt.
In January 1998, the Company issued 43,851 shares of its common stock
in exchange for retiring $760,000 of convertible debt.
F-10
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. ACQUISITION OF VIDIKRON ASSETS
On December 7, 1998 the Company acquired substantially all of the
assets of Vidikron Industries, S.p.A. ("Vidikron") relating to its
video business, including all of its stock in its U.S. distribution
subsidiary, Vidikron of America, Inc. for $ 9.4 million. The
transaction was completed through a combination of $4.7 million in
cash, $1.0 million in notes from the seller, the issuance of $1 .2
million of common stock of the Company, and the assumption of $2.5
million in liabilities from the seller. The acquisition was accounted
for as a purchase, with goodwill equal to $6 million. Approximately
$600,000 of the purchase price was allocated to trademarks acquired.
Had the acquisition been completed on January 1, 1997, the following
proforma unaudited information would have resulted, as follows:
1997 1998
----------------- --------------------
Sales $ 17,520,756 $ 18,308,337
Net loss attributable to common stockholders (11,335,870) (12,386,273)
Loss per share (25.23) (18.52)
10. WRITE-OFF OF TOOLING
In 1998 certain tooling for the Digital Home Theater product consisting
of steel injection molds and the associated design costs with a net
book value of $2.9 million was written off, due to the lack of
availability of key components required for the future manufacture of
the Digital Home Theater projector. In addition, $785,000 in advances
made to a third-party manufacturer for deposits against inventory
procured for the production of the Digital Home Theater projector were
also written off.
11. STOCK OPTION PLANS
Non-qualified Option Plan - The Company has reserved 125,000 shares of
common stock for issuance upon exercise of options under a
non-qualified stock option plan adopted in February 1990 and amended in
June 1990, July 1990, and November 1993. All options granted under this
plan have been granted at fair market value at the date of grant.
The following is a summary of non-qualified option plan activity for
the three years ended December 31, 1998:
1996 1997 1998
---- ---- ----
Outstanding at January 1 55,271 105,222 107,572
-------- -------- --------
Granted 67,063 55,800 21,875
Expired -- -- --
Canceled (16,503) (53,450) (25,000)
Exercised (609) -- --
-------- -------- --------
Outstanding at December 31 105,222 107,572 104,447
======== ======== ========
Available for grant at December 31 19,778 17,428 20,553
======== ======== --------
Weighted average option exercise price information for the years 1996,
1997, and 1998 follows:
1996 1997 1998
---- ---- ----
Outstanding at January 1 $ 142.40 $162.40 $ 130.00
Granted 173.60 117.60 2.40
Expired -- -- --
Canceled 142.40 180.80 120.00
Exercised 32.40 -- --
Outstanding at December 31 162.40 130.00 105.65
Exercisable at December 31 158.00 131.60 123.90
F-11
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. STOCK OPTION PLANS (Continued)
Significant option groups outstanding at December 31, 1998 and related
weighted average price and life information follows:
Exercise Price Number of Weighted Average Weighted Average Number of
Range Options Price Remaining Life (Years) Exercised
-------------- --------- ---------------- -------------------------- ----------
$ 1.99-$2.99 21,875 $ 2.40 5 none
$ 40.00-$119.99 2,100 $ 47.52 3 none
$ 120.00-$159.99 59,400 $ 123.72 5 none
$ 160.00-$199.99 2,625 $ 167.84 3 none
$ 200.00-$319.99 18,447 $ 215.00 1 none
The weighted fair value at date of grant for options granted in 1997
and 1998 was $ 71.20 and $ 2.40 per option respectively. The fair value
of options at date of grant was estimated based on the opinion of such
fair value attributed by recipients of two of the grants with the
following weighted average assumptions:
1996 1997 1998
---- ---- ----
Expected life (Years) 5 5 5
Interest Rate 6.25% 6.10% 6.25%
Volatility 89% 72% 89%
Dividend Yield 0% 0% 0%
Stock-based compensation costs did not impact pretax income or earnings
per share in 1997 and 1998. These costs would have been increased by $
0.1 million, or ($0.22) per share, in 1997 and $ 52,500 or ($0.08) per
share in 1998 had the fair values of the options been recognized as
compensation expense on a straight line basis over the vesting period
of the grant.
Incentive Option Plan - In February 1990, the 1988 Incentive Stock
Option and Appreciation Plan was terminated and a new plan, as amended
in June 1990, July 1990, and November 1993 was adopted under which
options to purchase 25,000 shares of common stock have been reserved.
The incentive option plan provides for the granting of incentive stock
options (ISOS) at an exercise price not less than the fair market value
of the common stock on the date the option is granted. ISOS may not be
granted to an individual to the extent that, in the calendar year in
which such ISOS first become exercisable, the shares subject to such
ISOS have a fair market value on the date of grant in excess of
$100,000. No option may be granted after February 20, 2000, and no
option may be outstanding for more than ten years after its grant. As
of December 31, 1998, no options have been granted under the Plan. On
February 19, 1999, the stockholders of the Company approved an ISOS, in
most material respects, substantially similar if not identical to the
1990 ISOS to replace the 1990 ISOS which was due to expire in February
2000.
12. INCOME TAXES
As of December 31, 1997 and 1998, the composition of the Company's net
deferred taxes was as follows:
1997 1998
------------ ------------
Deferred tax assets $ 13,100,000 $ 16,000,000
Less valuation allowance (13,100,000) (16,000,000)
----------- ------------
Net $ -- $ --
============ ============
Deferred tax assets principally result from the availability of net
operating and capital loss carry-forwards to offset income earned in
future years. The offsetting valuation allowance reduces total deferred
tax assets to an amount management believes will not likely be
realized.
At December 31, 1998, the Company had tax net operating and capital
loss carry-forwards of approximately $39,800,000, which expire in the
years 2003 through 2010. The utilization of tax net operating and
capital losses may be subject to certain limitations.
13. COMMITMENTS AND CONTINGENCIES
Aggregated minimum compensation under employment agreements with
certain officers and directors will be $895,000 in 1999. Compensation
expense relating to these agreements was approximately $577,450,
$710,200, and $535,000 respectively in 1996, 1997, and 1998.
F-12
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENCIES (Continued)
The future minimum rental commitments as of December 31, 1998 are as
follows:
Year Amount
---- ------
1999 $222,166
2000 160,530
2001 98,894
2002 98,894
2003 98,894
2004 98,894
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$209,695, $257,554 and $293,833, respectively.
In June 1995 and August 1995, two class action lawsuits were filed
against the Company as well as certain of its officers and directors by
stockholders of the Company. In October 1995 the plaintiffs in the
second action joined as plaintiffs in the first action, and the second
action was dismissed without prejudice. In July 1996, the class action
suit was dismissed without prejudice, and the plaintiffs were given an
opportunity to replead. Upon repleading, the class action suit alleged
numerous violations of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including, but not limited to, violations of
Section 10(b) of the Exchange Act. The suit also alleged claims for
negligent misrepresentation and for common law fraud and deceit. In
response, the Company and the individual defendants submitted motions
to dismiss the action. In July 1997 these motions were granted, and the
class action suit was dismissed with prejudice by the U.S. District
Court in New York. In July 1998, the case was settled with the
individual plaintiffs at no cost to the Company.
In April 1995 a legal action was brought against the Company, certain
members of the Board of Directors, and an employee of the Company by
Eugene Dolgoff, a founder and former officer of the Company. The
complaint alleged, among other actions, breach of employment and patent
assignment agreements. Mr. Dolgoff sought damages, punitive damages,
and equitable relief totaling in excess of $ 100 million. In April
1998, the lawsuit was settled for $ 500,000, of which $250,000 was paid
and $250,000 was accrued, and all of Mr. Dolgoff's claims and those of
the Company against him were dismissed.
In December, 1998, a stockholder of the Company initiated an action in
Supreme Court, State of New York, alleging common law fraud, negligence
and breach of fiduciary duty claims against the Company and its
Directors. In February, 1999 the Company and the Defendant Directors
moved to dismiss this action based upon undisputed documentary evidence
and based upon an assertion that the Complaint failed to state a cause
of action. The Plaintiffs' responsive papers are due in April, 1999 and
reply papers are due to be submitted by the Company and the Defendant
Directors in May, 1999. Based upon discussions with counsel, the
Company's management believes that the motion to dismiss is
well-founded. In the event, however, that the motion were not granted,
the Company's management believes that it has meritorious defenses and
intends to vigorously defend against these claims. The Company's
management believes that the outcome of this litigation will not have a
material adverse effect on its financial position or results of
operations.
The Company has entered into employment agreements with three of its
officers and directors and a consulting agreement with one of its
officers and directors. For 1996, 1997, and 1998 salary expense
relating to these agreements was approximately $577,450, $710,200, and
$535,000 respectively. One of the employment agreements with an officer
and director was terminated on March 16, 1999 and the consultant
resigned as an officer on February 19,1999, and as a director effective
March 20, 1999.
14. RELATED PARTIES
The Company leases space from Mssrs. Baj Macario and Peralda, two of
the Company's officers and directors, and purchases certain components
used in the manufacture of certain projectors and certain manufactured
projectors from Novavision, S.p.A., a company owned by Mssrs. Baj
Macario and Peralda. For the year ended December 31, 1998, the lease
expense was $ 6,181. The lease was negotiated at the time, and as part,
of the Vidikron Acquisition and the transfer price for manufactured
goods is subject to competitive bids. Mssrs. Baj Macario and Peralda
also hold a power of attorney from Grangeover, an Isle of Mann entity,
to vote the Company's common stock owned by Grangeover.
In January of 1998 the Company merged its majority owned subsidiary,
Tamarack Storage Devices Inc., into a bulletin board shell company,
changed the name of the merged entity to Manhattan Scientifics, Inc.
("MSI") and simultaneously therewith effected an offering of $1,000,000
of common stock of MSI in a Rule 504 offering. On the consummation of
this transaction, after giving effect to the merger and the Rule 504
offering, the Company owned approximately 77% of the issued and
outstanding common shares of MSI. On or about the same time MSI issued
7,500,000 options each to Messrs. Maslow and Holleran to acquire MSI
common stock at an exercise price of $0.20 per share.
F-13
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. RELATED PARTIES (Continued)
Marvin Maslow is an officer and director of MSI and Mr. Holleran is a
director of MSI. In July 1998, as part of the Company's sale of
approximately 43.1 million shares of MSI common stock to an
institutional investor, the institutional investor required that it
receive 10,000,000 of the 15,000,000 options owned by these two
officers and directors and that the exercise price be reduced to $0.05
per share. Each of the two officers and directors surrendered options
for 5,000,000 shares of MSI common stock and each had the exercise
price of their remaining warrants for 2,500,000 shares of MSI common
stock similarly reduced to $0.05 per share. In 1998, Mr. Maslow
received $ 25,000 in compensation from MSI. On February 12, 1999 Mr.
Holleran resigned as a director of MSI.
15. BUSINESS CONCENTRATION
In 1998, no single customer accounted for more than 5% of revenues.
The Company is dependent upon certain vendors for the manufacture of
significant components. If these vendors become unwilling or unable to
manufacture these products in the required volumes, the Company would
have to identify and qualify acceptable alternative vendors. The
inability to develop alternate sources, if required in the future,
could result in delays or reductions in product shipments.
16. NOTES PAYABLE AND BANK DEBT
The Company obtained the cash used for the Vidikron acquisition through
the issuance of $6.0 million in Notes for cash to the existing owners
of the Company's Preferred Stock and Convertible Debt. These Notes were
converted into Series I Convertible Preferred Stock in March 1999.
Additionally, $1.0 million in Notes were issued to the sellers of the
Vidikron assets acquired. These Notes are due in December 1999, carry
no interest for the first six months, and carry an interest rate of 15%
annually thereafter until the due date. Finally, the Company has a Note
with Texas Instruments with an outstanding balance of approximately
$625,000 as of December 31, 1998 payable in five equal installments
through May 1999 at an interest rate of 8% annually.
The Company had outstanding as of December 31, 1998 a loan of
$1,247,400 bearing interest of 10.45%, which was scheduled to mature on
June 30, 1999. This loan was assumed by the Company in connection with
the Vidikron Acquisition. On December 28, 1998 the lender sent notice
of their intention to accelerate the loan due to the breach of a change
in control covenant. The Company is in negotiations with the lender and
is seeking to substitute a new facility to pay down this obligation.
17. SUBSEQUENT EVENT
On February 19,1999 $6.0 million in Notes were converted into a new
series of Preferred Stock in the Company and the stockholders of the
Company approved a forty-for-one reverse split, which has been
retroactively stated.
F-14
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
DESCRIPTION BALANCE AT CHARGED TO CHARGED BALANCE AT
DEGINNING COSTS AND TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
Allowances deducted in the balance
sheet from the assets to which
they apply:
Allowance for bad debt
1998 $ 11,540 113,952 $ 86,548(A) $ 212,040
1997 -- 11,540 11,540
1996 -- --
(A) Opening balance of acquired account receivable.