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USA Video needs cash to stay afloat
By Robert A. Hamilton - More Articles
Published on 8/15/2001
Mystic — USA Video Interactive has “essentially no sales” for the three-month period ending June 30, and it was quickly running out of cash despite a $1.3 million infusion earlier this year, according to its quarterly report filed with the U.S. Securities and Exchange Commission.
“The company requires substantial additional financing to maintain operations at current levels beyond the second quarter,” the company warned in its filing. “If adequate funds are not available or are not available on acceptable terms, the company may be unable to further develop or enhance its products and services ... or ultimately, to continue in business.”
“Definitely, finances are tight,” USA Video Executive Vice President Anthony J. Castagno said Tuesday. But he said the company is ready to roll out its newest Internet-based product, Stream HQ, “within the next two weeks,” and a private sale of 5 million shares of stock recently has raised $1.25 million.
Castagno said the company realizes that issuing millions of shares of new stock is likely to dilute the value of the outstanding shares, and drive the price even lower for now, but it was seen as the only way to raise working capital.
“We'd prefer not to do this, obviously, but after looking at the various options, this is probably the best thing to do,” Castagno said. “We need to raise this money so we can get Stream HQ up and running and start generating revenues.”
Castagno said the company is not considering a “reverse stock split” — issuing one share of stock for each 10 shares an investor owns now, for instance — as a way to prop up the stock price.
“We don't rule out anything, but that is definitely not in our plan right now,” Castagno said. A reverse stock split typically has a negative impact on a stock's value.
The company estimates that it must raise $3 million to $3.5 million to get through this year, and as much as $6 million for next year, which is going to be difficult given what has happened to the company's stock — it once traded for more than $8 per share, but closed Tuesday at 36 cents.
To raise the money it would need this year at that price would mean issuing almost 10 million shares of new stock, which would dilute the value of the remaining shares and likely cause the price to fall even farther.
The company also has been struggling to meet its own deadlines for rolling out new products. Last month it was supposed to debut its new Zmail e-mail product with the Seattle Seahawks, but so far the Seahawks have not begun using it. Its Stream HQ software suite is also behind schedules originally provided to investors.
Stream HQ is a system of hardware and software that will provide a suite of Internet-based services, including video streaming and data collection and analysis. Castagno said shipments of the product will begin before the end of the month, and it will take another week or two to get it up and running on an Internet Data Center.
Originally the company planned to use Exodus Communications as the Internet host for Stream HQ, but Exodus is having its own financial problems and Castagno said the company has not ruled out using another company.
Among the highlights from the more recent quarterly report:
Cash on hand dropped to $109,460 as of the end of the quarter on June 30. It had been at $231,197 at the end of 2000, and the company raised $1,333,260 issuing stock earlier this year, and another $60,859 from people who bought stock as a result of warrants, so it took about $1.5 million to keep the company going during the first half of the year.
Sales revenues dropped to nothing, from $75,000 in the second quarter of 2000 and from just over $1,000 in the first quarter. It still reported a “cost of sales,” however, of $19,843, down from $50,641 during the same period last year.
Product marketing expenses dropped from $333,630 during the second quarter of 2000 to $314,092 during the same period this year, though the company cautions that it expects marketing costs to increase “significantly” in the remainder of the year as it launches new products.
Losses widened from $890,615 during the second quarter last year to $919,808 during the same period this year. So far in 2001, losses have totaled $2.2 million. |
