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.
Liquidity and Capital Resources
As of June 30, 1998, the Company had working capital of $1,366,047. To
date, the Company has funded its operations primarily from sales of capital
stock. In February 1998, the Company completed a private placement of preferred
stock for gross proceeds of $2.85 million resulting in net proceeds of $2.53
million. In April 1998 the Company completed a private placement of common stock
of $ 0.5 million. In May 1998 the Company completed a private placement of
preferred stock for gross proceeds of $ 2.0 million, resulting in net proceeds
of $1.86 million. In June 1998 the Company completed another private placement
of preferred stock for gross proceeds of $0.4 million, resulting in net proceeds
of $ 376,000. These sales of capital stock along with existing cash balances
primarily funded the net cash used in operating activities of $4.2 million and
the $ 1.8 million advance to Vidikron made pursuant to the definitive
acquisition agreement As of June 30, 1998, the Company had cash and cash
equivalents of $ 566,475. In the opinion of management, the Company has
sufficient funds or will be able to raise sufficient funds based on history to
fund future operations.
As of December 31, 1997, the Company had working capital of $1,016,223.
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,
1997, the Company had cash and cash equivalents of $1,331,925.
As of December 31, 1997, the Company had available for Federal income
tax purposes net operating and capital loss carryforwards of approximately
$29,500,000. The Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), may impose certain restrictions on the amount of net operating
loss carryforwards which may be used in any year by the Company.
Results of Operations
January 1, 1998 to June 30, 1998
The Company had revenues of $ 579,300 for the six month period ended
June 30, 1998, all of which was from the sale of the Digital Home Theater and
accessories. Cost of goods sold of $ 508,267 resulted in gross profit of
$71,033, which was adversely affected by the initial cost of the Texas
Instruments light engine, the principle component of the Digital Home Theater.
During this period, the Company completed development and began the initial
production run of a second-generation product, the Series II Digital Home
Theatre.
During this period, the Company incurred cash expenses of $ 3,610,581.
With respect to the amount spent in the first six months of 1998 versus the
amounts in the comparable period in 1997, the increase in general and
administrative expense is due to increased participation in trade shows, higher
salaries reflects the addition of marketing personnel, higher legal fees are
related to the costs of settling the litigation with a former officer, and
higher R&D is associated with development of the Series II product. The Company
also incurred non-cash expenses of $ 756,095 during the period a) for
depreciation, which was higher than in the first six months of 1997 due to a
full six months of depreciation of the tooling for the Digital Home Theater in
1998, b) for the expensing of inventory not usable in the Series II product, and
c) for the issuance of stock principally for legal services. The Company also
recorded $ 1,808,490 in dividends on the Series B, Series F , and Series G
Convertible Preferred Stock in connection with recognizing the dividends on the
Series B, the discount on the Series F and Series G conversion feature, and the
warrants issued in connection with the Series F and Series G Preferred Stock.
January 1, 1997 to June 30, 1997
The Company had revenues of $ 50,400 for the six month period ended
June 30, 1997 which was from the sale of the Digital Home Theater. Cost of goods
sold of $ 50,407 resulted in negative gross profits of $ 7, which was adversely
affected by the initial cost of the Texas Instruments light engine. During this
period, the Company incurred cash expenses of $3,486,724. The Company incurred
non-cash expenses of $ 425,663 during the period for depreciation The Company
also recorded $1,684,401 in dividends on the Series C and D Convertible
Preferred Stock in connection with recognizing the discount on the conversion
feature, for warrants issued in connection with the issuance of Series D
Convertible Preferred Stock, and for Series B Preferred Stock Dividends.
F-11
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 12th day of August, 1998.
PROJECTAVISION, INC.
By: /s/ Martin Holleran
--------------------------------
Martin Holleran, President
Chief Executive Officer and Director
By: /s/ Jules Zimmerman
--------------------------------
Jules Zimmerman
Secretary, Chief Financial Officer,
and Director
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