<PAGE>
_________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the calendar year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission File No.: 0-10449
TVI Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-1085536
(State or other (I.R.S. Employer
jurisdiction or incorporation) Identification No.)
7100 Holladay Tyler Road, Glenn Dale, MD 20769
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301)352-8800
__________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
Title of Class
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of regulation S-B is not contained in this form, and no disclosure will
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-KSB or any amendment to this Form 10-KSB. [X]
Revenues for the issuer's most recent fiscal year ended December 31,
1997 are $1,762,374.
As of December 31, 1997 there were 22,218,881 shares of Common Stock
issued and outstanding and the aggregate market value of the issued and
outstanding Common Stock held by non-affiliates was approximately $611,019.
_________________________________________________________________
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Organization. TVI Corporation (the Company) was incorporated as a
for- profit corporation under laws of Maryland on January 28, 1977. It has
since operated continuously under the charter granted by Maryland. The
Company was formed primarily for the exploitation of a patent portfolio
acquired from one of the founders. The two principal patents of the
portfolio covered an "electrically conductive coating" and a "light-weight
cellular concrete".
Bankruptcy. The Company voluntarily filed a Bankruptcy Petition under
the provisions of Chapter 11 of the U. S. Bankruptcy Code on March 21,
1991. Its Plan of Reorganization was confirmed by the Court on April 15,
1993, and was essentially implemented by June 30, 1993. The Company
remained in bankruptcy until it filed Final Reports and Certification
during 1996. It was discharged from bankruptcy by the Court on October 3,
1996.
Significant Asset Changes. During 1997 there were no material
reclassifications or consolidations, and no significant purchase or sale of
assets.
(b) Business of Issuer
The Company's business has historically been a supplier of thermal products
to the Department of Defense and to military agencies of other countries.
The two principal products have been thermal targets and tank decoys.
Because of the substantial down-sizing begun for the Department of Defense,
the market for the Company's products has been drastically reduced, and its
business has suffered accordingly. Further, there has been a concomitant
reduction in foreign military aid and a military downsizing in other
countries which has eliminated the Company's foreign market. To replace
this lost market the company began the development and sale of a light
weight, rugged, and rapidly deployable soft shelter (tent) for military use
which used a collapsible frame based upon the design used for its tank
decoy frame. In late 1995 and 1996 it began the development and sale of
commercial versions of its shelters in an effort to broaden its market and
increase revenue.
Principal Products. The Company's principal product lines in 1997
were disposable thermal military targets and military soft shelters. The
targets consisted mainly of targets simulating the thermal signature of
military tanks and related military assets. The shelters consisted mainly
of one piece shelters with 150 to 400 square feet of floor space used for
forward tactical applications such as communications and aid stations. The
principal commercial product was a small rapid deploy shelter used
primarily by emergency services agencies such as HazMat teams and fire
departments.
Distribution Methods. The Company distributes its products directly
for domestic sales. Marketing is done by in-house employees, largely by
written offers in response to Government announced purchases. The Company
employs in-country agents for international sales on a limited basis. The
company has also supported its commercial marketing activities with
in-house employees and direct shipments. The company has explored a variety
of distribution options for its commercial shelter products, but has made
no agreements or arrangements. It is likely that more than one
distribution method will be necessary to address the various market
segments the company has targeted.
New Products. The Company continued development of its line of
commercial shelters announced in 1996. These shelters employ a less
rugged version of the quick-erect frame used for military shelters, and use
commercial grade fabric for cladding. Varying sizes and styles are
developed for different commercial applications.
Competitive Conditions.
(1) Targets. The Company competes with two or three other small
companies in the thermal target market, one of which obtained a significant
target order in 1997. The Company believes that its targets are
technically superior to the competing products, and are favored by the
military tank gunnery ranges. However, because of procurement regulations,
the company must compete on price as well as technical considerations. It
has implemented a marketing initiative aimed at regaining market share.
(2) Shelters. The Company competes with one small company which makes
a shelter functionally similar to the TVI shelter. This company obtained a
significant shelter order in 1997 for which the Company had expended
significant marketing effort. There are also a large number of companies
which make both military, commercial, and recreational shelters, and most
of these companies are larger and have greater resources than TVI. Because
of procurement regulations, practically all shelter sales to military
agencies are competitive , and the company typically competes with several
other bidders.
Raw Materials. The Company uses only commercially available materials
in the manufacture of its target and shelter products. Some target
manufacturing processes are unique and proprietary to the company, and it
is therefore dependent upon these suppliers who have existing capability to
meet the Company requirements. The Company has employed the same sources
for several years which have proved reliable. However, there is no
assurance that these key target components will always be available.
Customer Dependency. A large percentage of the Company's sales are to
the Department of Defense or to Defense contractors. Loss of this market
would have a material adverse effect on the Company. As noted above the
Defense market has been decreased significantly as a result of military
downsizing, and this has caused substantial damage to the Company's market.
The percentage of sales to private users in 1997 was approximately 2% of
revenues, but the percentage is expected to increase in 1998.
Patents, Trademarks, and Agreements. The Company has one patent
covering its targets and one covering its decoys. Both expire in December,
2000. However, the company has placed little reliance on these patents in
its marketing program. The Company also owns five trademarks, only one of
which is used in current marketing activities. The company has applied for
a patent on its shelter frame, and has been advised by the Patent Office
that several of its claims will be allowed. There are no royalty or
licensing agreements, and there are no labor contracts.
Need for Government Approval. There are no requirements for
Government approval for any of the Company's principal products. However,
the Company's targets and decoys are covered by the International Traffic
in Arms Regulations (ITAR), and the Company must obtain prior approval from
the U. S. State Department to sell such products to foreign buyers.
Effect of Government Regulations. The Company is subject to various
regulations including Federal Acquisition Regulations, OSHA requirements,
and ITAR mentioned above. However, none of these regulations have a direct
material impact on the Company's business.
R & D Activities. The Company spent approximately $15,000 in 1996
and $5,000 in 1997 for Research and Development activities. All
expenditures were associated with improvement and enhancement of military
tactical shelters and with design and development of shelter models
appropriate in performance and cost for a variety of commercial
applications. These amounts do not include research efforts which were
incidental to normal marketing and production activities.
Impact of Environmental Laws. There have been no specific costs
associated with compliance with environmental laws.
Total Employees. During 1997 the Company employed an average of about
30 employees, of whom all but one was full time.
ITEM 2. DESCRIPTION OF PROPERTY
(a) Principal Plant.
The Company leases space to house its administrative and manufacturing
activities, and moved to its current location in February 1993. The
Company's space in 1997 consisted of two adjoining warehouse type
facilities with a total of about 13,500 square feet in each warehouse.
About one-third of one warehouse is finished and is used for administrative
purposes with the remaining space used for production and inventory
activities. The second facility is used primarily for shelter set-up and
display. Annual rental of each warehouse is approximately $66,000. The
warehouses are located in a small industrial park. Address of the primary
warehouse is 10209 Bacon Drive, Beltsville, MD 20705.
In October 1997 the Company negotiated a termination of the lease on the
second warehouse. Activities previously housed there were consolidated in
the primary facility.
The lease for the primary warehouse expired in February 1998, and the
Company elected to move to a new location. The new facility consists of
about 17,000 square feet, of which about one-fourth is finished and used as
office space. Address of the new facility is 7100 Holladay Tyler Road,
Glenn Dale, MD 20769. The new facility is located a short distance from
the old facility.
(b) Investment Policies.
The Company has made no investments in real property or related real
property financial instruments in the preceding three years.
(c) Description of Real Estate.
The company does not own any real property.
ITEM 3. LEGAL PROCEEDINGS
(a) Pending Proceedings
The company was a party to the following legal proceedings during 1997:
1. USA Access, Inc. v. TVI Corporation, et al
a. District Court for Clark County, Nevada, removed and ultimately
transferred to the U. S. District Court for Maryland (Southern Division)
b. Filed September 20, 1996
c. Principal parties are the Company, two adult children and former
wife of Mr. Molovinsky, and Mr. Molovinsky's current wife as custodian of
stock for three minor children of Mr. Molovinsky.
d. This is an Interpleader Action initiated by USA Access to decide
ownership of stock purchased by Mr. Molovinsky with TVI funds in his wife's
name and later transferred to Mr. Molovinsky's children and a former wife.
e. TVI is pursuing recovery of all stock and investments acquired with
TVI funds
2. Beltsville Industrial Center v. TVI Corporation
a. Circuit Court for Prince George's County, Maryland
b. October 18, 1996
c. Principal parties are the plaintiff and the Company.
d. The landlord seeks payment of back rent for the second warehouse
e. Rental arrearage of $104,604 plus interest and counsel fees. This
matter was settled in October 1997 by partial payment of the claim.
3. Bankruptcy
The company filed for protection under Chapter 11 of the U. S. Bankruptcy
Code on March 21, 1991. The Petition listed $2,388,409 in assets and
$1,697,371 in liabilities. A balance sheet as of September 30, 1990 showed
a negative Shareholders Equity of $1,968,300.
The company's Disclosure Statement and Plan of Reorganization were approved
by the Court in October 1992. A mailing to creditors and shareholders of
the documents along with a Ballot for voting on Plan was authorized in
November 1992. Both creditors and shareholders approved the Plan, and it
was confirmed with amendments by the Court on April 15, 1993.
Under the Plan, all priority claims were paid to be paid in full, as were
the compromised amounts due to the secured creditors. General creditors
with claims of $500 or less were also to be paid in full. Other general
creditors were to receive 20% of their claims, such amount to be paid in
Preferred Stock. Debenture holders were to be paid 15% of the value of
their debentures, such amount to be paid in Preferred Stock. Preferred
holders were to be paid 20% of the value of their stock, such amount to be
paid in new TVI common stock valued at $.20 per share. Common stock
underwent a 1 for 10 reverse split, and holders were then required to
forfeit up to the first 1,000 post-split shares of their stock.
Shareholders who wished to remain a shareholder or to exchange any
remaining stock were required to purchase 2,500 new shares at $.20 per
share.
The company implemented the Plan in May and June 1993, and all creditors
were paid as required. However, the Company remained in bankruptcy until
it filed all required reports in 1995 and 1996. It was discharged by the
Court on October 3, 1996.
(b) Impending Government proceedings
The Company was not aware of any contemplated proceeding by a government
authority in 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the fourth
quarter of 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is traded on the NASDAQ Bulletin Board under the
symbol TVIN. The National Quotation Bureau reports that there are thirteen
market makers for the Company's common stock.
The high and low bid prices by quarter for 1996 and 1997 as reported by the
National Quotation Bureau were as follows:
<TABLE>
<CAPTION>
1996
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
<S> <C> <c) <C> <C>
Low Bid .0475 .10 .07 .04
High Bid .0475 .18 9/64 .11
1997
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Low Bid .0475 .03 .03 .01
High Bid .08 .06 .035 .035
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not represent actual transactions.
(b) Holders
It is estimated that the Company had approximately 2,000 holders of its
common stock at the end of 1997.
(c) Dividends
There have been no dividends declared or paid on the Company's common stock
during the previous two years. No dividends are contemplated by the
Company in the foreseeable future.
The Loan Agreement with the Company's principal lending bank prohibits the
payment of cash dividends on common stock without the bank's express
consent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
(a) Financial Condition for 1997
The company's financial performance and status were negatively impacted by
inadequate revenue, excessive operating costs, and high debt burden. These
factors in turn severely impacted liquidity, and inadequate working capital
caused additional fees, penalties, and inefficiencies.
Because of its slow payment, many suppliers put the company on a pre-pay
basis, creating a greater cash flow problem. Additionally, some key
suppliers required the payment of outstanding balances before accepting a
new order. Some accounts payable were compromised, but only on the
condition of immediate cash payment. Some working capital was provided by
the deferment of officers' salaries, deferment of rent on one of the
warehouses, and postponement of interest on debentures. However,
additional funding was necessary for inventory financing, and this was
provided by the president via short term promissory notes.
The company conducted several discussions concerning an infusion of debt
and equity capital with several sources. However, factors such as its low
revenues, high debt, operating loss, and lack of audited financial
statements prevented any agreement being consummated.
Revenues were adequate during the first half of 1997, but were less than
the first half of 1996 when the Company was completing a large Air Force
contract. Working capital remained under great pressure. Liquidity was
improved by profitable operations, postponement of interest, deferment of
warehouse rental, and inventory financing by the president.
The second half of 1997 saw a fall-off in revenue, and continued liquidity
problems. As noted above, the Company lost a major target contract and a
major shelter contract to its competitors.
The company received a cash payment of $5,000 per month from the lease of a
billboard printing machine it acquired in 1993.
The highest amount of loans by the president for inventory financing during
1997 was $177,387 and for 1996 was $166,759. Interest rates paid on the
loans ranged from 10% to 13.5%. Additionally, Mr. Bender is owed $30,000
for unpaid salary in 1995. No interest is paid on this amount. The
company believes that the terms from Mr. Bender are more favorable than
those which could be obtained from other sources.
The company has adequate production equipment to support its current level
of operations. It will require additional investment in equipment to meet
efficiency and delivery requirements should its production levels increase
significantly. It intends to finance such capital investment when its
sales reach the requisite level.
There are no significant seasonal aspects to the Company's operations.
However, military gunnery operations tend to slow down in winter months,
and range operations show a noticeable increase during the summer as more
Reserve and Guard units engage in summer training.
The company expects that its performance and liquidity problems will
persist until revenues reach a level sufficient to generate a gross margin
adequate to cover all operating costs and provide some level of operating
income. The company believes that its products and markets are sufficient
to achieve this revenue level, but it is unable to predict when this might
occur.
(b) Results of Operations
Financial data presented for 1994 and 1995 is unaudited and based upon an
accounting compilation. Only 1996 and 1997 results are based upon an
independent audit.
1997 Compared With 1996. Revenue for 1997 was $1,762,374 compared
with $2,632,802 for 1996. The 1996 revenue was significantly higher due to
the completion of a large Air Force contract which was not repeated during
1997. There was a net loss for 1997 of $3,634 as compared to a net loss of
$72,303 in 1996. Gross operating margin increased from 24.9% in 1996 to
27.1% in 1997. A significant portion of the 1996 contract was contracted
out and was billed to the Air Force with lower gross margin. Sales of TVI
produced targets and shelters were only slightly less in 1997 than in 1996.
Gross margin for 1997 was thus higher than for 1996.
1996 Compared With 1995. Revenue for 1996 was $2,632,808 as compared
to $950,670 for 1995. There was a net loss of $72,303 in 1996 as compared
to a net loss of $2,635,267. Operations improved in 1996 due to increased
revenues and decreased costs. Revenue increase was due to the large Air
Force contract for shelters completed during the first six months of the
year, and to increased sales of thermal products. Cost of Goods increased
due to the higher level of production and the inclusion of a large
sub-contract. Indirect costs decreased due to the termination of
consultants, reduction in operating costs, and elimination of debenture
interest. Shareholder expense increased due to the holding of an annual
meeting which was not done in 1995. Operations in 1995 were adversely
affected as the company recorded losses sustained from embezzlement
activities of its former president.
1995 Compared With 1994. Total revenue for 1995 was $950,000 as
compared to $725,000 for 1994. There was a substantial net loss for both
years which included both operating and non-operating losses. Financial
performance was characterized by low revenues and high operating costs.
Sales of targets reached historical lows in both years, sales of shelters
were small, there were no sales of decoys and camouflage, and there were no
foreign sales. Operations were severely penalized by unauthorized and
unwise expenditures by the previous president. Losses and thefts were
subsidized by the private sale in early 1994 of about $2 million in stock
and debentures.
(c) Year 2000 Compliance
The Company has examined the impacts of the year 2000 and does not believe
that it will encounter any problems. The only system which relies to any
degree upon date calculations is its Peachtree Accounting System. The
Company has been informed by the Peachtree supplier that the program will
be made fully year 2000 compliant. The Company does not anticipate any
significant problems with either its desktop computer systems or ordinary
office software.
The Company has been unable to determine the potential impacts which may
result from its transactions with its suppliers, customers, and bank.
However, it believes that these entities will be in compliance, and if not,
there will be little impact on the Company.
ITEM 7. FINANCIAL STATEMENTS
Audited financial statements for the year ending December 31, 1997 are
included after this report.
Audited financial statements for 1996 were completed in March 1998 and were
filed with the SEC but were not mailed to shareholders. There were no
major differences between the audited accounts and the unaudited amounts
reported to Shareholders in the 1997 Report to Shareholders. The company
will provide a copy of the 1996 audit to any shareholder upon written
request. Accounting compilations were done for the years 1993, 1994, and
1995. A copy of the financial statements for these years will also be
furnished to any shareholder upon written request.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
(a) Independent Accountants.
The Company's operations for 1996 and 1997 were audited by the firm of
Daniel C. Gilliland, CPA PA. The Company had no independent accountants
for the years 1990 through 1995.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Director and Executive Officers
The discussion under "Officers, Directors, and Nominees" and "Information
on Nominees" in the Company's definitive Proxy Information Statement for
its 1998 Annual Meeting of the Shareholders is incorporated herein by
reference.
(b) Significant Employees
There were no employees essential to the company's activities.
(c) Family relationships
There are no known family relationships between any of the company's
officers, directors or employees.
(d) Involvement in Legal Proceedings
No officer or director was known to be involved in an any legal proceeding
involving bankruptcy, criminal activity, securities or banking issues, or
commodities violations.
(e) Compliance with Section 16(a)
The Company believes that reports required by Section 16(a) of the Exchange
Act of its directors and officers were filed as required.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes executive compensation for the past three
years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Awards LTIP All
Name/Position Year Salary Bonus Other Stock SARs Payouts Other
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO:
Brent Molovinsky 1995 72,000 0 0 0 0 0 *
CEO:
Allen Bender
1995 72,000** 0 0 0 0 0 0
1996 48,000 0 0 *** 0 0 0 0
1997 60,000 0 0 **** 0 0 0 0
<FN>
* Mr. Molovinsky was employed during January, February, and March. He
was paid for a variety of undocumented expenses, including his premiums for
health insurance.
** Mr. Bender's salary for May, June, and July was $4,000 per month.
His salary for the remaining five months was $6,000 per month based upon
his agreement to defer payment. Deferred salary in the amount of $30,000
remains unpaid.
*** Mr. Bender was granted options for 500,000 shares of stock, of
which 250,000 vested on October 28, 1996 and the remaining 250,000 vested
on July 31, 1997 based upon his continuous service as president.
**** Mr. Bender was granted an option to purchase 150,000 shares of
stock, vesting upon his service as president for the coming year.
</TABLE>
No other officer, director, or employee received total compensation which
exceeded $100,000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
No individual or group is known by the company to own 5% or more of its
common stock.
(b) Security Ownership of Management
The discussion under "Officers, Directors, and Nominees" and "Information
on Nominees" in the Company's definitive Proxy Statement for its 1998
Annual Meeting of the Shareholders is incorporated herein by reference.
(c) Arrangements for Change in Control
There are nor existing arrangements and no pending or planned arrangements
which would result in a change in control of the company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during 1996 and 1997 between the company and any
officer, director, or nominee for director, or a member of their family,
having a value which exceeded $60,000.
ITEM 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K
The Company filed two Form 8-K reports with the SEC during 1997 as follows:
a. September 12, 1997 reporting its annual meeting and election of a
new Board of Directors
b. December 19, 1997 reporting postponement of its planned one for ten
reverse stock split.
These two Form 8-K reports have been previously filed with the SEC and are
incorporated herein by reference.
ITEM 14. SUBSEQUENT EVENTS
The Company relocated to a new facility during the first week of April
1998. Its new address is 7100 Holladay Tyler Road, Glenn Dale, MD 20769.
Its new phone number is 301-352-8800.
Vacation of the old facility completed all obligations under the settlement
agreement with the landlord of the previous building.
In June 1998 the Company filed suit in state court in Las Vegas, Nevada
seeking payment of promissory notes with a total face value of $75,000 from
USA Access, Inc. The notes had been purchased by Mr. Molovinsky with funds
embezzled from the company.
In August 1998 the Federal District Court in Maryland awarded ownership to
the Company of 300,000 shares of USA Access common stock. The Company's
claim for an additional 200,000 shares was scheduled for trial.
ITEM 15. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
By:
/s/ Allen E. Bender
Allen E. Bender
Chief Executive Officer
and Chairman of the Board
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
TVI CORPORATION
Years Ended December 31, 1997 and 1996
DANIEL G. GILLILAND, CPA, P.C.
7700 LEESBURG PIKE
SUITE 402B
FALLS CHURCH, VA 22043
<PAGE>
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 1 - 2
FINANCIAL STATEMENTS
Balance Sheet 3 - 4
Statement of Income and Accumulated Deficit 5
Statement of Cash Flows 6
SUPPLEMENTARY INFORMATION
Schedule of Cost of Sales 7
Schedule of General and Administrative Expenses 8
Statement of Shareholders Equity 9
NOTES TO FINANCIAL STATEMENTS 10 - 16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
TVI Corporation
We have audited the accompanying balance sheet of TVI Corporation
as of December 31, 1997 and 1996 and the related statements of
income and accumulated deficit, and cash flows for the year then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of TVI Corporation as of December 31, 1997, and 1996, and the
results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in
Note M to the financial statements, the Company has incurred a
substantial cumulative net loss from operations from its
inception through December 31, 1997, and increased its
accumulated deficit during the year. The Company has violated
certain loan covenants, does not have sufficient cash flow to pay
interest on its debentures, faces an economic environment of
reduced military spending and operates without a bank line of
credit. The Company's financial position and operating results
raise substantial doubt about its ability to continue as a going
concern. Management's activities in regard to these matters are
also described in Note M. The accompanying financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedules on
pages 7, 8 and 9 are presented for purposes of additional
analysis and are not required parts of the basic financial
statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Daniel G. Gilliland, CPA
Daniel G. Gilliland, CPA, P.C.
Falls Church, VA
September 14, 1998
<PAGE>
TVI CORPORATION
BALANCE SHEET
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash 21,110 7,908
Accounts receivable 103,148 171,569
Inventory 626,695 644,716
Loans receivable - officers - 7,500
Prepaid expenses and other 2,973 4,448
TOTAL CURRENT ASSETS 753,926 836,141
PROPERTY AND EQUIPMENT
Shop equipment 658,140 599,853
Furniture and fixtures 21,677 101,102
679,817 700,955
Less: Accumulated depreciation 443,695 374,631
NET PROPERTY AND EQUIPMENT 236,122 326,324
OTHER ASSETS
Taxes receivable 2,160 1,525
Deposits and Other 2,003 4,125
TOTAL OTHER ASSETS 4,163 5,650
TOTAL ASSETS $994,211 $1,168,115
<FN>
See independent auditor's report and notes to financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITY AND SHAREHOLDERS' EQUITY
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - officers 92,261 137,907
Current portion of long term debt 206,624 77,367
Accounts payable - trade 108,068 173,864
Accrued payroll taxes 28,132 34,588
Accrued expenses 118,851 88,628
TOTAL CURRENT LIABILITIES 553,936 512,354
LONG-TERM LIABILITIES
Notes payable 96,688 165,033
Debentures 185,000 175,000
Less: Current porti on (206,624) (77,367)
TOTAL LONG-TERM LIABILITIES 5,064 262,666
STOCKHOLDERS' EQUITY
Preferred stock 71,708 72,158
$1 Par Value; authorized 1,200,000 shares:
issued and outstanding 71,708 shares
Common stock 222,189 222,180
$.01 par value; 25,000,000 shares authorized,
22,218,881issued, 21,981,381 and 22,217,981
outstanding in 1997 and 1996, respectively
Additional paid-in-capital 11,947,794 11,957,353
Accumulated defic it (11,862,230) (11,858,596)
Treasury stock
at cost (237,500 shares) (14,250) 0
TOTAL STOCKHOLDERS' EQUITY 65,211 393,095
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$994,211 $1,168,115
<FN>
See independent auditor's report and notes to financial
statements.
</TABLE>
<PAGE>
TVI CORPORATION
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
REVENUE
Sales $1,700,980 $2,443,375
Rental income - equipment 60,000 60,000
Other income 1,394 129,427
1,762,374 2,632,802
COST OF SALES 1,285,021 1,976,832
GROSS PROFIT 477,353 655,970
GENERAL AND ADMINISTRATIVE EXPENSES 577,971 595,500
OPERATING INCOME (100,618) 60,470
OTHER INCOME (EXPENSE)
Interest income 84 152
Interest expense (48,452) (89,345)
Loss on disposal of assets (6,138) 0
Other income (expense) 151,490 (43,580)
96,984 (132,773)
INCOME (LOSS) BEFORE INCOME TAXES (3,634) (72,303)
INCOME TAXES (TAX BENEFIT) 0 0
NET INCOME (LOSS) (3,634) (72,303)
ACCUMULATED DEFICIT AT JANUARY 1st (11,858,596) (11,786,293)
ACCUMULATED DEFICIT AT DECEMBER 31st(11,862,230) (11,858,596)
Earnings (loss) per common share (0.0002) (0.003)
Weighted Average Common Shares Outstanding 22,218,431 21,300,000
<FN>
See independent auditor's report and notes to financial
statements.
</TABLE>
<PAGE>
TVI CORPORATION
SUPPLEMENTARY INFORMATION
December 31, 1997 and 1996
<PAGE>
TVI CORPORATION
STATEMENT OF CASH FLOWS
For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,634) $ (72,303)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation 84,797 86,052
(Increase)decrease in accounts receivable68,421 (69,145)
(Increase) decrease in inventories 18,021 62,334
(Increase) decrease in other assets 10,462 0
Increase (decrease) in accounts payable (65,796) 17,334
Increase(decrease) in accrued liabilities23,767 (7,005)
Total adjustments 139,672 89,570
NET CASH PROVIDED BY OPERATING ACTIVITIES: 136,038 17,267
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal (Purchase) of capital equipment 5,405 (75,813)
NET CASH (USED IN) INVESTING ACTIVITIES: 5,405 (75,813)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase(decrease) in notes payable-officers(45,646) 1,439
Issuance (purchase) of common stock 14,250) 18,360
Principal payments on long-term obligations(68,345) (85,295)
Retirement of long-term obligations 0 59,176
NET CASH PROVIDED BY FINANCING ACTIVITIES (128,241) 53,680
NET INCREASE (DECREASE) IN CASH 13,202 (4,866)
CASH, BEGINNING OF YEAR 7,908 12,774
CASH, END OF YEAR $21,110 $7,908
<FN>
See independent auditor's report and notes to financial
statements.
</TABLE>
<PAGE>
TVI CORPORATION
SCHEDULE OF COST OF SALES
For The Years Ended December 31, 1997 and 1996
Note: This schedule omitted by management.
<PAGE>
TVI CORPORATION
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
For The Years Ended December 31, 1997 and 1996
Note: This schedule omitted by management.
<PAGE>
TVI CORPORATION
STATEMENT OF SHAREHOLDERS EQUITY
For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Preferred Common Capital Retained Treasury Total
Stock Stock Surplus Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance 72,158 203,820 11,271,914 (11,786,293) 0 (238,402)
December 31, 1995
Exchange of Promissory 18,360 685,440 465,398
Notes for Common Shares
(1,836,000 shares)
Net Income for 1996 (72,303) 378,831
Balance 72,158 222,180 11,957,353 (11,858,596) 0 393,095
December 31, 1996
900 common shares (450) 9 441 0
issued for 450 preferred shares
Receipt of 337,500 shares (20,250) (20,250)
treasury stock in
settlement of law suit
Issue of 100,000 shares of 6,000
treasury stock in
settlement of lawsuit
Net Income for 1997 (3,634) (3,634)
Balance 71,708 222,189 11,957,794 (11,862,230)(14,250)369,211
December 31, 1997
<FN>
Total Shares at 12-31-96:
22,217,981
Total Shares at 12-31-97:
22,218,881
</TABLE>
<PAGE>
TVI CORPORATION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1997 and 1996
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
TVI Corporation was incorporated as a for-profit corporation
under the laws of Maryland on January 28, 1977. It has since
operated continuously under the charter granted by Maryland. The
Company was formed primarily for the exploitation of a patent
portfolio acquired from one of the founders. The two principal
patents of the portfolio covered an "electrically conductive
coating" and a "light-weight cellular concrete".
The Company's business has historically been as a supplier of
thermal products to the Department of Defense and to military
agencies of other countries. The two principal products have
been thermal targets and tank decoys. Because of the substantial
downsizing begun for the Department of Defense, the market for
the Company's products has been drastically reduced, and its
business has suffered accordingly. Further, there has been a
concomitant reduction in foreign military aid and a military
downsizing in other countries which has eliminated the Company's
foreign market. To replace this lost market the Company began
the development and sale of a light weight, rugged, and rapidly
deployable soft shelter (tent) for military use which used a
collapsible frame based upon the design used for its tank decoy
frame. During 1995 and 1996 it began the development and sale of
commercial versions of its shelters in an effort to broaden its
market and increase revenue.
The Company's principal product lines in 1997 and 1996 were
disposable thermal military targets and military soft shelters.
The targets consisted mainly of targets simulating the thermal
signature of military tanks and related military assets. The
shelters consisted mainly of one piece shelters with 150 to 400
square feet of floor space used for forward tactical applications
such as communications and aid stations.
A summary of TVI Corporation's significant accounting policies
consistently applied in the preparation of the accompanying
financial statements is as follows:
1. Revenue Recognition
Revenue is recognized on standard product sales using the
unit-of-delivery method whereby sales are recorded when title is
transferred.
Included in product sales for the year ended December 31, 1997
and 1996 is approximately $1,648,795, and $2,428,000
respectively, in sales of products to the United States
Government.
2. Inventories
Inventories are valued at the lower of cost or market determined
by the first-in, first-out (FIFO) method.
Included in finished goods at December 31, 1997 and 1996 are
$55,074 and $31,277 respectively, of field service,
demonstration and other sales support inventory.
<PAGE>
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
3. Property and Equipment
Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated
service lives, using the straight-line method.
4. Research and Product Development Costs
Research and product development expenditures are charged to
operations as incurred.
5. Net Loss Per Share
Net loss per share of common stock is computed based upon the
weighted average number of shares outstanding. Non-qualified
stock options granted by the Company are not considered in the
per share calculations as they are anti-dilutive.
NOTE B - PREPAID EXPENSES AND OTHER
Prepaid expenses and other are comprised of the following:
1997 1996
Prepaid insurance $2,973 $ 4,351
Other 0 97
$2,973 $ 4,448
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
1997 1996
Furniture and fixtures $21,677 $101,102
Machinery and equipment 658,140 599,853
679,817 700,955
Less: accumulated depreciation 443,695 374,631
$236,122 $326,324
<PAGE>
TVI CORPORATION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1997 and 1996
NOTE D - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
1997 1996
Accrued salaries $ 7,585 $ 4,467
Accrued interest 60,163 42,280
Deferred compensation 36,463 36,463
Payroll and other taxes 28,336 37,045
Other 2,606 2,961
Total Accrued Liabilities $135,153 $123,216
NOTE E - LONG-TERM OBLIGATIONS
Long-term obligations are comprised of the following:
1997 1996
Debentures $185,004 $175,000
Loans payable - Capital Bank 96,688 162,543
Loans payable - DFAS 0 2,490
Less Current Maturities (206,624) (77,367)
Total Long-term obligations $75,064 $262,666
Debentures consist of a promissory note with interest at ten
percent (10%), payable semi-annually on December 15 and June 15.
The principal balance of the notes plus any accrued interest is
due and payable in full on December 15, 1998. The Company was in
arrears as of December 31, 1997 on its last six interest payments
totaling $55,500.
The liability to Capital Bank is collateralized by a blanket
first lien on certain accounts receivable, contract rights,
inventories, and property, plant and equipment. As of December
31, 1997 and 1996, the Company was in default because it had
violated certain covenants specified under the loan agreement.
The lender has waived its rights under the default provisions
through April 1, 1999.
NOTE F - COMMITMENTS AND CONTINGENCIES
1. Operating Leases
The Company is obligated under operating leases for office and
warehouse space. Certain of these leases are subject to
escalation clauses. The following is a schedule by years of the
approximate future minimum rental payments required under
operating leases that have initial or remaining lease terms of
one year or more as of December 31, 1997:
<PAGE>
TVI CORPORATION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1997 and 1996
NOTE F - COMMITMENTS AND CONTINGENCIES (CONTINUED)
1. Operating Leases
Year ending December 31,1997
1998 $68,000
1999 70,040
2000 72,141
2001 74,305
2002 76,534
Total minimum lease obligations $361,020
Total rental expense under all leases charged to operations for
the year ended December 31, 1997 and 1996 aggregated
approximately $83,019 and $120,059, respectively.
NOTE G - INCOME TAXES
The Company has reported net aggregate losses for Federal income
tax purposes from its inception through December 31, 1997 of
approximately $ 16,561,400. The following is a summary of the
net operating loss (NOL) carryover available at December 31,
1997:
Year of Net Operating Loss
Expiration Carryforward
2002 $ 548,685
2003 423,169
2004 388,200
2005 4,595
2006 1,153,109
2007 338,974
2008 911,381
2009 856,691
2010 2,630,062
2011 86,528
2012 3,630
$7,765,024
<PAGE>
TVI CORPORATION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1997 and 1996
NOTE H - STOCKHOLDERS' EQUITY
1. Preferred Stock
As of December 31, 1997 and 1996, the Company was in arrears on
preferred stock dividends in the amount of approximately $7,170
and $7,216, respectively.
2. Non-qualified Stock Options Plan
In 1995, 1996, and 1997, the company issued stock options to
several key employees and board members under a non-qualified
plan. Options were exercisable at prices ranging from $.05 to
$.14 per share. As of December 31, 1997 none of the options had
been exercised. By vote of the shareholders at the annual
meeting in July 1997, the exercise price of all options was set
at $.05. At December 31, 1997, the following options for the
purchase of common shares were outstanding:
YEAR NUMBER NUMBER STOCK
GRANTED EXPIRATION OF SHARES EXERCISED TRADING RANGE
1995 1998 252,000 0 $0.02-$0.97
1995 2000 850,000 0 $0.02-$0.97
1996 1998 250,000 0 $0.04-$0.18
1996 1999 415,000 0 $0.04-$0.18
1997 2000 875,000 0 $0.04-$0.18
2,642,000
NOTE I - LEGAL MATTERS
In October 1997 TVI settled a claim with a landlord seeking
payment of rent owed. The claim was settled by payment to the
landlord of cash, one TVI-produced shelter, shares of TVI stock
and an option to acquire additional shares of TVI stock.
NOTE J - SUPPLEMENTAL CASH FLOWS INFORMATION
1. Supplemental Disclosures of Cash Flow Information
The Company paid the following amounts for interest and income
taxes during the year ended December 31, 1997 and 1996:
1997 1996
Interest $48,452 $89,345
Income Taxes 0 0
<PAGE>
TVI CORPORATION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1997 and 1996
NOTE K - RELATED PARTY TRANSACTIONS
The president of the company, who is also a shareholder, makes
periodic loans to the company for working capital purposes. As a
result, the company has various collateralized notes payable to
the president of the company with a total remaining balance of
$92,261 and $136,818 as of December 31, 1997 and 1996,
respectively. These notes pay interest at rates of 10% to 13.5%
per annum and are secured by Senior Purchase Money Liens of like
amounts.
At December 31, 1997 and 1996, officers of the Company had
unpaid deferred compensation due in the aggregate sum of $36,463,
and $36,463, respectively.
A director is also a partner of a law firm that provides the
Company with general legal services. As of December 31, 1997 and
1996, the Company had an outstanding balance of $29,689 and
$16,965, respectively, in connection with services provided by
the director's law firm.
NOTE L - COMMON STOCK TRANSACTIONS
The Company issued Units in a private placement in early 1994
which included a $10,000 Promissory Note with interest at 10%
payable semi-annually. The company was in arrears as of June 30,
1996 on the last three interest payments. Pursuant to a Board
resolution at its April 1996 meeting, the company conducted a
voluntary exchange offer in which holders could exchange the Note
and its accrued interest for 30,000 shares of restricted common
stock.
Under the offer, 61.2 Notes representing $612,000 face value and
$91,800 accrued interest were exchanged for a total of 1,836,000
shares of stock during 1996. No notes were exchanged in 1997.
NOTE M - GOING CONCERN
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
assume continuation of the Company as a going concern. However,
the Company has incurred substantial losses from operations since
inception. The Company has continued to sustain losses from
operations through December 31, 1997 and 1996. The Company was
in default on its bank borrowings as of December 31, 1997 and
1996 and the bank has waived its rights under the default
provision through April 1, 1999. Accordingly, recoverability of
a major portion of the recorded asset amounts in the accompanying
balance sheet is dependent upon the Company's ability to meet its
financing requirements on a continuing basis and the success of
future operations. Management is aware of the difficulty of its
situation and is pursuing various avenues that may improve or
resolve the Company's situation. Management's activities include
efforts to reduce expenses and increase revenue, attempts to
obtain additional equity financing, meetings with and offers to
bondholders; and meetings with possible prospective purchasers,
especially those who may benefit from the knowledge and access
to the defense market. Regardless of these activities, the
Company may not be successful and may be required to take more
drastic steps.
<PAGE>
TVI CORPORATION
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1997 and 1996
NOTE M - GOING CONCERN (CONTINUED)
These financial statements do not include any adjustments
relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue
in existence.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-END> 12/31/97
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 12-31-97
<S> <C>
<CASH> 21,110
<SECURITIES> 0
<RECEIVABLES> 103,148
<ALLOWANCES> 0
<INVENTORY> 626,695
<CURRENT-ASSETS> 753,926
<PP&E> 679,817
<DEPRECIATION> 443,695
<TOTAL-ASSETS> 994,211
<CURRENT-LIABILITIES> 553,936
<BONDS> 185,000
0
71,708
<COMMON> 222,189
<OTHER-SE> 11,947,794
<TOTAL-LIABILITY-AND-EQUITY> 994,211
<SALES> 1,700,980
<TOTAL-REVENUES> 1,762,374
<CGS> 1,169,556
<TOTAL-COSTS> 1,285,021
<OTHER-EXPENSES> 577,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,452
<INCOME-PRETAX> (155,124)
<INCOME-TAX> 0
<INCOME-CONTINUING> (155,124)
<DISCONTINUED> 0
<EXTRAORDINARY> 151,490
<CHANGES> 0
<NET-INCOME> (3,634)
<EPS-PRIMARY> (.001)
<EPS-DILUTED> (.001)
