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 1996 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. 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.
Principal Products. The Company's principal product lines in 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.
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. The company has also
supported its commercial marketing activities with in-house employees and
direct shipments. The company is exploring a variety of distribution
options for its commercial shelter products, and has some preliminary
arrangements in place. 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 announced in 1996 a line of commercial
shelters which employed the expandable, self-supporting, quick-erect frame
used for military shelters. Prototypes of the entire line have been
developed, and several production models have either been sold or loaned
for evaluation. The company intends to continue to pursue the commercial
market in 1997.
Competitive Conditions. The Company competes with two or three other
small companies in the thermal target market, but in 1996 was the dominant
supplier. It 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. The Company competes with one
small company which makes a shelter functionally similar to the TVI
shelter. 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 of the
products and 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.
Environmental regulations and technical obsolescence are impacting both the
cost and availability of a key component of the thermal products.
Customer Dependency. Almost all of the Company's sales are to the
Department of Defense. 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.
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 places little reliance on these patents in its
marketing program. The Company also owns four trademarks, none of which
are used in current activities. The company has applied for a patent on
its shelter frame, and has applied for a trademark for its shelters. There
are no royalty or licensing agreements of any significance, 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 $5,000 in 1995 and
$15,000 in 1996 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.
Impact of Environmental Laws. There have been no specific costs
associated with compliance with environmental laws.
Total Employees. During 1996 the Company employed an average of about
33 employees, of whom all but three were 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 current space consists 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. Annual rental of each warehouse is approximately $66,000. The
warehouses are located in a small industrial park. Address of the plant is
10209 Bacon Drive, Beltsville, MD 20705.
(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 1996:
1. TVI Corp v. Computer Image Systems,et al
a. United States District Court for Maryland (Southern Division)
b. Filed October 15, 1995
c. Principal parties are Computer Image Systems, Carl Jones, and Brent
Molovinsky
d. TVI alleged a series of fraudulent stock transactions in which it
issued stock to acquire a piece of equipment at an inflated price
e. The suit sought damages and other relief. This matter has recently
been settled by the return of 450,000 shares of TVI stock by Mr. Jones and
certain relief authorized by the U. S. Bankruptcy Court for the Southern
District of California in connection with the bankruptcy of Computer Image
Systems.
2. TVI Corp v. Citizens Bank of Maryland, et al
a. Circuit Court for Prince George's County, Maryland
b. Filed December 13, 1995
c. Principal parties are Citizens Bank and Brent Molovinsky
d. TVI alleged improper conversion of TVI funds in excess of $100,000
e. Recovery of funds and other damages. This matter was recently
settled by the payment to TVI of a portion of its claim.
3. CD2, Inc v. Citizens National Bank of Maryland, et al
a. Circuit Court for Prince George's County, Maryland
b. Filed February 15, 1996
c. Principal parties were CD2 Inc., Citizens National Bank, and
Allegiance Bank
d. CD2 alleged improper conversion of CD2 funds in excess of $347,000
e. Recovery of funds and other damages. This matter was settled in
1996 by the payment of a portion of the claim.
4. 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. Recovery of all stock and investments acquired with TVI funds
5. 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
6. 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 during 1996.
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 1996.
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 seven
market makers for the company's common stock.
The high and low bid price by quarter for 1995 and 1996 as reported by the
National Quotation Bureau were as follows:
<TABLE>
1995
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
<S> <C> <C> <C> <C>
Low Bid n.a. n.a. n.a. n. a.
High Bid n.a n.a. n.a. n. a.
</TABLE>
<TABLE>
1996
<CAPTION>
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
</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 1996.
(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 1996
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.
New management which took control of the company in April 1995 continued
the cost control initiatives during 1996. Operations under new management
saw a significant decrease in operating costs and an increase in revenues;
however, liquidity remained under great pressure.
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. Additionally,
inventory financing was provided by the new 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, lack of audited financial statements,
legal clouds, and bankruptcy status prevented any agreement being
consummated.
Revenues increased substantially in the first half of 1996, but working
capital remained under great pressure. The increase in production required
more outlays for inventory, and the purchase of additional production
equipment. Liquidity was improved by profitable operations, postponement
of interest, deferment of warehouse rental, deferment of officers salaries,
and inventory financing by the president.
The second half of 1996 saw a fall-off in revenue due to completion of a
large Air Force contract, and continued liquidity problems. In July the
company exchanged common stock for debentures with a face value of
$612,000, reducing the annual interest obligation by $61,200. A one-time
increase in liquidity occurred in October when the company received about
$60,000 in settlement of a lawsuit. In November, the company negotiated a
preliminary settlement on the rental arrearage which reduced the monthly
rent on one of the warehouses by about 50%.
The company receives 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
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 a substantial 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 operations tend to slow down in winter months, and during
the summer range operations show a noticeable increase 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 results are based upon an independent
audit.
1996 Compared With 1995. Revenue for 1996 was $2,444,000 as compared
to $950,670 for 1995. There was a net loss of approximately $100,000 in
1996. 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.
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 sale in early 1994 of stock and debentures.
ITEM 7. FINANCIAL STATEMENTS
An audited financial statement for the year ending December 31, 1996 is
included as Exhibit 20.
Accounting compilations and income tax returns were done for the years
1993, 1994, and 1995.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
(a) Independent Accountants.
The Company had no independent accountants for the years 1991 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 1997 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 Exhange
Act of its directors and officers were filed as required.
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
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 1994 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
1997 60,000
<FN>
* Mr. Molovinsky was reimbursed for a variety of undocumented
expenses, and his premiums for health insurance were paid by the company.
** 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 will
vest on July 31, 1997 if he continues to serve in the position of president
until that date.
</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 Information Statement for its 1997
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 1995 and 1996 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 1996 as follows:
a. July 31, 1996 reporting its annual meeting and election of a new
Board of Directors
b. October 14, 1996 reporting its discharge from bankruptcy,
conversion of $612,000 of debt into 1,836,000 shares of unregistered common
stock, and the settlement of a lawsuit brought by the Company and its
subsidiary, CD2 Inc.
ITEM 14. SUBSEQUENT EVENTS
None.
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
President and Chief Executive Officer
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
TVI CORPORATION
YEAR ENDED DECEMBER 31, 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
Notes to Financial Statements 9 - 16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
TVI Corporation
I have audited the accompanying balance sheet of TVI Corporation as of
December 31, 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. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TVI Corporation as of
December 31, 1996, and the results of its operations and its cash flows for
the year 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, 1996, 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.
My 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 my opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Daniel G. Gilliland
Daniel G. Gilliland, CPA, P.C.
Falls Church, VA
March 25, 1998
<PAGE>
<TABLE>
TVI CORPORATION
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
<S> <C>
Cash 7,908
Accounts receivable 171,569
Inventory 644,716
Loans receivable - officers 7,500
Prepaid expenses and other 4,448
TOTAL CURRENT ASSETS 836,141
PROPERTY AND EQUIPMENT
Shop equipment 599,853
Furniture and fixtures 101,102
700,955
Less: Accumulated depreciation 374,631
NET PROPERTY AND EQUIPMENT 326,324
OTHER ASSETS
Taxes receivable 1,525
Deposits and Other 4,125
TOTAL OTHER ASSETS 5,650
TOTAL ASSETS $1,168,115
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C>
Accounts payable - trade 173,864
Loans payable - officers 137,907
Accrued payroll taxes 34,588
Accrued expenses 88,628
Current maturities 77,367
TOTAL CURRENT LIABILITIES 512,354
LONG-TERM LIABILITIES
Loans payable 165,033
Debentures 175,000
Less: Current portion (77,367)
TOTAL LONG-TERM LIABILITIES 262,666
STOCKHOLDERS' EQUITY
Preferred stock 72,158
$1 Par Value; authorized 1,200,000 shares;
issued and outstanding 72,158 shares
Common stock 222,180
$.01 par value; authorized 25,000,000 shares;
issued and outstanding 22,217,981 shares
Additional paid-in-capital 11,957,353
Accumulated deficit (11,858,596)
TOTAL STOCKHOLDERS' EQUITY 393,095
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,168,115
</TABLE>
<PAGE>
<TABLE>
TVI CORPORATION
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
REVENUE
Sales 2,443,375
Rental income - equipment 60,000
Other income 129,427
Total 2,632,802
COST OF SALES 1,976,832
GROSS PROFIT 655,970
GENERAL AND ADMINISTRATIVE EXPENSES 595,500
OPERATING INCOME 60,470
OTHER INCOME (EXPENSE)
Interest income 152
Interest expense (89,345)
Other income (expense) (43,580)
Total (132,773)
LOSS BEFORE INCOME TAXES (72,303)
PROVISION FOR INCOME TAXES 0
NET LOSS (72,303)
<FN>
ACCUMULATED DEFICIT AT DECEMBER 31, 1995 (11,786,293)
ACCUMULATED DEFICIT AT DECEMBER 31, 1996 (11,858,596)
Net loss per share (0.003)
Weighted Average of Common Shares Outstanding 21,300,000
</TABLE>
<PAGE>
<TABLE>
TVI CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (72,303)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation 86,052
(Increase) in accounts receivable (69,145)
(Decrease) in inventories 62,334
Increase in accounts payable 17,334
(Decrease) in accrued liabilities (7,005)
Total adjustments 89,570
NET CASH PROVIDED BY OPERATING ACTIVITIES: 17,267
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of capital equipment (75,813)
NET CASH ( USED IN ) INVESTING ACTIVITIES: (75,813)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from officers 61,439
Issuance of common stock 18,360
Principal payments on long-term obligations (85,295)
Retirement of long-term obligations 59,176
NET CASH PROVIDED BY FINANCING ACTIVITIES 53,680
NET INCREASE (DECREASE) IN CASH (4,866)
CASH, BEGINNING OF YEAR 12,774
CASH, END OF YEAR 7,908
</TABLE>
<PAGE>
<TABLE>
TVI CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
YEAR ENDING DECEMBER 31, 1996
<CAPTION>
Preferred Common Capital Retained Total
Stock Stock Surplus Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance
Dec 31, 1995 72,158 203,820 11,271,914 (11,786,293) (238,402)
Exchange of
Promissory Notes 18,360 685,440 465,398
for Common Shares
(1,836,000 shares)
Net Income,1996 (72,303) 378,831
Balance
Dec 31, 1996 72,158 222,180 11,957,354 (11,858,596) 378,831
<FN>
Total Shares at 12-31-96: 22,217,981
</TABLE>
<PAGE>
TVI CORPORATION
SUPPLEMENTARY INFORMATION
DECEMBER 31, 1996
<PAGE>
<TABLE>
TVI CORPORATION
SCHEDULE OF COST OF SALES
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
Depreciation - Scanamural 60,000
Direct labor 421,299
Direct materials 700,554
Equipment rental 1,518
Freight 45,656
Miscellaneous sales expense 3,135
Production supplies 11,152
Purchase discounts (10,064)
Resale equipment cost 743,582
TOTAL COST OF SALES $1,976,832
</TABLE>
<PAGE>
<TABLE>
TVI CORPORATION
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
Advertising 7,972
Auto 566
Bank service charges 5,623
Consulting 100
Depreciation 26,052
Dues and subscriptions 272
Directors' fees 2,417
Insurance 13,983
Legal and accounting 44,773
Maintenance - building 8,982
Travel and per diem 12,509
Miscellaneous 3,515
Miscellaneous taxes and licenses 4,932
Office supplies 11,925
Postage 3,975
Printing 2,018
Public relations 1,790
Rent 120,059
Repairs and maintenance 1,568
Research & development 8,070
Salaries - officers 78,682
Salaries - other 119,185
Subcontracting 10,958
Stockholders service 7,123
Taxes - payroll 71,815
Telephone 7,183
Trash removal 2,985
Trade shows 1,608
Utilities 14,860
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES $595,500
</TABLE>
<PAGE>
TVI CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 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 parent portfolio acquired from one of the founders. The
two principal patterns 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 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 the TVI'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, 1996 is
approximately $2,428,000 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 are $31,277 of field service, demonstration and
other sales support inventory.
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:
Prepaid insurance $ 4,351
Other 97
$ 4,448
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
Furniture and fixtures $ 101,102
Machinery and equipment 599,853
$ 700,955
Less: Accumulated depreciation 374,631
$ 326,324
NOTE D - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
Accrued salaries $ 4,467
Accrued interest 42,280
Deferred compensation 36,463
Payroll and other taxes 37,045
Other 2,961
Total Accrued Liabilities $123,216
NOTE E - LONG-TERM OBLIGATIONS
Long-term obligations are comprised of the following:
Debentures $ 175,000
Loans payable - Capital Bank 162,543
Loans payable - DFAS 2,490
Total Long-term obligations $ 340,033
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, 1996 on its last
four interest payments totaling $35,000.
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, 1989, 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
payment required under operating leases that have initial or remaining lease
terms of one year or more as of December 31, 1996:
1. Operating Leases
Year ending December 31,
1997 $117,198
1998 $ 62,663
1999 $ 62,663
2000 $ 62,663
2001 $ 62,663
Total minimum lease obligations $367,850
======
Total rental expense under all leases charged to operations for the year
ended December 31, 1996 aggregated approximately $120,059.
NOTE G - INCOME TAXES
The Company has reported net aggregate losses for Federal income tax
purposes from its inception through December 31, 1996 of approximately
$16,561,400. The following is a summary of the net operating loss (NOL)
carryover available at December 31, 1996:
Year of Net operating loss
Expiration carryforward
2002 $ 548,685
2003 423,169
2004 388,200
2005 424,595
2006 1,153,109
2007 338,974
2008 911,381
2009 856,691
2010 2,630,062
2011 86,528
Total $ 7,761,394
NOTE H - STOCKHOLDERS' EQUITY
1. Preferred Stock
As of December 31, 1996, the Company was in arrears on preferred stock
dividends in the amount of approximately $7,216.
2. Non-qualified Stock Option Plan
In 1995 and 1996, 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, 1996 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, 1996, 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 ----- $0.02 - $0.97
1995 2000 850,000 ----- $0.02 - $0.97
1996 1998 250,000 ----- $0.04 - $0.18
1996 1999 415,000 ----- $0.04 - $0.18
1,767,000
=======
NOTE I - SUBSEQUENT EVENTS
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, 1996:
Interest $ 89,345
=======
Income Taxes $0
=======
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 $136,818 as of December 31, 1996. 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, 1996 officers of the Company had unpaid deferred
compensation due in the aggregate sum of $36,463.
A director is also a partner of a law firm that provides the Company with
general legal services. As of December 31, 1996 the Company had an
outstanding balance of $16,965 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.
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 through December 31, 1996. The Company was in default on its
bank borrowings as of December 31, 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.
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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,908
<SECURITIES> 0
<RECEIVABLES> 171,569
<ALLOWANCES> 0
<INVENTORY> 644,716
<CURRENT-ASSETS> 836,141
<PP&E> 700,955
<DEPRECIATION> 374,631
<TOTAL-ASSETS> 326,324
<CURRENT-LIABILITIES> 512,354
<BONDS> 97,633
0
72,158
<COMMON> 222,180
<OTHER-SE> 98,757
<TOTAL-LIABILITY-AND-EQUITY> 1,168,115
<SALES> 2,443,375
<TOTAL-REVENUES> 2,632,802
<CGS> 1,916,832
<TOTAL-COSTS> 1,976,832
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,193
<INCOME-PRETAX> 60,470
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,470
<DISCONTINUED> 0
<EXTRAORDINARY> (132,773)
<CHANGES> 0
<NET-INCOME> (72,303)
<EPS-PRIMARY> (.003)
<EPS-DILUTED> (.003)
</TABLE>
