UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended ______________June 30,1996_______________________
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number: 33-9868-A
Shepherd Surveillance Solutions, Inc.(formerly Invision Technology, Inc.)
-------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0212471
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7 Perimeter Road, Suite 4, Manchester, NH 03103
-----------------------------------------------
(Address of principal executive offices) (Zip Code)
(603) 622-8668
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
At October 31, 1996, 4,293,822 shares of common stock,
$.001 par value per share, were outstanding.
Transitional Small Business Disclosure Format (check one);
Yes [ ] No [x]
Part I. Financial Information
- ------------------------------
Item 1. Financial Statements
- -----------------------------
<TABLE>
<CAPTION>
Shepherd Surveillance Solutions, Inc.
Balance Sheet
June 30, 1996 September 30, 1995
------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 25,534 $ 18,215
Accounts receivable 64,290 126,934
Inventories, net 592,399 255,348
Prepaid expenses 61,104 12,849
--------- ---------
Total current assets 743,327 413,346
--------- ---------
Property and equipment:
Furniture and equipment 43,916 47,619
Software and hardware 70,296 70,296
Leasehold improvements -0- 35,000
114,212 152,915
Accumulated depreciation and amortization 72,510 64,565
--------- ---------
41,702 88,350
Other assets 5,498 1,689
--------- ---------
Total assets $ 790,527 $ 503,385
========= =========
See accompanying notes.
</TABLE>
2
<TABLE>
<CAPTION>
Shepherd Surveillance Solutions, Inc.
Balance Sheet (Continued)
June 30, 1996 September 30, 1995
------------- -------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 290,063 $ 136,443
Accrued loss on open contracts 10,783 48,257
Deferred revenue 265,993 265,993
Deferred revenue on shipments to distributor 125,420 125,420
Accrued officers' salaries -0- 456,384
Loan from shareholder 2,298,500 925,000
Due to officer -0- 110,577
Due to shareholder 124,690 19,036
---------- ----------
Total current liabilities 3,115,449 2,087,110
---------- ----------
Commitments
Shareholders' deficit
Common Stock - $.001 par value
50,000,000 shares authorized;
Issued and outstanding shares
4,293,822 at June 30, 1996 4,294 5,753
Additional paid-in capital 6,226,715 5,768,871
Accumulated deficit (8,555,931) (7,358,349)
---------- ----------
Total shareholders' deficit (2,324,922) (1,583,725)
---------- ----------
Total liabilities and shareholders' deficit $ 790,527 $ 503,385
========== ==========
See accompanying notes.
</TABLE>
3
<TABLE>
<CAPTION>
Shepherd Surveillance Solutions, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 87,566 $ 13,244 $ 209,488 $ 131,228
Cost of revenues earned 18,937 2,882 56,531 72,719
------------ ------------ ------------- ------------
68,629 10,862 152,957 58,509
------------ ------------ ------------- ------------
Costs and other operating expenses:
Selling and promotion 366,504 149,364 580,986 450,258
General and administrative 380,987 169,961 632,339 449,240
Research and development 3,463 21,489 20,913 70,698
Depreciation and amortization 3,372 16,760 10,192 57,026
------------ ------------ ------------- ------------
Total costs and operating
expenses 754,326 357,574 1,244,430 1,027,222
------------ ------------ ------------- ------------
Loss from operations (685,697) (346,712) (1,091,473) (968,713)
------------ ------------ ------------- ------------
Other income (expenses):
Other income -0- -0- -0- 5,000
Interest income -0- 6 2 815
Loss on sale of asset -0- -0- -0- (933)
Loss on abandonment of asset -0- -0- (457) -0-
Interest expense (44,129) (7,260) (105,654) (70,586)
------------ ------------ ------------- ------------
(44,129) (7,254) (106,109) (65,704)
------------ ------------ ------------- ------------
Net loss $ (729,826) $ (353,966) $ (1,197,582) $ (1,034,417)
============ ============ ============= ============
Loss per share $ (.17) $ (.06) $ (.28) $ (.18)
============ ============ ============= ============
See accompanying notes.
</TABLE>
4
<TABLE>
<CAPTION>
Shepherd Surveillance Solutions, Inc.
Statement of Shareholder's Deficit
For the Nine Months Ended June 30, 1996
(Unaudited)
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
Balance at September 30, 1995 $ 5,753 $5,768,871 $(7,358,349) $(1,583,725)
Stock retired (1,459) 1,459 - -
Contributed capital - 456,385 - 456,385
Net loss - - (1,197,582) (1,197,582)
------------ -------------- ------------- -------------
Balance at June 30,1996 $ 4,294 $6,226,715 $(8,555,931) $(2,324,922)
========== ========== =========== ===========
See accompanying notes.
</TABLE>
5
<TABLE>
<CAPTION>
Shepherd Surveillance Solutions, Inc.
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended June 30,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net cash used by operating activities $(1,401,514) $(1,151,352)
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (net) 35,333 (33,250)
Net cash provided by (used in) investing activities (35,333) (33,250)
FINANCING ACTIVITIES
Loan from shareholder 1,373,500 1,175,000
Issuance of common stock -0- 107
Net cash provided by financing activities 1,373,500 1,175,107
----------- -----------
Net increase (decrease) in cash and cash equivalents 7,319 (9,495)
Cash and cash equivalents at beginning of period 18,215 44,316
----------- -----------
Cash and cash equivalents at end of period $ 25,534 $ 34,821
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ -0- $ 8,833
=========== ===========
Retirement of debt with exercise of warrants
for common stock $ -0- $ 2,650,000
=========== ===========
Issuance of common stock in lieu of cash payment
for interest $ -0- $ 54,493
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Release of liability for accrued officers' salaries $ 456,384 $ -0-
=========== ===========
Retirement of 1,459,190 shares of common stock
conveyed to the Company $ 1,459 $ -0-
=========== ===========
See accompanying notes.
</TABLE>
6
Shepherd Surveillance Solutions, Inc.
Notes to Financial Statements
June 30, 1996 and September 30, 1995
1. Basis of Presentation
The accompanying condensed quarterly financial statements have been prepared in
accordance with Item 310(b) of Regulation S-B and do not include all of the
information and footnotes required for complete financial statements. The
quarterly statements should be read in conjunction with the Company's audited
financial statements for the fiscal year ended September 30, 1995. In the
opinion of management, the statements include all adjustments necessary for a
fair presentation of the results of the reported interim periods. All such
adjustments are of a normal recurring nature.
The results of operations for the interim periods shown are not necessarily
indicative of results for any future interim periods or for the entire fiscal
year.
2. Inventory
Inventory consists of the following:
June 30, 1996 September 30, 1995
-------------- ------------------
Components $ 7,966 $ 7,966
Work in progress 584,433 247,382
---------- ----------
$ 592,399 $ 255,348
========== ==========
3. Stock Options and Warrant
Prior to 1995, key employees were granted options to purchase shares of the
Company's common stock. During the three months ended December 31, 1995 (the
"First Quarter"), options outstanding at September 30, 1995 were conveyed to the
Company as a result of settlements with former executives. During the three
months ended June 30, 1996 (the "Third Quarter"), the Company reserved 5,297,714
shares of its common stock for issuance of options to executives and key
employees.
Stock options and warrant activity for the nine months ended June 30, 1996
follows:
Options Warrant
------- -------
Granted/Issued prior to 1995, and outstanding
at September 30, 1995 1,264,893 -
Conveyed to the Company in the First Quarter (1,264,893) -
Granted/Issued during the Third Quarter 5,297,714 14,226,578
--------- ----------
Outstanding June 30, 1996 5,297,714 14,226,578
========= ==========
7
4. Related Party Transactions
Loans from shareholder; warrant
- -------------------------------
During the nine months ended June 30, 1996, the Company borrowed $75,000 from
Dominion Capital, Inc. ("Dominion") and $1,298,500 from Trilon Dominion
Partners, LLC ("Trilon"). Of the latter amount, $750,000 was received during the
Third Quarter.
During the First Quarter of 1996, Dominion conveyed to Trilon promissory notes,
issued by the Company and payable to Dominion, in the total amount of
$1,000,000.
As of October 1, 1996, the Company has borrowed an aggregate amount of
$3,659,000 from Trilon.
June 1996 Credit Agreement
- --------------------------
Pursuant to a Credit Agreement, dated as of June 28, 1996 (the "Agreement"),
between the Company and Trilon Dominion Partners, LLC, a Delaware limited
liability company ("Trilon"), among other things, Trilon agreed to extend credit
to the Company until June 27, 1999, in the aggregate principal amount not to
exceed $2,909,500 (including the aggregate amount of $1,298,500 lent by Trilon
to the Company prior to June 28, 1996). As of October 1, 1996, Trilon owned
3,367,802 of the 4,293,822 outstanding shares of the Company's common stock,
$.001 par value (the "Common Stock"), equal to 78% of the outstanding Common
Stock.
In connection with the Agreement, the Company executed and delivered to Trilon a
promissory note in the amount of $1,298,500 (the "Note"), and issued to Trilon a
warrant to purchase an additional 14,226,578 shares (before any adjustments) of
the Common Stock at an exercise price of $.01 per share, exercisable during the
period from June 28, 1996 until June 28, 2001 (the "Warrant").
As of October 1, 1996, Trilon had not exercised the Warrant. The Note requires
the Company either to make quarterly interest payments in cash during the first
year, calculated on the basis of a 360 day year at an annual rate equal to the
prime rate of the Chase Manhattan Bank, N.A.., as announced from time to time,
plus four percent (4%) or, of capitalizing the amount of such interest due by
adding such amount to the then outstanding principal amount of the Note, with
interest continuing to accrue on such aggregate principal amount. The Note
matures on June 28, 1999. The obligations of the Company under the Note are
secured by a lien on all of the Company's assets pursuant to an Amended and
Restated Security Agreement, dated as of August 8, 1994, between the Company and
Trilon.
Due to shareholder
- ------------------
The June 30, 1996 balance represents interest due on notes payable to and
advances from Trilon. No interest has been paid and the increase in accrued
interest corresponds to the additional borrowings from Trilon during the First,
Second and Third Quarters of 1996.
5. Per Share Amounts
Per share amounts for the three month and nine month periods ended June 30, 1996
were determined by dividing the net loss for each period by 4,293,822, the
number of shares of Common Stock outstanding during the periods.
Part I. Financial Information
- ------------------------------
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Results of operations
- ---------------------
8
The Company has, for the past several years, experienced substantial operating
losses, and its sales do not currently generate working capital sufficient to
meet future projected operating expenses.
Revenues increased by approximately $178,000 during the nine months ended June
30, 1996 over the comparable period in 1995, as a result of the timing of
completion of contracts and service jobs. Selling, general and administrative
expenses increased by approximately $314,000, a reflection of costs associated
with promoting the Company's revamped products and the corresponding expense of
sales and administrative staff to support that effort. Accounts receivable
decreased as a result of the completion of certain jobs and billing for those
jobs, and the receipt of payments. Inventories increased due to work in
progress. Interest expense increased as a result of accrued interest due on the
outstanding borrowings from Trilon. The increases in inventories and accounts
payable reflect the rising level of activities required to bring the Company's
product line to market. Accrued Officers' Salaries decreased as a result of a
settlement agreement and was recognized as contributed capital in the First
Quarter. The amount Due To Officer decreased as a result of payment in the First
Quarter.
Liquidity and capital resources
- -------------------------------
Management believes that the ratio of current assets to current liabilities in
the financial statements for the period ended June 30, 1996, as well as the
total shareholders' deficit, reflects the Company's current lack of liquidity.
Trilon, the owner of 78% of the Company's outstanding common stock, advanced
$1,298,500 to the Company during the nine months ended June 30, 1996, of which
$750,000 was received in the Third Quarter. This was the principal source of the
Company's working capital. On June 28, 1996, a formal Credit Agreement between
the Company and Trilon was executed (see Note 4 to financial statements).
The Company had cash and cash equivalents of approximately $25,000 at June 30,
1996. The Company subsequently borrowed approximately $1,360,000 from Trilon
during the fourth quarter of its fiscal year. The Company owes an additional
$1,000,000 previously advanced by Trilon. The Company is also required to repay
the amounts borrowed under the June 1996 Credit Agreement on or before June 28,
1999, and will also be required to repay to Trilon the $1,000,000 previously
borrowed (see Note 4 to financial statements for further detail). During the
next two fiscal quarters, the Company intends to apply any capital received
(from Trilon or otherwise) to the continued development of its technology, to
the positioning of its products in the market, and to repaying obligations under
credit agreements and other financing arrangements. Such costs will be for
engineering, promotion, marketing and production materials.
The Company's primary capital resources are proprietary software and specialized
hardware. As a result of its ongoing research and development efforts, enhanced
by recent working capital infusions, the Company anticipates no material change
to such resources. The Company intends to use these resources and any additional
capital raised or borrowed to continue its research and development efforts to
produce a line of new products which it will try to produce at reasonable costs.
The Company will need and hopes to continue to obtain additional capital or
financing for working capital purposes.
Risk Factors and Cautionary Statements
- --------------------------------------
When used in this Form 10-QSB and in other filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "hope to" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including but not limited to those discussed in
the notes to the financial statements and under this caption "Risk Factors and
Cautionary Statements", that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and wishes to
advise readers that the factors listed below could cause the Company's actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.
The Company will NOT undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
o The Company's future operating results are dependent on its ability to
develop, produce and market new and innovative products and technologies,
and eventually to enter into favorable licensing and distribution
relationships. There are numerous risks inherent in this complex process,
including the risk that rapid technological change could render the
Company's products obsolete, the risk that the Company will not be able to
timely develop new products at a reasonable cost that find acceptance in
the marketplace, and the risk that the Company will not be able to develop
procedures to bring to these products to the market in a timely fashion.
9
o The Company's continued working capital and cash resources are dependent on
its ability to obtain additional financing in the future, as the Company's
operations currently generate minimal revenues or income.
o The Company is highly leveraged, having borrowed over $2,700,000 during
fiscal 1996 from one of its shareholders without repaying any amounts of
principal or interest due on these loans. There can be no assurance that
the Company will be able to pay principal or interest due on any of these
loans from time to time. Any failure to pay interest or principal due on
these loans would have a material adverse effect on the Company.
o A single shareholder, Trilon Dominion Partners, L.L.C., which has been the
Company's principal lender, currently holds 3,367,802 shares of Common
Stock (78% of the outstanding Common Stock) and holds a warrant to purchase
14,226,578 additional shares of the Company's Common Stock. Accordingly,
such stockholder will be able to elect all of the Company's directors and,
generally, to direct the affairs of the Company. This stockholder could
effectively block any majority corporate transactions, such as a merger or
sale of all of the Company's assets, which, under Nevada law, requires the
affirmative vote of holders of a majority of the outstanding Common Stock
of the Company.
Furthermore, the Company's operating results have varied from fiscal period to
fiscal period; accordingly, the Company's financial results in any particular
fiscal period are not necessarily indicative of results for future periods.
Part II. Other Information
- ---------------------------
Item 1. Legal proceedings N/A
- --------------------------
Item 2. Changes in Securities N/A
- ------------------------------
Item 3. Defaults Upon Senior Securities N/A
- ----------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders N/A
- ------------------------------------------------------------
Item 5. Other Information
- --------------------------
Item 6. Exhibits and reports on Form 8-K
- ------------------------------------------
Exhibits
- --------
* 3.1 Articles of Incorporation, as amended
* 3.2 By-laws
*10.1 Credit Agreement, dated as of June 28, 1996, by and between the Company
and Trilon Dominion Partners, L.L.C., a Delaware limited liability
company
*10.2 Promissory Note, dated as of June 28, 1996, by the Company in favor of
Trilon Dominion Partners, L.L.C., a Delaware limited liability company
*10.3 Warrant to Purchase 14,226,578 shares of Common Stock of the company,
dated June 28, 1996
27 Financial Data Schedule
* Incorporated by reference to the same numbered Exhibits to the Company's
quarterly report for the period ended March 31, 1996, filed on Form 10-QSB.
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
10
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Shepherd Surveillance Solutions, Inc.
(Registrant)
Date: November 26, 1996 /s/ M. Thomas Makmann
- ------------------------ ---------------------------
M. Thomas Makmann
President and Principal Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the period ended June 30, 1996, included with
Form 10Q-SB, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 25,534
<SECURITIES> 0
<RECEIVABLES> 64,290
<ALLOWANCES> 0
<INVENTORY> 592,399
<CURRENT-ASSETS> 743,327
<PP&E> 114,212
<DEPRECIATION> (72,510)
<TOTAL-ASSETS> 790,527
<CURRENT-LIABILITIES> 3,115,449
<BONDS> 0
0
0
<COMMON> 4,294
<OTHER-SE> (2,329,216)
<TOTAL-LIABILITY-AND-EQUITY> 790,527
<SALES> 209,488
<TOTAL-REVENUES> 209,488
<CGS> 56,531
<TOTAL-COSTS> 56,531
<OTHER-EXPENSES> 1,244,885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,654
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,197,582)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,197,582)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
