UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 No. 0-19492
nVIEW Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1413745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
860 Omni Boulevard, Newport News, Virginia 23606-4238
(Address of principal executive office)
Registrant's telephone number, including area code: (757) 873-1354
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. [ X ] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 2, 1997: 5,005,166 shares of common stock without par
value.
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1997
Table of Contents
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets March 31, 1997
(unaudited) and December 31, 1996. . . . . . . . . .. . 3
Consolidated Statements of Operations
for the Three Months Ended March 31, 1997
and 1996 (unaudited) . . . . . . . . . . . . . . . .. . 4
Consolidated Statement of Shareholders'
Equity for the Three Months Ended March 31,
1997 (unaudited) . . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1997 and
1996 (unaudited). . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
nVIEW CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, December 31,
1997 1996
(Unaudited)
<S> <C>
Current assets:
Cash and cash equivalents $1,959,729 $1,802,596
Receivables, net 7,645,112 9,057,646
Inventories 10,377,950 11,997,760
Prepaid expenses 315,622 331,306
------------- -------------
Total current assets 20,298,413 23,189,308
Property and equipment, net 825,923 801,641
Other assets, net 168,373 191,388
------------- -------------
$21,292,709 $24,182,337
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $3,451,783 $5,890,860
Accrued expenses 697,232 989,605
------------- -------------
Total current liabilities 4,149,015 6,880,465
Shareholders' equity:
Common stock, no par value. Authorized
20,000,000 shares; 5,005,166 shares
issued and outstanding at March 31, 1997
and December 31, 1996 -- --
Additional paid-in capital 25,060,978 25,060,978
Accumulated deficit (7,917,284) (7,759,106)
------------- --------------
Total shareholders' equity 17,143,694 17,301,872
------------ ------------
$21,292,709 $24,182,337
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C>
Sales $7,163,449 $7,489,438
Cost of goods sold 5,538,200 6,177,073
----------- ----------
Gross profit 1,625,249 1,312,365
Marketing and promotion 851,191 1,214,118
Research and development 508,769 643,294
General and administrative 409,530 547,423
----------- -----------
Operating expenses 1,769,490 2,404,835
---------- ----------
Loss from operations (144,241) (1,092,470)
Other income (expense):
Interest expense (28,390) (20,654)
Interest income 14,086 16,362
Miscellaneous 367 130
------------ -----------
(13,937) (4,162)
------------ ------------
Loss before income taxes (158,178) (1,096,632)
Income tax expense -- --
----------- ------------
Net loss $(158,178) $(1,096,632)
========== ============
Loss per share $ (0.03) $ (0.22)
============= ============
Weighted average number of
common and common share
equivalents outstanding 5,005,925 4,904,241
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
(Unaudited)
Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Common Stock
Additional Total
Paid-in Accumulated Shareholders'
Capital Deficit Equity
Number of
shares Amount
<S> <C>
Balance at
December 31, 1996 5,005,166 $ -- $25,060,978 $(7,759,106) $17,301,872
Net loss -- -- -- (158,178) (158,178)
----------- -------------- --------------- ------------- -------------
Balance at
March 31, 1997 5,005,166 $ -- $25,060,978 $(7,917,284) $17,143,694
========= ============= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------
1997 1996
---- ----
<S> <C>
Cash flows from operating activities:
Net loss ($158,178) ($1,096,632)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 146,009 166,429
Loss on abandonment of patents 21,831 --
Changes in assets and liabilities increasing (decreasing) cash:
Receivables, net 1,412,534 (935,341)
Inventories 1,619,810 2,028,671
Prepaid expenses 15,684 (18,370)
Income taxes receivable -- (40,326)
Accounts payable (2,439,077) 581,848
Accrued expenses (292,373) (109,254)
------------- ------------
Total adjustments 484,418 1,673,657
------------- ----------
Net cash provided by operating activities 326,240 577,025
------------- -----------
Cash flows from investing activities:
Additions to property and equipment (165,441) (108,233)
Purchase of patents (3,061) (4,364)
Other assets (605) ---
------------- ----------------
Net cash used in investing activities (169,107) (112,597)
------------ -----------------
Cash flows from financing activities:
Proceeds from revolving line of credit -- --
------------- -----------------
Net cash provided by financing activities -- --
------------- -----------------
</TABLE>
6
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------
1997 1996
---- ----
<S> <C>
Net increase in cash and cash equivalents $157,133 $464,428
Cash and cash equivalents at beginning of period 1,802,596 1,404,816
----------- -----------
Cash and cash equivalents at end of period $1,959,729 $1,869,244
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $7,856 $42,723
=========== ============
Cash paid during the period for income taxes $0 $40,326
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. In the opinion of management, the accompanying unaudited interim
consolidated financial statements contain all adjustments (consisting
of normal recurring accruals) necessary to present fairly the financial
position and shareholders' equity as of March 31, 1997 and the results
of operations, and cash flows for the three months ended March 31, 1997
and 1996.
2. Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Management believes that the estimates are reasonable.
3. Inventories at March 31, 1997, and December 31, 1996, consist of the
following:
March 31, December 31,
1997 1996
Raw Material $4,721,177 $6,734,966
Work in process 637,908 211,399
Finished goods 5,018,865 5,051,395
------------- -------------
Inventories $10,377,950 $11,997,760
============= =============
4. As of March 31, 1997, the Company was in default of one of the
financial covenants required by the Company's loan and security
agreement with a bank. Subsequent to March 31, 1997, the bank agreed to
waive the covenant so that the Company is not in default. No amounts
had been advanced under the loan as of May 2, 1997.
5. The Company is a party to a letter of credit agreement (the Agreement)
in favor of a supplier. The Agreement is for $700 thousand and reduces
the available credit line under the Company's loan and security
agreement with a bank. As of May 2, 1997, there was no outstanding
balance under the Agreement.
6. During the first quarter of 1997, the Company received $115 thousand
from another company in settlement of a lawsuit.
7. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
Per Share, which revised the calculation of earnings per share for
publicly held companies in certain situations. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997. In the
opinion of management, SFAS No. 128 is not expected to have a material
impact on the Company's calculation of earnings per share.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The net loss for the first quarter of 1997 was $158 thousand or $.03 per share,
compared to a net loss for the first quarter of 1996 of $1.1 million or $.22 per
share.
Sales decreased 4% to $7.2 million for the first quarter of 1997 from $7.5
million for the first quarter of 1996. This decrease in sales was the result of
a decrease in panel product sales from the first quarter of 1996 to the first
quarter of 1997, partially offset by an increase in projector product sales
during the same period. The increase in projector product sales was the result
of two new product introductions during the first quarter of 1997: the L550
series of poly-silicon projectors which is purchased from a supplier and sold
under the nVIEW label, and a Digital Light Processing ("DLP") based projector
with "virtual" XGA capability. Sales of the L550 series and DLP projectors,
including the XGA capable model, accounted for 66% of sales in the first quarter
of 1997. The decrease in panel product sales reflects an industry wide shift in
the market from panel products to projectors. This trend began in 1996 and is
expected to continue. As a result, the Company has no panel products under
development but will continue selling its existing panel inventory.
Although higher than the first quarter of 1996, projector product sales
decreased by 41% from the fourth quarter of 1997. This was the result of
decreased sales of the SVGA DLP projector to the Company's largest customer,
Polaroid Corporation, with which the Company has an original equipment
manufacturer's agreement ("OEM") signed during the third quarter of 1996. The
Company expects this decline in SVGA DLP projector sales to Polaroid to
continue, as more companies enter the projection market. Sales to Polaroid
Corporation comprised 36% of sales during the first quarter of 1997. Also
contributing to the decreased projector sales was a decline in sales of the SVGA
DLP projector sold under the nVIEW label to international customers. This was
caused in part by a supplier's power supply voltage problem in certain foreign
countries. The problem was corrected by the supplier late in the first quarter
of 1997. International sales, including sales to Polaroid Corporation,
represented 55% of the Company's sales for the first quarter of 1997, compared
to 34% of the Company's sales for the first quarter of 1996.
Domestic sales represented 45% of sales in the first quarter of 1997 compared to
66% for the comparable period of 1996. The decrease in domestic sales was caused
by increased competition in the market. The entrance of many new projector
manufacturers has given the Company's domestic dealers a larger choice of
products, and they have chosen not to stock large inventories, thereby
decreasing their average order size. Also contributing to the lower domestic
sales were the dealers' limited credit capacities.
Sales of the Company's non-projection products decreased from the first quarter
of 1996 to the first quarter of 1997 by 47%, as the Company reevaluated and
refocused this area of business. However, the Company is actively pursuing new
business opportunities in this area and expects the sales to increase as a
percentage of the Company's total sales.
Gross profit as a percentage of sales increased from 18% for the quarter ended
March 31, 1996 to 23% for the quarter ended March 31, 1997. This was caused by a
change in the product mix from lower margin, older panel products which
comprised a majority of the sales during the first quarter of 1996, to higher
margin, newer projector product sales during the first quarter of 1997. The
first quarter of 1997 also included higher margin XGA panel sales.
Operating expenses decreased 26% to $1.8 million (25% of sales) for the first
quarter of 1997 from $2.4 million (32% of sales) for the first quarter of 1996.
This decrease is attributable to
9
<PAGE>
management's implementation of cost control measures in 1996.
Marketing and promotion expenses decreased $363 thousand to $852 thousand (12%
of sales) for the first quarter of 1997 from $1.2 million (16% of sales) for the
first quarter of 1996. This decrease was the result of management's decision to
reduce certain advertising and related consulting services, as well as certain
incentive based compensation. The Company's entrance into OEM selling
arrangements has also had a favorable impact on its marketing and promotional
expenses since the products involved are not marketed by nVIEW.
Research and development expenses decreased $135 thousand to $509 thousand (7%
of sales) for the first quarter of 1997 from $643 thousand (9% of sales) for the
first quarter of 1996. As a result of management's implementation of cost
control measures and improved quality control processes, new product development
costs are more predictable and are being held to pre-determined budgets.
General and administrative expenses decreased $138 thousand to $410 thousand (6%
of sales) for the first quarter of 1997 from $547 thousand (7% of sales) for the
first quarter of 1996. 1997 general and administrative costs were reduced by a
$115 thousand payment received in settlement of a suit filed against another
company. Had this one time payment not occured, general and administrative costs
for the quarter ended March 31, 1997 would have been $525 thousand, or $23
thousand lower than the comparable period of 1996.
Other income (expense) increased $8 thousand for the quarter ended March 31,
1997 from the first quarter of 1996. The net increase was caused by higher
unused line of credit fees for the first quarter of 1997 compared to the first
quarter of 1996. This was because the Company did not first enter into its
borrowing arrangement until February of 1996. No amounts have been drawn under
this borrowing arrangement.
No income tax expense was estimated for the first quarters ended March 31, 1997
and 1996.
Financial Condition
Total assets decreased from $24.2 million at December 31, 1996 to $21.3 million
at March 31, 1997. This decrease occurred in accounts receivable and
inventories, offset by a slight increase in cash.
Cash and cash equivalents increased to $2.0 million at March 31, 1997 from $1.8
million at December 31, 1996. This increase was caused primarily by the receipt
of a $115 thousand payment in settlement of a suit filed against another
company.
Net receivables decreased by $1.4 million from December 31, 1996 to March 31,
1997. This was the result of decreased sales in the first quarter of 1997 ($7.2
million) compared to the fourth quarter of 1996 ($11.2 million), offset by
delayed payments from certain foreign customers. Any amounts that management
believes to be uncollectible are covered by appropriate allowances at March 31,
1997.
Inventories decreased to $10.4 million at March 31, 1997 from $12.0 million at
December 31, 1996. This decrease was due to the build out and subsequent sale of
components received during the fourth quarter of 1996. Component purchases were
also reduced during the first quarter of 1997 in response to decreased sales.
Current liabilities decreased 40% to $4.1 million at March 31, 1997 from $6.9
million at December 31, 1996. The decrease is due to the reduced component
purchases discussed above.
Shareholders equity decreased to $17.1 million at March 31, 1997 from $17.3 at
December 31,
10
<PAGE>
1996. The decrease is due to the net loss incurred during the first quarter of
1997.
Cash flow from operating activities, including the receipt of a $115 thousand
payment in settlement of a suit filed against another company, was sufficient to
fund operations during the first quarter of 1997. The Company believes that
existing cash, cash generated from on-going operations and the revolving bank
line of credit will be adequate to meet the anticipated operating, investing and
financing needs of the Company for the foreseeable future. The Company was in
default of one of the financial covenants contained in its revolving line of
credit, when measured at March 31, 1997. The lender agreed to waive the covenant
at March 31, 1997 so that the Company is not in default.
On March 31, 1997, the Company had total working capital of $16.1 million. The
current ratio increased to 4.9 at March 31, 1997 from 3.4 at December 31, 1996.
The increase is primarily due to a decrease in current liabilities.
Risk Factors
The following discussion of risk factors describes certain aspects of the
business environment in which the Company operates. These risk factors, along
with other information in this report, should be carefully considered by users
of this report.
The markets in which the Company operates are characterized by rapidly changing
technology, resulting in short product lives. Actual or anticipated product
releases by the Company or its competitors could cause customers to delay
purchases until the new products are available and/or to discontinue purchases
of existing products altogether. The Company's competitors may introduce
products which utilize new technologies to which the Company does not have
access. Any of these factors could have a material affect on the Company's
business and results of operations. While the Company believes that it can
deliver competitive products in a timely manner in this environment, there can
be no assurance that it will succeed in doing so.
One of the Company's projector products, the D400 projector series, uses a
subassembly developed and produced only by TI. While the subassembly has been
available in sufficient quantities to meet demand, and the Company believes this
availability will continue, there can be no assurance that it will be available.
As with any developing technology, unknown circumstances outside the Company's
control could affect availability of this critical, single-source component.
While TI does not compete directly with the Company through manufacture and sale
of similar projection equipment, it does sell this subassembly to other
manufacturing companies that directly compete with the Company. Should TI cease
production or delivery of this component, the result could have a material
adverse affect on the Company's sales.
While the Company's DLP based projector has been successful in the marketplace,
the demand for it has declined. There can be no assurance that the DLP will
continue to be successful, as increasing numbers of competitors introduce new
products and technologies and price competition intensifies.
A significant portion of the Company's shipments typically occur in the last
month of a quarter due to customers' ordering patterns, the timing of sales
promotions, component availability or technical challenges. These factors may
cause volatility in quarterly and annual results in future periods.
Revenue from the sale of products is recognized at the time of shipment to the
customer. The Company maintains a reserve for sales returns and allowances (the
"Reserve") based upon historical rates of returns. While the Company believes
its estimated Reserve for sales returns and allowances is adequate, future
returns could be greater than the Reserve and may materially affect future
results of operations.
11
<PAGE>
The Company is continuing its efforts to reduce inventory levels and move older
inventory. Price reductions of certain of the Company's older products may
result in lower gross margins. This trend could continue as older inventory
continues to be liquidated and as the current products become less attractive in
the market place due to new products introduced by the Company or its
competitors.
To date the Company has not been able to meet all of the covenants in its loan
and security agreement with a bank, and the lender has been willing to waive the
defaults. However, there can be no assurance that the Company will meet the
covenants in the future, nor that the lender will continue to waive the
defaults.
The trading price of the Company's common stock has been and is expected to
continue to be subject to immediate and wide fluctuations due to factors both
within and outside of the Company's control. These factors include, but are not
limited to, the following: fluctuations in operating results or financial
position, availability of financing, new product introductions by the Company or
its competitors, product reviews by trade publications, estimates or statements
made by analysts regarding the Company or the industry and markets in which the
Company operates and stock market price fluctuations.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 12, 1997
nVIEW CORPORATION
By: /s/Angelo Guastaferro
-------------------------
Angelo Guastaferro
Chairman, President and
Chief Executive Officer
By: /s/ Jerry W. Stubblefield
----------------------------
Jerry W. Stubblefield
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,959,729
<SECURITIES> 0
<RECEIVABLES> 7,885,995
<ALLOWANCES> (240,883)
<INVENTORY> 10,377,950
<CURRENT-ASSETS> 20,298,413
<PP&E> 3,389,134
<DEPRECIATION> (2,563,211)
<TOTAL-ASSETS> 21,292,709
<CURRENT-LIABILITIES> 4,149,015
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,143,694
<TOTAL-LIABILITY-AND-EQUITY> 21,292,709
<SALES> 7,163,449
<TOTAL-REVENUES> 7,163,449
<CGS> 5,538,200
<TOTAL-COSTS> 5,538,200
<OTHER-EXPENSES> 1,769,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,937
<INCOME-PRETAX> (158,178)
<INCOME-TAX> 0
<INCOME-CONTINUING> (158,178)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (158,178)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
