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 September 30, 1998
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
(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 November 6, 1998: 6,255,166 shares of common stock without
par value.
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nVIEW CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1998
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 1998
and 1997 and the Nine Months Ended September 30, 1998 and 1997 . . . . . . . . . . . . . .. . . .4
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the Nine Months Ended September 30, 1998 . . . . . . . . . . .. . . . . . . . . . . . 5
Unaudited Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . .6
Notes to Unaudited Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . 7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . .9
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . .15
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
nVIEW CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,120,918 $ 742,063
Receivables, net 1,288,812 4,317,967
Inventories (note 3) 2,401,582 3,975,958
Prepaid expenses 207,215 346,180
------------- -------------
Total current assets 5,018,527 9,382,168
Property and equipment, net 376,338 459,724
Other assets, net 103,826 123,819
------------- -------------
$5,498,691 $9,965,711
============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,581,173 $1,020,760
Accrued expenses 790,781 951,971
------------- ------------
Total current liabilities 2,371,954 1,972,731
------------- ------------
Shareholders' equity (note 5):
Common stock, no par value
Authorized 20,000,000 shares;
6,255,166 and 5,005,166 shares
issued and outstanding at
September 30, 1998 and
December 31, 1997, respectively --- ---
Additional paid-in capital 25,954,103 25,060,978
Accumulated deficit (22,827,366) (17,067,998)
------------ -----------
Total shareholders' equity 3,126,737 7,992,980
------------- ------------
Commitments and contingencies (notes 2, 4)
------------- ------------
$5,498,691 $9,965,711
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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nVIEW CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sales $2,038,553 $3,464,537 $8,254,810 $15,825,381
Cost of goods sold 1,899,836 5,245,767 7,485,414 15,571,554
----------------- ---------------- ----------------- -----------------
Gross profit 138,717 (1,781,230) 769,396 253,827
----------------- ---------------- ----------------- -----------------
Marketing and promotion 576,482 841,632 1,882,387 2,429,720
Research and development (note 5) 645,827 590,419 2,666,254 1,511,842
General and administrative 480,678 601,226 1,919,374 1,624,668
----------------- ---------------- ----------------- -----------------
Operating expenses 1,702,987 2,033,277 6,468,015 5,566,230
----------------- ---------------- ----------------- -----------------
Loss from operations (1,564,270) (3,814,507) (5,698,619) (5,312,403)
Other income (expense):
Interest expense (21,507) (35,318) (59,479) (92,105)
Interest income 199 12,584 1,385 53,046
Miscellaneous 399 (4,983) (2,655) (4,961)
----------------- ---------------- ----------------- -----------------
(20,909) (27,717) (60,749) (44,020)
----------------- ---------------- ----------------- -----------------
Net loss ($1,585,179) ($3,842,224) ($5,759,368) ($5,356,423)
================= ================ ================= =================
Weighted average common shares
outstanding 6,255,166 5,005,166 5,618,719 5,005,166
================= ================ ================= =================
Net loss per share - basic and
diluted (note 6) ($0.25) ($0.77) ($1.03) ($1.07)
================= ================ ================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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nVIEW CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
Common Stock
----------------------------------
Additional Total
Number of Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------------------- ----------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 5,005,166 --- $25,060,978 ($17,067,998) $7,992,980
Common shares issued
for research and
development (note 5) 1,250,000 893,125 893,125
Net loss --- --- --- (5,759,368) (5,759,368)
------------------- ----------- ----------------- ---------------- -------------------
Balance at
September 30, 1998 6,255,166 --- $25,954,103 ($22,827,366) $3,126,737
=================== =========== ================ ================ ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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nVIEW CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($5,759,368) ($5,356,423)
---------------- ----------------
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 330,591 444,113
Loss on disposal of fixed assets --- 553
Loss on abandonment of patents --- 46,961
Stock issued for research and development 893,125 ---
Change in assets and liabilities increasing
(decreasing) cash flows from operating activities:
Receivables, net 3,029,155 4,753,443
Inventories 1,574,376 3,572,796
Prepaid expenses 138,965 (122,576)
Other assets (66,620) ---
Accounts payable 560,413 (3,973,424)
Accrued expenses (161,190) (214,837)
---------------- ----------------
Total adjustments 6,298,815 4,507,029
---------------- -----------------
Net cash provided by (used in) operating activities 539,447 (849,394)
---------------- ----------------
Cash flows used in investing activities:
Additions to property and equipment (158,798) (235,573)
Payment of deferred patent costs (1,794) (7,553)
---------------- ----------------
Net cash used in investing activities (160,592) (243,126)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents $378,855 ($1,092,520)
Cash and cash equivalents at beginning of period 742,063 1,802,596
----------------- ------------------
Cash and cash equivalents at end of period $1,120,918 $710,076
================= ==================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $35,922 $127,519
================= ==================
Cash paid during the year for income taxes --- ---
================= ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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nVIEW CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements of nVIEW
Corporation (the "Company") have been prepared by the Company pursuant
to the instructions for Form 10-Q and, accordingly, certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted where permitted by regulation. In
management's opinion, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments, consisting
of a normal recurring nature, necessary for a fair presentation of the
consolidated results of operations for the interim periods presented.
The consolidated results of operations for such interim periods are not
necessarily indicative of the results that may be expected for future
interim periods or for the year ended December 31, 1998. These interim
consolidated financial statements and the notes thereto should be read
in conjunction with the audited consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
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 at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
The Company's sales are generated from a relatively small number of
products. In addition, the markets in which the Company competes are
characterized by rapidly changing technology, requiring constant
product innovation. Most of the Company's existing products are at or
near the end of their respective product life cycles. The Company is
currently in the process of developing a new product line (the P1500
projector is the first product in the nVIEW Professional Series) but
has experienced developmental delays. The product is now expected to be
available for sale in limited quantities during the fourth quarter of
1998. Although management believes that this new product line will gain
acceptance in the marketplace and will provide the Company access to
new markets, there can be no assurance that the new product line will
be completed on a timely basis or that the products will be accepted in
the marketplace. Lack of acceptance of the new product line, especially
in light of the age of the Company's existing products, could have a
material adverse effect on the Company's results of operations and
financial position.
3. Inventories at September 30, 1998 and December 31, 1997 consist of the
following:
September 30, December 31,
1998 1997
Raw material $1,343,311 $1,158,830
Work in process 215,618 201,919
Finished goods 842,653 2,615,209
Inventories $ 2,401,582 $ 3,975,958
4. During the first quarter of 1998 the Company entered into a Loan and
Security Agreement (the "Agreement") with an asset based lender. The
Agreement, which expires on February 23, 2001, allows for maximum
borrowing of $5 million, subject to certain borrowing base limitations,
at the prime rate plus 1 1/2%. Accounts receivable, equipment,
inventory, intangibles and other assets are pledged as collateral. The
terms of the Agreement contain no financial
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covenants. Availability under the Agreement fluctuates daily as
accounts receivable fluctuate. At September 30, 1998, the borrowing
base of $478 thousand was not sufficient to support two stand-by
letters of credit totaling $900 thousand in favor of suppliers. As a
result, a portion of the Company's cash was restricted by the lender to
collateralize the letters of credit. Subsequent to September 30, 1998,
one of the letters of credit was reduced, decreasing the aggregate
outstanding letters of credit to $600 thousand. As of November 13,
1998, the Company had not borrowed against the line of credit and all
availability generated from accounts receivable was being used to
secure the letters of credit.
5. On May 20, 1998, the Company issued 1,250,000 shares of restricted
common stock to a vendor in exchange for research and development of a
major component of a new product, the P1500. The transaction, which was
valued by an independent appraisal, resulted in research and
development expense of $893,125 for the nine months ended September
30,1998.
6. During 1997, nVIEW adopted FAS 128, Earnings Per Share. All per share
amounts presented have been calculated in accordance with FAS 128.
7. Certain 1997 amounts in the condensed consolidated financial statements
have been reclassified to conform to 1998 financial statement
presentation.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In addition to historical information, this report contains forward-looking
statements regarding the development, production and sale of the Company's new
professional product line, cash available for operations, and other matters,
which are subject to risks and uncertainties. Numerous factors could affect the
Company's ability to achieve its anticipated goals, including, but not limited
to, delays in the development and production of the P1500 (the first product in
the nVIEW Professional Series), market acceptance of the new product,
competition, decisions by the Company's lender or suppliers adverse to the
Company, and the items discussed herein under the heading "Risk Factors".
Accordingly, the Company's actual results could differ materially from those
anticipated in these forward-looking statements. Undue reliance should not be
placed on these forward-looking statements, which reflect management's analysis
only as of the date hereof.
The following discussion and analysis should be read in conjunction with the
Management's Discussion and Analysis included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
Results of Operations
The Company's sales are generated from a relatively small number of products. In
addition, markets in which the Company competes are characterized by rapidly
changing technology, requiring constant product innovation. Most of the
Company's existing products are at or near the end of their respective product
life cycles and as a result, older product inventories are significantly reduced
and will provide a limited revenue stream in future quarters. The Company is
currently in the process of developing a new product line (the P1500 projector
is the first product in the nVIEW Professional Series) but has experienced
development delays of approximately six months. The Company now expects to have
limited quantities of the P1500 projector available for shipment in the fourth
quarter of 1998. Although management believes that this new product line will
gain acceptance in the marketplace and will provide the Company access to new
markets, there can be no assurance that the new product line will be completed
in the fourth quarter of this year or that the products will be accepted in the
marketplace. Lack of acceptance of the new product line, especially in light of
the age and depleted inventories of the Company's existing products, could have
a material adverse effect on the Company's results of operations and financial
position.
The net loss for the nine months ended September 30, 1998 was $5.8 million or
$1.03 per share, compared with a net loss of $5.4 million, or $1.07 per share
for the same period of 1997. For the quarter ended September 30, 1998, the net
loss was $1.6 million or $.25 per share, compared with a net loss of $3.8
million, or $.77 per share for the third quarter of 1997. The Company's 1998
results include an $893 thousand charge to research and development expense
representing the value of common stock issued to a vendor in exchange for the
development of a component of the P1500. This charge was accounted for as a
non-cash exchange of stock for goods and recorded at the fair market value of
the stock upon delivery of the goods in the second quarter of 1998.
Sales decreased by $7.6 million, or 48%, during the first nine months of 1998
from the same period of 1997. For the third quarter of 1998, sales declined by
$1.4 million, or 41%, from the third quarter of 1997. The Company's quarterly
sales have continued a downward trend as a result of both decreased quantities
and decreased selling prices for products sold in the Company's traditional
audio visual channels. For the first nine months of 1998, average selling prices
for the Company's projectors declined 20% and the quantity of projectors sold
declined 25%, compared to the first nine months of 1997. The Company's market
share in the audio visual channel continues to decrease due to market conditions
which include short product lives, increased competition and declining prices.
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The Company is currently developing a new product series. The P1500 projector is
the first product in the new nVIEW Professional Series and was originally
scheduled for release in the second quarter of 1998. The P1500 projector is
designed for the professional video market and features a modular design
concept, allowing it to be configured to meet the needs of a specific
application, and to be modified and upgraded by installing additional printed
circuit boards as future capabilities (such as HDTV) become available. During
the third quarter of 1998, demonstration units of the P1500 projector were
released to the Company's sales representatives who have demonstrated the
projector to customers. The Company continues to experience P1500 development
delays; however management expects to resolve the issues and to ship limited
quantities of the P1500 projector in the fourth quarter of 1998.
For the first nine months of 1998, the largest factor contributing to the
decline in sales was the Company's Diamond series of projectors which declined
$5.4 million from the first nine months of 1997. A portion of this decline was
attributed to a $2.5 million reduction in sales to Polaroid Corporation under an
Original Equipment Manufacturer's Agreement which ended in 1997. Additionally,
for the first nine months of 1998, sales of the Company's LCD panel products
were $2 million below the same period of 1997. The Company has sold out
substantially all of its remaining LCD panel inventory as of September 30, 1998.
For the third quarter of 1998, sales of the Company's Diamond series of
projectors declined by $998 thousand, while sales of the Company's private label
series increased by $213 thousand. The increase in private label series sales
demonstrates a shift in the product mix sold as customers move away from the
older Diamond line to the newer private label units. Although total sales in
1998 are lower than 1997, sales of the private label units in both the third
quarter and first nine months of 1998 grew by 36% and 25% over the respective
periods of 1997.
1999 sales will be dependent upon market acceptance of the new P1500 projector.
Delays in production of the P1500 projector could result in declines in future
quarterly sales below the level in the third quarter of 1998, as the Company has
nearly depleted all of its older product inventory.
Gross profit as a percentage of sales was 9% for the first nine months of 1998
compared to 2% for the comparable period of 1997. Quarterly gross profit
increased to 7% for the three months ended September 30, 1998 compared to a
negative 51% for the same quarter of 1997. 1997 gross profit was lower than 1998
due to relatively large increases to the inventory reserve during 1997. Although
up from the comparable periods of 1997, gross profit margin for the third
quarter of 1998 declined from 11% for the second quarter of 1998. Gross profit
margins are expected to remain low until operations include sales of the
Company's new P1500 projector, due to a continuing trend of declining selling
prices, especially for older model products as the Company continues to deplete
its inventory. As a result of selling the older products, the Company is also
experiencing idle capacity in its production facility which further reduces
gross profit margins. Increased production should take place once the P1500
projector is released.
Operating expenses decreased 16% to $1.7 million for the third quarter of 1998
when compared to the $2.0 million for the same quarter of 1997. For the nine
months ended September 30, 1998, operating expenses increased 16% to $6.5
million from $5.6 million for the same period of 1997. Year to date operating
expenses include $893 thousand of research and development expense representing
the value of stock issued to a vendor in exchange for the development of a
component to be used in the new Professional Series products.
Marketing and promotion expenses for the third quarter of 1998 decreased 32% to
$576 thousand from the same quarter of 1997, and 13% from the second quarter of
1998. For the nine months ended September 30, 1998, marketing and promotion
expenses decreased 23% to $1.9 million from the same period of 1997. The
decrease in marketing and promotion expenses during the third quarter of 1998
was primarily due to reduced sales and marketing personnel resulting in lower
compensation expense and
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related costs associated with recruiting, commissions and travel. Additionally,
due to the delay in the release of the Company's new P1500 projector, the
Company has delayed certain promotional activities associated with the product's
launch. Costs associated with these activities are expected to be incurred as
P1500 sales occur.
In addition to the reasons described above, 1998 year to date marketing and
promotion expenses were lower than the comparable period of 1997 because the
Company ended its contracts with computer distributors in 1997 in order to
reduce the related marketing expenses.
For the quarter ended September 30, 1998, research and development expenses
increased 9% to $646 thousand over the same quarter of 1997, and decreased 56%
from the second quarter of 1998. Research and development expenses for the first
nine months of 1998 increased 76% to $2.7 million over the same period of 1997.
For the third quarter of 1998, research and development expenses were higher
than the same period of 1997, due to the continued emphasis on completing the
Company's new P1500 projector, resulting in higher development costs. These
costs were offset, in part, by reduced compensation expense from a year earlier.
The single largest factor contributing to the increase in research and
development for the first nine months of 1998 was an $893 thousand charge to
research and development expense representing the value of 1,250,000 shares of
the Company's common stock issued to Snell & Wilcox Limited under the terms of
an agreement dated January 21, 1998. In consideration for the stock, Snell and
Wilcox developed the professional video board to be featured in the Company's
new Professional Series products. Snell and Wilcox also agreed to provide the
professional video board exclusively to the Company for at least one year if
certain volume commitments are met, as defined in the agreement.
General and administrative expenses for the third quarter of 1998 decreased 20%
to $481 thousand from the same quarter of 1997, and 39% from the second quarter
of 1998. For the first nine months of 1998, general and administrative expenses
increased 18% to $1.9 million over the same period of 1997. The single largest
factor creating lower general and administrative expenses in the third quarter
was reduced compensation expense, the result of a smaller executive management
group. The year to date increase in general and administrative expenses was the
result of an addition to the allowance for doubtful accounts recorded during the
second quarter of 1998 associated with specific past due accounts.
Other expenses did not change significantly in 1998 verses 1997, and were
comparable in terms of type of expense and amount.
Financial Condition
Total assets decreased 45% to $5.5 million at September 30, 1998 from $10
million at December 31, 1997. The majority of the reduction resulted from a $3
million decrease in accounts receivable and a $1.6 million decrease in
inventories, partially offset by an increase in cash. The reduced levels of
accounts receivable reflect lower sales and the impact of increases to the
allowance for doubtful accounts for specific past due accounts. The reduced
inventory reflects the depletion of older product inventory.
The Company's current ratio is 2.1, down from 4.8 at December 31, 1997.
Cash and cash equivalents and restricted cash at September 30, 1998 were $1.1
million, up $379 thousand from December 31, 1997. This increase resulted from
the Company's efforts to deplete its stock of older inventory, which has
provided a source of cash. Management expects cash collections to decrease in
the fourth quarter, as most of the Company's older products have now been
sold and
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marketing of the Company's new P1500 projector has just begun.
Net receivables decreased significantly from $4.3 million at December 31, 1997
to $1.3 million at September 30, 1998. The September 30, 1998 receivables
balance reflects lower quarterly sales during the third quarter of 1998 ($2
million) compared to the fourth quarter of 1997 ($4.1 million). Additionally,
cash collections during the third quarter of 1998 exceeded sales, thereby
lowering the ending balance of receivables. The decrease was also caused by
increases to the allowance for doubtful accounts in 1998 of $540 thousand
associated with specific past due accounts.
Inventories decreased $1.6 million from December 31, 1997 to September 30, 1998.
The majority of the reduction in inventories came from the sale of SVGA and XGA
Diamond projectors and the sale of older model VGA inventory and LCD panel
products. Because of the older market life of these products, the Company ceased
production of these products, which also contributed to the lower inventory.
Also contributing, but to a lesser extent, were sales of the Company's private
labeled products, which are purchased from a manufacturer.
Current liabilities increased by $399 thousand to $2.4 million at September 30,
1998 from December 31, 1997. This increase reflects the receipt of light engines
near the end of the quarter, which will be used in the P1500 projector, as well
as the receipt of L600 projectors which are purchased from a manufacturer and
private labeled by the Company.
Liquidity and Capital Resources
Cash provided by the collection of accounts receivable and the availability on
the line of credit to support letters of credit were sufficient to fund the
Company's operations during the third quarter of 1998. Also contributing to the
Company's positive cash flow in the third quarter were reduced operating
expenses and the timing of inventory receipts near the end of the quarter.
The Company entered into a three year line of credit agreement with a lender on
February 23, 1998 ("Agreement"). Amounts available to borrow under the Agreement
are based upon the results of an advance percentage applied to eligible
receivables, as defined by the lender, and the amount available to borrow is
capped at $2 million until the Company begins selling its new P1500 projector
and until the lender is satisfied such sales are eligible to borrow against. The
advance percentage will decrease if the Company exceeds a minimum formula
defined in the Agreement.
Availability under the Agreement fluctuates on a daily basis and decreases if
accounts receivable become ineligible, as defined in the Agreement. The
availability will also decrease if sales of the P1500 projector do not occur or
if such sales do occur but the lender does not allow the Company to immediately
borrow against them, as set forth in the Agreement. As of the date of this
filing, no amounts have been borrowed under the Agreement, although $600
thousand has been reserved to secure two stand by letters of credit. This
availability combined with cash of $751 thousand is funding current operations.
As of November 13, 1998, the Company had not borrowed against the line of credit
and all availability generated from accounts receivable was being used to secure
the letters of credit. One such letter of credit is in favor of a key supplier
of parts used in the P1500 projector.
The Company has only used its available line to secure stand by letters of
credit and has not drawn on the line since its inception on February 23, 1998.
However, in future quarters, management believes that initial purchases of
inventory components to be used in the Company's new P1500 projector will
require the Company to draw on the line of credit. As a result, during the
remainder of 1998 and in 1999, the Company's short term borrowing needs could
exceed its availability under its line of credit, due to production delays of
the P1500 projector and/or delays in receiving approval from the Company's
lender allowing borrowing against initial P1500 sales, as defined in the
Agreement. The Company's cash availability to fund operations also may be
adversely affected by declining levels of older inventory
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which have historically funded current operations; and the inability to predict
the timing of collections, inventory deliveries and payments with absolute
certainty.
In order to prepare for a potential shortfall in short term capital, subsequent
to September 30, 1998 management implemented a cost reduction plan. Although the
Company has taken these measures, there can be no assurance that short term
capital will be sufficient to fund operations.
Year 2000 Compliance
Management has a Year 2000 Remediation Plan ("Plan") in order to mitigate the
risk of Year 2000 compliance issues. The Plan addresses Year 2000 issues
relating to the Company's financial and operational systems and supplier
compliance. To date, remediation efforts under the Plan have consisted of
reviewing all Company software and hardware for Year 2000 compliance. The
Company has assessed the impact of Year 2000 compliance as it relates to the
Company's products and tooling used to manufacture these products and believes
the impact is minimal. The Company has not yet assessed the Year 2000 readiness
of its major suppliers and customers, but will begin doing so in early 1999. To
remedy certain non-proprietary software which has been identified as
non-compliant, the Company plans to purchase routine software upgrades during
1999 which are expected to bring such software into compliance. The cost of such
upgrades is estimated to be between $200,000 and $300,000.
The Company does not intend to acquire the above described software until its
liquidity position improves. There can be no assurance that the Company's
liquidity position will improve. There can also be no assurance that management
has identified all Year 2000 compliance issues; that software upgrades supplied
by vendors will be compliant, or that software upgrades can be completed on
schedule and within estimated costs.
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.
Over the past several years, the Company has generated losses from operations.
The Company expects to continue to incur losses until its P1500 projector
achieves market acceptance. There can be no assurances that the P1500 projector
will achieve market acceptance at a level sufficient to generate income in any
future period.
During 1998, the Company encountered technical difficulties which delayed the
release of its new P1500 projector. Other technical difficulties, as well as
component unavailability or other unforeseen problems could delay the production
and sale of the P1500 in future quarters, as could new, unforeseen technical or
manufacturing difficulties.
Management believes that initial purchases of inventory components to be used in
its new P1500 projector will require the Company to draw on its line of credit.
The Company's short-term borrowing needs could exceed its availability under the
line of credit, which is reduced by two stand by letters of credit. (See
Liquidity and Capital Resources.)
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 effect on the Company's
business and results of operations.
The Company is now entering new markets in which it has not previously competed.
The P1500 projector
13
<PAGE>
is the first product in the Professional Series developed by the Company for
sale into these new markets. Management has devoted all product development
resources of the Company on the new series, and the success of the Company is
largely dependent on successful launch and market acceptance of the series in
the new markets.
The Company's new products in development are based on single source components,
and unknown circumstances outside the Company's control could affect
availability of critical components.
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 is adequate, future returns could be greater than the
Reserve and may materially affect future results of operations.
The Company is continuing its efforts to reduce inventory levels and sell older
inventory. Price reductions of certain of the Company's older products have
resulted in lower gross margins and lower revenues. This trend is likely to
continue until the Company begins significant sales of the P1500, as older
inventory continues to be liquidated and as the current products become less
attractive in the market place due to the introduction of new products by the
Company or its competitors. The Company has depleted most of its older inventory
and will not have a significant supply of new products to sell until the P1500
is available for distribution.
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.
The Nasdaq Stock Market instituted new initial and continued listing
requirements, effective February 23, 1998, and the Company was notified that it
was not in compliance with certain of the continued listing requirements for the
Nasdaq National Market. The Company was unsuccessful in its appeal to remain on
the National Market System, and moved to the Nasdaq SmallCap Market on October
2, 1998. The Company must achieve a minimum closing bid price of $1.00 for 10
consecutive trading days prior to January 4, 1999, or it will be delisted from
the SmallCap Market. There can be no assurance that the Company will be able to
achieve the required closing bid price to remain on the Nasdaq SmallCap Market.
The Company has a Year 2000 Remediation Plan ("Plan") in order to mitigate the
risk of Year 2000 compliance issues. The Company does not intend to purchase
software or incur other significant expense until its liquidity position
improves. There can be no assurance that the Company's liquidity position will
improve. There can also be no assurance that management has identified all Year
2000 compliance issues; that software upgrades supplied by vendors will be
compliant, or that software upgrades can be completed on schedule and within
estimated costs.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
nVIEW Corporation held its 1998 Annual Meeting of Shareholders on July 16, 1998.
At the Annual Meeting, the following matters were acted upon by shareholders.
1. Election of directors. The following persons were elected as directors
of the Company to serve a one year term, with the votes For and
Withheld indicated below:
DIRECTOR FOR WITHHELD
Stephen C. Adams 5,906,491 83,450
Edgar M. Cortright 5,906,491 83,450
Angelo Guastaferro 5,893,791 96,150
Grant T. Hollett, Jr. 5,896,656 93,285
Joseph G. Morone 5,898,091 91,850
Barry Todd 5,894,791 95,150
James H. Vogeley 5,899,391 90,550
2. Ratification of KPMG Peat Marwick LLP as independent auditors for 1998.
FOR AGAINST ABSTAIN BROKER NON-VOTES
5,967,341 18,950 3,650 0
15
<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: November 13, 1998
nVIEW CORPORATION
By: /s/ Jerry W. Stubblefield
---------------------------------------
Jerry W. Stubblefield
President, Chief Executive Officer,
Chief Financial Officer
16
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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