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, 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 May 1, 1998: 5,005,166 shares of common stock without par
value.
1
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1998
Table of Contents
Page
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 . . . . . . . . . . . . . . .3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1998
and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the Three Months Ended March 31, 1998 . . . . . . . 5
Unaudited Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1998 and 1997. . . . . . . . .6
Notes to Unaudited Condensed Consolidated Financial Statements. .8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations. . . . . . . .9
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
nVIEW CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1998 December 31,
(Unaudited) 1997
--------------------- ------------------
<S><C>
Assets (note 4)
Current assets:
Cash and cash equivalents $1,497,556 $742,063
Receivables, net 2,564,390 4,317,967
Inventories (note 3) 3,725,106 3,975,958
Prepaid expenses 251,887 346,180
--------------------- ------------------
Total current assets 8,038,939 9,382,168
Property and equipment, net 406,409 459,724
Other assets, net 193,272 123,819
--------------------- ------------------
$8,638,620 $9,965,711
===================== ==================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,406,433 $1,020,760
Accrued expenses 831,074 951,971
--------------------- ------------------
Total current liabilities 2,237,507 1,972,731
Shareholders' equity:
Common stock, no par value
Authorized 20,000,000 shares; 5,005,166
shares issued and outstanding at March 31,
1998 and December 31, 1997 --- ---
Additional paid-in capital 25,060,978 25,060,978
Accumulated deficit (18,659,865) (17,067,998)
--------------------- ------------------
Total shareholders' equity 6,401,113 7,992,980
--------------------- ------------------
Commitments and contingencies (note 4)
$8,638,620 $9,965,711
===================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1998 1997
----------------- -----------------
<S> <C>
Sales $3,007,053 $7,163,449
Cost of goods sold 2,723,398 5,538,200
----------------- -----------------
Gross profit 283,655 1,625,249
----------------- -----------------
Marketing and promotion 645,464 851,191
Research and development 561,208 508,769
General and administrative 655,937 409,530
----------------- -----------------
Total operating expenses 1,862,609 1,769,490
----------------- -----------------
Loss from operations (1,578,954) (144,241)
Other income (expense):
Interest expense (11,010) (28,390)
Miscellaneous (1,903) 14,453
----------------- -----------------
(12,913) (13,937)
----------------- -----------------
Net loss ($1,591,867) ($158,178)
================= =================
Weighted average number of common and common
share equivalents outstanding 5,005,166 5,005,166
================= =================
Net loss per share - basic and diluted (note 5) ($0.32) ($0.03)
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
Common Stock
-------------------------------------
Additional Total
Number of Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
-------------------- ------------- ---------------- ---------------- -------------------
<S><C>
Balance at
December 31, 1997 5,005,166 --- $25,060,978 ($17,067,998) $7,992,980
Net loss --- --- --- (1,591,867) (1,591,867)
-------------------- ------------- ---------------- ---------------- -------------------
Balance at
March 31, 1998 5,005,166 --- $25,060,978 ($18,659,865) $6,401,113
==================== ============= ================ ================ ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
================== =================
<S> <C>
Cash flows from operating activities:
Net loss ($1,591,867) ($158,178)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 144,278 167,840
Change in assets and liabilities
increasing (decreasing) cash flows from
operating activities:
Receivables, net 1,753,577 1,412,533
Inventories 250,852 1,619,810
Prepaid expenses 94,293 15,684
Other assets (99,425) (605)
Accounts payable 385,673 (2,439,076)
Accrued expenses (120,897) (292,373)
------------------ -----------------
Total adjustments 2,408,351 483,813
------------------ -----------------
Net cash provided by operating activities 816,484 325,635
------------------- -----------------
Cash flows from investing activities:
Additions to property and equipment (60,884) (165,441)
Payment of deferred patent costs (107) (3,061)
------------------ -----------------
Net cash used in investing activities (60,991) (168,502)
------------------ -----------------
(Continued)
</TABLE>
6
<PAGE>
nVIEW CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
------------------ -----------------
<S> <C>
Net increase in cash and cash equivalents $755,493 $157,133
Cash and cash equivalents at beginning of period 742,063 1,802,596
------------------ -----------------
Cash and cash equivalents at end of period $1,497,556 $1,959,729
================== =================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $22,483 $7,856
================== =================
Cash paid during the period for income taxes --- ---
================== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
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 reported period in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
3. Inventories at March 31, 1998 and December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C>
Raw material $1,127,835 $1,158,830
Work in process 244,093 201,919
Finished goods 2,353,178 2,615,209
------------ ------------
Inventories $ 3,725,106 $ 3,975,958
============ ============
</TABLE>
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%. The borrowing base at March 31, 1998 was
approximately $1 million. Accounts receivable, equipment, inventory,
intangibles and other assets are pledged as collateral. The terms of
the Agreement contain no financial covenants. At May 1, 1998 the
Company had not borrowed against the line of credit. However, the
Company is a party to a stand-by letter of credit agreement in favor of
a supplier for $650,000. Subsequent to March 31, 1998, the Company
opened a second stand-by letter of credit in favor of a supplier in the
amount of $250,000. Both letters of credit reduce the Company's
available credit line under its borrowing agreement with its lender. As
of May 1, 1998, there were no outstanding balances under the letters of
credit.
5. During 1997, nVIEW adopted FAS 128, Earnings Per Share. All per share
amounts presented have been calculated in accordance with FAS 128.
6. Certain 1997 amounts in the condensed consolidated financial statements
have been reclassified to conform to 1998 financial statement
presentation.
8
<PAGE>
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, which are subject to risks and uncertainties. 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 net loss for the first quarter of 1998 was $1.6 million, or $0.32 per share,
compared to a net loss for the first quarter of 1997 of $158 thousand, or $0.03
per share.
Sales for the first quarter of 1998 totaled $3.0 million and were 58% less than
the comparable period of 1997 and 26% less than the previous quarter ended
December 31, 1997. As stated in previous quarters, declining sales continue as a
result of both decreased quantities sold and decreased selling prices in the
Company's traditional audio visual markets. When compared with the first quarter
of 1997, average sales prices of projectors for the first quarter of 1998 fell
29% and volumes of projectors sold during the first quarter of 1998 fell 51%. In
response to this situation, the Company intends to release its new P1500 product
series in the second quarter of 1998 targeted for sales in new markets with less
competition and higher profit margins.
Sales of the Company's DLP products declined 70% in the first quarter of 1998,
from the same period of 1997. Sales to Polaroid Corporation under an Original
Equipment Manufacturer's (OEM) Agreement comprised 36% of sales during the first
quarter of 1997, but 0% for the first quarter of 1998. The OEM agreement ended
under its own terms in 1997 and the Company has been unable to replace the
Polaroid sales with new business in its existing audio visual distribution
channels. Although down from one year ago, sales of the DLP products continue to
comprise the majority of the Company's current sales. DLP products represented
44% and 62% of sales for the quarters ended March 31, 1998 and 1997,
respectively.
Sales of the Company's projector series sold under the nVIEW label but purchased
from Matsushita Corporation increased 51% in the first quarter of 1998 when
compared to the first quarter of 1997. A majority of this increase was due to
the Company's introduction of its newest products in this series, the L-600 and
L-605.
Sales of the Company's LCD panel products represented 5% of sales in the first
quarter of 1998, compared to 14% of the Company's sales in the first quarter of
1997. Market demand for LCD panel products has been replaced with portable
projectors and is expected to continue to decline. The Company is no longer
producing panel products, and all sales have been made from existing inventory.
Gross profit as a percentage of sales decreased to 9% for the quarter ended
March 31, 1998 from 23% for the quarter ended March 31, 1997. The reduced gross
profit margin resulted from selling older model products at low to break-even
margins, and the impact of idle capacity from decreased production. Management
anticipates that production will increase in 1998 as the Company's new P1500
product series is manufactured. Also contributing to lower gross profit margins
are competitive pressures to reduce prices in the Company's traditional audio
visual channels, especially for SVGA products.
Operating expenses increased 5% to $1.9 million for the first quarter of 1998
from $1.8 million for the first quarter of 1997.
9
<PAGE>
Marketing and promotion expenses decreased $206 thousand to $645 thousand for
the first quarter of 1998 from $851 thousand for the first quarter of 1997. In
response to decreased sales, management took several steps in 1997 to reduce the
Company's operating expenses. Specifically, a reduction in work force and the
closing of the Company's sales office in the United Kingdom resulted in the
majority of the decline in marketing and promotion expenses. Management
anticipates increased marketing and promotion expenses in future quarters to
support the release of the P1500 projector series.
Research and development expenses increased $52 thousand to $561 thousand for
the first quarter of 1998 from $509 thousand for the first quarter of 1997.
Development costs increased to support the 1998 release of the Company's new
P1500 product series. In the second quarter of 1998, management anticipates
research and development expenses will include an amount equal to the fair
market value of 750,000 shares of nVIEW common stock issued to Snell & Wilcox
Limited ("S&W") in exchange for the development of a certain component to be
used in the Company's new P1500 projector series. This transaction is defined in
an agreement with S&W dated January 21, 1998 and includes terms which require
acceptance of the component by the Company before the shares are issued.
General and administrative expenses increased $246 thousand to $656 thousand for
the first quarter of 1998 from $410 thousand for the first quarter of 1997. In
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 occurred, general and administrative costs for the quarter
ended March 31, 1997 would have been $525 thousand, or $131 thousand lower than
the comparable period of 1998. The increase in 1998 general and administrative
expenses resulted from an addition to the Company's allowance for doubtful
accounts, in response to an increase in risk associated with certain past due
accounts.
Other expenses (net) for the quarters ended March 31, 1998 and 1997 consisted of
loan origination fees and other expenses associated with the Company's borrowing
arrangement with a bank through February 6, 1998 and with a new lender
thereafter. No amounts have been drawn under the Company's current borrowing
arrangement, although it has been reserved to secure standby letters of credit
in the aggregate amount of $900,000.
No income tax expense was estimated for the first quarters ended March 31, 1998
and 1997 due to the net operating losses incurred for both periods.
Financial Condition
Total assets decreased from $10.0 million at December 31, 1997 to $8.6 million
at March 31, 1998. This decrease was the net result of a decrease in accounts
receivable partially offset by an increase in cash.
Cash and cash equivalents increased to $1.5 million at March 31, 1998 from $742
thousand at December 31, 1997. In the first quarter of 1998, the Company spent
less on purchases of raw materials as it continued to sell finished goods
inventory which was on hand at December 31, 1997.
Net receivables decreased by $1.8 million from December 31, 1997 to March 31,
1998. This was the result of decreased sales in the first quarter of 1998 ($3.0
million) compared to the fourth quarter of 1997 ($4.1 million), increased cash
collections and the increase to the allowance for doubtful accounts discussed
above.
Inventories decreased to $3.7 million at March 31, 1998 from $4.0 million at
December 31, 1997. The largest component of this change was a decrease in VGA
finished goods, offset by a smaller increase in L-600 and L-605 inventory, the
Company's most recent product addition. The Company has not yet begun buying
significant components for its new P1500 projector series.
10
<PAGE>
Current liabilities increased by $265 thousand to $2.2 million at March 31, 1998
from $2.0 million at December 31, 1997. This increase relates to the receipt of
L-600 and L-605 inventory near the end of the first quarter.
Shareholders' equity decreased to $6.4 million at March 31, 1998 from $8.0 at
December 31, 1997. This decrease is due to the net loss incurred during the
first quarter of 1998.
Liquidity and Capital Resources
Cash provided by the collection of accounts receivable was sufficient to fund
the Company's operations during the first quarter of 1998. Also contributing to
the Company's positive cash flow in the first quarter was a reduction in
purchases of raw materials. In future quarters, management believes that initial
purchases of inventory components to be used in its new P1500 projector series
could require the Company to draw on its existing line of credit, subject to
availablility. Management intends to carefully monitor its cash, outstanding
letters of credit and availability under its line to provide sufficient
flexibility to meet its needs.
The Company entered into a three year, $5 million 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. As of March 31, 1998 the Company was
authorized to borrow approximately $1.0 million, of which $650 thousand was
reserved to support a standby letter of credit in favor of a supplier. This
availability will fluctuate on a daily basis and will decrease if accounts
receivable become ineligible, as defined in the Agreement. This availability
will also decrease if sales of the P1500 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 $900,000 has been reserved to secure the
issuance of two stand by letters of credit.
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, which is expected to be available for sale in the second 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.
On March 31, 1998, the Company had working capital of $5.8 million. The current
ratio decreased to 3.6 at March 31, 1998 from 4.8 at December 31, 1997, as a
result of a $1.3 million reduction in current assets and a $265 thousand
increase in current liabilities.
11
<PAGE>
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 effect on the Company's
business and results of operations.
During 1998 the Company intends to enter new markets in which it has not
previously competed. The P1500 projector 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 for 1998 release 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. 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 limited availability for borrowing under its line of credit.
Management intends to carefully monitor its cash, outstanding letters of credit
and availability under its line to provide sufficient flexibility to meet its
needs, but there can be no assurance that it will be successful.
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. The Company has been notified that it
is not in compliance with certain of the continued listing requirements for the
Nasdaq National Market and is evaluating steps to bring the Company into
compliance and is researching alternative trading mechanisms.
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 15, 1998
nVIEW CORPORATION
By: /s/ Angelo Guastaferro
-------------------------------------
Angelo Guastaferro
President, Chief Executive Officer
By: /s/ Jerry W. Stubblefield
------------------------------------
Jerry W. Stubblefield
Chief Financial Officer
Executive Vice President
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,497,556
<SECURITIES> 0
<RECEIVABLES> 3,129,242
<ALLOWANCES> (564,852)
<INVENTORY> 3,725,106
<CURRENT-ASSETS> 8,038,939
<PP&E> 3,348,556
<DEPRECIATION> (2,942,146)
<TOTAL-ASSETS> 8,638,620
<CURRENT-LIABILITIES> 2,237,507
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,638,620
<SALES> 3,007,053
<TOTAL-REVENUES> 0
<CGS> 2,723,398
<TOTAL-COSTS> 4,586,007
<OTHER-EXPENSES> 1,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,010
<INCOME-PRETAX> (1,591,867)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,591,867)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,591,867)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.32)
</TABLE>
