<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
COMMISSION FILE NUMBER 0-20970
VISION-SCIENCES, INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3430173
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
6 Strathmore Road, Natick, MA 01760
----------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 650-9971
--------------
None
----
(Former name, former address, and
former fiscal year if changed since last report)
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 requirement for the past 90 days.
Yes X No
- --
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of June 30, 1996.
Common Stock, par value of $.01 13,002,699
------------------------------- ----------
(Titles of Class) (Number of Shares)
<PAGE>
VISION-SCIENCES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page
-------
<S> <C>
Consolidated Balance Sheets.................................................. 1
Consolidated Statements of Operations........................................ 2
Consolidated Statement of Stockholders' Equity............................... 3
Consolidated Statements of Cash Flows........................................ 4
Notes to Consolidated Financial Statements................................... 5 - 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 7 - 8
Part II. Other Information............................................................ 9
Signature.................................................................... 10
</TABLE>
<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------ ------------
ASSETS (audited)
-------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............. $1,961,731 $ 1,688,651
Marketable securities................. 2,411,926 4,177,322
Accounts receivable, net of allowance
for doubtful accounts of $52,000..... 1,246,370 1,124,379
Inventories........................... 1,468,214 1,803,720
Prepaid expenses and deposits......... 289,381 285,904
---------- -----------
Total current assets............... 7,377,622 9,079,976
---------- -----------
Property and Equipment, at cost:
Machinery and equipment............... 2,801,395 2,680,261
Furniture and fixtures................ 214,626 214,626
Leasehold improvements................ 302,764 302,764
---------- -----------
Less-Accumulated depreciation and 3,318,785 3,197,651
amortization......................... 1,566,449 1,433,572
---------- -----------
1,752,336 1,764,079
---------- -----------
Other Assets, net of accumulated
amortization of $58,000
and $56,000, respectively............. 230,806 231,839
---------- -----------
Total assets....................... $9,360,764 $11,075,894
========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current Liabilities:
<S> <C> <C>
Acceptances payable to a bank........ $ 61,822 $ 127,602
Accounts payable..................... 630,094 418,054
Accrued expenses..................... 1,962,536 1,923,282
------------ ------------
Total current liabilities......... 2,654,452 2,468,938
------------ ------------
Deferred Credit........................ 91,389 109,665
------------ ------------
Stockholders' Equity:
Common stock, $.01 par value--
Authorized--25,000,000 shares
Issued and outstanding--13,002,699
shares atJune 30, 1996 and
12,972,699 shares at March 31, 1996 130,026 129,726
Additional paid-in capital........... 44,095,154 44,035,454
Accumulated deficit.................. (37,610,257) (35,667,889)
------------ ------------
Total stockholders' equity........ 6,614,923 8,497,291
------------ ------------
Total liabilities and stockholders'
equity........................... $ 9,360,764 $ 11,075,894
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Net sales............................... $ 1,797,550 $ 1,220,489
Cost of sales........................... 1,701,039 1,213,083
----------- -----------
Gross profit.......................... 96,511 7,406
Selling, general and administrative
expenses............................... 1,458,957 1,603,010
Research and development expenses....... 662,119 642,411
----------- -----------
Loss from operations.................. (2,024,565) (2,238,015)
Interest income......................... 61,230 96,229
Interest expense........................ -- --
Other income (expense), net............. 20,967 20,747
----------- -----------
Net loss.............................. $(1,942,368) $(2,121,039)
=========== ===========
Net loss per common share............... $( 0.15) $( 0.21)
=========== ===========
Weighted average shares outstanding..... 12,985,336 10,313,682
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Total
Number of $.01 Paid-in Accumulated Stockholders'
Shares Par Value Capital Deficit Equity
--------- ----------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996,
(audited)............................ 12,972,699 $129,726 $44,035,454 $(35,667,889) $8,497,291
Exercise of stock options ........... 30,000 300 59,700 --- 60,000
Net loss............................. --- --- --- (1,942,368) (1,942,368)
----------- --------- ----------- ----------- -----------
Balance, June 30, 1996............... 13,002,699 $130,026 $44,095,154 $(37,610,257) $6,614,923
=========== ========= ============ ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(1,942,368) $(2,121,039)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization........ 134,462 137,081
Compensation expense from stock
option grants....................... -- 18,184
Amortization of deferred credit...... (18,276) (18,278)
Changes in assets and liabilities:
Accounts receivable................ (121,991) 274,092
Inventories........................ 335,506 155,576
Prepaid expenses and deposits...... (3,477) (62,506)
Accounts payable................... 212,040 294,447
Accrued expenses................... 39,254 (6,649)
----------- -----------
Net cash used for operating
activities....................... (1,364,850) (1,329,092)
----------- -----------
Cash flows provided by (used for)
investing activities:
(Increase) Decrease in marketable
securities........................... 1,765,396 (1,546,141)
Purchase of property and equipment.... (121,134) (260,041)
Increase in other assets.............. (552) --
----------- -----------
Net cash provided by (used for)
investing activities............. 1,643,710 (1,806,182)
----------- -----------
Cash flows provided by (used for)
financing activities:
Proceeds from sale of common stock.... -- 2,500,000
Payments of acceptances payable to a
bank................................. (65,780) (76,008)
Proceeds from exercise of stock
options.............................. 60,000 --
----------- -----------
Net cash provided by (used for)
financing activities............. (5,780) 2,423,992
----------- -----------
Net decrease in cash and cash
equivalents............................ 273,080 (711,282)
Cash and cash equivalents, beginning of
period................................. 1,688,651 3,479,035
----------- -----------
Cash and cash equivalents, end of period $ 1,961,731 $ 2,767,753
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period
for interest.................... $ -- $
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and include, in the
opinion of management, all adjustments (consisting only of normal and
recurring adjustments) that the Company considers necessary for a fair
presentation of such information. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes, however, that
its disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's latest annual report to stockholders. The
results for the interim periods presented are not necessarily indicative of
results to be expected for the full fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies described below:
a. Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.
b. Cash Equivalents: Cash equivalents are carried at cost, which
approximates market value. Cash equivalents are short-term, highly
liquid investments with original maturities of less than three
months.
c. Marketable Securities: Marketable securities are investments,
consisting of U.S. Government issues and commercial paper, with
original maturities greater than three months. Any gains or losses
resulting from market fluctuations are charged to the consolidated
statement of operations during the period incurred.
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<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. Inventories: Inventories are stated at the lower of cost or market using
the first-in, first-out (FIFO) method and consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
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(audited)
<S> <C> <C>
Raw materials...................... $ 112,159 $ 573,192
Work-in-process.................... 289,888 217,026
Finished goods..................... 1,066,167 1,013,502
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$1,468,214 $1,803,720
========== ==========
</TABLE>
Work-in-process and finished goods inventories consist of material,
labor, and manufacturing overhead.
e. Depreciation and Amortization: The Company provides for depreciation
and amortization using the straight-line method in amounts that
allocate the cost of the assets to operations over their estimated
useful lives as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
-------------------- -----------
<S> <C>
Machinery and Equipment................. 5 Years
Furniture and Fixtures.................. 5 - 7 Years
</TABLE>
Leasehold improvements are amortized over the shorter of their
estimated useful life or the life of the lease.
f. Net Loss Per Common Share: Net loss per common share is based on the
weighted average number of common shares outstanding. Shares of common
stock issuable pursuant to stock options and warrants have not been
considered, as their effect would be antidilutive.
g. Revenue Recognition: The Company recognizes revenue upon product
shipment.
h. Foreign Currency Transactions: The Company charges foreign currency
exchange gains or losses, in connection with its purchases of products
from vendors in Japan, to operations in accordance with Financial
Accounting Standards Board Statement No. 52.
i. Income Taxes: As of April 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires that the Company follow the liability method in account-
ing for income taxes.
At June 30, 1996, the Company has recorded a full valuation allowance
against its deferred tax asset, which results principally from the fed-
eral net tax operating losses offset by the tax effect of the differ-
ing book and tax basis of certain current assets.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales for the three months ended June 30, 1996, increased $577,000, or 47%,
over the comparable prior year period. The increase in net sales is
attributable to a combination of medical sales increasing $517,000, or 98%, and
industrial sales increasing $60,000, or 9%, over the three months ended June 30,
1995.
The increase in medical sales for the three months ended June 30, 1996, as
compared to the comparable prior year period, resulted primarily from sales of
the Company's ENT product line increasing $341,000, or 119%, and sales of the
Company's sigmoidoscope product line increasing $161,000, or 80%. The increase
in sales of the ENT product line was primarily the result of the Company being
able to sell its fiberoptic ENT scope during the three months ended June 30,
1996 after receiving clearance from the FDA in December 1995. The increase in
sales of the Company's sigmoidoscope product line was primarily the result of
increased acceptance in the marketplace.
Gross profit for the three months ended June 30, 1996, increased to $97,000, or
5% of net sales, as compared to $7,000, or 1% of net sales, for the comparable
prior year period. The increase in gross profit is attributable to increased
sales volume overall and increased efficiency in manufacturing as the production
processes are further refined.
Selling, general and administrative expenses for the three months ended June 30,
1996, decreased $144,000, or 9%, and represented 81% of net sales in the current
period versus 131% of net sales in the comparable prior year period. The
decrease in expenses was primarily attributable to a decrease of $170,000, or
22%, in general and administrative expenses for the three months ended June 30,
1996, as compared to the comparable prior year period. The decrease in general
and administrative expenses was primarily due to lower payroll costs as a result
of reduced headcount in the financial and administrative areas. Selling and
marketing expenses increased $26,000, or 3%, for the three months ended June 30,
1996 as compared to the comparable prior year period. The increase in selling
and marketing expenses was primarily due to costs associated with four
additional direct sales representatives partially offset by lower spending on
outside services.
Research and development expenses increased $20,000, or 3%, for the three months
ended June 30, 1996 and represented 37% of net sales in the current period
versus 53% of net sales in the comparable prior year period. The Company is
continuing to focus on research and development in order to improve its existing
products as well as bring new products to market.
Interest income, net, decreased $35,000 for the three months ended June 30,
1996, as compared to the comparable prior year period primarily due to the lower
cash and cash equivalents and marketable securities balances as a result of the
Company's continued losses.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1996, the Company had $1,962,000 in cash and cash equivalents,
$2,412,000 in marketable securities and a working capital of $4,723,000. The
Company also has a cash collateralized demand bank line of credit for up to
$1,000,000 (which had approximately $938,000 available at June 30, 1996) subject
to review in January 1997, for use in support of general working capital needs
and the issuance of commercial and standby letters of credit. The Company's
cash, cash equivalents, and marketable securities decreased $1,492,000 since
March 31, 1996.
As of June 30, 1996, the Company's inventories had decreased $336,000 to
$1,468,000 as compared to $1,804,000 at March 31, 1996. The decrease was
primarily attributable to lower raw material stock levels as a result of
increased sales volume. The Company's capital expenditures during the three
months ended June 30, 1996 were $121,000. The Company anticipates that capital
expenditures for the fiscal year ending March 31, 1997 will be approximately
$500,000.
The Company has incurred losses since its inception and losses are expected to
continue at least through fiscal year 1997. The Company has funded the losses
principally with the proceeds from public and private equity financings.
Management will be required to obtain additional financing or an alternative
means of support; however, there can be no assurances that such funding or
financial support will be available or adequate to allow the Company to continue
as a going concern. Management is currently pursuing various sources of
financial support. In the event that these or other plans are not successful,
there is substantial doubt concerning the Company's ability to continue as a
going concern.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The Registrant has filed no reports on Form 8-K during the quarter
ended June 30, 1996.
-9-
<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.
Vision-Sciences, Inc.
Date: August 8, 1996 By: /s/ Steven A. Barner
-------------------------
Steven A. Barner
Corporate Controller
(Principal Financial Officer and
Principal Accounting Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VISION
SCIENCES, INC. 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-START> APR-01-1996 APR-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 1,961,731 1,688,651<F1>
<SECURITIES> 2,411,926 4,177,322<F1>
<RECEIVABLES> 1,246,370 1,124,379<F1>
<ALLOWANCES> 0 0
<INVENTORY> 1,468,214 1,803,720<F1>
<CURRENT-ASSETS> 289,381 285,904<F1>
<PP&E> 3,318,785 3,197,651<F1>
<DEPRECIATION> 1,566,449 1,433,572<F1>
<TOTAL-ASSETS> 9,360,764 11,075,894<F1>
<CURRENT-LIABILITIES> 2,654,452 2,468,938<F1>
<BONDS> 0 0
0 0
0 0
<COMMON> 130,026 129,726<F1>
<OTHER-SE> 6,484,897 8,367,565<F1>
<TOTAL-LIABILITY-AND-EQUITY> 9,360,764 11,075,894<F1>
<SALES> 1,797,550 1,220,489
<TOTAL-REVENUES> 1,797,550 1,220,489
<CGS> 1,701,039 1,213,083
<TOTAL-COSTS> 1,701,039 1,213,083
<OTHER-EXPENSES> 2,121,076 2,245,421
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,942,368) (2,121,039)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,942,368) (2,121,039)
<EPS-PRIMARY> (0.15) (0.21)
<EPS-DILUTED> 0 0
<FN>
<F1>March 31, 1996 numbers
</FN>
</TABLE>
