<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 SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-20970
VISION-SCIENCES, INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3430173
-------- ----------
(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 September 30, 1996.
Common Stock, par value of $.01 13,012,699
------------------------------- ----------------
(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>
September 30, March 31,
1996 1996
------------- -------------
ASSETS (audited)
------ -------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents............... $ 814,399 $ 1,688,651
Marketable securities 2,196,980 4,177,322
Accounts receivable, net of allowance...
for doubtful accounts of $52,000........ 1,671,408 1,124,379
Inventories............................. 1,507,162 1,803,720
Prepaid expenses and deposits........... 240,876 285,904
--------- ---------
Total current assets................ 6,430,825 9,079,976
--------- ---------
Property and Equipment, at cost:
Machinery and equipment................. 2,763,817 2,680,261
Furniture and fixtures.................. 214,626 214,626
Leasehold improvements.................. 302,764 302,764
--------- ---------
3,281,207 3,197,651
Less-Accumulated depreciation and
amortization........................... 1,695,993 1,433,572
--------- ---------
1,585,214 1,764,079
--------- ---------
Other Assets, net of accumulated
amortization of $59,000 and $56,000,
respectively........................... 247,204 231,839
--------- ---------
Total assets $ 8,263,243 $11,075,894
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Acceptances payable to a bank.......... $ 83,437 $ 127,602
Accounts payable....................... 1,062,134 418,054
Accrued expenses....................... 2,104,954 1,923,282
--------- ---------
Total current liabilities.......... 3,250,525 2,468,938
--------- ---------
Deferred Credit........................ 73,112 109,665
--------- ---------
Stockholders' Equity:
Common stock, $.01 par value--
Authorized--25,000,000 shares
Issued and outstanding--13,012,699
shares at September 30, 1996 and
12,972,699 shares at March 31, 1996.. 130,126 129,726
Additional paid-in capital............. 44,115,054 44,035,454
Accumulated deficit.................... (39,305,574) (35,667,889)
---------- ----------
Total stockholders' equity........... 4,939,606 8,497,291
Total liabilities and stockholders'
equity............................. $ 8,263,243 $ 11,075,894
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
-------------- -------------- -------------- --------------
Net sales............................... $ 2,178,318 $ 1,317,712 $ 3,975,868 $ 2,538,201
Cost of sales........................... 2,012,295 1,268,980 3,713,334 2,482,063
-------------- -------------- -------------- --------------
Gross profit........................... 166,023 48,732 262,534 56,138
Selling, general and administrative
expenses............................... 1,365,899 1,559,207 2,824,856 3,162,217
Research and development expenses....... 552,470 448,478 1,214,589 1,090,889
-------------- -------------- -------------- --------------
Loss from operations................... (1,752,346) (1,958,953) (3,776,911) (4,196,968)
Interest income......................... 43,795 84,092 105,025 180,321
Interest expense........................ -- -- -- --
Other income(expense), net.............. 13,234 5,629 34,201 26,376
-------------- -------------- -------------- --------------
Net loss............................... $(1,695,317) $(1,869,232) $(3,637,685) $(3,990,271)
============== ============== ============== ==============
Net loss per common share............... $(0.13) $(0.17) $(0.28) $(0.38)
============== ============== ============== ==============
Weighted average shares outstanding..... 13,005,743 10,789,511 12,995,595 10,552,897
============== ============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<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.... 40,000 400 79,600 -- 80,000
Net loss..................... -- -- -- (3,637,685) (3,637,685)
---------- ---------- ---------- ----------- ------------
Balance, September 30, 1996.. 13,012,699 $130,126 $44,115,054 (39,305,574) $ 4,939,606
========== ========= ========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, September 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(3,637,685) $(3,990,271)
Adjustments to reconcile net loss
to net cash used for operating activities:
Depreciation and amortization.................. 265,591 259,388
Compensation expense from stock option grants.. -- 36,369
Amortization of deferred credit................ (36,553) (36,555)
Changes in assets and liabilities:
Accounts receivable.......................... (547,029) 104,100
Inventories................................. 296,558 (225,692)
Prepaid expenses and deposits............... 45,028 (57,749)
Accounts payable............................ 644,080 295,931
Accrued expenses............................ 181,672 (3,597)
----------- -----------
Net cash used for operating activities..... (2,788,338) (3,618,076)
----------- -----------
Cash flows provided by (used for)
investing activities:
(Increase) Decrease in marketable securities... 1,980,342 (252,565)
Purchase of property and equipment............. (83,556) (382,296)
Increase in other assets....................... (18,535) --
----------- -----------
Net cash provided by (used for)
investing activities................... 1,878,251 (634,861)
----------- -----------
Cash flows provided by (used for)
financing activities:
Proceeds from sale of common stock............. -- 2,500,000
Proceeds from (payments of) acceptances
payable to a bank............................ (44,165) 62,189
Exercise of Stock Options...................... 80,000 50,000
----------- -----------
Net cash provided by financing activities.. 35,835 2,612,189
----------- -----------
Net decrease in cash and cash equivalents........ (874,252) (1,640,748)
Cash and cash equivalents, beginning of period... 1,688,651 3,479,035
----------- -----------
Cash and cash equivalents, end of period......... $ 814,399 $ 1,838,287
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<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.
5
<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
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:
September 30, March 31,
1996 1996
------------- -------------
<S> <C> <C> (audited)
Raw materials....... $ 214,825 $ 573,192
Work-in-process..... 247,933 217,026
Finished goods...... 1,044,404 1,013,502
---------- ----------
$1,507,162 $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:
Estimated
Asset Classification Useful Life
-------------------- -----------
Machinery and Equipment 5 Years
Furniture and Fixtures 5 - 7 Years
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: The Company follows Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires that the
Company follow the liability method in accounting for income taxes.
At September 30, 1996, the Company had recorded a full valuation
allowance against its deferred tax assets, which resulted principally
from the federal net tax operating losses offset by the tax effect of the
differing book and tax basis of certain current assets.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Net sales for the three and six months ended September 30, 1996, increased
$860,000 and $1,438,000, respectively, (or 65% and 57%, respectively), over
the comparable prior year periods. The increase in net sales was primarily
attributable to a combination of medical sales increasing $667,000 and
$1,184,000, (or 127% and 113%, respectively) and industrial sales increasing
$194,000 and $254,000, respectively, (or 25% and 17%, respectively) over the
comparable prior year periods.
The increase in medical sales for the three and six months ended September 30,
1996, as compared to the comparable prior year periods, resulted primarily
from the sales of the Company's ENT product line increasing $446,000 and
$787,000, respectively, (or 161% and 140%, respectively) and sales of the
Company's sigmoidoscope product line increasing $161,000 and $323,000,
respectively, (or 68% and 74%, respectively). The increase of sales of the
ENT product line was primarily the result of the Company being able to sell
its fiberoptic ENT scope during the first six months ended September 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 September 30, 1996, increased to
$166,000, or 8% of net sales, as compared to $49,000, or 4% of net sales, for
the comparable prior year period. Gross profit for the six months ended
September 30, 1996 increased to $263,000, or 7% of net sales, as compared to
$56,000, or 2% of net sales, for the comparable prior year period. The
increase in gross profit was primarily attributable to an increased sales
volume and an increased efficiency in manufacturing as the product processes
have been further refined.
Selling, general and administrative expenses for the three and six months
ended September 30, 1996, decreased $193,000 and $337,000, respectively, (or
12% and 11%, respectively), and represented 63% and 71% of net sales,
respectively, in the current year periods versus 118% and 125% of net sales,
respectively, in the comparable prior year periods. The decrease in these
expenses was primarily attributable to a decrease of $148,000 and $319,000,
respectively, (or 21% and 22%, respectively), in general and administrative
expenses for the three and six months ended September 30, 1996, as compared to
the comparable prior year periods. The decrease in general and administrative
expenses was primarily the result of lower payroll costs due to reduced
headcount in the financial and administrative areas. Selling and marketing
expenses decreased $45,000 and $19,000, respectively, (or 5% and 1%,
respectively), for the three and six months ended September 30, 1996, as
compared to the comparable prior year periods. The decrease in selling and
marketing expenses was primarily due to lower spending on outside services
which was partially offset by the costs associated with four additional direct
sales representatives.
Research and development expenses for the three and six months ended September
30, 1996, increased $104,000 and $124,000, respectively, (or 23% and 11%,
respectively), and represented 25% and 31% of net sales for the three and six
months ended September 30, 1996, respectively, versus 34% and 43% of net
sales, respectively, in the comparable prior year periods. The increase in
these expenses during the six months ended September 30, 1996, was the result
of the Company continuing to focus on research and development in order to
improve its existing products as well as bring new products to market.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Results of Operations (Continued)
---------------------
Interest income, net, for the three and six months ended September 30, 1996,
decreased $40,000 and $75,000, respectively, as compared to the comparable
prior year periods, primarily due to the lower cash and marketable securities
balances as a result of the Company's continued losses.
Other income (expense) net, for the six months ended September 30, 1996,
increased $8,000 as compared to the comparable prior year periods primarily
due to increased royalty income.
Liquidity and Capital Resources
-------------------------------
As of September 30, 1996, the Company had $814,000 in cash and cash
equivalents, $2,197,000 in marketable securities and working capital of
$3,180,000. The Company also has a cash collateralized demand bank line of
credit for up to $1,000,000 (which had approximately $916,000 available at
September 30, 1996) subject to renewal 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 $2,855,000 since March 31, 1996.
As of September 30, 1996, the Company's inventories had decreased $297,000 to
$1,507,000 as compared to $1,804,000 at March 31, 1996. The decrease was
primarily attributable to lower raw material stock as a result of increased
sales volume. The Company's capital expenditures during the six months ended
September 30, 1996 were $84,000. The Company anticipates that capital
expenditures for the fiscal year ending March 31, 1997 will total
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 from the proceeds from public and private equity financings. The
Company 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. The Company 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.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Rider A
ITEM 6: EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the quarter ended
September 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: November 8, 1996 By:
/s/ Steven A. Barner
---------------------
Corporate Controller
(Principal Financial Officer and
Principal Accounting Officer)
10
<PAGE>
RIDER A
-------
The Company held the 1996 Annual General Meeting of Shareholders (the "Annual
Meeting") on August 19, 1996. At the Annual Meeting, the following actions
were taken:
1. The stockholders re-elected Katsumi Oneda, Fred E. Silverstein, M.D. and
Janice B. Wyatt, as Class II Directors, to serve for a three-year term.
Holders of 11,541,828, 11,542,828 and 11,542,828 shares of Common Stock,
voted for Mr. Oneda, Dr. Silverstein and Ms. Wyatt, respectively; and
2. The stockholders ratified the appointment of Arthur Andersen LLP as the
Company's independent auditors for the current fiscal year by a vote of
11,553,849 shares of Common Stock for, 24,025 shares of Common Stock
against and 18,969 shares of Common Stock not voting.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-START> APR-01-1996 APR-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 814,399 1,688,651<F1>
<SECURITIES> 2,196,980 4,177,322<F1>
<RECEIVABLES> 1,671,408 1,124,379<F1>
<ALLOWANCES> 0 0<F1>
<INVENTORY> 1,507,162 1,803,720<F1>
<CURRENT-ASSETS> 240,876 285,904<F1>
<PP&E> 3,281,207 3,197,651<F1>
<DEPRECIATION> 1,695,993 1,433,572<F1>
<TOTAL-ASSETS> 8,263,243 11,075,984<F1>
<CURRENT-LIABILITIES> 3,250,525 2,468,938<F1>
<BONDS> 0 0<F1>
0 0<F1>
0 0<F1>
<COMMON> 130,126 129,726<F1>
<OTHER-SE> 4,809,480 8,367,565<F1>
<TOTAL-LIABILITY-AND-EQUITY> 8,263,243 11,075,894<F1>
<SALES> 2,178,318 0<F1>
<TOTAL-REVENUES> 2,178,318 0<F1>
<CGS> 2,012,295 0<F1>
<TOTAL-COSTS> 2,012,295 0<F1>
<OTHER-EXPENSES> 1,918,369 0<F1>
<LOSS-PROVISION> (1,752,346) 0<F1>
<INTEREST-EXPENSE> (43,795) 0<F1>
<INCOME-PRETAX> (1,695,317) 0<F1>
<INCOME-TAX> 0 0<F1>
<INCOME-CONTINUING> 0 0<F1>
<DISCONTINUED> 0 0<F1>
<EXTRAORDINARY> 0 0<F1>
<CHANGES> 0 0<F1>
<NET-INCOME> (1,695,317) 0<F1>
<EPS-PRIMARY> (0.13) 0<F1>
<EPS-DILUTED> 0 0<F1>
<FN>
<F1>
March 31, 1996 numbers
</FN>
</TABLE>
