<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 DECEMBER 31, 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 December 31, 1996.
Common Stock, par value of $.01 14,696,909
------------------------------- ----------------
(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>
December 31, March 31,
1996 1996
--------------- --------------
ASSETS
------
Current Assets:
<S> <C> <C>
Cash and cash equivalents........................... $ 410,292 $ 1,688,651
Marketable securities............................... 3,401,475 4,177,322
Accounts receivable, net of allowance for doubtful
accounts of $52,000................................. 1,631,568 1,124,379
Inventories......................................... 1,106,601 1,803,720
Prepaid expenses and deposits....................... 258,934 285,904
--------------- ---------------
Total current assets............................ 6,808,870 9,079,976
--------------- ---------------
Property and Equipment, at cost:
Machinery and equipment............................. 2,798,019 2,680,261
Furniture and fixtures.............................. 214,626 214,626
Leasehold improvements.............................. 304,564 302,764
--------------- ---------------
3,317,209 3,197,651
Less-Accumulated depreciation and amortization...... 1,824,936 1,433,572
--------------- ---------------
1,492,273 1,764,079
--------------- ---------------
Other Assets, net of accumulated amortization of $60,500
and $56,000, respectively........................... 221,861 231,839
--------------- ---------------
Total assets.................................... $ 8,523,004 $ 11,075,894
=============== ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Acceptances payable to a bank....................... $ 87,259 $ 127,602
Accounts payable.................................... 521,031 418,054
Accrued expenses.................................... 2,447,436 1,923,282
--------------- ---------------
Total current liabilities....................... 3,055,726 2,468,938
--------------- ---------------
Deferred Credit........................................ 54,835 109,665
--------------- ---------------
Stockholders' Equity:
Common stock, $.01 par value--
Authorized--25,000,000 shares
Issued and outstanding--14,696,909 shares at
December 31, 1996 and 12,972,699 shares at
March 31, 1996.................................. 146,968 129,726
Additional paid-in capital.......................... 46,098,212 44,035,454
Accumulated deficit................................. (40,832,737) (35,667,889)
--------------- ---------------
Total stockholders' equity...................... 5,412,443 8,497,291
--------------- ---------------
Total liabilities and stockholders' equity...... $ 8,523,004 $ 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 Nine Months Ended
December 31, December 31,
------------------------------ ------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales.......................................... $ 2,263,893 $ 1,922,277 $ 6,239,761 $ 4,460,478
Cost of sales...................................... 1,887,837 1,890,660 5,601,171 4,372,723
-------------- -------------- -------------- --------------
Gross profit................................... 376,056 31,617 638,590 87,755
Selling, general and administrative expenses....... 1,345,470 1,586,902 4,170,327 4,749,119
Research and development expenses.................. 621,240 620,670 1,835,829 1,711,559
-------------- -------------- -------------- --------------
Loss from operations........................... (1,590,654) (2,175,955) (5,367,566) (6,372,923
Interest income.................................... 31,309 50,432 136,334 230,753
Interest expense................................... -- -- -- --
Other income(expense), net......................... 32,182 (16,626) 66,384 9,750
-------------- -------------- -------------- --------------
Net loss....................................... $(1,527,163) $(2,142,149) $(5,164,848) $(6,132,420)
============== ============== ============== ==============
Net loss per common share.......................... $ (0.12) $ (0.20) $ (0.40) $ (0.58)
============== ============== ============== ==============
Weighted average shares outstanding................ 13,140,845 10,917,245 13,044,043 10,674,787
============== ============== ============== ==============
</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
New shares purchased........ 1,684,210 16,842 1,983,158 2,000,000
Net loss.................... --- --- --- (5,164,848) (5,164,848)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1996.. 14,696,909 $146,968 $46,098,212 $(40,832,737) $5,412,443
========== ======== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, December 31,
1996 1995
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $(5,164,848) $(6,132,420)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization..................................... 391,364 395,210
Compensation expense from stock option grants..................... -- 54,555
Amortization of deferred credit................................... (54,830) (54,832)
Changes in assets and liabilities:
Accounts receivable............................................. (507,189) (297,009)
Inventories..................................................... 697,119 135,494
Prepaid expenses and deposits................................... 26,970 (25,199)
Accounts payable................................................ 102,977 319,011
Accrued expenses................................................ 524,154 240,693
------------ ------------
Net cash used for operating activities......................... (3,984,283) (5,364,497)
------------ ------------
Cash flows provided by investing activities:
Decrease in marketable securities.................................. 775,847 930,637
Purchase of property and equipment................................. (119,558) (628,192)
Increase in other assets........................................... 9,978 (300,000)
------------ ------------
Net cash provided by investing activities...................... 666,267 2,445
------------ ------------
Cash flows provided by financing activities:
Proceeds from sale of common stock................................. 2,000,000 6,500,000
Payments of acceptances payable to a bank.......................... (40,343) (35,533)
Proceeds from exercise of stock options............................ 80,000 50,000
------------ ------------
Net cash provided by financing activities...................... 2,039,657 6,514,467
------------ ------------
Net decrease in cash and cash equivalents............................ (1,278,359) 1,152,415
Cash and cash equivalents, beginning of period....................... 1,688,651 3,479,035
------------ ------------
Cash and cash equivalents, end of period............................. $ 410,292 $ 4,631,450
============ ============
</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.
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>
December 31, March 31,
1996 1996
--------------- ---------------
(audited)
<S> <C> <C>
Raw materials....... $ 58,621 $ 573,192
Work-in-process..... 232,335 217,026
Finished goods...... 815,645 1,013,502
---------- ----------
$1,106,601 $1,803,720
========== ==========
</TABLE>
Work-in-process and finished goods inventories consist of material,
labor, and manufacturing overhead.
-5-
<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
2. Summary of Significant Accounting Policies (Continued)
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 December 31, 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.
3. Sale of Equity
On December 24, 1996, the Company completed a $2.0 million private equity
placement of the Company's common stock with Mr. Katsumi Oneda, Chairman,
CEO and President, and Mr. Lewis Pell, Vice Chairman. Mr. Oneda and Mr. Pell
each purchased 842,105 shares of common stock at a price of $1.1875 per
share, the closing price on Tuesday, December 17, 1996. After this
transaction, Mr. Oneda and Mr. Pell beneficially own approximately 23.5% and
22.0%, respectively, of the outstanding shares of common stock of the
Company.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Net sales for the three and nine months ended December 31, 1996, increased
$341,616 and $1,779,283, respectively, (or 18% and 40%, respectively) over the
comparable prior year periods. The increase in net sales was attributable to
a combination of medical sales increasing $809,531 and $2,358,030, (or 175%
and 220%, respectively) partially offset by decreases in industrial sales of
$467,915 and $578,747, respectively, (or 32% and 17%, respectively) versus the
comparable prior year three and nine month periods.
The increase in medical sales for the three and nine months ended December 31,
1996, as compared to the comparable prior year periods, resulted primarily
from increased sales of the Company's ENT and sigmoidoscope products due to
increased market acceptance. The decrease in industrial sales for the three
and nine months ended December 31, 1996, as compared to the comparable prior
year periods, resulted primarily from the fact that non-recurring revenue of
$634,000 was recognized during the third quarter of the prior year upon
completion of a government contract.
Gross profit for the three months ended December 31, 1996, increased to
$376,056, or 17% of net sales, as compared to $31,617, or 2% of net sales, for
the comparable prior year period. Gross profit for the nine months ended
December 31, 1996 increased to $638,590, or 10% of net sales, as compared to
$87,755, or 2% of net sales, for the comparable prior year period. The
increase in gross profit was primarily attributable to increased sales volume,
allowing greater efficiency and reduced costs in manufacturing.
Selling, general and administrative expenses for the three and nine months
ended December 31, 1996, decreased $241,432 and $578,792, respectively, (or
15% and 12%, respectively) over the comparable prior year periods, and
represented 59% and 67% of net sales, respectively, in the current year
periods versus 83% and 107% of net sales, respectively, in the comparable
prior year periods. The decrease in these expenses was primarily attributable
to reduced headcount and lower spending on outside services.
Research and development expenses for the three and nine months ended December
31, 1996, increased $570 and $124,270, respectively, (or 0% and 7%,
respectively), over the comparable prior year periods, and represented 27% and
29% of net sales for the three and nine months ended December 31, 1996,
respectively, versus 32% and 38% of net sales, respectively, in the comparable
prior year periods. The increase in these expenses during the nine months
ended December 31, 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.
Interest income, net, for the three and nine months ended December 31, 1996,
decreased $19,123 and $94,419, 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 three and nine months ended December 31,
1996, increased $48,808 and $56,634, respectively, as compared to the
comparable prior year periods, primarily due to increased royalty income from
existing agreements.
-7-
<PAGE>
Liquidity and Capital Resources
-------------------------------
As of December 31, 1996, the Company had $410,292 in cash and cash
equivalents, $3,401,475 in marketable securities and working capital of
$3,811,767. The Company also had a cash collateralized demand bank line of
credit for up to $1,000,000, which had approximately $819,445 available at
December 31, 1996, for use in support of general working capital needs and the
issuance of commercial and standby letters of credit. This line of credit was
reduced in January 1997 for use up to $250,000. The Company's cash, cash
equivalents, and marketable securities decreased $2,054,206 in total since
March 31, 1996. The decrease was primarily due to the use of $4,093,863 to
fund operations and property and equipment purchases, partially offset by an
increase of $2,039,657 attributable to net proceeds of financing activities,
including issuance of $2,000,000 of common stock in a private placement during
December 1996.
As of December 31, 1996, the Company's inventories had decreased $617,119 to
$1,106,601 as compared to $1,803,720 at March 31, 1996. The decrease was
primarily attributable to lower raw material stock as a result of increased
sales volume. The Company's net accounts receivable had increased $507,189 to
$1,631,568 at December 31, 1996, as compared to $1,124,379 at March 31, 1996.
This increase was primarily attributable to increased sales. The Company's
capital expenditures during the nine months ended December 31, 1996 were
$119,558. The Company anticipates that capital expenditures for the fiscal
year ending March 31, 1997 will be in total less than $300,000.
The Company has incurred losses since its inception and losses are expected to
continue at least through the fiscal year ending March 31, 1998. To date, 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
None during the current reporting period.
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 December 31, 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: February 7, 1997
/s/ Gerald B. Lichtenberger
------------------------------------
Gerald B. Lichtenberger, Ph.D.
Executive Vice President/COO
(Acting Chief Financial Officer)
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VISION
SCIENCES, INC. 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-START> APR-01-1996 APR-01-1995
<PERIOD-END> DEC-31-1996 MAR-31-1996
<CASH> 410,292 1,688,651<F1>
<SECURITIES> 3,401,475 4,177,322<F1>
<RECEIVABLES> 1,631,568 1,124,379<F1>
<ALLOWANCES> 0 0<F1>
<INVENTORY> 1,106,601 1,803,720<F1>
<CURRENT-ASSETS> 258,934 285,904<F1>
<PP&E> 3,317,209 3,197,651<F1>
<DEPRECIATION> 1,824,936 1,433,572<F1>
<TOTAL-ASSETS> 8,523,004 11,075,894<F1>
<CURRENT-LIABILITIES> 3,055,726 2,468,938<F1>
<BONDS> 0 0<F1>
0 0<F1>
0 0<F1>
<COMMON> 146,968 129,726<F1>
<OTHER-SE> 5,265,475 8,376,565<F1>
<TOTAL-LIABILITY-AND-EQUITY> 8,523,004 11,075,894<F1>
<SALES> 6,239,761 0<F1>
<TOTAL-REVENUES> 6,239,761 0<F1>
<CGS> 5,601,171 0<F1>
<TOTAL-COSTS> 65,601,171 0<F1>
<OTHER-EXPENSES> 6,006,156 0<F1>
<LOSS-PROVISION> (5,367,566) 0<F1>
<INTEREST-EXPENSE> (136,334) 0<F1>
<INCOME-PRETAX> (5,164,848) 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> (5,164,848) 0<F1>
<EPS-PRIMARY> (0.40) 0<F1>
<EPS-DILUTED> 0 0<F1>
<FN>
<F1>MARCH 31, 1996 AUDITED BALANCE SHEET
</FN>
</TABLE>
