<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, 1997
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, 1997.
Common Stock, par value of $.01 16,638,657
------------------------------- ----------------
(Titles of Class) (Number of Shares)
<PAGE>
VISION-SCIENCES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information Page
-----
<S> <C> <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 - 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8 - 9
Part II. Other Information.......................................... 10
Signatures................................................. 11
</TABLE>
<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
------------ ---------
(audited)
ASSETS ---------
------
Current Assets:
<S> <C> <C>
Cash and cash equivalents................................... $3,568,485 $2,681,271
Accounts receivable, net of allowance for doubtful
accounts of $111,000 and $127,000, respectively.......... 1,253,344 1,849,407
Inventories................................................. 611,125 706,342
Prepaid expenses and deposits............................... 81,067 150,021
---------- ----------
Total current assets..................................... 5,514,021 5,387,041
---------- ----------
Property and Equipment, at cost:
Machinery and equipment..................................... 2,728,021 2,684,286
Furniture and fixtures...................................... 214,626 214,626
Leasehold improvements...................................... 304,563 304,563
---------- ----------
3,247,210 3,203,475
Less-Accumulated depreciation and amortization.............. 2,286,378 1,949,596
---------- ----------
960,832 1,253,879
---------- ----------
Other Assets, net of accumulated amortization of $68,000
and $63,000, respectively................................... 195,908 208,913
---------- ----------
Total assets............................................. $6,670,761 $6,849,833
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current Liabilities:
<S> <C> <C>
Acceptances payable to a bank............................... $ 69,312 $ 46,251
Accounts payable............................................ 844,045 499,142
Accrued expenses............................................ 1,891,270 1,878,638
---------- -----------
Total current liabilities................................ 2,804,627 2,424,031
---------- -----------
Deferred Credit............................................... -- 36,558
---------- -----------
Stockholders' Equity:
Common stock, $.01 par value--
Authorized--25,000,000 shares
Issued and outstanding-- 16,638,657 shares at
December 31, 1997 and 14,696,909 at March 31, 1997....... 166,386 146,968
Additional paid-in capital.................................. 48,078,794 46,098,212
Accumulated deficit......................................... (44,379,046) (41,855,936)
---------- -----------
Total stockholders' equity............................... 3,866,134 4,389,244
---------- -----------
Total liabilities and stockholders' equity............... $6,670,761 $ 6,849,833
========== ===========
</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,
------------------------------ -----------------------------
1997 1996 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 2,007,583 $ 2,263,893 $ 5,694,957 $ 6,239,761
Cost of sales................................ 1,970,531 1,887,837 5,027,158 5,601,171
------------- ------------- ------------ ------------
Gross profit............................ 37,052 376,056 667,799 638,590
Selling, general and administrative expenses. 947,149 1,345,470 2,810,442 4,170,327
Research and development expenses............ 126,211 621,240 661,850 1,835,829
------------- ------------- ------------ ------------
Loss from operations.................... (1,036,308) (1,590,654) (2,804,493) (5,367,566)
Interest income.............................. 30,236 31,309 103,524 136,334
Interest expense............................. 399 -- 399 --
Other income(expense), net................... -- 32,182 178,258 66,384
------------- ------------- ------------ ------------
Net loss................................ $(1,006,471) $(1,527,163) $(2,523,110) $(5,164,848)
============= ============= ============ ============
Net loss per common share.................... $(0.07) $(0.12) $(0.17) $(0.40)
============= ============= ============ ============
Weighted average shares outstanding.......... 14,886,863 13,140,845 14,760,457 13,044,043
============= ============= ============ ============
</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, 1997,
(audited)................. 14,696,909 $146,968 $46,098,212 $(41,855,936) $ 4,389,244
New shares purchased........ 1,941,748 19,418 1,980,582 2,000,000
Net loss.................... --- --- --- (2,523,110) (2,523,110)
----------- ----------- ----------- ------------ -----------
Balance, December 31, 1997.. 16,638,657 $166,386 $48,078,794 $(44,379,046) $ 3,866,134
=========== =========== =========== ============ ===========
</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 Nine Months
Ended Ended
December 31, December 31,
1997 1996
----------------------- -----------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss............................................ $(2,523,110) $ (5,164,848)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization...................... 372,414 391,364
Loss on disposal of property and equipment......... 58,410 --
Amortization of deferred credit.................... (36,558) (54,830)
Changes in assets and liabilities:
Accounts receivable.............................. 596,063 (507,189)
Inventories...................................... 95,217 697,119
Prepaid expenses and deposits.................... 68,954 26,970
Accounts payable................................. 344,903 102,977
Accrued expenses................................. 12,633 524,154
----------- -----------
Net cash used for operating activities.......... (1,011,074) (3,984,283)
----------- -----------
Cash flows provided by investing activities:
Decrease in marketable securities.................. -- 775,847
Purchase of property and equipment................. (133,022) (119,558)
Increase in other assets........................... 8,249 9,978
----------- -----------
Net cash provided by investing activities...... (124,773) 666,267
----------- -----------
Cash flows provided by financing activities:
Proceeds from sale of common stock................. 2,000,000 2,000,000
Proceeds from (payments of) acceptances
payable to a bank................................. 23,061 (40,343)
Proceeds from exercise of stock options............ -- 80,000
----------- -----------
Net cash provided by financing activities...... 2,023,061 2,039,657
----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... 887,214 (1,278,359)
Cash and cash equivalents, beginning of
period.............................................. 2,681,271 1,688,651
----------- -----------
Cash and cash equivalents, end of period............. $ 3,568,485 $ 410,292
=========== ===========
</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 amortized cost, which
approximates market value. Cash equivalents are short-term, highly
liquid investments with original maturities of less than three months.
c. Inventories: Inventories are stated at the lower of cost or market
using the first-in, first-out (FIFO) method and consist of the
following:
December 31, March 31,
1997 1997
(audited)
Raw materials $ 192,537 $ 202,833
Work-in-process 237,861 111,538
Finished goods 180,727 391,971
--------- ---------
$ 611,125 $ 706,342
========= =========
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)
d. 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 Years
Leasehold improvements are amortized over the shorter of their
estimated useful lives or the lives of the leases.
e. 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.
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share, and applies to entities with publicly
held common stock or potential common stock. This statement is
effective for fiscal years ending after December 15, 1997, and early
adoption is not permitted. When adopted, the statement will require
restatement of prior years' earnings per share. The Company will
adopt this statement for its fiscal year ending March 31, 1998. The
Company believes that the adoption of SFAS No. 128 will not have a
material effect on its financial statements.
f. Revenue Recognition: The Company recognizes revenue upon product
shipment.
g. 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 SFAS No. 52,
Foreign Currency Translation.
- 6 -
<PAGE>
VISION-SCIENCES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
2. Summary of Significant Accounting Policies (Continued)
h. Income Taxes: The Company accounts for income taxes under the
liability method in accordance with SFAS No. 109, Accounting for
Income Taxes. Under SFAS No. 109, deferred tax assets or liabilities
are computed based upon the differences between the financial
statement and income tax bases of assets and liabilities as measured
by the enacted tax rates.
The Company has recorded a valuation allowance equal to its net
deferred tax asset due to the uncertainty of realizing the benefit of
this asset.
- 7 -
<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, 1997 decreased
$256,310 and $544,804, respectively, or 11.3% and 8.7%, respectively, versus the
comparable prior year three-month and nine-month periods. The decrease in sales
was due to a decrease in sales of medical products of $170,962 and $235,762 for
the three-month and nine-month periods, respectively, or 13.4% and 6.9%,
respectively, versus the comparable prior year periods. In addition, industrial
sales decreased $85,348 and $309,042, for the three-month and nine-month
periods, respectively, or 8.6% and 11.0%, respectively, versus the comparable
prior year periods.
Sales of the Company's disposable EndoSheath/R/ technology increased $50,238 and
$215,442 in the three-month and nine-month periods ended December 31, 1997,
respectively, compared to the same periods last year. In addition, in the nine
months ended December 31, 1997, the Company recorded sales of $61,434 of
medical devices to a company in the image-guided surgery market, under an
original equipment manufacturing arrangement. These increases were offset by a
decrease in sales of scopes of $240,195 and $462,585 for the three-month and
nine-month periods, respectively, versus the comparable prior year periods.
Gross profit for the three and nine months ended December 31, 1997 decreased to
$37,052, or 1.8% of net sales, and increased to $667,799, or 11.7% of net sales,
respectively, versus $376,056, or 16.6% of net sales, and $638,590, or 10.2% of
net sales, for the comparable prior year three-month and nine-month periods.
The decrease in gross profit for the three months ended December 31, 1997 was
due primarily to an increase in labor and overhead costs for manufacturing which
were previously utilized for product development.
Selling, general and administrative expenses for the three and nine months ended
December 31, 1997 decreased $398,321, or 29.6%, and $1,359,885, or 32.6%,
respectively, versus the comparable prior year three-month and nine-month
periods. Selling, general and administrative expenses amounted to 47% and 49%
of net sales, respectively, in the three-month and nine-month periods ended
December 31, 1997. For the three-month and nine-month periods ended December
31, 1996, these expenses amounted to 59% and 67% of net sales, respectively.
The decrease in these expenses was primarily attributable to the change from a
direct sales force to independent sales representatives, and reduced
administrative payroll costs.
Research and development expenses for the three and nine months ended December
31, 1997 decreased $495,029, or 80%, and $1,173,979, or 64%, respectively,
versus the comparable prior year three-month and nine-month periods. In the
three-month and nine-month periods ended December 31, 1997, these expenses
amounted to 6.3% and 11.6% of net sales, respectively. The decrease in research
and development expenses for the three months ended December 31, 1997 was due
primarily to utilizing certain labor and overhead costs in manufacturing which
were previously devoted to product development. For the nine months ended
December 31, 1997, the reductions were due to this shift in utilization and to
reductions in headcount and other expenses, resulting from the Company's
decision to focus primarily on improvements in its existing products.
- 8 -
<PAGE>
Results of Operations (Continued)
- ---------------------
Interest income, net, for the three and nine months ended December 31, 1997,
decreased $1,472 and $33,209, respectively, versus the comparable prior year
three-month and nine-month periods due to lower cash balances. The Company had
lower cash balances during the three and nine months ended December 31, 1997
versus the comparable prior year three-month and nine-month periods due to its
using cash primarily to fund operating losses.
Other income (expense), net for the three and nine months ended December 31,
1997 decreased $32,182 and increased $111,874, respectively, versus the
comparable prior year three-month and nine-month periods, due primarily to
changes in royalty income from both new and existing agreements, including an
initial license fee of $50,000 received in the three months ended June 30, 1997.
The agreement which was the primary source of royalties for the three and six
months ended September 30, 1997 expired July 1, 1997.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1997, the Company had $3,568,485 in cash and cash
equivalents, and working capital of $2,709,394. The Company also had a cash
collateralized demand line of credit with a bank for borrowings of up to
$250,000. At December 31, 1997, there was approximately $181,000 available
under this line for use in support of general working capital needs and the
issuance of commercial and standby letters of credit. The Company's cash and
cash equivalents increased by $887,214 in total from March 31, 1997, due
primarily to a private equity financing wherein the Company sold 1,941,748 new
shares of common stock for $2,000,000 in December 1997, offset by funding losses
for the nine-month period and the purchase of capital equipment.
The Company's net accounts receivable decreased $596,063 to $1,253,344 at
December 31, 1997, from $1,849,407 at March 31, 1997. This decrease was
primarily attributable to lower sales. During the period ended December 31,
1997, the Company's inventories decreased $95,217 to $611,125. The decrease was
primarily attributable to reductions in finished goods resulting from increased
sales of sheaths, and lower production of scopes. The Company's capital
expenditures during the nine months ended December 31, 1997 were approximately
$133,000. The Company anticipates that capital expenditures for the fiscal year
ending March 31, 1998 will be less than $250,000.
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 with proceeds from public and private
equity financings. The Company anticipates that it will continue to require
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
continues to pursue 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.
- 9 -
<PAGE>
PART II - OTHER INFORMATION
Item 3: Changes in Securities and Use of Proceeds
On December 23, 1997, the Company issued an aggregate of 1,941,748 shares of
Common Stock to Katsumi Oneda, the Company's Chairman, CEO and President, and
to Lewis C. Pell, the Company's Vice Chairman. The price per share in this
transaction was $1.03, which represents 80% of the average closing price of
the Common Stock on Nasdaq during the five trading days ended December 22,
1997. The shares of Common Stock were sold in this transaction pursuant to
an exemption from registration under Section 4 (2) of the Securities Act of
1933, as amended.
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, 1997.
- 10 -
<PAGE>
SIGNATURES
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 6, 1998 By:
/s/
-------------------------------
Dr. Gerald B. Lichtenberger, Ph.D.
Executive Vice President, Chief Operating Officer
/s/
-------------------------------
James A. Tracy
Vice President Finance, Chief Financial Officer
and Controller (Principal Financial Officer
and Principal Accounting Officer)
- 11 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997
<PERIOD-START> OCT-01-1997 OCT-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 3,568,485 2,681,271<F1>
<SECURITIES> 0 0<F1>
<RECEIVABLES> 1,364,344 1,976,407<F1>
<ALLOWANCES> (111,000) (127,000)<F1>
<INVENTORY> 611,125 706,342<F1>
<CURRENT-ASSETS> 5,514,021 5,387,041<F1>
<PP&E> 3,247,210 3,203,475<F1>
<DEPRECIATION> 2,286,378 1,949,596<F1>
<TOTAL-ASSETS> 6,670,761 6,849,833<F1>
<CURRENT-LIABILITIES> 2,804,627 2,424,031<F1>
<BONDS> 0 0
0 0
0 0
<COMMON> 166,386 146,968<F1>
<OTHER-SE> 3,699,748 4,242,276<F1>
<TOTAL-LIABILITY-AND-EQUITY> 6,670,761 4,389,244<F1>
<SALES> 0 0
<TOTAL-REVENUES> 2,007,583 5,694,957
<CGS> 1,970,531 5,027,158
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,073,360 3,472,292
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 399 399
<INCOME-PRETAX> (1,006,471) (2,523,110)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,006,471) (2,523,110)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,006,471) (2,523,110)
<EPS-PRIMARY> (.07) (.17)
<EPS-DILUTED> 0 0
<FN>
<F1>AMOUNTS ARE AT MARCH 31, 1997
</FN>
</TABLE>
