U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: Commission file number:
June 30, 1997 0-26614
___________
MVSI, INC.
(Name of Small Business Issuer as Specified In Its Charter)
Delaware 52-1707718
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8133 Leesburg Pike, Suite 750, Vienna, VA 22182
(Address of principal executive offices) (Zip code)
(703) 356-5353
(Company's telephone number, including area code)
___________
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days.
Yes __X__ No ____
As of June 30, 1997, 10,875,500 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
MVSI, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 17
SIGNATURES 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
MVSI, Inc. and Subsidiaries
Contents
Interim Consolidated Financial Statements
Interim Consolidated Balance Sheets 4
Interim Consolidated Statements of Operations 5
Interim Consolidated Statements of Cash Flows 7
Notes to Interim Consolidated Financial Statements 8
<PAGE>
MVSI, Inc. and Subsidiaries
Interim Consolidated Balance Sheets
June 30 September 30,
1997 1996
- - -----------------------------------------------------------------------------
Assets (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 1,723,350 $ 313,890
Marketable securities 2,705,179 5,881,202
Accounts receivable, net of allowance
for doubtful accounts 5,189,307 4,555,259
Note receivable - 500,000
Inventory 4,307,822 2,612,539
Tax credits and income tax receivable 579,191 405,717
Prepaid expenses 223,138 348,302
------------ -----------
Total Current Assets 14,727,987 14,616,909
Property and Equipment, net 608,900 383,518
Capitalized Software Costs 1,572,025 1,164,182
Goodwill 3,309,745 2,735,638
Deferred Tax Asset 1,955,046 1,158,430
Other Assets 131,472 101,692
------------- -----------
$ 22,305,175 $ 20,160,369
____________________________________________________________________________
Liabilities and Stockholders'Equity
Current Liabilities
Line of credit and financing
arrangements $ 821,822 $ 1,099,973
Accounts payable and accrued liabilities 3,548,520 3,731,763
Shareholder loans and interest 795,752 222,395
------------- ---------------
Total Current Liabilities 5,166,094 5,054,131
Stockholders' Equity
Common stock, $.01 par value,
50,000,000 shares authorized,
11,055,000 and 10,740,000 shares
issued, respectively 110,500 107,400
Stock subscription receivable (150,000) (150,000)
Additional paid-in capital 21,701,891 20,577,566
Accumulated deficit (3,450,936) (5,475,602)
Unrealized loss on investments
available for sale (415,767) (59,786)
Cumulative translation adjustment (83,997) 106,660
Treasury stock, at cost, 179,500 and
0 shares, respectively (572,660) -
------------- --------------
Total Stockholders' Equity 17,139,081 15,106,238
------------- --------------
$ 22,305,175 $ 20,160,369
____________________________________________________________________________
The accompanying notes are an integral part of these statements.
<PAGE>
MVSI, Inc. and Subsidiaries
Interim Consolidated Statements of Operations
Three Months ended June 30, 1997 1996
(Unaudited) (Unaudited)
Sales $ 11,680,087 $ 3,250,354
Cost of Sales 9,651,797 2,372,117
------------- -------------
Gross Profit 2,028,290 878,237
Expenses
Selling 509,211 118,008
Administrative 808,066 421,351
Research and development, net of tax credits 155,671 39,345
Depreciation and amortization 153,235 27,283
-------------- ------------
1,626,183 605,987
Earnings from Operations 402,107 272,250
Interest Income 115,832 108,036
Interest and Financing Charges (83,036) (21,875)
-------------- -------------
Earnings Before Income Taxes 434,903 358,411
Income Tax (Benefit) Provision
Current 45,000 -
Deferred (426,532) (224,265)
-------------- -------------
(381,532) (224,265)
-------------- -------------
Net Earnings $ 816,435 $ 582,676
_____________________________________________________________________________
Earnings per Share
Primary $ 0.07 $ 0.05
Fully diluted $ 0.07 $ 0.05
_____________________________________________________________________________
The accompanying notes are an integral part of these statements.
<PAGE>
MVSI, Inc. and Subsidiaries
Interim Consolidated Statements of Operations
Nine Months ended June 30, 199 1996
(Unaudited) (Unaudited)
Sales $ 29,849,901 $ 9,858,955
Cost of Sales 24,009,551 6,826,698
------------ ------------
Gross Profit 5,840,350 3,032,257
Expenses
Selling 1,521,804 353,265
Administrative 2,358,251 1,569,709
Research and development, net of tax credits 317,824 190,758
Depreciation and amortization 316,169 73,294
------------ ------------
4,514,048 2,187,026
------------ ------------
Earnings from Operations 1,326,302 845,231
Interest Income 432,166 354,656
Interest and Financing Charges (207,405) (39,326)
------------ ------------
Earnings Before Income Taxes 1,551,063 1,160,561
Income Tax (Benefit) Provision
Current 135,000 -
Deferred (608,603) (224,265)
------------ ------------
(473,603) (224,265)
------------ -----------
Net Earnings $ 2,024,666 $ 1,384,826
_____________________________________________________________________________
Earnings per Share
Primary $ 0.17 $ 0.13
Fully diluted $ 0.17 $ 0.12
_____________________________________________________________________________
The accompanying notes are an integral part of these statements.
<PAGE>
MVSI, Inc. and Subsidiaries
Interim Consolidated Statements of Cash Flows
Nine Months ended June 30, 1997 1996
(Unaudited) (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net income $ 2,024,666 $ 1,384,826
Adjustments to reconcile net income to net cash
from operating activities,
Deferred income taxes (532,503) (224,265)
Depreciation and amortization 316,169 60,539
Unrealized loss on investments 355,980 -
(Gain) loss on foreign exchange (743) 39,882
Changes in operating assets and liabilities,
net of effects of acquisition
Decrease (increase) in accounts receivable 527,249 (1,570,635)
(Increase) in inventory (770,616) (411,583)
(Increase) in tax credits and income
taxes receivable (146,271) (1,130)
Decrease in prepaid expenses 92,181 41,665
(Increase) in other assets (5,855) (32,167)
(Decrease) in accounts payable and accrued
liabilities (1,952,006) (980,224)
------------ -----------
Net Cash (Used in) Operating Activities (91,749) (1,693,092)
Cash Flows from Investing Activities
Borrowings on margin against investments 3,676,023 400,836
Property, plant and equipment purchases (260,917) (33,930)
Capitalized software costs (407,843) (763,258)
Investment in e-Net, Inc. (915,000) -
------------ -----------
Net Cash Provided by (Used in) Investing Activities 2,092,263 (396,352)
Cash Flows from Financing Activities
Net (decrease) increase in line of credit (274,156) 232,011
Proceeds from shareholder loans 201,920 -
Payment of shareholder loans - (524,000)
Payment of debt - (11,654)
Purchase of treasury stock (572,660) -
Proceeds from issuance of common stock 150 600,000
Proceeds from conversion of warrants 59,850 -
----------- -----------
Net Cash (Used in) Provided by Financing Activities (584,896) 296,357
Effect of Exchange Rate Changes on Cash (6,158) 29,978
----------- -----------
Net Increase (Decrease) in Cash 1,409,460 (1,763,109)
Cash at Beginning of Period 313,890 2,343,036
----------- -----------
Cash at End of Period $ 1,723,350 $ 579,927
=========== ===========
The accompanying notes are an integral part of these statement
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
June 30, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
with the instructions to Form 10-QSB. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included.
The results of operations for the nine months and three months ended June 30,
1997 are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the financial statements and
footnotes included in the Company's audited financial statements for the
fiscal year ended September 30, 1996.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim consolidated financial statements include the
accounts of MVSI, Inc. (a Delaware corporation), and its three wholly owned
subsidiaries: MVS Modular Vision Systems, Inc. (MVS-Canada), a Montreal,
Quebec-based corporation engaged in the design and manufacture of
proprietary machine vision products and systems; Socrates, Inc.(Socrates),
a Gaithersburg, Maryland-based corporation, which integrates,installs and
supports high-end computer and communication equipment; JMR Distributors,
Inc. (JMR), a Lorton, Virginia-based corporation specializing in the
purchase and sale of computer memory chips and network equipment; and
Expert, Inc. (Expert), a Fresh Meadows, New York-based corporation which
contract manufactures and markets proprietary and generic computer systems
products and services for advanced computer systems integration and networking
(collectively referred to as the "Company"). The results of operations of
Socrates are included in the accompanying financial statements since the
July 1, 1996 acquisition date and the results of Expert are included in the
accompanying financial statements since the April 1, 1997 acquisition date.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Revenue Recognition
Sales are recognized upon shipment of a finished product when title to the
product transfers to the customer. Typical terms of sale do not provide the
customer with the right of return except for defective products, which are
covered by the Company's warranty. Revenue billed in advance of customer
acceptance is deferred until such time as acceptance occurs. Amounts
received from customers prior to shipment are recorded as deposit liabilities.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market accounts.
Marketable Securities
Marketable securities consist of short-term U.S. treasury notes, net of
margin loans which bear interest at 7 1/2 percent, and the Company's equity
investment in e-Net, Inc. In accordance with Statement of Financial
Accounting Standards No. 115, the Company has classified these
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
June 30, 1997
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Marketable Securities - Continued
securities as available-for-sale, and recorded the securities at fair
value, based on quoted market prices, with the unrealized gains or losses,
reported in stockholders' equity at June 30, 1997 and 1996. The Company
has not realized any proceeds from the sale of securities during the three
months ended June 30, 1997 and 1996.
Accounts Receivable
Accounts receivable are stated at the unpaid balances, less allowance on
collectible accounts. Management periodically reviews its outstanding
accounts receivable to assess collectibility of balances based on past
experience and evaluation of current adverse situations which may affect
collectibility of receivables. As of June 30, 1997, management has
established an allowance for doubtful accounts of approximately $93,000.
Inventory Valuation
Inventory is valued at the lower of cost and market. Cost is determined
on a first-in, first-out (FIFO) basis.
Management evaluates obsolete and slow-moving inventory at each reporting
date and excludes such inventory from the valuation. Management has
recorded a $40,000 reserve to record inventory obsolescence at June 30,
1997. The value of inventories written off because of obsolescence or slow
movement has not been material to date.
Property and Equipment
Property and equipment are carried at cost, net of an allowance for
accumulated depreciation and amortization. Depreciation is computed on
equipment and furniture, principally using the double-declining balance
method over estimated lives ranging from five to seven years. Demonstration
and research equipment is depreciated on a straight-line basis over a
four-year period. Leasehold improvements are amortized on a straight-line
basis over the shorter of the lease term or estimated useful lives of the
related assets.
Capitalized Software Costs
Beginning in fiscal year 1995, certain software development costs not
reimbursed by the Canadian government have been capitalized in accordance
with Statement of Financial Accounting Standards No. 86. Software
development costs incurred subsequent to achievement of technological
feasibility, and not reimbursed by the Canadian government, were not
material in previous years. Technological feasibility occurs when the
Company has completed all planning and testing activities necessary to
establish that the product can be produced to meet its design specifications,
including functions, features and technological performance requirements.
No amortization had been recorded in the accompanying financial statements
prior to the current fiscal year, pending release of the associated products.
Several products became available for sale during the three months ended
June 30, 1997. Accordingly, the Company began amortizing the associated
capitalized software costs and recorded amortization expense of
approximately $35,000 in the accompanying financial statements for
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
June 30, 1997
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Capitalized Software Costs - Continued
the three months ended June 30, 1997. When additional products are ready
for sale, the Company will continue its policy of amortizing capitalized
software costs by the greater of (a) the ratio the current gross revenue
for a product bears to the total current and anticipated future gross
revenue for that product or (b) the straight-line method over the remaining
economic life of the product including the period being reported on.
It is reasonably possible that those estimates of anticipated future gross
revenue, the remaining estimated economic life of the product, or both will
be reduced significantly in the near term. As a result, the carrying amount
of the capitalized software costs may be reduced materially in the near term.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired in business combinations accounted for as purchases. Goodwill is
being amortized on the straight-line method over ten years. Amortization
expense charged to operations for the nine months ended June 30, 1997 and
1996 was $230,893 and $34,350, respectively.
Research and Development Costs
Research and development costs are expensed as incurred. The Company,
however, is eligible to receive tax credits for certain research and
development costs incurred from both the Canadian federal government and the
Province of Quebec. Tax credits received or due from the Canadian federal
government for research and development costs incurred can be realized only
as an offset to future taxes payable from income generated in Canada.
These tax credits can be carried forward up to ten years from the date
generated.
Tax credits received or due from the Province of Quebec for research and
development costs incurred have been offset against current research and
development expenditures and are included as a receivable in the
accompanying balance sheet, as such amounts are currently refundable in
cash in the year following the year in which they are incurred.
Equipment used in research and development activities which has alternative
future uses is capitalized and depreciated.
Income Taxes
The Company has net operating loss carryforwards and tax credit
carryforwards to offset future taxable income and taxes payable. Although
the Company has recognized income before income taxes through June 30, 1997,
this has not resulted in the recognition of income tax expense due to the
existence of available net operating loss carryforwards. Deferred taxes
are recognized, subject to a valuation allowance, for temporary differences
in the timing of recognition of certain income and expenses.
Earnings Per Share
Earnings per share (EPS), both primary and fully diluted, are computed,
under the modified treasury stock method for the nine months and three
months ended June 30, 1997 and 1996.
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
June 30, 1997
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Earnings Per Share-Continued
Under the modified treasury stock method, earnings per share are based
on the weighted average number of shares actually outstanding plus the
shares that would be outstanding assuming conversion, at the beginning of
the year, of the Company's Class A and Class B warrants which are considered
to be common stock equivalents. The number of shares that would be issued
from the assumed exercise of the warrants has been reduced by the number of
shares that could have been purchased from the proceeds, at the average
market price (primary EPS) of the Company's stock for the three months and
nine months ended June 30, 1997 and 1996, and at the closing market price
(fully diluted EPS) for the three months and nine months ended June 30, 1997
and 1996, subject to a 20% limitation. Once the proceeds have been applied to
purchase common stock up to 20% of the outstanding common stock, the balance
of the proceeds are assumed to be invested in government securities.
Accordingly, net earnings (for both primary and fully diluted EPS) have
been adjusted for interest revenue, net of tax, from the assumed purchase of
government securities with the excess proceeds. The weighted average number
of common and common equivalent shares used in the primary and fully diluted
EPS computations were 15,005,576 and 15,355,736 for the three months ended
June 30, 1997 and 1996, respectively, and 14,801,261 and 15,339,446 for the
nine months ended June 30, 1997 and 1996, respectively.
Using Estimates in Preparing Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate the value:
The carrying amount approximates fair value for cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, line of credit
and other accrued liabilities.
Investment securities classified as current assets are based on quoted
market price.
Translation of Foreign Currency and Concentration of Credit Risk
A portion of the Company's operations are transacted in Canadian dollars.
The balance sheet
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
June 30, 1997
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Translation of Foreign Currency and Concentration of Credit Risk-Continued
of Canadian operations is translated into U.S. dollars at the year-end rate
of exchange, and all statement of operations items are translated at the
weighted average exchange rates for the year. The resulting translation
adjustments are made directly to a separate component of stockholders'
equity.
The Company's customers are not concentrated in any specific geographic
region. As a matter of policy, the Company requires its larger customers
to furnish letters of credit (and in some instances, advance deposits) to
minimize credit risk to the Company after shipment of the products. For
other customers, the Company reviews a customer's credit history before
extending credit.
NOTE C--SIGNIFICANT TRANSACTIONS
South Korean Joint Venture Agreement
MVS Modular Vision Systems, Inc. ("MVS") and Kyung Pil Woo, a South
Korean distributor of high technology products, entered into a joint
venture agreement, whereby MVS and Mr. Woo have established a South Korean
company ("TRIVISION") to service, assemble and perform the final
manufacture of MVS and other high technology products. The Joint Venture
will also promote, market, sell and distribute these products in South
Korea and other Asian markets. The Joint Venture will be owned equally
(50%/50%) by MVS and Mr. Woo in exchange for each party's initial capital
contribution of $200,000 in cash to the Joint Venture's working capital.
MVS remitted its capital contribution in July 1997, upon completion of the
joint venture agreement. The Company believes that the Joint Venture is
essential to establishing a larger market presence for MVS products in
South Korea and other Asian nations.
Lease Commitment
On April 30, 1997, the Company entered into an agreement to lease
approximately 35,000 square feet of space in Largo, Maryland to be used for
the assembly of computer components: the manufacturing of computer systems;
and the integration of computer systems for network applications. In
addition, the facility will provide warehouse and office space, a customer
showroom and training facilities. The 5-year lease term, which includes
annual rent escalation clauses, provides for annual base rent of
approximately $140,000, plus the Company's share of property, taxes, and
maintenance costs.
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
June 30, 1997
NOTE D--STOCK PLANS
During the quarter ended June 30, 1997, the Company adopted the MVSI 1997
Stock Option Plan and the MVSI 1997 Employee Stock Purchase Plan, both of
which were ratified at the Company's Annual Meeting of Stockholders in
April 1997. As of June 30, 1997, the Company had granted 480,000 options
under the MVSI 1997 Stock Option Plan, with exercise prices of approximately
$3.00.
NOTE E--ACQUISITION
The Company acquired Expert, effective April 1, 1997. MVSI exchanged
300,000 of its restricted common stock for all the shares of common stock
held by Expert's stockholder. The acquisition of Expert is accounted for as
a purchase. The cost in excess of the fair value of net assets acquired
(goodwill) of approximately $805,000 will be amortized using an estimated
useful life of ten years. The results of operations of Expert are included
in the accompanying financial statements since the date of acquisition.
NOTE F--LETTER OF INTENT
On August 6, 1997, MVSI entered into a Letter of Intent to acquire Technet
Computer Services, Inc. ("Technet"). Technet, a Virginia corporation, is a
computer software development company specializing in software solutions for
corporate clients to include implementing solutions for the Year 2000
computer problem. The Letter of Intent provides MVSI an exclusive right
for 60 days to negotiate with Technet and reach a definitive agreement.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The Company reported sales of $11,680,087 for the three month period ended
June 30, 1997, as compared to $3,250,354 for the same period in fiscal year
1996. For the nine months ended June 30, 1997, the Company reported sales
of $29,849,901 as compared to $9,858,955 for the same period in fiscal
year 1996. The increase in sales of $19,990,946 or 202% is attributable to
the acquisition of Socrates, Inc. ("Socrates"), effective July 1, 1996,
the acquisition of Expert, Inc. ("Expert"), effective April 1, 1997, and
an increase in sales of the Company's computer products and services and
laser machine vision products and systems.
The gross margin of the Company decreased to 17% and 20% for the three
months and nine months ended June 30, 1997, respectively. The decrease in
margins is principally a result of relatively lower gross profit margins in
the Company's computer distribution and reselling businesses.
For the three months ended June 30, 1997, selling expenses increased by
$391,203 (331%) to $509,211 and increased by $1,168,539 (330%) to
$1,521,804 for the nine months ended June 30, 1997. The increase in selling
expenses, over those of the prior year, are primarily a result of increased
sales and marketing efforts and the Company's acquisition of Socrates and
Expert. During 1997, the Company has aggressively expanded its marketing
and sales presence in each market that the Company's products compete in.
Administrative expenses increased $386,715 (91%) to $808,066 for the three
months ended June 30, 1997 and increased by $788,542 (50%) for the nine
months ended June 30, 1997, as a result of an increase in the Company's
overall level of operations and the acquisitions of Socrates and Expert.
Research and development expenditures, shown net of Canadian tax credits,
increased by $116,326 to $155,671 for the three months ended June 30, 1997
and increased by $127,066 to $317,824 for the nine months ended June 30,
1997, as a result of the Company's continuing research and development
efforts. Additionally, subsequent to the Company achieving technological
feasibility on several software development efforts late in fiscal year
1995, the Company continues to capitalize, in accordance with Statement of
Financial Accounting Standards No. 86, certain labor costs directly
associated with these research and development efforts. Management began
amortizing certain capitalized software costs during the quarter ended
June 30, 1997, upon release of the associated products. Depreciation
and amortization expense for the three months ended June 30, 1997 increased
by $125,952 to $153,235 and increased by $242,875 to $316,169 for the nine
months ended June 30, 1997, as a direct result of an increase in depreciable
assets from the Company's acquisitions of Socrates and Expert, the resulting
goodwill amortization recorded subsequent to the acquisitions, and the
amortization of certain capitalized software costs which began during the
quarter ended June 30, 1997.
Interest income and expense and financing charges decreased by $53,365
from $86,161 for the three month period ended June 30, 1997, and decreased
by $90,569 for the nine months ended June 30, 1997. The decrease is
primarily attributable to an increase in interest income from an outstanding
note receivable, as well as an increase in other income, offset by an
increase in margin loan interest expense. The Company has net operating
loss carryforwards and tax credit carryforwards to offset future taxable
income and taxes payable. Although the Company has recognized income before
income taxes through June 30, 1997, this has not resulted in the
recognition of income tax expense due to the existence of available net
operating loss carryforwards. Future use of these net operating loss
carryforwards was not affected by the Company's acquisitions during fiscal
years 1996 and 1997. However, in the event a change in control occurs in
the future, use of all or a portion of the U.S. carryforwards could be
affected. Moreover, as a result of the Company's anticipation of increasing
levels of profitability, the Company may be required to begin paying
income taxes during fiscal year 1997.
The current provision for income taxes in the accompanying Statements of
Operations is based upon the estimated annualized effective tax rate and is
largely determined by management's estimate as of the interim date of
projected taxable income for the entire fiscal year. The Company was able
to offset the current income tax expense at June 30, 1997, by realizing
available deferred tax benefits. Net income for the three months ended
June 30, 1997 was $816,435 or $0.07 per share ($0.08 per share excluding
the dilutive effect of approximately 6 million outstanding warrants and
options), as compared to net income of $582,676 or $0.05 per share for the
three months ended June 30, 1996. Net income for the nine months ended
June 30, 1997 was $2,024,666 or $0.17 per share ($0.19 per share excluding
the dilutive effect of approximately 6 million outstanding warrants and
options), as compared to net income of $1,384,826 or $0.12 per share
(fully diluted) for the first nine months a year ago. As of June 30, 1997,
the Company had working capital of $9,561,893 compared to $9,562,778 as of
September 30, 1996. The fiscal year 1996 acquisitions of JMR Distributors
and Socrates, the fiscal year 1997 acquisition of Expert, and future
expansion of the Company's laser vision business, including continual
software development, may require increased working capital to finance
increases in inventory and accounts receivable comparable to or greater
than the increase experienced in the nine months ended June 30, 1997 (see
Consolidated Statements of Cash Flows). While no assurances can be given,
the Company believes that cash generated from operations, along with
existing resources and available credit are sufficient to meet the
Company's short-term working capital and other financing requirements.
The Company, however, believes that it will be necessary to obtain
additional funding or financing to satisfy the long-term capital needs of
the Company's subsidiary operations and to provide for adequate working
capital reserves. The Company has no significant long-term debt
outstanding as of June 30, 1997.
The Company has a bank line of credit with a bank for support of its
Canadian operations temporary cash flow requirements, with interest
payable monthly at the bank's prime rate plus .75% (prime was 4.75% on
June 30, 1997). At June 30, 1997, borrowings outstanding on the line
of credit amounted to $471,014. The line of credit is collateralized by
all present and future accounts receivable, Canadian tax credits
receivable and inventory of the Company's Canadian subsidiary.
The Company also maintains a credit agreement with a local finance company
for inventory financing for one of its subsidiaries. The agreement
provides the Company with the ability to pay certain inventory balances
(purchases) in scheduled interest-free installments. Borrowings outstanding
under the agreement, at June 30, 1997, amounted to $350,807. The agreement
is subject to annual renewal and is collateralized by all present and
future accounts receivable and inventory of the Company's subsidiary.
Through September 30, 1995, the Company had borrowed $667,000 from Edward
Ratkovich, chairman of the board of directors, president, chief executive
officer and a principal shareholder of the Company, to enable the Company
to meet its on-going cash flow requirements. These loans bear interest at
9% and are due on demand. During fiscal year 1996, the Company repaid
$524,000 on the loans to the stockholder from operating cash flow to
partially repay these loans. Total loans and accrued interest outstanding
at June 30, 1997 total $234,938.
Additionally, a subsidiary of the Company has working capital advances of
$560,814 outstanding at June 30, 1997. These working capital advances,
which bear interest at 9% and are due on demand, were made to the
subsidiary by its former stockholder prior to the Company's acquisition
of the subsidiary.
In October 1996, the Company filed a Post-Effective Amendment to the
Company's Form S-3 Registration Statement. The Post-Effective Amendment
related to the continuing resale and conversion of the Company's Class A
Warrants previously issued in connection with the Company's August, 1995
initial public offering. The Class A Warrants became exercisable on the
effective date of the Post-Effective Amendment filing. Should all
5,140,000 Class A Warrants and 1,000,000 Class B Warrants, plus the
underwriters' purchase option for 360,000 shares and 360,000 Class A
Warrants, be exercised, the Company will receive the proceeds therefrom,
aggregating up to $29,215,000. As of June 30, 1997, 15,000 Class A
Warrants had been exercised. The Company can make no assurances that
any of the remaining warrants or underwriters' purchase option shares
will be exercised.
In February 1997, the Company converted a $1.25 million note with e-Net,
Inc. to 250,000 shares of e-Net, Inc. common stock. The 250,000 shares
of e-Net common stock owned by MVSI (classified as marketable securities
in the accompanying balance sheet) were registered as part of e-Net's
initial public offering (IPO) and are restricted from sale for a 12-month
period from the date of e-Net's IPO (April 1997) but may be released for
sale during the 12-month period with the consent of the Underwriter.
During the quarter ended June 30, 1997, the Company repurchased 70,000
shares of outstanding MVSI common stock (reflected as Treasury Stock in
the accompanying balance sheet) in open market and block transactions.
The Company intends to continue to buy back additional MVSI securities
in open market or block transactions in compliance with U.S. Securities
and Exchange Commission regulations.
On April 30, 1997, the Company entered into an agreement to lease
approximately 35,000 square feet of space in Largo, Maryland to be used
for the assembly of computer components: the manufacturing of computer
systems; and the integration of computer systems for network applications.
In addition, the facility will provide warehouse and office space, a
customer showroom and training facilities. The 5-year lease term, which
includes annual rent escalation clauses, provides for annual base rent of
approximately $140,000, plus the Company's share of property, taxes and
maintenance costs.
The Company and its representatives may from time to
time make written or oral forward-looking statements, including statements
contained in the Company's filings with the U.S. Securities and Exchange
Commission and in its reports to stockholders. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995, the Company is hereby identifying important factors that could
cause actual results to differ materially from those contained in any
forward-looking statement made by or on behalf of the Company. Any such
statement is qualified by reference to the following cautionary statements.
The Company's operating results could be affected by a number of factors.
They include the availability and cost of components, an unexpected
inability to manage expenses relative to sales growth, and an inability to
anticipate downward price pressures by customers using our products and
services. Also, there is the potential problem of competing with companies
having significantly greater financial, technical and market resources
than the Company. A significant percentage of the Company's sales to major
customers historically has occurred in the last month of a quarter.
Changes in purchasing patterns by one or more of the Company's major
customers, and the inability of the Company to anticipate in advance the
mix of customer orders and its ability to ship the necessary quantities of
product near the end of a fiscal quarter, could result in material
fluctuations in quarterly operating results. The Company participates in
competitive industries marked by changing technology, which could result in
volatility of the Company's common stock price. Additionally, any
shortfall in revenue or earnings from the levels expected by securities
analysts could have an immediate and significant effect on the trading
price of the Company's common stock in any given period. Moreover, it is
possible the Company may not learn of such shortfalls until late in the
fiscal quarter, which could result in an even more immediate and adverse
effect on the trading price of the Company's stock.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit 11, Computation of Earnings Per Share
Exhibit 27, Article 5 - Financial Data Schedule
b. Reports on Form 8-K.
Form 8-K, dated June 16, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MVSI, INC.
August 14, 1997
By: EDWARD RATKOVICH
---------------------
Edward Ratkovich
Chairman of the Board
<PAGE>
MVSI, Inc. and Subsidiaries Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
Primary Fully Diluted
Earnings Earnings
Nine Months ended June 30, 1997 Per Share Per Share
- - ---------------------------------- ---------- --------------
Weighted Average Shares Outstanding
for the period 10,698,690 10,698,690
Common stock equivalents arising from assumed
exercise of warrants and options 4,102,571 4,102,571
------------ ------------
14,801,261 14,801,261
============ ============
Net earnings for the period, as presented $2,024,666 $2,024,666
Add: Interest revenue from the assumed
purchase of government securities (A),
net of tax 443,326 443,326
------------ ------------
Adjusted net earnings $2,467,992 $2,467,992
============ ============
Earnings per share $0.17 $0.17
============ ============
Three Months ended June 30, 1997
- - ---------------------------------
Weighted Average Shares Outstanding
for the period 10,638,082 10,638,082
Common stock equivalents arising from assumed
exercise of warrants and options 4,367,494 4,367,494
------------ ------------
15,005,576 15,005,576
============ ============
Net earnings for the period, as presented $816,435 $816,435
Add: Interest revenue from the assumed
purchase of government securities (A),
net of tax 167,881 165,143
------------ ------------
Adjusted net earnings $984,316 $981,578
============ ============
Earnings per share $0.07 $0.07
============ ============
(A) Results from the 20% limitation on the
number of shares repurchased upon exercise
of warrants under the treasury stock method
<PAGE>
ARTICLE 5 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND ON PAGES 4 AND 6 OF THE COMPANY'S FORM 10-QSB FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-START> OCT-01-1996
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,723,350
<SECURITIES> 2,705,179
<RECEIVABLES> 5,189,307
<ALLOWANCES> 93,000
<INVENTORY> 4,307,822
<CURRENT-ASSETS> 14,727,987
<PP&E> 929,448
<DEPRECIATION> 320,548
<TOTAL-ASSETS> 22,305,175
<CURRENT-LIABILITIES> 5,166,094
<BONDS> 0
0
0
<COMMON> 110,550
<OTHER-SE> 17,028,531
<TOTAL-LIABILITY-AND-EQUITY> 22,305,175
<SALES> 29,849,901
<TOTAL-REVENUES> 29,849,901
<CGS> 24,009,551
<TOTAL-COSTS> 24,009,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (224,761)
<INCOME-PRETAX> 1,551,062
<INCOME-TAX> (473,603)
<INCOME-CONTINUING> 2,024,666
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,024,666
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<FN>
</FN>
</TABLE>
