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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: March 31, 1997
Commission file number: 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 March 31, 1997, 10,645,500 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
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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
March 31, September 30,
1997 1996
------------ --------------
Assets (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 204,249 $ 313,890
Investments 2,118,753 5,881,202
Accounts receivable, net of allowance
for doubtful accounts 5,316,159 4,555,259
Note receivable - 500,000
Inventory 3,491,384 2,612,539
Tax credits and income tax receivable 554,671 405,717
Prepaid expenses 253,747 348,302
----------- ------------
Total Current Assets 11,938,963 14,616,909
Property and Equipment, net 555,174 383,518
Capitalized Software Costs 1,486,279 1,164,182
Investment 1,440,081 -
Goodwill 2,595,959 2,735,638
Deferred Tax Asset 1,482,180 1,158,430
Other Assets 105,719 101,692
----------- -----------
$ 19,604,355 $ 20,160,369
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Line of credit and financing
arrangement $ 1,027,239 $ 1,099,973
Accounts payable and accrued
liabilities 2,574,967 3,731,763
Shareholder loans and interest 230,788 222,395
------------ -------------
Total Current Liabilities 3,832,994 5,054,131
Stockholders' Equity
Common stock, $.01 par value,
50,000,000 shares authorized,
10,755,000 and 10,740,000 shares
issued, respectively 107,550 107,400
Stock subscription receivable (150,000) (150,000)
Additional paid-in capital 20,637,416 20,577,566
Accumulated deficit (4,267,374) (5,475,602)
Unrealized loss on investments
available for sale (95,402) (59,786)
Cumulative translation adjustment (97,719) 106,660
Treasury stock, at cost, 109,500
and 0 shares, respectively (363,110) -
----------- ------------
Total Stockholders' Equity 15,771,361 15,106,238
----------- ------------
$ 19,604,355 $ 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 March 31, 1997 1996
---- ----
(Unaudited) (Unaudited)
Sales $ 9,789,881 $ 3,038,459
Cost of Sales 7,901,743 1,808,539
--------- ---------
Gross Profit 1,888,138 1,229,920
Expenses
Selling 503,061 139,420
Administrative 733,365 616,481
Research and development, net of
tax credits 131,952 74,597
Depreciation and amortization 81,110 30,480
--------- ---------
1,449,488 860,978
--------- ---------
Earnings from Operations 438,650 368,942
Interest Income 124,234 112,557
Interest and Financing Charges (33,073) (9,707)
--------- ---------
Earnings Before Income Taxes 529,811 471,792
Income Tax (Benefit) Provision
Current (20,000) -
Deferred (58,292) -
--------- ---------
(78,292) -
--------- ---------
Net Earnings $ 608,103 $ 471,792
========= =========
Earnings per Share
Primary $ 0.05 $ 0.05
========= =========
Fully diluted $ 0.05 $ 0.05
========= =========
The accompanying notes are an integral part of these statements
<PAGE>
MVSI, Inc. and Subsidiaries
Interim Consolidated Statements of Operations
Six Months ended March 31, 1997 1996
---- ----
(Unaudited) (Unaudited)
Sales $ 18,169,814 $ 6,608,601
Cost of Sales 14,357,754 4,454,581
---------- ---------
Gross Profit 3,812,060 2,154,020
Expenses
Selling 1,012,593 235,257
Administrative 1,550,185 1,148,358
Research and development, net of
tax credits 162,153 151,413
Depreciation and amortization 162,934 46,011
--------- ---------
2,887,865 1,581,039
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Earnings from Operations 924,195 572,981
Interest Income 316,334 246,620
Interest and Financing Charges (124,369) (17,451)
--------- ---------
Earnings Before Income Taxes 1,116,160 802,150
Income Tax (Benefit) Provision
Current 90,000 -
Deferred (182,071) -
--------- ---------
(92,071) -
--------- ---------
Net Earnings $ 1,208,231 $ 802,150
========= =========
Earnings per Share
Primary $ 0.10 $ 0.08
========= =========
Fully diluted $ 0.10 $ 0.08
========= =========
The accompanying notes are an integral part of these statements
<PAGE>
MVSI, Inc. and Subsidiaries
Interim Consolidated Statements of Cash Flows
Six Months ended March 31, 1997 1996
---- ----
(Unaudited) (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net income $ 1,208,231 $ 802,150
--------- ---------
Adjustments to reconcile net income
to net cash from operating activities
Deferred income taxes (323,750) -
Depreciation and amortization 162,934 43,431
(Gain) loss on foreign exchange (15,365) 103,079
Changes in operating assets and liabilities:
(Increase) in accounts receivable (703,628) (1,068,749)
(Increase) in inventory (909,178) (1,257,689)
(Increase) decrease in tax credits and
income taxes receivable (154,267) 58,915
Decrease in prepaid expenses 93,589 114,066
(Increase) in other assets (4,027) (24,312)
(Decrease) in accounts payable and
accrued liabilities (1,216,983) (514,605)
--------- ---------
Net Cash (Used in) Operating Activities (1,862,444) (1,743,714)
--------- ---------
Cash Flows from Investing Activities
Borrowings on margin against investments 3,762,449 425,788
Property, plant and equipment purchases (193,134) (28,301)
Capitalized software costs (322,097) (505,388)
Investment in e-Net, Inc. (940,081) -
--------- ---------
Net Cash Provided by (Used in)
Investing Activities 2,307,137 (107,901)
--------- ---------
Cash Flows from Financing Activities
Net (decrease) increase in line of credit (68,738) 312,500
Proceeds from shareholder loans 8,393 207,257
Payment of shareholder loans - (300,000)
Payment of debt - (6,960)
Purchase of treasury stock (363,110) -
Proceeds from issuance of common stock 150 1,000
Proceeds from conversion of warrants 59,850 -
--------- ---------
Net Cash (Used in) Provided by
Financing Activities (363,455) 6,540
--------- ---------
Effect of Exchange Rate Changes on Cash (190,879) 14,944
--------- ---------
Net (Decrease) in Cash (109,641) (1,830,131)
Cash at Beginning of Period 313,890 2,343,036
--------- ---------
Cash at End of Period $ 204,249 $ 512,905
========= =========
The accompanying notes are an integral part of these statements
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
March 31, 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 six months and three months ended March 31, 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; and
JMR Distributors, Inc. (JMR), a Lorton, Virginia-based corporation
specializing in the purchase and sale of computer memory chips and
network equipment (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.
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.
Investments
Investments consist of short-term U.S. treasury notes, net of margin
loans which bear interest at 7 1/2 percent. In accordance with Statement
of Financial Accounting Standards No. 115, the Company has classified
these investments as available for sale, and recorded the investments
at market value at March 31, 1997 and 1996. The Company has not realized
any proceeds from the sale of securities during the three months ended
March 31, 1997 and 1996.
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
March 31, 1997
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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 March 31, 1997,
management has established an allowance for doubtful accounts of
approximately $163,000.
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 at lower of cost or
market at March 31, 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 has been recorded in the
accompanying financial statements pending release of the associated
products. Management believes that these products will be available for
sale during late fiscal year 1997. During the quarter ended March 31,
1997, the Company expensed $55,000 of previously capitalized costs based
upon a reevaluation of the status of certain products. When products
are ready for sale, the Company's policy will be to amortize 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.
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
March 31, 1997
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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 six months ended
March 31, 1997 and 1996 was $139,280 and $22,500, 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
March 31, 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 six months and three
months ended March 31, 1997. 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 of the
Company's stock for the three months and six months ended March 31,
1997, 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.
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
March 31, 1997
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Earnings Per Share-Continued
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 14,693,778 for
the three months ended March 31, 1997 and 14,708,196 for the six months
ended March 31, 1997.
For the six months and three months ended March 31, 1996, the Company's
common stock equivalents were anti-dilutive and accordingly were not
included in the March 31, 1996 EPS computations. For the three months
and six months ended March 31, 1996, the weighted average number of
common shares outstanding, computed without regard to common stock
equivalents, was 10,240,000.
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 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.
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
March 31, 1997
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Translation of Foreign Currency and Concentration of Credit Risk-Continued
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
Restructuring of e-Net, Inc. Relationship
On January 14, 1997, MVSI announced the restructuring of its relationship
with e-Net, Inc., a Washington, D.C. area based telecommunications
products and services company. As previously reported, MVSI announced
its intention in August, 1996 to acquire e-Net, Inc., a Delaware
corporation, in an exchange of securities valued in August, 1996 at
approximately $60 million, and approximately $5.3 million in operating
cash over a two-year period, subject to obtaining a fairness opinion and
the ratification by a majority of MVSI shareholders at its next
shareholders meeting.
However, certain uncontrollable events negatively affected the proposed
acquisition and as a result, MVSI and e-Net agreed that it was not in
the best interests of the shareholders of either company to proceed with
the proposed acquisition of e-Net by MVSI. As of January 14, 1997, MVSI
had provided e-Net $1,250,000 in working capital, pursuant to a
promissory note under an October 1996 agreement. In the new agreement,
dated January 14, 1997, e-Net granted MVSI, for the $1.25 million loan
made to e-Net, a five-year conversion option to acquire e-Net securities
at a fixed price in future financing obtained by e-Net from other sources.
This conversion option could be exercised, at MVSI's discretion, in lieu
of MVSI demanding cash repayment of the loan during the five-year period.
In February 1997, MVSI converted the $1.25 million note to 250,000 shares
of e-Net common stock in order to facilitate the proposed underwriting
of e-Net's intial public offering ("e-Net's IPO"), which occurred in
April 1997. The 250,000 shares of e-Net common stock owned by MVSI were
registered as part of e-Net's IPO and are restricted from sale for a 12-
month period from the date of e-Net's IPO, but may be released for sale
during the 12-month period with the consent of the Underwriter.
As a result of the restructured agreement and subsequent note conversion,
MVSI has reclassified its note receivable from e-Net to an investment
in e-Net (see accompanying balance sheet). The investment, which includes
certain costs incident to the transactions, is stated at cost that does
not exceed estimated net realizable value.
<PAGE>
MVSI, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements--Continued
March 31, 1997
NOTE C--SIGNIFICANT TRANSACTIONS--Continued
Restructuring of e-Net, Inc. Relationship-Continued
In addition, MVSI acquired a perpetual original equipment manufacture
(OEM) license to e-Net's Telecom 2000, a proprietary telecommunications
product which allows secure, private voice communications across the
Internet and intranets. MVSI and e-Net will continue to explore
cooperation through possible future technology transfers or licensing
of their respective technology products and services.
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, subject to parent company approval, 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 capital contribution of $500,000 in cash
to the Joint Venture's working capital. As of March 31, 1997, MVS and
Mr. Woo are completing final modifications to the initial joint venture
agreement. Pending the signing of this agreement, MVS will provide its
capital contribution of $500,000 to the Joint Venture. 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.
NOTE D--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>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The Company reported sales of $9,789,881 for the three month period
ended March 31, 1997 as compared to $3,038,459 for the same period in
fiscal year 1996. For the six months ended March 31, 1997, the Company
reported sales of $18,169,814 as compared to $6,608,601 for the same
period in fiscal year 1996. The increase in sales of $11,561,213 or 175%
is attributable to the acquisition of Socrates, Inc., effective July 1,
1996 and strong demand for the Company's computer products and services
and laser machine vision products and systems.
The gross margin of the Company decreased to 19% and 21% for the three
months and six months ended March 31, 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 March 31, 1997, selling expense increased
by $363,641 (261%) to $503,061 and increased by $777,336 (330%) to
$1,012,593 for the six months ended March 31, 1997. The increase in
selling expenses, over those of the prior year, is primarily a result
of increased sales and marketing efforts and the Company's acquisition
of Socrates, Inc. During fiscal year 1997, the Company has agressively
worked towards expanding its marketing and sales presence in each market
that the Company's products compete in. Administrative expenses increased
$116,884 (19%) to $733,365 for the three months ended March 31, 1997 and
increased by $401,827 (35%) for the six months ended March 31, 1997,
as a result of an increase in the Company's overall level of operations
and the acquisition of Socrates.
Research and development expenditures, shown net of Canadian tax credits,
increased by $57,355 to $131,952 for the three months ended March 31,
1997 and increased by $10,740 to $162,153 for the six months ended
March 31, 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 expects to begin amortizing such costs in late fiscal year
1997 upon release of the associated products. During the quarter ended
March 31, 1997, the Company expensed $55,000 of previously capitalized
costs based upon a reevaluation of the status of certain products.
Depreciation and amortization expenses for the three months ended
March 31, 1997 increased by $50,630 to $81,110 and increased by $46,011
to $162,934 for the six months ended March 31, 1997, as a direct result
of an increase in depreciable assets from the Company's acquisition of
Socrates, Inc. and the resulting goodwill amortization recorded subsequent
to the acquisition.
Interest income and expense and financing charges decreased by $11,689
from $102,850 for the three month period ended March 31, 1997, and
decreased by $37,204 for the six months ended March 31, 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 March 31,
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 year 1996. However, in the event
a change of 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.
<PAGE>
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 March 31, 1997, by
realizing available deferred tax benefits.
Net income for the three months ended March 31, 1997 was $608,103 or
$0.05 per share ($0.06 per share excluding the dilutive effect of 6.1
million outstanding warrants), as compared to net income of $471,792 or
$0.05 per share for the three months ended March 31, 1996. Net income for
six months ended March 31, 1997 was $1,208,231 or $0.10 per share ($0.11 per
share excluding the dilutive effect of 6.1 million outstanding warrants),
as compared to net income of $802,150 or $0.08 per share for the first six
months a year ago. The per share data for the six months and three months
ended March 31, 1996, does not include the 6.1 million outstanding warrants
as the warrants were anti-dilutive during those periods.
As of March 31, 1997, the Company had working capital of $8,105,969
compared to $9,562,778 as of September 30, 1996. The fiscal year 1996
acquisitions of JMR Distributors, Inc. and Socrates, Inc. 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 six months ended March 31, 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 March 31, 1997.
The Company has a bank line of credit with a Canadian bank for support
of its Canadian operations temporary cash flow requirements, with interest
payable monthly at the Canadian bank's prime rate plus 2% (prime was 4.75%
on March 31, 1997). At March 31, 1997, borrowings outstanding on the line
of credit amounted to $423,913. 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 March 31, 1997, amounted to $603,326. The agreement is
subject to annual renewal and is collateralized by all present and future
accounts receivable and inventory of the Company's 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 March 31, 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.
<PAGE>
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 March 31, 1997 total $230,788.
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 an investment
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 March 31, 1997, the Company repurchased
109,500 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.
No reports on Form 8-K were filed during the quarter
ended March 31, 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.
April 30, 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
Six Months ended March 31, 1997 Per Share Per Share
- ------------------------------- --------- -------------
Weighted Average Shares Outstanding
for the period 10,728,995 10,728,995
Common stock equivalents arising
from assumed exercise of warrants 3,979,201 3,979,201
---------- ----------
14,708,196 14,708,196
========== ==========
Net earnings for the period,
as presented $1,208,231 $1,208,231
Add: Interest revenue from the
assumed purchase of government
securities (A), net of tax 248,160 248,160
---------- -----------
Adjusted net earnings $1,456,391 $1,456,391
========== ===========
Earnings per share $0.10 $0.10
========== ===========
Three Months ended March 31, 1997
- ---------------------------------
Weighted Average Shares Outstanding
for the period 10,710,972 10,710,972
Common stock equivalents arising
from assumed exercise of warrants 3,982,806 3,982,806
---------- ----------
14,693,778 14,693,778
========== ==========
Net earnings for the period,
as presented $608,103 $608,103
Add: Interest revenue from the
assumed purchase of government
securities (A), net of tax 168,819 168,819
---------- ----------
Adjusted net earnings $776,922 $776,922
========== ==========
Earnings per share $0.05 $0.05
========== ==========
(A) Results from the 20% limitation on the number of
shares repurchased upon exercise of warrants under
the treasury stock method
