UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 333-3098
------------------------------------------------------
n-Vision, Inc.
(Exact name of registrant as specified in its charter)
------------------------------------------------------
Delaware 54-1741313
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7680 Old Springhouse Road
Madison Building, First Floor
McLean, Virginia 22102
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 506-8808
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or Section 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 requirements for the past 90 days.
Yes (X) No ( )
The number of outstanding shares of the registrant's Common Stock, par
value $.01 per share, was 5,445,000 on June 30, 1996.
1
<PAGE>
FORM 10-QSB
INDEX
PAGE
---------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants .................. 3
Balance Sheets as of June 30, 1996
and December 31, 1995 .............................. 4
Statements of Operations For the
three months and six months ended
June 30, 1996 and June 30, 1995 .................... 5
Statements of Cash Flows For the six
months ended June 30, 1996 and June
30, 1995. .......................................... 6
Notes to Financial Statements ...................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. ........................................ 8
PART II OTHER INFORMATION
Item 6 Reports and Exhibits on Form 8-K. .................. 11
SIGNATURES ......................................... 12
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
ACCOUNTANT'S REVIEW REPORT
Board of Directors
n-Vision, Inc.
We have reviewed the accompanying balance sheet of n-Vision, inc. as of June 30,
1996, and the related statements of operations and cash flows for the
three-month periods and six-month periods ended June 30, 1996 and 1995. These
financial statements are the responsibility of the Company's management.
We conducted are review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquires of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principals.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of n-Vision, Inc. as of December 31, 1995, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year then ended (not presented herein), and in our report dated
April 12, 1996 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set for the in the
accompanying condensed consolidated balance sheet as of December 31, 1995 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet form which it has been derived.
/s/ Grant Thornton, LLP
Vienna, Virginia
August 5, 1996
3
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n-VISION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,014,646 $ 6,088
Accounts Receivable
Trade 111,055 129,261
Officer & Employee Travel Advances 2,450 6,600
Inventories 603,925 497,088
Prepaid Expenses 89,430 5,295
Income Tax Refund Receivable 101,363 101,363
------------ ------------
Total Current Assets 5,922,869 745,695
PROPERTY AND EQUIPMENT 105,800 44,238
(Net of Accumulated Depreciation)
OTHER ASSETS
Organization Costs 47,281 53,978
(Net of Accumulated Amortization)
------------ ------------
$ 6,075,950 $ 843,911
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities-Long Term Note Due ATS $ -- $ 160,000
Line of Credit-ATS 630,529 1,071,023
Bank Line of Credit 67,237
Current Capital Lease Obligation 20,176
Accounts Payable 482,264 309,263
Accrued Interest-ATS 27,330 253,445
Accrued Salaries and Benefits 78,539 41,053
Deferred Revenue and Warranty Reserve 163,905 111,284
------------ ------------
Total Current Liabilities 1,402,743 2,013,305
NON-CURRENT LIABILITIES
Note Payable-ATS 860,590
Capital Lease Obligations 38,575
------------ ------------
1,441,318 2,873,895
STOCKHOLDER'S EQUITY
Common Stock 54,450 30,000
Common Stock Subscriptions and Notes Receivable (722,656) (700,364)
Paid in Capital 11,150,402 440,761
Accumulated Deficit (5,847,564) (1,800,381)
------------ ------------
Total Stockholder's Equity 4,634,632 (2,029,984)
------------ ------------
$ 6,075,950 $ 843,911
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
n-VISION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
----------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------ -------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 226,099 $ 118,900 $ 482,852 $ 337,202
Cost of Sales 95,230 45,877 193,528 133,636
----------- ----------- ----------- -----------
Gross Margin 130,869 73,023 289,324 203,566
Operating Expenses
General and Administrative 248,280 275,668 416,295 460,540
Product Development 141,740 192,497 283,326 310,703
Marketing and Sales 67,258 69,745 92,904 127,847
----------- ----------- ----------- -----------
Loss from operations (326,409) (464,887) (503,201) (695,524)
Interest and Financing (3,499,950) (47,785) (3,543,982) (95,920)
Expense(net)
----------- ----------- ----------- -----------
Loss before income taxes (3,826,359) (512,672) (4,047,183) (791,444)
Income Tax expense 0 0 0 0
----------- ----------- ----------- -----------
NET LOSS $(3,826,359) $ (512,672) $(4,047,183) $ (791,444)
=========== =========== =========== ===========
Weighted average shares
outstanding 4,308,556 3,229,201 4,029,278 3,153,538
=========== =========== =========== ===========
Loss per Share $ (.89) $ (.16) $ (1.00) $ (.25)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
n-VISION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
--------------------------
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from operating activities
Net Income (Loss) (4,047,183) (791,444)
Adjustments to reconcile Net Income (Loss) to net cash used
in operating activities
Provision for conversion of convertible notes payable 3,500,000
(See Note C)
Provision for compensation for stockholder/officer 73,958 137,500
contributed services
Depreciation and amortization 22,530 47,103
Accrued interest on stockholder's notes (22,292) (11,146)
Changes in assets and liabilities
(Increase) decrease in accounts receivable 22,356 249,965
(Increase) Decrease in inventories (106,837) (114,242)
(Increase) increase in prepaid expenses (84,135) (23,905)
(Decrease) Increase in accrued interest (226,115) 107,464
(Decrease) Increase in accounts payable 173,001 318,844
(Decrease) Increase in accrued salaries and benefits 37,486 13,448
(Decrease) Increase in other accrued liabilities 52,621 (2,280)
Increase in Organization Costs (18,000)
Decrease in Income Taxes Payable (119,000)
----------- -----------
Total Adjustments 3,442,573 585,750
----------- -----------
Net cash used in operating activities (604,610) (205,694)
Cash flows form investing activities
Purchase of property and equipment (18,644) (20,652)
Cash flows from financing activities
Increase in Deferred Initial Public Offering Costs (407,907)
(Decrease) Increase in ATS line of credit (461,084) 556,769
(Decrease in Bank Line of Credit (67,237)
Net Proceeds from Initial Public Offering 6,160,133
----------- -----------
Net Cash raised in financing activities 5,631,812 148,862
----------- -----------
Net Increase (Decrease) in Cash $ 5,008,558 $ (77,484)
=========== ===========
Ending Cash Balance 5,014,646 4,531
Beginning Cash Balance 6,088 82,015
----------- -----------
$ 5,008,558 $ (77,484)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
n-VISION, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A Interim Financial Statements
The condensed financial statements for the three and six month periods
ended June 30, 1996 and June 30, 1995 are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. The condensed financial statements
should be read in conjunction with the audited financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Registration
Statement, Form SB-2. The results of operations for the three and six months
ended June 30, 1996 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 1996.
Note B Summary of Significant Accounting Policies
1. Revenue Recognition
Revenue from the sale of VR products is recognized when the products
are shipped. Related estimated warranty costs are provided for at the
time of sale.
2. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out ("FIFO") basis.
3. Loss per Share
Loss per share of Common Stock is computed using weighted average
shared outstanding for each period adjusted retroactively for stock
splits. Common stock equivalents comprised of warrants convertible into
common stock have not been included as they are anti-dilutive.
4. Use of Estimates in the Preparation of Financial Statements.
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that effect the amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Note C Initial Public Offering
On June 4, the Company completed an initial public offering of
securities whereby net proceeds of approximately $5,900,000 were realized. The
offering consisted of the sale of 1,495,000 shares of common stock for $5.00 per
shares and 1,200,000 Class A warrants for $0.15 per warrant. each warrant
entitles the holder to purchase a share of common stock for $5.50 per share
during a four year period commencing one year from the offering.
In connection with the offering, the Company received $250,000 under
three convertible notes payable, which were converted into 750,000 shares of
common stock in April 1996. The conversion discount from the initial public
offering price of $5.00 per share resulted in a $3,500,000 charge to financing
expense in the second quarter of 1996. All 750,000 shares received upon
conversion were sold during the offering.
7
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
n-Vision, Inc. ("Company"), a Delaware Corporation, designs, develops,
manufactures, and markets state-of-the-art, proprietary virtual reality ("VR")
products and systems for a variety of commercial, industrial, and military
applications. The Company's VR products and systems are marketed worldwide, but
principally to customers in North America, Europe, and the Pacific Rim, e.g.,
U.S. Air Force, NASA Langley Research Center, Lockheed Martin, Silicon Graphics,
Inc., U.K. Defense Research Establishment (Farnborough), Volvo, Volkswagen,
Daimler-Benz, Thomson CSF, KPMG Peat Marwick, and Raytheon among others.
Results of Operations
Quarter Ended June 30, 1996 Compared to Quarter Ended June 30, 1995.
For the Quarter ended June 30 1996, the Company reported revenue $226,099 from
the sale of 7 units of its VR products and systems, a 91% increase compared to
the same period ended June 30, 1995 where the Company reported revenue of
$118,900 from the sale of 4 units. The increase was primarily attributable to
the delivery of the first pre-production units of the Datavisor(TM) VGA. In
addition, the Company delivered its first custom VGA unit to the AAI Corporation
of Huntsville, Maryland for use with the US Army in a Howitzer training program
and has received orders to date for three additional units expected to delivered
later in 1996 at which time the revenue will be recognized. As of June 30, 1996,
the Company had a backlog of approximately $145,000.
The Company's gross margin on sales decreased to 58% in the second
quarter 1996 from 62% in the second quarter 1995. The decrease is attributable
to the sale of lower margin products such as the Datavisor(TM) VGA. The Company
believes that the introduction of higher margin products expected to be
introduced late in the third quarter or early in the fourth quarter may help to
boost decreasing margins. This however may be tempered to the extent that the
product mix contains a higher or lesser volume of high margin products versus
low margin products and whether or not the products are sold directly to end
users or sold and discounted through distributors. The Company can make no
determination at present as to the composition of the product mix in the future.
Operating Expenses decreased to $457,277 in the second quarter 1996
from $537,910 in the second quarter 1995. The decrease was consistent across all
business functions (i.e. Marketing and Sales, Product Development, and General
and Administrative.) The Company believes that the decreases do not necessarily
constitute a trend and can make no assurances that such costs will not increase
in the future as the Company expands its operations. In fact, the Company
intends to increase funding for new products and product development to ensure
that its VR products and services remain on the cutting edge as well as spending
additional funds on marketing and sales so as to competitively promote and
position the new product lines. The Company anticipates additional general and
administrative costs associated with the expanding operations of the Company.
Interest and financing charges increased to $3,499,950 in the three
months ended June 30, 1996 when compared to $47,784 in the three months ended
June 30, 1995. This is attributable to a one time charge of $3,500,000 taken by
the Company upon conversion of three notes payable aggregating $250,000 into
750,000 shares of the Company's common stock. Consequently, the Company does not
expect to report earnings for the year ending December 31, 1996 as a result of
the imputed costs attributable to this conversion. However, net stockholder's
equity was not impacted as the charge to expense was offset by a
8
<PAGE>
corresponding increase in paid in capital. In addition, there was no cash outlay
associated with the conversion.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30,
1995.
For the six months ended June 30 1996, the Company reported revenue of
$482,852 from the sale of 11 units of its VR products and systems, a 44%
increase compared to the same six month period ended June 30, 1995 where the
Company reported revenue of $337,202 from the sale of 8 units. The increase was
primarily attributable to the delivery of the first pre-production units of the
Datavisor(TM) VGA during the second quarter. The Company's gross margin on sales
decreased to 60% in the six months ended June 30, 1996 from 61% in the same
period ending June 30, 1995. The gross margin was comparable from period to
period.
Operating Expenses decreased to $792,526 in the six months ended June
30, 1996 from $899,091 in the same period ending June 30, 1995. The decrease was
consistent across all business functions (i.e. Marketing and Sales, Product
Development, and General and Administrative.) The Company believes that the
decreases do not necessarily constitute a trend and can make no assurances that
such costs will not increase in the future as the Company significantly expands
its operations.(See previous three-month discussion of anticipated increased
expenditures.)
Interest and financing charges increased to $3,543,982 in the six
months ended June 30, 1996 when compared to $95,920 in the same six month period
1995. This is attributable to a one time charge in the second quarter of
$3,500,000 taken by the Company due to the conversion of three notes payable
aggregating $250,000 into 750,000 shares of the Company's common stock.
Consequently, the Company does not expect to report earnings for the year ending
December 31, 1996 as a result of the imputed costs attributable to this
conversion. However, net stockholder's equity was not impacted as the charge to
expense was offset by a corresponding increase in paid in capital. In addition,
there was no cash outlay associated with the conversion.
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 revenue growth, and an inability to
anticipate downward price pressures. 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 historically has
occurred in the last month of a quarter. The ability 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.
Finally, any shortfall in revenue or earnings from the level 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. Finally, the Company participates in a
competitive industry marked by changing technology, which could result in
volatility of the Company's common stock price.
9
<PAGE>
Liquidity and Capital Resources
Working capital, which consists primarily of cash and cash equivalents,
trade receivables, and inventories, totaled $4,520,126 as of June 30, 1996
compared to a working capital deficiency of $1,045,300 at March 31, 1996. The
increase in working capital was due to an initial public offering of the
Company's common stock in May of 1996 from which the Company retired $825,461 in
short term debt and accrued interest due to Advanced Technology Systems(ATS).
Cash and cash equivalents totaling $5,014,646 consist primarily of over-night
repurchase agreements. The Company believes the current level of cash should
provide sufficient liquidity and working capital to fund its operations through
the current year.
Longer term cash requirements, other than normal operating expenses are
anticipated for the development of new products, enhancements of existing
products, financing anticipated growth, and the possible acquisitions of related
businesses and technologies. The Company believes that existing cash will be
sufficient to satisfy the anticipated cash requirements through the end of 1997.
In the event that the Company has insufficient cash flow to meet its needs, the
Company believes that proceeds from the exercise of 1,200,000 Class A warrants
for $5.50 per share should more than make up the short fall. The warrants may be
exercised during a four year period commencing May 29, 1997 unless redeemed by
the Company. The Company , however, can make no assurances that investors would
elect to exercise the warrants. Additionally, the Company is in the process of
establishing credit lines with its primary lending institution.
Income Taxes
The Company is organized as a C Corporation and pays income taxes based
upon accrual based taxable income adjusted for differences in the timing of
reporting certain expenses for tax and financial statement purposes. The
Company's income taxes payable, if any, that may arise in the future may be
offset by credits available for certain research and development expenditures
incurred.
As of December 31, 1995, the Company had a net operating loss
carryforward available to offset future taxable income of approximately $450,000
available to offset future taxable income generated through 2009. In the event
of a change in control of the Company, use of such carry forwards could be
reduced.
Seasonality
Based on its limited experience to date, the Company believes that its
future operating results will not be subject to seasonal changes. Such effects,
should they occur, may be apparent in the Company's operating results during a
period of expansion. However, the Company can make no assurances that its
business can be significantly expanded.
10
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on From 8-K were filed during the quarter ended June 30, 1996.
11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Dated: August 13, 1996
n-VISION, INC.
(Registrant)
/S/ Robert B. Hamilton
-------------------------------------------------
Robert B. Hamilton
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the From
10-QSB for the period ended June 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,014,646
<SECURITIES> 0
<RECEIVABLES> 111,055
<ALLOWANCES> 0
<INVENTORY> 603,925
<CURRENT-ASSETS> 5,922,869
<PP&E> 105,800 <F1>
<DEPRECIATION> 0 <F1>
<TOTAL-ASSETS> 6,075,950
<CURRENT-LIABILITIES> 1,402,748
<BONDS> 0
0
0
<COMMON> 54,540
<OTHER-SE> 4,580,182
<TOTAL-LIABILITY-AND-EQUITY> 6,075,950
<SALES> 482,852
<TOTAL-REVENUES> 482,852
<CGS> 193,528
<TOTAL-COSTS> 193,528
<OTHER-EXPENSES> 792,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,543,982)
<INCOME-PRETAX> (4,047,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,047,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,047,183)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> (1.00)
<FN>
<F1> Net of accumulated depreciation.
</FN>
</TABLE>
