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 September 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 November 8, 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 September 30,
1996 and December 31, 1995 .................................... 4
Statements of Operations For the
three months and nine months ended
September 30, 1996 and September .......................... 5
30, 1995
Statements of Cash Flows For the
nine months ended September 30, 1996
and September 30, 1995 ........................................ 6
Notes to Financial Statements ................................. 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations .................................................... 9
PART II OTHER INFORMATION
Item 6 Reports and Exhibits on Form 8-K12
SIGNATURES .................................................... 13
Exhibit 27 Financial Data Schedule ....................................... 14
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
September 30, 1996, and the related statements of operations and cash flows for
the three-month periods and nine-month periods ended September 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.
GRANT THORNTON LLP
Vienna, Virginia
November 5, 1996
3
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n-VISION, INC.
BALANCE SHEETS
September 30 December 31
1996 1995
------------ -----------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,200,368 $ 6,088
Accounts Receivable
Trade 261,942 129,261
Officer & Employee Travel Advances 3,024 6,600
Inventories 655,851 497,088
Prepaid Expenses 64,381 5,295
Income Tax Refund Receivable 17,389 101,363
------------ -----------
Total Current Assets 5,202,955 745,695
PROPERTY AND EQUIPMENT 277,314 44,238
(Net of Accumulated Depreciation)
OTHER ASSETS
Organization Costs 43,933 53,978
(Net of Accumulated Amortization)
------------ -----------
$ 5,524,202 $ 843,911
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities-Long Term Note Due ATS $ -- $ 160,000
Line of Credit-ATS 630,606 1,071,023
Bank Line of Credit -- 67,237
Current Capital Lease Obligation 20,853 --
Accounts Payable 162,873 309,263
Accrued Interest-ATS 42,503 253,445
Accrued Salaries and Benefits 71,870 41,053
Deferred Revenue and Warranty Reserve 161,580 111,284
------------ -----------
Total Current Liabilities 1,090,285 2,013,305
NON-CURRENT LIABILITIES
Note Payable-ATS -- 860,590
Capital Lease Obligations 33,048 --
------------ -----------
1,123,333 2,873,895
STOCKHOLDER'S EQUITY
Common Stock (.01 Par, 5,445,000
Shares Outstanding) 54,450 30,000
Common Stock Subscriptions
and Notes Receivable (730,087) (700,364)
Paid in Capital 11,185,405 440,761
Accumulated Deficit (6,108,899) (1,800,381)
------------ -----------
Total Stockholder's Equity 4,400,869 (2,029,984)
------------ -----------
$ 5,524,202 $ 843,911
============ ===========
The accompanying notes are an integral part of these statements.
4
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n-VISION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 352,071 $ 221,454 $ 834,922 $ 558,656
Cost of Sales 199,329 172,112 392,856 305,748
----------- ----------- ----------- -----------
Gross Margin 152,742 49,342 442,066 252,908
Operating Expenses
General and Administrative 195,200 192,348 611,496 652,886
Product Development 164,079 125,250 447,405 435,954
Marketing and Sales 106,004 75,476 198,909 203,323
----------- ----------- ----------- -----------
Loss from operations (312,541) (343,732) (815,744) (1,039,255)
Interest and Financing 51,208 (51,336) (3,492,773) (147,255)
Expense(net)
----------- ----------- ----------- -----------
Loss before income taxes (261,333) (395,068) (4,308,517) (1,186,510)
Income Tax expense -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (261,333) $ (395,068) $(4,308,517) $(1,186,510)
=========== =========== =========== ===========
Weighted average shares 5,445,000 3,229,201 4,501,185 3,178,759
outstanding
=========== =========== =========== ===========
Loss per Share $ (0.05) $ (0.12) $ (0.96) $ (0.37)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
n-VISION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
-------------------------
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from operating activities
Net Income (Loss) (4,308,517) (1,186,510)
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 73,958 225,000
contributed services
Depreciation and amortization 36,950 70,803
Accrued interest on stockholder's notes (29,723) (22,292)
Changes in assets and liabilities
(Increase) Decrease in accounts receivable (129,105) 430,030
(Increase) Decrease in inventories (188,003) (283,360)
(Increase) Decrease in prepaid expenses (59,086) 11,926
(Increase) Decrease in Income Tax Refund Receivable 83,974 --
(Decrease) Increase in accounts payable (111,388) 364,896
(Decrease) Increase in accrued salaries and benefits 30,817 3
(Decrease) Increase in Deferred Warranty and Warranty 50,296 (2,679)
Warranty Reserve
(Decrease) Increase in other accrued liabilities -- (2,573)
Increase in Organization Costs -- (20,253)
Decrease in Income Taxes Payable -- (119,000)
----------- -----------
Total Adjustments 3,258,690 652,503
----------- -----------
Net cash used in operating activities (1,049,827) (534,009)
Cash flows from investing activities
Purchase of property and equipment (163,518) (29,822)
Cash flows from financing activities
Net Proceeds from (costs of) Initial Public Offering 6,160,133 (426,263)
Payments of Capital Lease Obligations (13,322) --
Payments of Long Term Note to ATS (20,590) --
(Decrease) Increase in ATS line of credit (440,417) 748,193
(Decrease) Increase in accrued interest (210,942) 169,946
(Decrease) Increase in Bank Line of Credit (67,237) --
----------- -----------
Net Cash provided by in financing activities 5,407,625 491,876
----------- -----------
Net Increase (Decrease) in Cash $ 4,194,280 $ (71,955)
=========== ===========
Ending Cash Balance 4,200,368 10,060
Beginning Cash Balance 6,088 82,015
----------- -----------
$ 4,194,280 $ (71,955)
=========== ===========
</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 nine month periods
ended September 30, 1996 and September 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, declared effective on May 29, 1996. The
results of operations for the three and nine months ended September 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 $6,160,133 were realized. The offering
consisted of the sale of 1,495,000 shares of common stock for $5.00 per share
and 1,380,000 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 closing of 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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Note D Commitments
The Company has executed a lease which expands and extends the terms of its
current lease for the property it currently occupies. The lease secures
approximately 15,000 square feet for the Company's principal executive offices
and facilities located at 7680 Old Springhouse Road, McLean, Virginia, 22102.
The lease extends through February of 1999 for approximately $11,250 a month and
contains a 3% escalation clause effective at the beginning of each year. The
lease however has not been executed by the lessor as of the date of this report.
Note E Related Party Transactions
During the quarter ended September 30,1996, the Company sold one of its VR
systems to Advanced Technology Systems, Inc. (ATS) for $41,757. The unit is for
resale to the US Air Force through ATS's GSA schedule which was established when
the Company was an operating division of ATS. The list price is discounted
approximately 6.7% for products sold on this schedule. ATS is a McLean,
Virginia, based information technology services company owned and operated by
Delmar J. Lewis, the Chairman and Chief Executive Officer of the Company.
8
<PAGE>
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, Rockwell international, The
University of Illinois, and Raytheon among others.
In August of 1996, the Company announced the introduction of the Datavisor
80, a wide field of view/high resolution head mounted display system, and was
able to demonstrate a prototype in New Orleans during SIGGRAPH, a recognized
industry trade show. The Company believes that the Datavisor 80 could
significantly boost the Company's revenue and margins in the future and has
orders to date for three systems with other customers expressing interest when
production units are available in the fourth quarter. However, at this time the
Company can make no assurances as to the success of this product.
Some statements in this Management's Discussion and Analysis contain
forward-looking information that involve a number of risks and uncertainties,
the possible realization of which could have material adverse effects on the
Company's operating results. Factors that may cause actual results to differ
materially include: development of new products and rapid change in technology
that may displace products sold by the Company; the highly competitive market in
which the Company operates; the Company's dependence upon a limited number of
suppliers for the availability of components used in it's products; fluctuations
in the Company's quarterly results of operations and in the timing of orders
from customers; and other risk factors listed from time to time in the Company's
SEC filings including but limited to the SB-2 Registration Statement dated May
28, 1996.
Results of Operations
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30,
1995.
For the quarter ended September 30 1996, the Company reported revenue
$352,071 from the sale of 12 units of its VR products and systems, a 63%
increase compared to the same period ended September 30, 1995 where the Company
reported revenue of $221,454 from the sale of 4 units. The increase was
primarily attributable to the delivery of the first production models of the
Datavisor VGA and the Datavisor HiRes products. As of November 8, 1996, the
Company had an order backlog of approximately $166,000.
The Company's gross margin on sales increased to 44% in the third quarter
1996 from 23% in the third quarter 1995. The increase was due to an $80,000
charge taken in the third quarter 1995, to write down obsolete inventory and
establish an allowance against future obsolescence making the gross margin not
comparable from period to period. However, if not for this adjustment, the gross
margin on sales would have decreased to 44% in the third quarter 1996 from 59%
in the third quarter 1995. The pressure on margins is due to several reasons,
one of which was the lowering of the list price of the Company's main product,
the Datavisor HiRes, in response to competition. This coupled with increased
sales of the Datavisor VGA, a lower priced/lower margin product, has strained
margins and may continue to do so
9
<PAGE>
in the near future. Additionally, higher than anticipated production costs
associated with the production of the new product lines have also put pressure
on margins. The company believes these start-up costs to be short-term and
should not significantly affect margins in the future whereas the price decrease
of the Datavisor HiRes and growth in sales of the Datavisor VGA are ongoing in
nature. However, the Company believes that the introduction of higher margin
products such as the Datavisor 80, expected to be delivered in the fourth
quarter, may help to boost 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 increased to $465,283 in the third quarter 1996 from
$393,074 in the third quarter 1995. The increases were due primarily to
increased development costs of the Datavisor 80 and increased marketing
activities in the third quarter in the form of trade shows and advertising. The
Company intends to increase funding for product development and marketing so as
to remain competitive.
Interest and financing income increased to $51,208 in the three months
ended September 30, 1996 when compared to an expense of $51,336 in the three
months ended September 30, 1995. This is the result primarily of the conversion
of certain long term obligations into common stock and the retirement of other
obligations with the proceeds from the Company's initial public offering of
stock. The company should continue to maintain a favorable net interest margin
in the near future until time as the remaining proceeds are fully invested in
the Company's operations.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995.
For the nine months ended September 30 1996, the Company reported revenue
of $842,922 from the sale of 23 units of its VR products and systems, a 49%
increase compared to the same nine month period ended September 30, 1995 where
the Company reported revenue of $558,656 from the sale of 11 units. The increase
was primarily attributable to delivery of the first pre-production units and
production units of the Datavisor VGA in the second and third quarters
respectively.
The Company's gross margin on sales increased to approximately 53% in the
nine months ended September 30, 1996 from 45% in the nine month period ended
September 30, 1995. If not for the one time charge of $80,000 as discussed in
the results of operations for the quarter ended September 30, 1996, the gross
margin would have been 60% for the nine months ended September 30, 1995. This
decline was particularly concentrated in the third quarter of the year for a
number of reasons, including competition, product mix, and higher than
anticipated production start-up costs of the new product lines. For further
discussion and analysis see the results of operations for the quarter ended
September 30, 1996.
Operating expenses for the nine months ended September 30, 1996 decreased
to $1,257,810 from $1,292,163 in the same nine month period in 1996. The
decrease was primarily the result of lower general and administrative costs. The
Company does not believe that this reflects an ongoing trend and fully expects
such costs to increase as it expands and develops its business.
Interest and financing charges increased to $3,492,773 in the nine months
ended September 30, 1996 when compared to $147,255 in the same nine 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.
10
<PAGE>
Liquidity and Capital Resources
Working capital, which consists primarily of cash and cash equivalents,
trade receivables, and inventories, totaled $4,141,910 as of September 30, 1996
compared to a working capital deficiency of $1,169,394 at December 31, 1995. 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, Inc.
(ATS). Cash and cash equivalents totaling $4,200,368 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 at least 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 shortfall. 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 will 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 $370,000 available to
offset future taxable income generated through 2009. In the event of a change in
control of the Company, use of such carryforwards 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.
11
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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 September 30, 1996.
12
<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: November 12, 1996
n-VISION, INC.
(Registrant)
/S/ Robert B.Hamilton
--------------------------------
Robert B. Hamilton
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the form 10-QSB for the period ended September 30, 1996 and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,200,368
<SECURITIES> 0
<RECEIVABLES> 261,942
<ALLOWANCES> 0
<INVENTORY> 655,851
<CURRENT-ASSETS> 5,202,955
<PP&E> 394,992
<DEPRECIATION> (117,678)
<TOTAL-ASSETS> 5,524,202
<CURRENT-LIABILITIES> 1,090,285
<BONDS> 0
0
0
<COMMON> 54,450
<OTHER-SE> 4,386,419
<TOTAL-LIABILITY-AND-EQUITY> 5,524,202
<SALES> 834,922
<TOTAL-REVENUES> 834,922
<CGS> (92,856)
<TOTAL-COSTS> (92,856)
<OTHER-EXPENSES> (1,257,810)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,492,773)
<INCOME-PRETAX> (4,308,517)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,308,517)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,308,517)
<EPS-PRIMARY> (0.96)
<EPS-DILUTED> (0.96)
</TABLE>
