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, 1997
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: 000-28520
==============================================================
n-Vision, Inc.
(Exact name of registrant as specified in its charter)
==============================================================
Delaware 54-1741313
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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 5,293,673 on October 24, 1997.
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,
1997 and December 31, 1996.................. 4
Statements of Operations For the
three months and nine months ended
September 30, 1997 and September
30, 1996.................................... 5
Statements of Cash Flows For the nine
months ended September 30, 1997 and
September 30, 1996.......................... 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
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, 1997, and the related statements of operations and cash flows for
the three-month periods and nine-month periods ended September 30, 1997 and
1996. These financial statements are the responsibility of the Company's
management.
We conducted our 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 inquiries 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, 1996, 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
February 18, 1997 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, 1996 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
October 24, 1997
3
<PAGE>
n-VISION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
---------------- ---------------
(Unaudited) (Audited)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,100,615 $ 2,422,839
Investments 1,246,875 1,250,000
Interest Receivable - Investments 62,891 -
Accounts Receivable
Trade 559,342 194,910
Officer & Employee Travel Advances 3,931 1,943
Inventories 488,666 716,590
Prepaid Expenses 66,842 48,731
Income Tax Refund Receivable 1,919 17,389
------------ ------------
Total Current Assets 3,531,081 4,652,402
PROPERTY AND EQUIPMENT 626,665 302,745
(Net of Accumulated Depreciation)
OTHER ASSETS 30,541 40,585
------------ ------------
$ 4,188,287 $ 4,995,732
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities- Note Payable - ATS $ 130,800 $ 120,000
Current Capital Lease Obligation 23,799 21,554
Accounts Payable 42,559 52,131
Accrued Salaries and Benefits 108,674 81,950
Deferred Revenue and Warranty Reserve 92,833 144,114
------------ ------------
Total Current Liabilities 398,665 419,749
NON-CURRENT LIABILITIES
Note Payable-ATS 420,000 480,000
Capital Lease Obligations 9,017 27,334
COMMITENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY
Common Stock ( .01 Par, 5,293,673 Shares Outstanding) 52,937 53,126
Common Stock subscriptions and notes receivable - (91,722)
Investment Revaluation (3,125) -
Paid in Capital 10,442,007 10,529,492
Accumulated Deficit (7,131,214) (6,422,247)
------------ ------------
Total Stockholder's Equity 3,360,605 4,068,649
------------ ------------
$ 4,188,287 $ 4,995,732
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
n-VISION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
----------------------------- ------------------------------
1997 1996 1997 1996
------------- ------------ -------------- ------------
(unaudited) (unaudited)
<S> <C>
Sales $ 631,796 $ 352,071 $1,883,964 $ 834,922
Cost of Sales 308,454 199,329 1,006,453 392,856
---------- ----------- ---------- -----------
Gross Margin 323,342 152,742 877,511 442,066
Operating Expenses
General and Administrative 312,169 195,200 954,773 611,496
Product Development 102,145 164,079 299,302 447,405
Marketing and Sales 166,660 106,004 423,191 198,909
---------- ---------- ---------- -----------
Loss from operations (257,632) (312,541) (799,755) (815,744)
Non-Operating Income
(Expense)
Interest Income 33,313 66,380 129,761 109,650
Interest Expense (12,013) (15,172) (38,973) (102,423)
Interest Expense-Bridge
Financing - - - (3,500,000)
---------- ---------- ---------- -----------
Loss before income taxes (236,332) (261,333) (708,967) (4,308,517)
Income Tax expense - - - -
---------- ---------- ---------- -----------
NET LOSS $ (236,332) $ (261,333) $ (708,967) $(4,308,517)
========== ========== ========== ===========
Weighted average shares
outstanding 5,293,673 5,445,000 5,299,990 4,501,185
========== ========== ========== ===========
Loss per Share $ (0.04) $ (0.05) $ (0.13) $ (0.96)
========== ========== ========== ===========
</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
September 30
----------------------------------
1997 1996
-------------- ----------------
(Unaudited) (Unaudited)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) (708,967) (4,308,517)
Adjustments to reconcile Net Income (Loss) to net cash
Used in operating activities
Depreciation and amortization 123,765 36,950
Loss on Disposal of Fixed Assets 19,946 -
Provision for Conversion of notes receivable - 3,500,000
Provision for compensation for stockholder/officer
Contributed services - 73,958
Accrued Interest on Stockholder's notes - (29,723)
Changes in assets and liabilities
(Increase) Decrease in accounts receivable (364,434) (129,105)
(Increase) Decrease in inventories 50,074 (188,003)
(Increase) Decrease in prepaid expenses (18,111) (59,086)
(Increase) Decrease in Employee Travel Advances (1,988) -
(Increase) Decrease in Income Refund Receivable 15,470 83,974
(Increase) Decrease in Interest Receivable (62,890) -
(Decrease) Increase in accounts payable (9,572) (111,388)
(Decrease) Increase in accrued salaries and benefits 26,724 30,817
(Decrease) Increase in accrued Interest 10,800 (210,942)
(Decrease) Increase in Deferred Warranty and
Warranty Reserve (51,281) 50,296
----------- -----------
Total Adjustments (261,497) 3,047,748
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (970,464) (1,260,769)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (288,979) (163,518)
Proceeds from sale of Fixed Assets 9,243 -
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (279,736) (163,518)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipt of Subscriptions Receivable 4,048 -
Payments of Capital Lease Obligations (16,072) (13,322)
Payment of Long Term Note to ATS (60,000) (20,590)
(Decrease) Increase in ATS line of credit - (440,417)
(Decrease) Increase in Bank Line of Credit - (67,237)
Proceeds from Initial Public Offering - 6,160,133
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (72,024) 5,618,567
----------- -----------
NET INCREASE (DECREASE) IN CASH $(1,322,224) 4,194,280
=========== ===========
Ending Cash Balance 1,100,615 4,200,368
Beginning Cash Balance 2,422,839 6,088
----------- -----------
$(1,322,224) 4,194,280
=========== ============
</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, 1997 and September 30, 1996 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 Annual
Report to Shareholders for the year ended December 31, 1996. The results of
operations for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results for the entire fiscal year ending December
31, 1997.
In preparing financial statements in conformity with generally accepted
accounting principals management is required to make estimates and assumptions
that affect the reported amounts of 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.
NOTE B CUSTOMER CONCENTRATION
For the nine months ended September 30, 1997 revenue derived from three
customers which amounted to approximately 25%, 8%, and 7% respectively, of the
Company's revenue. As of September 30, 1997, receivables from these three
customers accounted for approximately 30%, 0%, and 22%, respectively of trade
receivables.
7
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, rapid change in technology that
may displace products sold by the Company; the highly competitive market in
which the Company operates, dependence upon a limited number of suppliers for
product components, fluctuation in the Company's quarterly results of operations
due to the timing of orders from customers, and other risk factors listed in the
Company's SEC filings including but not limited to the SB-2 Registration
Statement dated May 28, 1996 and the Annual report to Shareholders for the year
ended December 31, 1996.
GENERAL
n-Vision, Inc. ("Company"), a Delaware corporation, designs, develops,
manufactures, and markets state of the art 3D immersive displays for use in
advanced visualization applications, products, and systems for a variety of
commercial, industrial, and military applications. The Company's products and
systems are marketed worldwide, but principally to customers in North America,
Europe, and the Pacific Rim, e.g., U.S. Air Force, U.S. Navy, NASA, Hughes
Training, Boeing, University of Illinois, Iowa State University, Lockheed
Martin, Inc., Silicon Graphics, Volvo, Volkswagen, Daimler Benz, BMW, Thomson
CSF, HT Medical, KPMG Peat Marwick, Horizon Entertainment, The Walt Disney
Company, Raydon, Inc., and Raytheon, among others.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED
SEPTEMBER 30, 1996.
For the quarter ended September 30, 1997, the Company reported revenue
of $631,796 from the sale of 23 units of its display systems, a 79% increase
compared to the same period ended September 30, 1996 when the Company reported
revenue of $352,071 from the sale of 12 units. The increase was due primarily to
an order for additional prototype units totaling $178,100 from a subsidiary of
The Walt Disney Company subsequent to the prototype contract completed in June
1997. As a result of this effort the Company has received a production order,
which will primarily impact financial results for the first half of 1998 when
delivery is anticipated. Additional orders are contingent upon the future
requirements of the customer. As of November 6, 1997, the Company had an order
and sales backlog of approximately $1.82 million. The major portion of the
backlog is $1.25 million representing a single order from a subsidiary of The
Walt Disney Company. It also includes $158,000 to complete an order from the
Raydon Corporation for a U.S. Army program, and $47,000 to complete a custom
sighting device order which is to be used in a training program by the U.S. Army
Artillery. This is the first order for a program that calls for a total of 101
units over four years. However, future years are not assured of funding by the
US Government, despite initiation of the program.
The Company's gross margin on sales increased 51% in the third quarter
of 1997 from 43% in the third quarter 1996. Fluctuations in margins reported
during 1996 were the result of new products coming on-line at relatively small
volumes. However, as production and sales volumes have increased, margins appear
to be stabilizing in the 43% to 51% range. The gross margins for the year ended
December 31, 1996 and for the first, second, and third quarters in 1997 were
43%, 47%, 44%, and 51% respectively. The gross margins may change in the future
as new products are moved into production and production levels increase.
However, the Company can make no assurances that it can maintain or improve
gross margins in the future.
8
<PAGE>
Operating expenses increased to $580,974 in the three months ended
September 30, 1997 from $465,283 in the three months ended September 30, 1996.
This increase was due primarily to increased general and administrative costs as
well as increased costs for marketing and sales. Increased general and
administrative costs were the result of building the infrastructure to support
the anticipated growth of the Company. Included in these costs were additional
staffing and development of management information systems. Marketing and sales
expenses increased primarily due to an aggressive effort on the part of the
Company to promote and position its new products in the market. This includes
increased advertising in trade journals and a major presence at the largest
industry trade show of the year. The Company expects to continue to increase
funding for marketing in the future as sales staff is increased in order to
continue to expand the market for its products. Product development costs
decreased in the third quarter 1997 when compared to the same period in 1996.
This was due to product research expenses being funded by customers requiring
customized systems for entertainment and training. Product development costs
incurred through 1996 were funded solely by the Company.
For the three months ended September 30, 1997, the Company had a
positive net interest margin of $21,800 which helped to partially offset the
loss from operations for the quarter. This was the result of interest income
derived from funds raised in the Company's initial public offering, which were
invested in interest bearing securities. In the same three month period ending
September 30, 1996, the Company's net interest margin was $51,208. This reflects
a higher cash balance before the product development effort of 1996, increased
infrastructure development, and financing required to support the rising
accounts receivables due to increased sales.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996.
For the nine months ended September 30, 1997, the Company reported
revenue of $1,883,964 from the sale of 50 units of its display systems, a 126%
increase compared to the same nine month period ended September 30, 1996 when
the Company reported revenue of $834,922 from the sale of 23 systems. Revenue
for the nine month period included completion of the prototype development
contract for a subsidiary of The Walt Disney Company. as previously mentioned in
the discussion of operations for the three month period. As of November 6, 1997,
the Company had a sales and order backlog of approximately $1.82 million. The
major portion of the backlog is a single order totaling approximately $1.25
million from a subsidiary of The Walt Disney Company. Also included is $158,000
for the remaining Hi Res units due Raydon Corporation for a U.S. Army program
and $47,000 for the remaining units of an order for 17 units of a
custom-sighting device to be used in a training program by the U.S. Army
Artillery. This is the first order for a program that calls for a total of 101
units over four years. However, future years are not assured of funding by the
US Government, despite initiation of the program. Gross margins decreased to 47%
for the nine month period ended September 30, 1997 when compared to a gross
margin of 53% reported for the same nine month period in 1996. The gross margins
are more comparable to 1996 as a whole, as well as the first, second, and third
quarter results for 1997 when gross margins were 47%, 44%, and 51% respectively.
Factors that have contributed to fluctuating margins include product mix,
production volume and discounting to distributors. Although margins appear to be
stabilizing, there can be no assurances that this trend will continue.
Operating expenses for the nine months ended September 30, 1997
increased to $1,677,266, a 33% increase when compared to operating expenses of
$1,257,810 reported in the same period in 1996. The increase is primarily due to
increased administrative costs needed to support the anticipated growth of the
Company as well as increased funding for marketing and sales in order to promote
the new product lines. This was partially offset by decreased product
development costs because of customer financed development for custom
applications of the Company's products.
For the nine months ended September 30, 1997, the Company had a
positive net interest margin of $90,788. This was the result of interest income
derived from funds raised in the Company's initial public offering and invested
in interest bearing securities. In the same nine month period ending September
30, 1996, the Company had a net interest margin of $7,227 reflecting the
investment of the bulk of the IPO proceeds for a period less than three months.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital, which consists primarily of cash and cash equivalents,
investment grade securities, trade receivables, and inventories, totaled
$3,132,416 compared to working capital of $4,232,653 at December 31, 1996. Cash
and cash equivalents totaling $1,100,615 consist primarily of over-night
repurchase agreements. For the six months ended June 30, 1997, the Company has
principally used cash in its operations. The principal uses of cash in the first
nine months of 1997 include investment in fixed assets needed to expand the
productive capacity of the Company due to an increasing number of products and
an associated growth in sales. Additionally, an increase in accounts receivable
was experienced in 1997 as a result of increased sales volume. 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 acquisition 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 and through the first half of 1998, barring a major acquisition which
requires a significant use of cash or liquid investments. The Company believes
that increasing revenues and reduced expenditures may reduce the need for
additional funds after the first half of 1998. In order to have additional funds
available if necessary, the Company is establishing a credit line with its
primary lending institution. Additionally, the Company has 1,380,000 class A
warrants for $5.50 per share outstanding which may be exercised during a
four-year period expiring May 29, 2001. The warrants are also subject to
redemption at the Company's election if the common stock price equals or exceeds
$9.00 per share for 20 consecutive trading days within a period of 30 days. The
Company, however, can make no assurances that investors will elect to exercise
the warrants or that the required conversion price or redemption price can be
reached since the current trading price has been in the $2.00-$3.00 range. Until
operations improve, and the Company obtains additional underwriting support to
replace Stratton Oakmont, Inc., the Company's ability to generate proceeds from
the conversion may be adversely affected. Stratton Oakmont, Inc., the principal
market maker and underwriter of the Company's securities, was barred from the
exchange on December 6, 1996.
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, 1996, the Company had a net operating loss
carryforward available to offset future taxable income generated through 2010 of
approximately $2,000,000. The deferred tax asset associated with these tax
benefits has been fully reserved in the Company's financial statements because
of uncertainty surrounding future profitability. In the event of a change in
control of the Company, use of such carryforwards could be reduced.
SEASONALITY
Based on its limited experience to date, the Company believes that its
future operating results will not be subject to seasonal changes. Such effects,
should they occur, might be apparent in the Company's operating results during a
period of expansion. However, the Company can make no assurances that its
business can be significantly expanded.
10
<PAGE>
PART II OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Dated: November 12, 1997
n-VISION, INC.
(Registrant)
/S/ Robert B. Hamilton
-------------------------------------------------
Robert B. Hamilton
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
form 10-QSB for the period ended September 30, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,100,615
<SECURITIES> 1,246,875
<RECEIVABLES> 588,273
<ALLOWANCES> (25,000)
<INVENTORY> 488,666
<CURRENT-ASSETS> 3,531,081
<PP&E> 849,907
<DEPRECIATION> (223,242)
<TOTAL-ASSETS> 4,188,287
<CURRENT-LIABILITIES> 398,665
<BONDS> 0
0
0
<COMMON> 52,937
<OTHER-SE> 3,307,668
<TOTAL-LIABILITY-AND-EQUITY> 4,188,287
<SALES> 1,883,964
<TOTAL-REVENUES> 1,883,964
<CGS> 1,006,453
<TOTAL-COSTS> 1,006,453
<OTHER-EXPENSES> 1,677,266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,788
<INCOME-PRETAX> (708,967)
<INCOME-TAX> 0
<INCOME-CONTINUING> (708,967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (708,967)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
