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, 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 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 5,293,673 on August 11, 1997.
1
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FORM 10-QSB
INDEX
PAGE
---------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Report of Independent Accountants.............. 3
Balance Sheets as of June 30, 1997
and December 31, 1996.......................... 4
Statements of Operations For the
three months and six months ended
June 30, 1997 and June 30, 1996................ 5
Statements of Cash Flows For the six
months ended June 30, 1997 and June 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
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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,
1997, and the related statements of operations and cash flows for the
three-month periods and six-month periods ended June 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
August 5, 1997
3
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n-VISION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
---------------- ---------------
(Unaudited) (Audited)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,231,657 $2,422,839
Investments 1,242,187 1,250,000
Accounts Receivable
Trade 630,332 194,910
Interest Receivable 44,922 -
Officer & Employee Travel Advances 5,273 1,943
Inventories 592,530 716,590
Prepaid Expenses 82,046 48,731
Income Tax Refund Receivable 17,389 17,389
-------------- ----------------
Total Current Assets 3,846,336 4,652,402
PROPERTY AND EQUIPMENT 556,945 302,745
(Net of Accumulated Depreciation)
OTHER ASSETS
Organization Costs 33,889 40,585
(Net of Accumulated Amortization)
-------------- ----------------
$4,437,170 $4,995,732
============== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities-Long Term Note Due ATS $ 120,000 $ 120,000
Current Capital Lease Obligation 23,026 21,554
Accounts Payable 73,594 52,131
Accrued Salaries and Benefits 107,638 81,950
Deferred Revenue and Warranty Reserve 85,337 144,114
-------------- ----------------
Total Current Liabilities 409,595 419,749
NON-CURRENT LIABILITIES
Note Payable-ATS 420,000 480,000
Capital Lease Obligations 15,326 27,334
COMMITENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY
Common Stock ( .01 Par, 5,445,000 Shares Outstanding) 52,937 53,126
Common Stock subscriptions and notes receivable - (91,722)
Securities Revaluation (7,813) -
Paid in Capital 10,442,007 10,529,492
Accumulated Deficit (6,894,882) (6,422,247)
-------------- ----------------
Total Stockholder's Equity 3,592,249 4,068,649
-------------- ----------------
$4,437,170 $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 Six months ended
June 30 June 30
----------------------------- ------------------------------
1997 1996 1997 1996
------------- ------------ -------------- ------------
(unaudited) (unaudited)
<S> <C>
Sales $ 623,297 $ 226,099 $1,252,168 $ 482,852
Cost of Sales 363,613 95,230 697,999 193,528
------------- ------------- ------------- -------------
Gross Margin 259,684 130,869 554,169 289,324
Operating Expenses
General and Administrative 327,013 248,280 642,604 416,295
Product Development 103,139 141,740 197,157 283,326
Marketing and Sales 136,677 67,258 256,532 92,904
------------- ------------- ------------- -------------
Loss from operations (307,145) (326,409) (542,124) (503,201)
Non-Operating Income
(Expense)
Interest Income 40,334 19,079 96,449 19,079
Interest Expense (13,393) (19,029) (26,960) (63,061)
Interest Expense-Bridge - (3,500,000) - (3,500,000)
Financing
------------- ------------- ------------- -------------
Loss before income taxes (280,204) (3,826,359) (472,635) (4,047,183)
Income Tax expense - - - -
------------- ------------- ------------- -------------
NET LOSS $ (280,204) $(3,826,359) $ (472,635) $(4,047,183)
============= ============= ============= =============
Weighted average shares $5,293,674 4,308,556 5,303,150 4,029,278
outstanding
============= ============= ============= =============
Loss per Share $ (.05) $ (.89) $ (.09) $ (1.00)
============= ============= ============= =============
</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
----------------------------------
1997 1996
-------------- ----------------
(Unaudited) (Unaudited)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) (472,635) (4,047,183)
Adjustments to reconcile Net Income (Loss) to net cash used
in operating activities
Depreciation and amortization 72,335 22,530
Loss on Disposal of Fixed Assets 19,946 -
Provision for Conversion of notes receivable - 3,500,000
Provision for compensation for stockholder/officer - 73,958
Contributed services
Accrued Interest on Stockholder's notes - 22,530
Changes in assets and liabilities
(Increase) Decrease in accounts receivable (435,422) 22,356
(Increase) Decrease in inventories 6,438 (106,837)
(Increase) Decrease in prepaid expenses (33,315) -
(Increase) Decrease in Employee Travel Advances (3,330) -
(Increase) Decrease in Interest Receivable (44,922) (84,135)
(Decrease) Increase in accounts payable 21,463 173,001
(Decrease) Increase in accrued salaries and benefits 25,688 37,486
(Decrease) Increase in Deferred Warranty and (58,777) 52,621
Warranty Reserve
-------------- ----------------
Total Adjustments (429,896) 3,442,573
-------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (902,531) (604,610)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (231,406) (18,644)
Proceeds from sale of Fixed Assets 9,243 -
-------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (222,163) (18,644)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipt of Subscriptions Receivable 4,048 -
Payments of Capital Lease Obligations (10,536) -
Payment of Long Term Note to ATS (60,000) -
(Decrease) Increase in ATS line of credit - (461,084)
(Decrease) Increase in Bank Line of Credit - (67,237)
Proceeds from Initial Public Offering - 6,160,133
-------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (66,488) 5,631,812
-------------- ----------------
NET INCREASE (DECREASE) IN CASH $ (1,191,182) $ 5,008,558
============== ================
Ending Cash Balance 1,231,657 5,014,646
Beginning Cash Balance 2,422,839 6,088
-------------- ----------------
$ (1,191,182) $ 5,008,558
============== =================
Cash Paid for:
Interest $ 26,960 $ 289,176
============== ================
Income Taxes $ - $ -
============== ================
</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, 1997 and June 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 six months ended June 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 RELIANCE ON MAJOR CUSTOMERS AND RELATED PARTY TRANSACTIONS
For the six months ended June 30, 1997 revenue derived from two
customers amounted to approximately 24% and 13% of the Company's revenue. For
the three months ended June 30, 1997 revenue derived from two customers amounted
to approximately 48% and 18% of the Company's revenue. As of June 30, 1997,
receivables from these two customers accounted for approximately 35% and 17%
respectively of all trade receivables.
For the six months ended June 30, 1997, revenue of approximately
$47,000 was derived from Advanced Technology Systems, a company principally
owned and controlled by a stockholder and officer of the Company.
7
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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 28 May, 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, University
of Illinois, Iowa State University, Lockheed Martin, Inc. Silicon Graphics,
Inc., UK Defense Establishment, Volvo, Volkswagen, Daimler Benz, BMW, Thomson
CSF, KPMG Peat Marwick, Horizon Entertainment, The Walt Disney Company, and
Raytheon, among others.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1997 COMPARED TO QUARTER ENDED JUNE 30, 1996.
For the quarter ended June 30 1997, the Company reported revenue
$623,297 from the sale of 16 units of its display systems, a 175% increase
compared to the same period ended June 30, 1996 where the Company reported
revenue of $226,099 from the sale of 7 units. The increase was due primarily to
a development contract to deliver 6 prototypes to a "Fortune 500" entertainment
company and was completed in June of this year. The Company is currently seeking
a production agreement as a result of this effort which would extend into 1998
and possibly beyond should the Company be awarded the production contract.
Furthermore, the Company expects an extension of the prototype work prior to a
production contract. As of July 31, 1997, the Company had an order backlog of
approximately $350,000. This includes an order of 16 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.
The Company's gross margin on sales decreased to 44% in the second
quarter 1997 from 58% in the second quarter 1996. The gross margin is not fully
comparable from the interim periods in 1997 when compared to those reported
during the same periods in 1996. This is due to extreme fluctuations in margins
reported during 1996, which 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 48% range. The gross
margins for the year ended December 31, 1996 and for the first and second
quarters in 1997 were 43%, 47% and 44% 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.
Operating expenses increased to $566,829 in the three month ended June
30, 1997 from $457,278 in the three months ended June 30, 1996. This increase
was due primarily to increased general and
8
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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 information systems.
Marketing and sales expenses increased primarily due to an aggressive effort on
the part of the Company to promote and position its products in the market. This
includes increased advertising in trade journals and an increased presence at
industry trade functions. 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
second quarter 1997 when compared to the same period in the 1996. This was due
to product research expenses being funded by customer's requiring customized
systems for entertainment and training as previously noted.
For the three months ended June 30, 1997, the Company had a positive
net interest margin of $26,941 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 and invested in interest
bearing securities. In the same three month period ending June 30, 1996, the
Company's net interest margin was not material after adjusting for a one time
non-cash charge in connection with bridge financing prior to the Company's
Initial Public Offering.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996.
For the six months ended June 30, 1997, the Company reported revenue of
$1,252,168 on from the sale of 27 units of its display systems, a 159% increase
compared to the same six month period ended June 30, 1996 when the Company
reported revenue of $482,852 from the sale of 11 systems. Revenue for the six
month period included delivery of six units relating to a prototype development
contract for a "Fortune 500" entertainment company previously mentioned in the
discussion of operations for the three month period. As of July 31, 1997, the
Company had an order backlog of approximately $350,000. This includes an order
of 16 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 44% for the six-month period ended June 30,
1997 when compared to a gross margin of 60% reported for the same six-month
period in 1996. The gross margins are not necessarily comparable, as previously
mentioned, due to wide fluctuations in 1996 but are significantly more
comparable to 1996 as a whole, as well as the first and second quarter results
for 1997 where gross margins were 43%, 47% and 44% 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 six months ended June 30, 1997 increased to
$1,096,293, a 38% increase when compared to operating expenses of $792,525
reported in the same period in 1996. The increase 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 in the entertainment market.
For the six months ended June 30, 1997, the Company had a positive net
interest margin of $69,489. 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 six month period ending June 30, 1996, the
Company had a negative net interest margin of $43,982 after adjusting for a one
time non-cash charge in connection with bridge financing prior to the Company's
Initial Public Offering.
LIQUIDITY AND CAPITAL RESOURCES
Working capital, which consists primarily of cash and cash equivalents,
investment grade securities, trade receivables, and inventories, totaled
$3,436,741 compared to working capital of $4,232,653 at December 31, 1996. Cash
and cash equivalents totaling $1,231,657 consist primarily of over-night
repurchase agreements. For the six months ended June 30, 1997, the Company has
principally
9
<PAGE>
used cash in its operations. The principal uses of cash in the first six months
of 1997 include purchases of 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 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 and into 1998, barring a major acquisition. 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 or that the required conversion price can be reached. 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 affected. Stratton Oakmont, Inc., the principal market
maker and underwriter of the Company's securities, was barred from the exchange
on December 6, 1996. 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, 1996, the Company had a net operating loss
carryforward available to offset future taxable income of approximately
$1,495,000 available to offset future taxable income generated through 2010. The
deferred tax asset associated with these tax benefits has been fully reserved in
the Company's financial statements because of uncertainty surrounding future
profitability. In the event of a change in control of the Company, use of such
carryforwards could be reduced.
SEASONALITY
Based on its limited experience to date, the Company believes that its
future operating results will not be subject to seasonal changes. Such effects,
should they occur, might be apparent in the Company's operating results during a
period of expansion. However, the Company can make no assurances that its
business can be significantly expanded.
10
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PART II OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter June 30, 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Dated: August 11, 1997
n-VISION, INC.
(Registrant)
/s/ Robert B. Hamilton
----------------------------------
Robert B. Hamilton
Executive Vice President,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the form 10-QSB for the period ended June 30, 1997 and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,231,657
<SECURITIES> 1,242,187
<RECEIVABLES> 630,332
<ALLOWANCES> 0
<INVENTORY> 592,530
<CURRENT-ASSETS> 3,846,335
<PP&E> 729,852
<DEPRECIATION> (172,907)
<TOTAL-ASSETS> 4,437,169
<CURRENT-LIABILITIES> 409,594
<BONDS> 0
0
0
<COMMON> 52,937
<OTHER-SE> 3,539,312
<TOTAL-LIABILITY-AND-EQUITY> 4,437,169
<SALES> 1,252,168
<TOTAL-REVENUES> 1,252,168
<CGS> (697,999)
<TOTAL-COSTS> (697,999)
<OTHER-EXPENSES> (1,096,293)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,488
<INCOME-PRETAX> (542,124)
<INCOME-TAX> 0
<INCOME-CONTINUING> (542,124)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (542,124)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
