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 March 31, 1998
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
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n-VISION, INC.
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(Exact name of registrant as specified in its charter)
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<CAPTION>
<S><C>
Delaware 54-1741313
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
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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 March 31, 1998.
1
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FORM 10-QSB
INDEX
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1998
and December 31, 1997 ...................................... 3
Statements of Operations for the
three months March 31, 1998 and
March 31, 1997 ...................................... 4
Statements of Cash Flows For the
three months ended March 31, 1998 and
March 31, 1997. ...................................... 5
Notes to Financial Statements ...................................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations ...................................... 7
PART II OTHER INFORMATION
Item 6 Reports and Exhibits on Form 8-K. ...................................... 10
SIGNATURES ...................................... 11
Exhibit 27 Financial Data Schedule ...................................... 12
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2
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PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
n-VISION, INC.
BALANCE SHEETS
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<CAPTION>
March 31 December 31
1998 1997
---------------- ---------------
(Unaudited) (Audited)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 344,614 $ 876,805
Investments 1,246,875 1,246,875
Accounts Receivable
Trade 851,358 252,270
Other 34,814 15,335
Inventories 775,129 843,868
Prepaid Expenses 47,394 83,227
-------------- ----------------
Total Current Assets 3,300,184 3,318,380
PROPERTY AND EQUIPMENT 552,596 604,617
(Net of Accumulated Depreciation)
OTHER ASSETS 23,845 27,193
-------------- ----------------
$ 3,876,625 $ 3,950,190
============== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities-Long Term Note Due ATS $ 129,600 $ 120,000
Current Portion of Capital Lease Obligation 21,183 24,599
Accounts Payable 141,675 302,484
Accrued Salaries and Benefits 116,412 115,198
Deferred Revenue and Warranty Reserve 138,789 72,665
-------------- ----------------
Total Current Liabilities 547,659 634,946
NON-CURRENT LIABILITIES
Note Payable-ATS 360,000 360,000
Capital Lease Obligation (Net of current portion) - 2,497
STOCKHOLDER'S EQUITY
Common Stock (.01 Par, 5,293,673 Shares Outstanding) 52,937 52,937
Paid in Capital 10,442,007 10,442,007
Unrealized Loss on Investments (3,125) (3,125)
Accumulated Deficit (7,522,853) (7,539,072)
-------------- ----------------
Total Stockholder's Equity 2,968,966 2,952,747
-------------- ----------------
$ 3,876,625 $ 3,950,190
============== ================
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The accompanying notes are an integral part of these statements.
3
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n-VISION, INC.
STATEMENTS OF OPERATIONS
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<CAPTION>
Three months ended
March 31
----------------------------------------------
1998 1997
----------------- -------------------
(unaudited)
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Sales $ 1,099,872 $ 628,871
Cost of Sales 574,875 334,386
----------------- -------------------
Gross Margin 524,997 294,485
Operating Expenses
General and Administrative 296,293 315,591
Product Development 85,957 94,018
Marketing and Sales 140,276 119,855
----------------- -------------------
Income (Loss) from operations 2,471 (234,979)
Non-Operating Income
(Expense)
Interest Income 24,183 56,114
Interest Expense (10,435) (13,567)
----------------- -------------------
Income (Loss) before income taxes 16,219 (192,431)
Income Tax Provision - -
----------------- -------------------
Net Income (Loss) $ 16,219 $ (192,431)
================= ===================
Weighted average shares outstanding - Basic 5,293,673 5,362,625
================= ===================
Income (Loss) per Share - Basic $ .01 $ (.04)
================= ===================
Weighted average shares outstanding - Diluted 5,356,416 5,362,625
================= ===================
Income (Loss) per Share - Diluted $ .01 $ (.04)
================= ===================
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The accompanying notes are an integral part of these statements.
4
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n-VISION, INC.
STATEMENTS OF CASH FLOWS
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Three months ended
March 31
----------------------------------
1998 1997
-------------- ----------------
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 16,219 (192,431)
Adjustments to reconcile Net Income (Loss) to net cash used
in operating activities
Depreciation and amortization 63,582 45,076
Loss on Disposal of Fixed Assets 186 5,816
Changes in assets and liabilities
(Increase) Decrease in accounts receivable (599,088) (113,906)
(Increase) Decrease in inventories 73,032 (1,832)
(Increase) Decrease in prepaid expenses 35,833 11,126
(Increase) Decrease in Other Receivable (19,479) (26,953)
(Decrease) Increase in accounts payable (160,809) 87,215
(Decrease) Increase in Accrued Interest 9,600 12,000
(Decrease) Increase in accrued salaries and benefits 1,214 5,029
(Decrease) Increase in Deferred Revenue and Warranty 66,124 (92,563)
Reserve
-------------- ----------------
Total Adjustments (529,805) (68,992)
-------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (513,586) (261,423)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (12,692) (95,977)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of Capital Lease Obligations (5,913) (5,181)
-------------- ----------------
NET INCREASE (DECREASE) IN CASH $ (532,191) (362,581)
============== ================
Ending Cash Balance 344,614 2,422,839
Beginning Cash Balance 876,805 2,060,258
-------------- ----------------
$ (532,191) (362,581)
============== ================
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The accompanying notes are an integral part of these statements.
5
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n-VISION, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A INTERIM FINANCIAL STATEMENTS
The condensed financial statements for the three month periods ended
March 31, 1998 and March 31, 1997 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, 1997. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of the
results for the entire fiscal year ending December 31, 1998.
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 EARNINGS PER SHARE
In 1997 the Financial Accounting Standards Board issued Financial
Accounting Standards No. 128 - "Earnings per Share." Statement 128 replaces the
presentation of primary and fully diluted earnings per share ("EPS") pursuant to
Accounting Principals Board Opinion No. 15 with the presentation of basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing net income
available to common shareholders by the weighted number of shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or converted
into common shares and then shared in the earnings of the Company. Options are
accounted for in accordance with APB 25, whereby if options are priced at fair
market value or above at the date of the grant, no compensation expense is
recognized.
The following table sets forth the reconciliation between basic and
diluted EPS.
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1998 1997
- -----------------------------------------------------------------------------------------------------------
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NUMERATOR
Net Income available for common shareholders - Basic 16,217 (192,432)
Income Adjustments - -
------------------ -------------------
Net Income available for common shareholders - Diluted 16,217 (192,432)
DENOMINATOR
Denominator for Basic EPS-weighted average shares 5,293,673 5,362,625
Effect for Dilutive Securities
Employee Stock Options 62,743 -
------------------ -------------------
Denominator for diluted EPS 5,356,416 5,362,625
- -----------------------------------------------------------------------------------------------------------
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6
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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, and 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 April 2, 1996 and any amendments thereto, as well as the Annual
Report to Shareholders for the year ended December 31, 1997.
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, HT Medical, Volvo, Volkswagen, Daimler Benz,
Thomson CSF, KPMG Peat Marwick, Horizon Entertainment, The Walt Disney Company,
and Raytheon, among others.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
For the quarter ended March 31, 1998, the Company reported revenue of $1,099,872
from the sale of 52 units of its immersive display products and systems, a 75%
increase compared to the same period ended March 31, 1997 when the Company
reported revenue of $628,871 from the sale of 11 units. The increase was
primarily attributable to the delivery of display systems to a subsidiary of The
Walt Disney Company to fill a $1.25 million order. The Company's gross margin on
sales increased to 48% in the first quarter of 1998 compared to 47% in the first
quarter of 1997. As of April 24, 1998 the Company had a backlog of delivered and
undelivered products and services of approximately $940,000.
Operating expenses for the three months ended March 31, 1998 decreased to
$522,526 when compared to the same three month period in 1997 where operating
expenses where $529,464. The decrease in operating expenses was the combined
result of lower product development costs, lower general and administrative
costs and increased costs for marketing and sales. Management is currently
evaluating the cost structure of the Company so as to determine if additional
savings can be made. No assurances can be made that costs can be decreased or
maintained at the current rate of growth of the Company.
For the quarter ended March 31, 1998 the Company reported income from operations
of $2,471 compared to a loss from operations of $234,979 for the same period in
1997. The increase is primarily attributable to strong revenue growth while
maintaining margins and controlling costs resulting in the first quarter of
profitability since the fourth quarter of 1994. The Company intends to continue
to aggressively market its current products as well as introduce new products so
as to continue the revenue growth. No assurances can be made that revenue growth
will continue and that margins can be sustained at the current levels.
7
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Non-operating income for the three months ended March 31, 1998 was $24,183
compared to $56,114 for the same three month period in 1997. Non-operating
expenses were $10,435 for the first quarter in 1998 compared to $ 13,566 in the
first quarter in 1997 resulting in a positive net interest margin of $13,748 for
the first quarter in 1998 compared to a positive net interest margin of $ 42,548
for the first quarter in 1997. The decrease in interest margin was primarily
attributable to fewer cash deposits on hand to earn interest.
For the quarter ended March 31, 1998, the Company reported Net Income of $16,219
and earnings per share of .01 compared to a net loss of $192,431 and a loss per
share of .04 for the same three month period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $2,752,525 as of March 31, 1998 compared to a working
capital balance of $3,973,606 as of March 31, 1997. The decrease is primarily
attributable to operating losses sustained during 1997. The Company believes
that the current level of working capital is sufficient to meet its needs
through the end of the current year. Cash used for operations in the first three
months of 1998 was primarily due to an increase in accounts receivable due to
the large increase in credit sales which the company expects to collect in the
second quarter.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for the development of new products, financing of growth, and the
possibility acquisitions of related businesses and technologies. The Company
believes that current level of capital resources is sufficient to satisfy the
anticipated cash requirements through the end of 1998. Additionally, the Company
has 1,380,000 class A warrants outstanding with an exercise price of $5.50 per
share. The warrants may be exercised, at the option of the holder, until their
expiration date of May 28, 2001. The warrants are also subject to conversion at
the Company's election if the price of the Company's common stock equals or
exceeds $9.00 per share for 20 consecutive days within a period of 30 days. The
Company, however, can make no assurances that investors would elect to exercise
the warrants or that the conversion price can be reached since the current
trading price has ranged from $.75 to $1.50.
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, 1997, the Company had a net operating loss carryforward
available to offset future taxable income generated through 2010 of
approximately $2,638,000. The deferred tax asset associated with these benefits
has been fully reserved in the Company's financial statements because of the
uncertainty surrounding future profitability. In the event of a change in
control of the Company, use of such a carryforward could be reduced.
IMPACT OF INFLATION AND THE ASIAN FINANCIAL CRISIS
The Company believes that inflation has not had a material adverse effect on
sales or costs. Additionally, the Company believes that the financial crises in
Asia will not have adverse effects on the operating results during 1998. During
1997, less than 10% of the Company's revenue was derived from products sold to
customers in Asia.
8
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YEAR 2000 ISSUES
The Company's information systems are based on platforms and applications that
are fully Year 2000 compliant. As a result, management believes the Company does
not face significant Year 2000 issues.
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 become 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.
9
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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 March 31, 1998.
10
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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: May 5, 1998
n-VISION, INC.
(Registrant)
/S/ Robert B. Hamilton
_________________________________________________
Robert B. Hamilton
Chief Financial Officer
(Principal Financial and Accounting Officer)
11
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the form
10-QSB for the period ended March 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 344,614
<SECURITIES> 1,246,875
<RECEIVABLES> 886,172
<ALLOWANCES> 25,000
<INVENTORY> 775,129
<CURRENT-ASSETS> 3,300,184
<PP&E> 895,465
<DEPRECIATION> 342,869
<TOTAL-ASSETS> 3,876,625
<CURRENT-LIABILITIES> 547,659
<BONDS> 360,000
0
0
<COMMON> 52,937
<OTHER-SE> 2,916,029
<TOTAL-LIABILITY-AND-EQUITY> 3,876,625
<SALES> 1,099,872
<TOTAL-REVENUES> 1,124,055
<CGS> 547,875
<TOTAL-COSTS> 1,097,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,435
<INCOME-PRETAX> 2,471
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,219
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
