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, 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
------------------------------------------------------------
n-Vision, Inc.
(Exact name of registrant as specified in its charter)
------------------------------------------------------------
Delaware 54-1741313
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
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 September 30, 1998.
1
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FORM 10-QSB
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30,
1998 and December 31, 1997 .................... 3
Statements of Operations for the
three months and nine months ended
September 30, 1998 and September
30, 1997 .................... 4
Statements of Cash Flows For the
Nine months ended September 30,
1998 and September 30, 1997. .................... 5
Notes to Financial Statements .................... 6
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. .................... 12
SIGNATURES .................... 13
Exhibit 27 Financial Data Schedule .................... 14
2
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
n-VISION, INC.
BALANCE SHEETS
September 30 December 31
1998 1997
------------ -----------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 443,303 $ 876,805
Investments 1,250,000 1,246,875
Accounts Receivable
Trade 506,755 252,270
Other 70,116 15,335
Inventories 759,664 843,868
Prepaid Expenses 64,536 83,227
----------- -----------
Total Current Assets 3,094,374 3,318,380
PROPERTY AND EQUIPMENT 444,100 604,617
(Net of Accumulated Depreciation)
OTHER ASSETS 17,149 27,193
----------- -----------
$ 3,555,623 $ 3,950,190
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities- Note Payable - ATS $ 128,400 $ 120,000
Current Capital Lease Obligation 8,754 24,599
Accounts Payable 233,097 302,484
Accrued Salaries and Benefits 63,630 115,198
Deferred Revenue and Warranty Reserve 85,913 72,665
----------- -----------
Total Current Liabilities 519,795 634,946
NON-CURRENT LIABILITIES
Note Payable-ATS 300,000 360,000
Capital Lease Obligations - 2,497
COMMITMENTS AND CONTINGENCIES - -
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 Investment - (3,125)
Accumulated Deficit (7,759,116) (7,539,072)
----------- -----------
Total Stockholder's Equity 2,735,828 2,952,747
----------- -----------
$ 3,555,623 $ 3,950,190
=========== ===========
The accompanying notes are an integral part of these statements.
3
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n-VISION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
---------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 437,820 $ 631,796 $2,407,719 $1,883,964
Cost of Sales 210,642 308,454 1,208,151 1,006,453
---------- ---------- ---------- ----------
Gross Margin 227,178 323,342 1,199,568 877,511
Operating Expenses
General and Administrative 168,985 312,169 687,978 954,773
Product Development 169,954 102,145 351,594 299,302
Marketing and Sales 154,718 166,660 417,943 423,191
---------- ---------- ---------- ----------
Loss from operations (266,479) (257,632) (257,947) (799,755)
Non-Operating Income
(Expense)
Interest Income 22,119 33,313 67,405 129,761
Interest Expense (8,831) (12,013) (29,503) (38,973)
---------- ---------- ---------- ----------
Loss before income taxes (253,191) (236,332) (220,045) (708,967)
Income Tax expense - - -
---------- ---------- ---------- ----------
NET LOSS $ (253,191) $ (236,332) $ (220,045) $ (708,967)
========== ========== ========== ==========
Weighted average shares
outstanding 5,293,673 5,293,673 5,293,673 5,299,990
========== ========== ========== ==========
Loss per Share $ (0.05) $ (0.04) $ (0.04) $ (0.13)
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
n-VISION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30
------------------------
1998 1997
---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from operating activities
Net Loss $(220,045) $ (708,967)
Adjustments to reconcile Net Loss to net cash
Used in operating activities
Depreciation and amortization 202,491 123,765
Loss on Disposal of Fixed Assets 12,650 19,946
Changes in assets and liabilities
(Increase) in accounts receivable (254,485) (364,434)
Decrease in inventories 84,204 50,074
(Increase) in prepaid expenses 18,691 (18,111)
(Increase) Decrease in other receivable (54,781) (49,408)
(Decrease) in accounts payable (69,387) (9,572)
(Decrease) Increase in accrued salaries and benefits (51,568) 26,724
Increase in accrued interest 8,400 10,800
(Decrease) Increase in Deferred Warranty and
Warranty Reserve 13,248 (51,281)
--------- ----------
Total Adjustments (90,537) (261,497)
--------- ----------
Net cash used in operating activities (310,582) (970,464)
Cash flows from investing activities
Purchase of property and equipment (44,578) (288,979)
Proceeds from sale of Fixed Assets - 9,243
--------- ----------
Net cash used in Investing activities (44,578) (279,736)
Cash flows from financing activities
Payment of Long Term Note to ATS (60,000) (60,000)
Receipt of Subscriptions Receivable - 4,048
Payments of Capital Lease Obligations (18,342) (16,072)
--------- ----------
Net Cash Used In Financing activities (122,920) (72,024)
Net Decrease in Cash $(433,502) (1,322,224)
========= ===========
Ending Cash Balance 443,303 1,100,615
Beginning Cash Balance 876,805 2,422,839
--------- ----------
$(433,502) (1,322,224)
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
n-VISION, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A Interim Financial Statements
The condensed financial statements for the three month and nine month
periods ended September 30, 1998 and September 30, 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 nine months ended September 30, 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. Basic EPS and Diluted EPS are the same for the three and nine month
periods ending September 30, 1998 and September 30, 1997.
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.
6
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Note C Reverse Stock Split
The Company has announced a special meeting of stockholders to be held on
November 9, 1998 for the consideration of a one for two reverse stock split of
its issued and outstanding shares of common stock.
The Company has mailed proxy materials to shareholders to seek approval to
effect the reverse stock split.
The Company was informed by the Nasdaq Stock Market ("Nasdaq") that the
Corporations stock price was not in compliance with the minimum per share price
requirement for stock traded on Nasdaq and that the Company would be delisted
from the Nasdaq if it did not trade at or above $1.00 per share for at least ten
consecutive trading days prior to October 19, 1998. The Corporation has
requested a hearing to appeal the delisting, which has the effect of staying the
delisting pending the hearing. The Corporation believes that, if the reverse
split is approved, there is a greater likelihood that the minimum bid price of
the common stock will be maintained at a level over $1.00 per share. There are
however, no assurances in this regard.
As a result of the reverse split, the 5,293,674 shares of common stock
outstanding on September 30,1998 will become approximately 2,646,837 shares of
common stock and any other shares issued prior to the effective date will be
similarly adjusted.
7
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management Discussion and Analysis contains a number of forward-looking
statements within the meaning of The Private Securities Litigation Reform Act of
1995 (the "Act"). In particular, when used in the discussion, conditional
expressions are intended to identify forward-looking statements within the
meaning of the Act and are subject to the safe harbor created by the Act. Such
statements are subject to certain risks and uncertainties and actual results
could differ materially from those expressed in any of the forward-looking
statements. Such risks and uncertainties include, but are not limited to, market
conditions, the availability of components for, delays in the start of and
production of the next generation of immersive displays, general acceptance of
the Company's products and technologies, competitive factors, the ability to
successfully complete additional financing and other risks discussed in any of
the Company's SEC reports and filings.
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. The Company's customers include Boeing, The
Catholic University of America, Daimler Benz, Fuji Heavy Industries, Hughes
Training, Iowa State University, Lockheed Martin, Lucent Technologies, NASA,
Raytheon, The Walt Disney Company, U.S. Air Force, U.S. Navy, Volkswagen, and
Volvo among others.
Results of Operations
Quarter Ended September 30, 1998 Compared to the Quarter Ended September 30,
1997
For the quarter ended September 30, 1998, the Company reported revenue of
$437,820, a 31% decrease compared to the same period ended September 30, 1997
where the Company reported revenue of $631,796. The decrease was attributable
primarily to the completion of systems pursuant to a contract with a subsidiary
of The Walt Disney Company. As previously reported, this contract is expected to
have little impact on revenue in the last two quarters of 1998. As of the date
of this report, the Company had a backlog of delivered and undelivered systems
totaling approximately $219,647.
The Company believes that revenue for the fourth quarter of 1998, when compared
to the same period of 1997, will continue to reflect the effect of the
completion of the systems pursuant to a contract with a subsidiary of The Walt
Disney Company.
The Company's gross margin on sales remained constant at 51% in the third
quarter of 1998 and 51% during the same period in 1997. The Company can make no
assurances that the gross margin on sales will continue in the future.
General and administrative cost decreased to $168,985 for the three months ended
September 30, 1998 from $312,169 during the same three-month period during 1997.
The decrease is attributable to a number of factors. During 1997, the Company
experienced a substantial increase in general and administrative costs due to
the need to upgrade its technological infrastructure to support the anticipated
growth of the Company. During the latest three-month period, the Company was
able to decrease these costs as the upgrades were substantially complete.
Additionally, the upgrade in management information systems has
8
<PAGE>
enabled the Company to maintain or cut costs in other areas because of more
effective cost management. The Company, however, can make no assurances that it
can maintain or decrease costs in the future if the Company continues its
growth. A third factor that contributed to the decrease in general and
administrative costs were savings in salaries to the executive management of the
Company. These savings were achieved through attrition and voluntary salary
reductions and should continue to contribute to the performance of the Company
through the remainder of 1998.
Product Development costs increased to $169,954 during the third quarter of 1998
when compared to $102,145 during the third quarter of 1997. The increase is due
primarily to costs associated with the new Datavisor LCD product announced on
July 21, 1998.
Marketing and sales costs decreased slightly to $154,718 during the three-month
period ended September 30, 1998 when compared to $166,660 during the same
three-month period in 1997. The Company anticipates marketing and sales costs to
increase during the remainder of 1998 with the unveiling of the Datavisor LCD.
The Datavisor LCD is a product positioned at the "below $10,000" segment of the
professional HMD market and could have appeal to a broader market than any of
the Company's previous products. The advertising and promotion costs of this
product could be substantial in the fourth quarter of 1998 and first quarter of
1999, although no assurances can be given to the success of this product line.
For the quarter ended September 30, 1998 the Company reported a loss from
operations of ($266,479) compared to a loss from operations of ($257,632) for
the same period in 1997. The increase is primarily attributable to reduced
levels of revenue which were offset by reduced operating expenses. The Company
can make no assurances that it can maintain revenue, gross margins, or the
current cost structure of the Company given the competitive industry in which
the Company operates.
During the three months ended September 30, 1998 the Company maintained a
positive net interest margin of $10,868 compared to a positive net interest
margin of $21,300 for the same period in 1997. The decease in net interest
margin is the result of fewer interest earning deposits on hand during the
period. For the quarter ended September 30, 1998 the Company reported Net Loss
of ($253,191) compared to a net loss of ($236,332) for the same period in 1997.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997
For the nine months ended September 30, 1998, the Company reported revenue of
$2,407,719, a 28% increase compared to the same period ended September 30, 1997
where the Company reported revenue of $1,883,964. The increase was attributable
primarily to an increased demand for the Company's off-the-shelf display systems
as well as the delivery of systems pursuant to a contract with a subsidiary of
The Walt Disney Company. This contract is expected to have little impact on
revenue in the last three months of 1998. The Company's gross margin on sales
increased to 49% in the first nine months of 1998 from 47% during the same
period in 1997. The increase is attributable to the product mix shift during the
nine months to favor higher margin units. The Company can make no assurances
that the product mix will continue to favor high margin systems in the future.
General and administrative cost decreased to $687,978 for the nine months ended
September 30, 1998 from $954,773 during the same nine-month period during 1997.
The decrease is attributable to a number of factors. During 1997, the Company
experienced a substantial increase in one-time general and administrative costs
due to the need to upgrade its infrastructure to support the anticipated growth
of the Company. During the latest three-month period, the Company was able to
decrease these costs as the upgrades were substantially complete. Additionally,
the upgrade in management information systems has enabled the Company to
maintain or cut costs in other areas because of more effective cost management.
The Company, however, can make no assurances that it can maintain or decrease
costs in the future if the Company continues its growth. A third factor that
contributed to the decrease in general and administrative costs were savings in
salaries to the executive management of the Company. These savings were achieved
through attrition and voluntary salary reductions during the second quarter and
should continue to contribute to the performance of the Company through the
remainder of 1998.
9
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Product Development costs increased to $351,594 during the first nine months of
1998 when compared to $299,302 during the first nine months of 1997. The
increase is due primarily to costs associated with the new Datavisor LCD product
announced on July 21, 1998. The Company can make no assurances that it can
continue to hold product development costs at current levels as new technologies
emerge that could help the Company continue to expand its product line of 3D
immersive displays and thus allow the Company to penetrate new markets.
Marketing and sales costs decreased slightly to $417,943 during the nine-month
period ended September 30, 1998 when compared to $423,191 during the same
nine-month period in 1997. The Company anticipates marketing and sales costs to
increase during the remainder of 1998 with the unveiling of the Datavisor LCD.
The Datavisor LCD is a product positioned at the "below $10,000" segment of the
professional HMD market and could have appeal to a broader market than any of
the Company's previous products. The advertising and promotion costs of this
product could be substantial in the fourth quarter of 1998 and the first quarter
of 1999, although no assurances can be given to the success of this product
line.
For the nine months ended September 30, 1998 the Company reported a loss from
operations of ($257,947) compared to a loss from operations of ($799,755) for
the same period in 1997. The reduced loss is primarily attributable to strong
revenue growth in the first six months of the year, improving margins, and
reductions in the operating costs of the Company. The Company can make no
assurances that it can maintain revenue growth, gross margins, or the current
cost structure of the Company given the competitive industry in which the
Company operates.
During the nine months ended September 30, 1998 the Company maintained a
positive net interest margin of $37,902 compared to a positive net interest
margin of $90,788 for the same period in 1997. The decease in net interest
margin is the result of fewer interest earning deposits on hand during the
period. For the nine months ended September 30, 1998 the Company reported Net
Loss of ($220,045) compared to a net loss of ($708,967) for the same period in
1997.
Liquidity and Capital Resources
Working capital totaled $2,574,579 as of September 30, 1998 compared to a
working capital balance of $3,132,416 as of September 30, 1997. The decrease is
primarily attributable to operating losses sustained during 1998. 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
nine months of 1998 was primarily due to the operating loss, purchase of
property and equipment, and debt service as depicted in the Statements of Cash
Flow.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for the development of new products, financing of growth, and the
possible acquisitions of related businesses and technologies. The Company
believes that its 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 $0.72 to $1.56.
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
10
<PAGE>
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 its operating results during 1998. During
1997, less than 10% of the Company's revenue was derived from products sold to
customers in Asia.
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.
11
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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 September 30, 1998.
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 11, 1998
n-VISION, INC.
(Registrant)
____________________________
Harry S. Katrivanos
Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the form
10-QSB for the period ended September 30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 443,303
<SECURITIES> 1,250,000
<RECEIVABLES> 531,754
<ALLOWANCES> 25,000
<INVENTORY> 759,664
<CURRENT-ASSETS> 3,094,374
<PP&E> 909,941
<DEPRECIATION> 465,841
<TOTAL-ASSETS> 3,555,623
<CURRENT-LIABILITIES> 519,795
<BONDS> 300,000
0
0
<COMMON> 52,937
<OTHER-SE> 2,682,891
<TOTAL-LIABILITY-AND-EQUITY> 3,555,623
<SALES> 2,407,719
<TOTAL-REVENUES> 2,475,124
<CGS> 1,208,151
<TOTAL-COSTS> 1,208,151
<OTHER-EXPENSES> 1,448,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,503
<INCOME-PRETAX> (220,045)
<INCOME-TAX> 0
<INCOME-CONTINUING> (220,045)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,045)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
