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, 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)
-------------------------------------------------------------
<TABLE>
<S><C>
Delaware 54-1741313
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
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 June 30, 1998.
1
<PAGE>
FORM 10-QSB
INDEX
PAGE
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1998
and December 31, 1997 ................ 3
Statements of Operations for the
three months and six months ended
June 30, 1998 and June 30, 1997 ................ 4
Statements of Cash Flows For the six
months ended June 30, 1998 and June
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
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
n-VISION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------------- -------------
(Unaudited) (Audited)
<S><C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 427,493 $ 876,805
Investments 1,248,438 1,246,875
Accounts Receivable
Trade 721,528 252,270
Other 51,783 15,335
Inventories 704,499 843,868
Prepaid Expenses 76,896 83,227
----------- -----------
Total Current Assets 3,230,637 3,318,380
PROPERTY AND EQUIPMENT 480,145 604,617
(Net of Accumulated Depreciation)
OTHER ASSETS 20,497 27,193
----------- -----------
$ 3,731,279 $ 3,950,190
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current Maturities-Long Term Note Due ATS $ 120,000 $ 120,000
Current Portion of Capital Lease Obligation 15,071 24,599
Accounts Payable 111,436 302,484
Accrued Salaries and Benefits 72,504 115,198
Deferred Revenue and Warranty Reserve 125,683 72,665
----------- -----------
Total Current Liabilities 444,694 634,946
NON-CURRENT LIABILITIES
Note Payable-ATS 300,000 360,000
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 (1,562) (3,125)
Accumulated Deficit (7,506,797) (7,539,072)
----------- -----------
Total Stockholder's Equity 2,986,585 2,952,747
----------- -----------
$ 3,731,279 $ 3,950,190
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
n-VISION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
----------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------ -------------- ------------
(unaudited) (unaudited)
<S><C>
Sales $ 870,027 $ 623,297 $1,969,899 $1,252,168
Cost of Sales 422,633 363,613 997,509 697,999
---------- ---------- ---------- ----------
Gross Margin 447,394 259,684 972,390 554,169
Operating Expenses
General and Administrative 222,699 327,013 518,993 642,604
Product Development 95,683 103,139 181,640 197,157
Marketing and Sales 122,948 136,677 263,225 256,532
---------- ---------- ---------- ----------
Income (Loss) from operations 6,064 (307,145) 8,532 (542,124)
Non-Operating Income
(Expense)
Interest Income 21,104 40,334 45,286 96,449
Interest Expense (10,236) (13,393) (20,672) (26,960)
---------- ---------- ---------- ----------
Income (Loss) before income 16,932 (280,204) 33,146 (472,635)
taxes
Income Tax Provision - - - -
---------- ---------- ---------- ----------
Net Income (Loss) $ 16,932 $ (280,204) $ 33,146 $ (472,635)
========== ========== ========== ==========
Weighted average shares 5,293,673 5,293,673 5,293,673 5,303,150
outstanding - Basic
========== ========== ========== ==========
Income (Loss) per Share - Basic $ .01 $ (.05) $ .01 $ (.09)
========== ========== ========== ==========
Weighted average shares 5,375,795 5,293,673 5,376,168 5,303,150
outstanding - Diluted
========== ========== ========== ==========
Income (Loss) per Share - Diluted $ .01 $ (.05) $ .01 $ (.09)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
n-VISION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30
----------------------------------
1998 1997
-------------- ----------------
(Unaudited) (Unaudited)
<S><C>
Cash Flows from operating activities
Net Income (Loss) 33,146 (472,635)
Adjustments to reconcile Net Income (Loss) to net cash used
in operating activities
Depreciation and amortization 127,531 72,335
Loss on Disposal of Fixed Assets 1,404 19,946
Changes in assets and liabilities
(Increase) Decrease in accounts receivable (469,258) (435,422)
(Increase) Decrease in inventories 156,183 6,438
(Increase) Decrease in prepaid expenses 6,331 (33,315)
(Increase) Decrease in Other Receivable (36,448) (48,252)
(Decrease) Increase in accounts payable (191,048) 21,463
(Decrease) Increase in accrued salaries and benefits (42,694) 25,688
(Decrease) Increase in Deferred Revenue and Warranty
Reserve 53,018 (58,777)
--------- -----------
Total Adjustments (394,981) (429,896)
--------- -----------
Net cash used in operating activities (361,835) (902,531)
Cash flows from investing activities
Purchase of property and equipment (15,452) (231,406)
Proceeds from sell of fixed assets - 9,243
--------- -----------
Net cash used in investing activities (15,452) (222,163)
Cash flows from financing activities
Payments on Long term Note - ATS (60,000) (60,000)
Receipt of Subscriptions Receivable - 4,048
Payments of Capital Lease Obligations (12,025) (10,536)
--------- -----------
Net cash used in financing activities (72,025) (66,488)
--------- -----------
Net Increase (Decrease) in Cash $(449,312) (1,191,182)
========= ===========
Ending Cash Balance 427,493 1,231,657
Beginning Cash Balance 876,805 2,422,839
--------- -----------
$(449,312) (1,191,182)
========= ===========
</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 six month
periods ended June 30, 1998 and June 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 six months ended June 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.
The following table sets forth the reconciliation between basic and
diluted EPS.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
- ------------------------------------------------------------------------------------------------
<S><C>
Numerator
Net Income available for common shareholders - Basic 16,932 (280,204)
Income Adjustments - -
------------ -----------
Net Income available for common shareholders - Diluted 16,932 (280,204)
Denominator
Denominator for Basic EPS-weighted average shares 5,293,673 5,293,673
Effect for Dilutive Securities
Employee Stock Options 82,122 -
------------- -----------
Denominator for diluted EPS 5,375,795 5,293,673
- ------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
Six Months Ended June 30, 1998 1997
- ------------------------------------------------------------------------------------------------
<S><C>
Numerator
Net Income available for common shareholders - Basic 33,146 (472,635)
Income Adjustments - -
------------ -----------
Net Income available for common shareholders - Diluted 33,146 (472,635)
Denominator
Denominator for Basic EPS-weighted average shares 5,293,673 5,303,150
Effect for Dilutive Securities
Employee Stock Options 82,495 -
------------- -----------
Denominator for diluted EPS 5,376,168 5,303,150
- ------------------------------------------------------------------------------------------------
</TABLE>
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 June 30, 1998 Compared to the Quarter Ended June 30, 1997
For the quarter ended June 30, 1998, the Company reported revenue of $870,027, a
40% increase compared to the same period ended June 30, 1997 where the Company
reported revenue of $623,297. The increase was attributable primarily to an
increased demand for the Company's off-the-shelf display systems as well as the
continued delivery of systems pursuant to a $1.25 million contract to a
subsidiary of The Walt Disney Company. 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 $470,000.
The Company's gross margin on sales increased to 51% in the second quarter of
1998 from 42% during the same period in 1997. The increase is attributable to
the product mix shift during the second quarter 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 $222,699 for the three months ended
June 30, 1998 from $327,013 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 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
8
<PAGE>
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 decreased marginally to $95,683 during the second
quarter of 1998 when compared to $103,139 during the second quarter of 1997. The
decrease is due primarily to fewer new products in the development pipeline
during 1998 when compared to 1997. The Company can make no assurances that it
can continue to hold product development costs level 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.
Similarly, marketing and sales costs decreased to $122,948 during the
three-month period ended June 30, 1998 when compared to $136,677 during the same
three-month period in 1997. The decrease was attributable primarily to fewer new
product launches during the second quarter of 1998 when compared to the second
quarter of 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 third and fourth quarters of 1998.
For the quarter ended June 30, 1998 the Company reported income from operations
of $6,064 compared to a loss from operations of ($307,145) for the same period
in 1997. The increase is primarily attributable to strong revenue growth,
improving margins, and reductions in the operating costs of the Company
resulting in the second consecutive quarter of profitability in 1998. 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 three months ended June 30,
1998 the Company maintained a positive net interest margin of $10,868 compared
to a positive net interest margin of $26,941 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 June 30, 1998 the Company
reported Net Income of $16,932 compared to a net loss of ($280,204) for the same
period in 1997.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
For the six months ended June 30, 1998, the Company reported revenue of
$1,969,899, a 57% increase compared to the same period ended June 30, 1997 where
the Company reported revenue of $1,252,168. 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 $1.25 million contract to a
subsidiary of The Walt Disney Company. This contract is expected to have little
impact on revenue in the last six months of 1998. The Company's gross margin on
sales increased to 49% in the first six months of 1998 from 44% during the same
period in 1997. The increase is attributable to the product mix shift during the
second quarter 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 $518,993 for the six months ended
June 30, 1998 from $642,604 during the same six-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
9
<PAGE>
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.
Product Development costs decreased marginally to $181,640 during the first six
months of 1998 when compared to $197,157 during the first six months of 1997.
The decrease is due primarily to fewer new products in the development pipeline
during 1998 when compared to 1997. The Company can make no assurances that it
can continue to hold product development costs level 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 increased to $263,225 during the six-month period
ended June 30, 1998 when compared to $256,532 during the same six-month period
in 1997. The increase is primarily attributable to costs incurred during the
first half of the period from products which were introduced in the last six
month of 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 third and fourth quarters of 1998.
For the six months ended June 30, 1998 the Company reported income from
operations of $8,532 compared to a loss from operations of ($542,124) for the
same period in 1997. The increase is primarily attributable to strong revenue
growth, improving margins, and reductions in the operating costs of the Company
resulting in the second consecutive quarter of profitability in 1998. 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 six months ended June 30,
1998 the Company maintained a positive net interest margin of $24,614 compared
to a positive net interest margin of $69,489 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 six months ended June 30, 1998 the Company
reported Net Income of $33,146 compared to a net loss of ($472,635) for the same
period in 1997.
Liquidity and Capital Resources
Working capital totaled $2,785,943 as of June 30, 1998 compared to a working
capital balance of $3,436,741 as of June 30, 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 six
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
third quarter of the year.
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 $.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
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
Management believes 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
<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 June 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: August 7, 1998
n-VISION, INC.
(Registrant)
/S/ Harry S. Katrivanos
_____________________________________________
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 June 30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 427,493
<SECURITIES> 1,248,438
<RECEIVABLES> 746,528
<ALLOWANCES> 25,000
<INVENTORY> 704,499
<CURRENT-ASSETS> 3,230,637
<PP&E> 883,728
<DEPRECIATION> 403,583
<TOTAL-ASSETS> 3,731,279
<CURRENT-LIABILITIES> 444,694
<BONDS> 300,000
0
0
<COMMON> 52,937
<OTHER-SE> 2,933,648
<TOTAL-LIABILITY-AND-EQUITY> 3,731,279
<SALES> 1,969,899
<TOTAL-REVENUES> 2,015,188
<CGS> 997,509
<TOTAL-COSTS> 997,509
<OTHER-EXPENSES> 963,858
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,672
<INCOME-PRETAX> 33,146
<INCOME-TAX> 0
<INCOME-CONTINUING> 33,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,146
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
