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, 1999
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 2,651,523 on March 31, 1999.
1
<PAGE>
FORM 10-QSB
INDEX
PAGE
-------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31,
1999 and December 31, 1998 ..........................3
Statements of Operations for
the three months ended March
31, 1999 and March 31, 1998 ..........................4
Statements of Cash Flows for
the three months ended March
31, 1999 and March 31, 1998 ......................... 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 ..........................11
SIGNATURES ..........................12
Exhibit 27 Financial Data Schedule ..........................13
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
N-VISION, INC.
BALANCE SHEETS
March 31, December 31,
1999 1998
-----------------------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,327,226 $ 1,669,302
Accounts Receivable
Trade 137,683 236,054
Other - 400
Inventories 937,624 974,099
Prepaid Expenses 37,727 53,580
-----------------------------
TOTAL CURRENT ASSETS 2,440,260 2,933,435
PROPERTY AND EQUIPMENT 382,323 420,049
(Net of Accumulated Depreciation)
OTHER ASSETS 10,453 13,801
-----------------------------
$ 2,833,036 $ 3,367,285
=============================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current Maturities-Long Term Note Due ATS $ 127,200 $ 120,000
Current Portion of Capital Lease Obligation - 2,225
Accounts Payable 25,251 359,561
Accrued Salaries and Benefits 75,508 64,280
Deferred Revenue and Accrued Warranty Costs 79,843 102,432
----------------------------
TOTAL CURRENT LIABILITIES 307,802 648,498
LONG TERM LIABILITIES
Note Payable-ATS 240,000 240,000
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, 2,651,523 shares 26,515 26,515
issued and outstanding
Paid in Capital 10,473,679 10,473,679
Accumulated Deficit (8,214,960) (8,021,407)
----------------------------
TOTAL STOCKHOLDERS' EQUITY 2,285,234 2,478,787
----------------------------
$ 2,833,036 $ 3,367,285
============================
</TABLE>
N-VISION, INC.
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Three months ended
March 31,
--------------------------
1999 1998
--------------------------
(Unaudited)
<S> <C> <C>
SALES $ 307,600 $ 1,099,872
COST OF SALES 125,519 574,875
-------------------------
GROSS MARGIN 182,081 524,997
OPERATING EXPENSES
General and Administrative 229,691 296,293
Product Development 49,785 85,957
Marketing and Sales 101,687 140,276
-------------------------
INCOME (LOSS) FROM OPERATIONS (199,082) 2,471
NON-OPERATING INCOME (EXPENSE)
Interest Income 12,753 24,183
Interest Expense (7,225) (10,435)
-------------------------
INCOME (LOSS) BEFORE INCOME TAXES (193,554) 16,219
PROVISION FOR INCOME TAXES - -
-------------------------
NET INCOME (LOSS) $ (193,554) $ 16,219
=========================
Weighted average shares outstanding - 2,651,523 2,646,836
Basic
Income (Loss) per Share - Basic $ (.07) $ .01
Weighted average shares outstanding - 2,651,523 2,678,208
Diluted
Income (Loss) per Share - Diluted $ (.07) $ .01
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
N-VISION, INC.
STATEMENTS OF CASH FLOWS
Three months ended
March 31,
----------------------------
1999 1998
-----------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) (193,554) 16,219
-----------------------------
Adjustments to reconcile Net Income (Loss) to net
cash used
in operating activities
Depreciation and amortization 67,132 63,582
Loss on Disposal of Fixed Assets 381 186
Changes in assets and liabilities
(Increase) Decrease in accounts receivable 98,371 (599,088)
(Increase) Decrease in inventories 36,474 73,032
(Increase) Decrease in prepaid expenses 15,854 35,833
(Increase) Decrease in Other Receivable 400 (19,479)
(Decrease) Increase in accounts payable (334,310) (160,809)
(Decrease) Increase in Accrued Interest 7,200 9,600
(Decrease) Increase in accrued salaries and 11,228 1,214
benefits
(Decrease) Increase in Deferred Revenue and (22,589) 66,124
Warranty
-----------------------------
Total Adjustments (119,859) (529,805)
-----------------------------
NET CASH USED IN OPERATING ACTIVITIES (313,413) (513,586)
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (26,788) (12,692)
Proceeds from sale of fixed assets 350 -
-----------------------------
NET CASH USED IN INVESTING ACTIVITIES (26,438) (12,692)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of Capital Lease Obligations (2,225) (5,913)
-----------------------------
NET CASH USED IN FINANCING ACTIVITIES (2,225) (5,913)
-----------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (342,076) (532,191)
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER 1,669,302 876,805
=============================
CASH AND CASH EQUIVALENTS AT END OF QUARTER $1,327,226 $ 344,614
=============================
</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 periods ended
March 31, 1999 and March 31, 1998 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, 1998. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of the
results for the entire fiscal year ending December 31, 1999.
In preparing financial statements in conformity with generally accepted
accounting principles 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 Principles 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>
1999 1998
- ----------------------------------------------------- -------------- ---- ---------------
<S> <C> <C>
NUMERATOR
Net Income available for common shareholders - (193,554) 16,217
Basic Income Adjustments - -
-------------- ---------------
Net Income available for common shareholders - (193,554) 16,217
Diluted
DENOMINATOR
Denominator for Basic EPS-weighted average shares 2,651,523 2,646,836
Effect for Dilutive Securities
Employee Stock Options - 31,371
-------------- ---------------
Denominator for diluted EPS 2,651,523 2,678,208
- ----------------------------------------------------- -------------- ---- ---------------
</TABLE>
6
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Some statements in this Management's Discussion and Analysis contain
forward-looking information that involve a number of risks and uncertainties,
the possible realization of which could have material adverse effects on the
Company's operating results. Factors that may cause actual results to differ
materially include: development of new products, 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 Form 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, 1998.
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 BMW, Boeing, Johns
Hopkins University, Lockheed Martin, NASA, Olympus America, Raytheon, U.S. Air
Force, U.S. Navy, Volvo, Wesson International, and a subsidiary of The Walt
Disney Company, among others.
Since the completion of its initial public offering in May 1996, the Company's
revenues have increased yearly from $1.1 million for the year ended 1996 to
approximately $2.7 million in 1998. Despite revenue increases and decreases in
the overall operational expenses, the Company continues to incur operating
losses. Management believes the Company possesses sufficient liquid working
capital to maintain operations in 1999. The primary challenges facing the
Company in its attempt to generate consistent profits are:
o Dependence on a relatively small number of customers and the consequent need
to generate larger orders.
o Need for expansion of customer base.
o Competitive pressure to offer lower priced products while maintaining
profitable margins and superior quality.
o Limitation on the Company's growth posed by a still-developing market for
Virtual Reality (VR) applications.
At present, management remains committed to facing these and other challenges by
expanding product lines to offer lower-priced products and solutions and
penetrating new markets or attracting customers worldwide via its network of
distributors. In addition, management is aware of the need for maintaining
control of its operating costs. The Company's success in implementing its plans
in order to generate profits cannot be assured. Therefore, management's plans in
the future could include, but are not limited to, a merger or acquisition of the
Company with a strategic partner, introduction of other new products or service
lines complementary to its existing business, or other transactions aimed at
maximizing shareholder value. At this time, management is not contemplating any
particular transaction.
7
<PAGE>
FINANCIAL CONDITION
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
For the quarter ended March 31, 1999, the Company reported cash and cash
equivalents of $1,327,226, a 285% increase from the prior year in which the
Company reported cash and cash equivalents of $344,614. This increase is the
direct result of the sale of investments that consisted of debt securities, the
proceeds being placed in a money market account. Accounts receivable at March
31, 1999 was 137,683, a decrease of 84% from the March 31, 1998 balance of
$886,172. Inventories increased by 21% to $937,624 from $775,129 at March 31,
1998, due mainly to the purchase of parts for the Datavisor LCD and Datavisor
NVG. Net Property Plant and Equipment decreased by 31% from $552,596 at March
31, 1998 to $382,323 at March 31, 1999. This decrease is the result of current
year depreciation rates. Current liabilities decreased by 44%. Accounts payable
decreased 82%, due to the payment of purchases made in the fourth quarter of
1998. Accrued salaries and vacation decreased by 35%, due to the lower overall
payroll. Deferred revenue and accrued warranty costs decreased by 42%. The
long-term portion of the unsecured note payable to ATS decreased by 33% during
1998 to $240,000. The outstanding balance of this loan now stands at $360,000
with interest due on principal outstanding of 8% per annum. Principal payments
of $60,000 are payable twice each year in June and December. Annual maturities
of this note for each of the next three years are $120,000 after which the note
will be paid in full.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
For the quarter ended March 31, 1999, the Company reported revenue of $307,600
from the sale of 5 units of its immersive display products and systems, a 72%
decrease compared to the same period ended March 31, 1998 when the Company
reported revenue of $1,099,872 from the sale of 52 units. The decrease was
primarily attributable to the delivery of display systems to a subsidiary of The
Walt Disney Company to fill a $1.25 million order in 1998. The Company's gross
margin on sales increased to 59% in the first quarter of 1999 compared to 48% in
the first quarter of 1998. As of March 31, 1999 the Company had a backlog of
delivered and undelivered products and services of approximately $211,898.
Operating expenses for the three months ended March 31, 1999 decreased to
$381,163 when compared to the same three month period in 1998 where operating
expenses where $522,526. The decrease in operating expenses was the combined
result of lower product development, general and administrative, and marketing
and sales costs. 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, 1999, the Company reported a loss from
operations of $199,082 compared to income from operations of $2,471 for the same
period in 1998. The decrease is primarily attributable to decreased revenues.
The Company intends to continue to aggressively market its current products as
well as introduce new products so as to improve revenue growth. No assurances
can be made that revenue growth will continue and that margins can be sustained
at the current levels.
Non-operating income for the three months ended March 31, 1999 was $12,753
compared to $24,183 for the same three month period in 1998. Non-operating
expenses were $7,225 for the first quarter in 1999 compared to $10,435 in the
first quarter in 1998, resulting in a positive net interest margin of $5,528 for
the first quarter in 1999 compared to a positive net interest margin of $42,548
for the first quarter in 1998. The decrease in interest margin was primarily
attributable to lower cash on hand.
For the quarter ended March 31, 1999, the Company reported a net loss of
$193,554 and loss per share of $0.07 compared to a net profit of $16,219 and
earnings per share of $0.01 for the same three month period in 1998.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $2,132,458 as of March 31, 1999 compared to a working
capital balance of $2,752,525 as of March 31, 1998. 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. The decrease in Net Cash during the first
quarter of 1998 was primarily due to the decrease in accounts payable.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for the development of new products, financing of growth, and the
possibility of acquisitions of related businesses or technologies. The Company
believes that current level of capital resources is sufficient to satisfy the
anticipated cash requirements through the end of 1999. Additionally, the Company
has 1,380,000 Class A warrants for $11.00 per share outstanding which may be
exercised during a four-year period expiring May 29, 2001. The warrants are also
subject to redemption at the Company's election if the Company's common stock
price equals or exceeds $18.00 per share for 20 consecutive trading days within
a period of 30 days. The Company, however, can make no assurances that investors
will elect to exercise the warrants or that the required conversion price or
redemption price can be reached since the current trading price has been
approximately in the $0.12-$0.50 range. Until operations improve, and the
Company obtains additional underwriting support to replace its prior
underwriter, who is no longer in business, the Company's ability to generate
proceeds from the conversion of the warrants may be adversely affected.
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, 1998, the Company had a net operating loss carryforward
available to offset future taxable income generated through 2018 of
approximately $3,800,000. 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 crisis in
Asia will not have material adverse effects on the Company's operating results
during 1999. During 1998, less than 6% of the Company's revenue was derived from
products sold to customers in Asia.
YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000 Problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. If this situation occurs, the potential exists for
computer system failures or miscalculations by computer programs, which could
disrupt operations.
The Company has conducted a review of its internal computer and other systems
deemed to be date sensitive to assess its exposure to the Year 2000 problem. The
Company has already modified or replaced certain internal systems that are not
Year 2000 compliant. Based upon the review, management believes that the
Company's internal systems will be compliant by mid-1999. However, if
modifications are not made or not completed within an adequate time frame, the
Year 2000 problem could have a material adverse effect on the operations of the
Company.
9
<PAGE>
Additionally, the Company is communicating with its major vendors and suppliers
to determine their state of readiness relative to the Year 2000 problem and the
Company's exposure to third party Year 2000 issues. However, there can be no
guarantee that the systems of other companies on which the Company's business
relies will be converted in a timely manner, or that representations made to the
Company by third parties will be accurate. As a result, the failure of a major
vendor or supplier to adequately address their Year 2000 problem could have a
material adverse effect on the operations of the Company.
The Company's Year 2000 conversion efforts have not been budgeted or tracked as
separate projects, but have been occurring in conjunction with normal sustaining
activities. All costs related to the Company's Year 2000 problem are being
expensed as incurred, while the cost of new hardware or software is being
capitalized or amortized over its expected useful life. The costs associated
with Year 2000 compliance have not been and are not anticipated to be material
to the Company's financial condition or results of operations. Specifically, as
of December 31, 1998, the Company has spent less than $50,000 and anticipates
spending less than $25,000 thereafter. These costs and the estimated mid-1999
completion date are based upon management's best estimates. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from these plans. The Company does not have a contingency plan relative
to the Year 2000 problem, although it intends to develop one before June 30,
1999. Such contingency plan may include readiness to switch to Year 2000
compliant vendors or stockpiling raw materials in the fourth quarter of 1999.
However, at this time management has not contemplated any particular actions.
The Company's products make no internal calculations regarding dates. Therefore,
the Company's products do not pose a Year 2000 compliance issue. Although the
Company has no reason to conclude that any specific supplier represents a
material risk, the most likely risk would entail production disruption due to
inability of suppliers, some of whom represent the sole source of component
parts for certain items, to deliver such critical parts. The Company is unable
to quantify such a scenario, but it could potentially result in a material
adverse effect on results of operations, liquidity or financial condition of the
Company.
The preceding Year 2000 issue discussion contains various forward-looking
statements, which represent the Company's belief or expectations regarding
future events. When used in the Year 2000 discussion, the words "believes,"
"expects," "estimates" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it will complete the
renovation and testing phases of its Year 2000 program as well as its Year 2000
contingency plans; its estimated cost of achieving Year 2000 readiness; and the
Company's belief that its internal systems will be Year 2000 compliant in a
timely manner. All forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ materially from the
projected results. Factors that may cause these differences include, but are not
limited to, the availability of qualified personnel and other information
technology resources; the ability to identify and renovate all date sensitive
lines of computer code or to replace embedded computer chips in affected systems
and equipment; and the actions of government agencies or other third parties
with respect to Year 2000 problems.
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.
10
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ending March 31, 1999.
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: May 5, 1999
n-VISION, INC.
(Registrant)
- --------------------------------------------------------------------------------
/S/ Eric A. Hall
---------------
Eric A. Hall
Chief Financial Officer
(Principal Financial and Accounting
Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the form
10-QSB for the period ended March 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> USS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,327,226
<SECURITIES> 0
<RECEIVABLES> 162,683
<ALLOWANCES> 25,000
<INVENTORY> 937,624
<CURRENT-ASSETS> 2,440,260
<PP&E> 961,758
<DEPRECIATION> 579,435
<TOTAL-ASSETS> 2,833,036
<CURRENT-LIABILITIES> 307,802
<BONDS> 240,000
0
0
<COMMON> 26,515
<OTHER-SE> 2,258,719
<TOTAL-LIABILITY-AND-EQUITY> 2,833,036
<SALES> 307,600
<TOTAL-REVENUES> 320,353
<CGS> 125,519
<TOTAL-COSTS> 506,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,225
<INCOME-PRETAX> (199,082)
<INCOME-TAX> 0
<INCOME-CONTINUING> (193,554)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (193,554)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
