UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC. - Quarter Report: 2011 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended September 30, 2011
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________ to ________
Commission file numbers 000-50081
INVISA, INC.
(Name of registrant as specified in its charter)
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Nevada
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65-1005398
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(State or Other Jurisdiction of Organization)
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(IRS Employer Identification Number)
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1800 2nd Street, Suite 965, Sarasota, Florida 34236
(Address of principal executive offices)
(941) 870-3950
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date, November 14, 2011: 13,959,398
Transitional Small Business Disclosure Format (check one): YES o NO x
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Invisa, Inc.
Form 10-Q
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Part I
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Financial Information
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Page
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3
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7
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9
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9
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Part II.
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Other Information
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Part I. Financial Information
Invisa, Inc.
Condensed Balance Sheets
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December 31, 2010
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September 30, 2011
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(unaudited)
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Assets
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Current assets:
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Cash
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$ | 3,605 | $ | 7,764 | ||||
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Accounts receivable
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6,289 | 18,300 | ||||||
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Inventories
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17,867 | 14,135 | ||||||
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Prepaids and other current assets
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5,795 | 9,645 | ||||||
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Total current assets
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33,556 | 49,844 | ||||||
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Total assets
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$ | 33,556 | $ | 49,844 | ||||
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Liabilities and Stockholders’ Deficit
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Current liabilities:
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Accounts payable, trade
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$ | 89,475 | $ | 102,540 | ||||
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Due to stockholders and officers
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20,260 | 20,260 | ||||||
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Total current liabilities
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109,735 | 122,800 | ||||||
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Long-Term Debt
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540,736 | 711,569 | ||||||
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Total liabilities
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650,471 | 834,369 | ||||||
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Stockholders’ Deficit:
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Convertible Preferred Stock, 5,000,000 shares authorized ($0.001 par value):
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Series A, 9,715 shares issued and outstanding
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798,500 | 798,500 | ||||||
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Series B, 9,000 shares issued and outstanding
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270,160 | 270,160 | ||||||
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Series C, 6,628 shares issued and outstanding
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1,600,467 | 1,600,467 | ||||||
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Common Stock, 95,000,000 shares authorized ($.001 par value), 13,849,398 and
13,959,398, respectively, shares issued and outstanding
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13,849 | 13,959 | ||||||
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Additional paid-in capital
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32,373,332 | 32,411,222 | ||||||
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Accumulated Deficit
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(35,673,223 | ) | (35,878,833 | ) | ||||
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Total stockholders’ deficit
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(616,915 | ) | (784,525 | ) | ||||
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Total liabilities and stockholders’ deficit
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$ | 33,556 | $ | 49,844 | ||||
See notes to condensed financial statements.
Invisa, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three-months ended September 30,
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Nine-months ended September 30,
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2010
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2011
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2010
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2011
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Net Sales
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$ | 12,269 | $ | 46,879 | $ | 62,848 | $ | 78,221 | ||||||||
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Costs and other expenses:
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Cost of goods
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2,659 | 15,258 | 25,881 | 31,584 | ||||||||||||
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Selling, general and administrative expenses
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56,731 | 53,528 | 179,585 | 199,933 | ||||||||||||
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Loss from operations
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(47,121 | ) | (21,907 | ) | (142,618 | ) | (153,296 | ) | ||||||||
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Other income (expense):
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Interest (expense) and other, net
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(20,305 | ) | (18,110 | ) | (55,745 | ) | (54,719 | ) | ||||||||
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Gain on debt extinguishment
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— | --- | — | 2,405 | ||||||||||||
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Loss before income taxes
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(67,426 | ) | (40,017 | ) | (198,363 | ) | (205,610 | ) | ||||||||
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Income taxes
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— | ---- | — | ---- | ||||||||||||
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Net Loss
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$ | (67,426 | ) | $ | (40,017 | ) | $ | (198,363 | ) | $ | (205,610 | ) | ||||
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Net Loss per share applicable to Common
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Stockholders:
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Basic and diluted
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$ | (0.01 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.01 | ) | ||||
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Weighted average Common Stock shares Outstanding :
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Basic and diluted
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6,956,216 | 13,959,616 | 7,031,216 | 13,923,352 | ||||||||||||
Invisa, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended September 30
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2010
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2011
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Net cash (used in) operating activities
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$ | (102,276 | ) | $ | (111,941 | ) | ||
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Net cash (used in) investing activities
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---- | ---- | ||||||
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Cash flows from financing activities:
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Proceeds from Long-Term Debt
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103,701 | 116,100 | ||||||
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Net cash provided by financing activities
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103,701 | 116,100 | ||||||
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Net increase in cash
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1,425 | 4,159 | ||||||
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Cash at beginning of period
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157 | 3,605 | ||||||
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Cash at end of period
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$ | 1,582 | $ | 7,764 | ||||
See notes to condensed financial statements.
Invisa, Inc.
Notes to Condensed Financial Statements
September 30, 2011
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and Rule 8.03 of Regulation SX. The December 31, 2010 balance sheet data was derived from audited financial statements. The accompanying financial statements do not include all of the information and notes required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Annual Report on Form 10-K of Invisa, Inc. for the year ended December 31, 2010. When used in these notes, the terms “Company”, “we,” “us” or “our” mean Invisa, Inc. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
Invisa, Inc., (the “Company” or “Invisa”) is an enterprise that incorporates safety system technology and products into automated closure devices, such as parking gates, sliding gates, overhead garage doors and commercial overhead doors. Invisa has also demonstrated production-ready prototypes of security products for the museum and other markets. The Company is currently manufacturing and selling powered closure safety devices.
Note B - Operating Matters and Liquidity
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the nine months ending September 30, 2011, the Company has had net (losses) applicable to Common Shareholders of $(205,610). See Note E – Long-Term Debt to the accompanying financial statements for substantial restructuring of the Company’s debt, including extension of the Company’s debt payment dates.
Note C – Equity
During the nine months ended September 30, 2011, an officer contributed services with a fair value of $27,000 to the capital of the Company. Also, during the nine months then ended no stock options were outstanding, granted or exercised. Additionally, no shares of Preferred Stock were issued, but 75,000 shares of common stock were approved for grant during the second quarter to its three directors and 35,000 shares to its non-director consultants. The stock vests upon the date granted and was valued at fair market value ($0.10 per share or $11,000 which was charged to operations)
In July 2011 the 10,666,666 shares of the common stock held in escrow were reduced to 3,848,485.
Note D – Due to Stockholders and Officers
Due to Stockholders and Officers at December 31, 2010 and September 30, 2011 is as follows:
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December 31
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September 30
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2010
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2011
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Edmund C. King
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$ | 20,260 | $ | 20,260 | ||||
Note E - Long-Term Debt
The Company has four lines of credit with a private investor. The credit facilities allow for advances up to $500,000, bear interest at 10% and have a first security interest in all of the Company’s assets. Additionally, the credit facilities are secured by a security interest in 3,848,485 shares of the Company’s common stock held in escrow. Because the credit facilities are not in default the shares are not treated as issued and outstanding.
In May 2011, the Company’s senior lender agreed to extend the maturity dates of the outstanding Senior Secured Promissory Notes and the Line of Credit as described below and accrued interest aggregating $711,569 at September 30, 2011 until March 1, 2013. Terms and provisions of the notes otherwise remained unchanged.
The Senior Lender also established a $150,000 Revolving Line of Credit to finance operations of the Company through December 31, 2011. The Revolving Line has similar terms and provisions to the previous notes between the Company and the Senior Lender. In March 2011 the Senior Lender agreed to extend the maturity date of its notes to March 1, 2013. With the exception of the maturity date extended to March 1, 2013 all the terms and provisions of the original notes remain in full force and in effect, including, without limitation, all security thereon. At September 30, 2011, the Company has used $116,100 of the Line of Credit. Should the Company use the entire line before December 31, 2011, it would request additional advances from the Senior Lender. While the Senior Lender has been agreeable to making continued advances in the past there can be no assurance that any such additional advances will be agreed to.
Note F – Stockholders’ Deficit
In January 2010, the Company commenced an exchange offer, which remains open, of Series B Preferred Stockholders to convert these shares into shares of Series C Preferred Stock. In conjunction with the January 2010 offer, the Company has restated its Series B Stock Certificate of Designation to eliminate any further accrual of dividends and provide that the Company may satisfy its obligation with respect to accrued but unpaid dividends either (a) in cash, (b) by issuance of its additional Series B Stock or (c) by issuance of common stock of the Company.
Note G - Recent Accounting Pronouncements
The Company does not believe that any recently issued accounting pronouncements will have a material affect on its financial statements.
Note H – Inventory
The Company’s inventory is stated at the lower of cost or market using an averaging method which approximates the first-in, first-out method. The inventory has been evaluated for obsolescence and whether quantities on hand exceed quantities which can reasonably be expected to be sold in the near term. Obsolete inventory is written off and excess quantities which are not expected to be sold in the near term are either written off or classified as a long-term asset.
Note I - Earnings (loss) per Common Share
Basic and diluted earnings (loss) per share are computed based on the weighted average number of common stock outstanding during the period. Common stock equivalents are not considered in the calculation of diluted earnings (loss) per share for the periods presented because their effect would not be material or would be anti-dilutive.
The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this filing. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements. The cautionary statements made herein should be read as being applicable to all related forward-looking statements in this Quarterly Report on Form 10-Q.
Background of our Company
We manufacture and sell sensors using the Company’s patented InvisaShield™ presence-sensing technology in the safety market. We market our line of safety sensors under the name of SmartGate ® brand safety sensors used in or with parking barrier gates to protect life and property. All of our sales revenues are derived from the sale of our SmartGate safety sensors.
We financed our operations in 2010 and 2011 through revenues derived from the sale of our SmartGate ® brand safety sensors and debt financing. We are focusing our efforts on increasing our sales of our products and reducing operating costs, where possible. In May 2011 the company’s senior lender agreed to extend the maturity date of the Senior Secured Promissory Notes and the related accrued interest until March 1, 2013, and put in place a line of credit which we believe is sufficient to finance our operations through December 31, 2011.
Quarter Ended September 30, 2010 Compared to the Quarter Ended September 30, 2011
Net Sales – During the quarter ended September 30, 2010 and 2011, product sales totaled $12,269 and $46,879 respectively. We had a gross profit of $9,610 for the quarter ended September 30, 2010 and gross profit of $31,621 for the quarter ended September 30, 2011. Gross margin was 78% during the 3rd quarter of 2010 and 67% during the same period in 2011.
Selling, General and Administrative Expenses - During the third quarter of 2010 and 2011 selling, general and administrative expenses totaled $56,731 and $53,528, respectively.
Interest (Expense) and other, Net - During third quarter of 2010 and 2011 interest (expense) and other totaled $(20,305) and $(18,110), respectively. The interest expense during both 2010 and 2011 relates primarily to financing costs and interest due our senior lender under lines of credit.
Net Income (Loss) - Net loss decreased from $(67,426) in 2010 to a net loss of $(40,017) in 2011. This decrease in net loss resulted principally from decreased selling general and administrative expenses and increased sales.
Nine Months Ended September 30, 2010 and 2011
Net Sales and Cost of Sales - During the nine months ended September 30, 2010 and 2011, net sales totaled $62,848 and $78,221 respectively. In June of 2010 our sales and revenue began to decline. We believe the decline is associated with general economic and industry conditions and does not reflect a change in acceptance of our product. We also believe the trend is not long-term. Cost of sales totaled $25,881 and $31,584, respectively, or 41% and 40% of related sales.
Selling, General and Administrative Expenses - During the nine months ended September 30, 2010 and 2011, selling, general and administrative expenses totaled $179,585 and $199,933. The increase of $20,348 in 2011 principally resulted from expenses related to the reverse split.
Interest Income (Expense) and other, Net - During the nine months ended September 30, 2010 and 2011, net interest (expense) income totaled $(55,745) and $(54,719). The interest expense during both 2010 and 2011 relates primarily to financing costs and interest due our senior lender under lines of credit to the Company.
Net Income (Loss) - The Company’s net loss for these periods increased from $(198,363) in 2010 to a loss of $(205,610) in 2011. This increase resulted principally from increased General and Administrative Expenses in 2011.
Plan of Development and Operations
We obtained funding of $103,701, in the form of short-term debt financing through the third quarter of 2010, and an additional $116,100 in the same period in 2011, which together with our cash from sales supported our operations. We have extended the maturity of our debt to March 1, 2013, and put in place a line of credit which we believe is sufficient to finance our operations through December 31, 2011 (See Note E- Long-Term Debt to the accompanying financial statements) and will explore other business opportunities such as licensing and business combinations as they may arise.
Liquidity and Capital Resources
At September 30, 2011, we had a cash and cash equivalents totaling $7,764.
As of September 30, 2011, the Company has borrowed $711,569, including accrued interest which has been added to the note, due and owing its senior lender. The financing arrangements are set forth in a series of Notes having similar terms but varying maturity dates, specifically (i) $128,320 in 2009, (ii) $100,000 in July 2008, (iii) $150,000 in March 2008 and (iv) $250,000 prior to 2008. Each note bears interest at 10 percent per annum and is secured by all of the assets of the Company. Additionally, the Company has pledged an aggregate of 3,848,845 shares (held in escrow) of its common stock, and has committed additional capital stock, when available, as additional security for the notes. These shares have been issued and are being held in the treasury or in escrow as additional collateral against the notes. Upon full repayment of the notes, said shares will be returned to the Company. The shares delivered to the escrow agent as security for the notes are treated as issued on the stockholder lists of the Company but will not be deemed outstanding unless the shares are released by the escrow agent and delivered to the lender as a result of a default or nonpayment under the promissory notes and related security agreement. (See Note J to the accompanying financial statements)
In May 2011, the senior lender agreed to extend the maturity date of all amounts due under the notes and line of credit, including accrued interest, aggregating $711,569, to March 1, 2013. With the exception of the extension of the maturity date to March 1, 2013, all of the terms and provisions of the original notes remain in full force and effect, including, without limitation all security thereon. The senior lender also established a $150,000 line of credit to finance operations of the Company through December 31, 2011. The revolving credit facility has similar terms and provisions to the previous notes between the Company and the senior lender and is due and payable on March 1, 2013. As of September 30, 2011, the Company has borrowed $116,100, excluding interest, against this Line of Credit.
The Company had negative working capital at September 30, 2011, totaling $72,956 including $7,764 in cash. To finance planned operations through at least the next 12 months, we will rely upon our sales revenues and the $150,000 line of credit established by our senior lender. We believe that the line of credit facility and our sales revenue will be sufficient to finance our operations through December 31, 2011. However, we will continue to explore other avenues of financing, such as licensing of our product and/or our technology and potential strategic or business relationships or combinations, and to a lesser degree private equity and debt financing.
While we are confident that the current funding and sales revenue available to us will be sufficient to finance our operations through December 31, 2011, it is important to note that additional funding, if needed, may not be available when required or it may not be available on acceptable terms. Should we require additional funding, we may need to reduce or refocus our operations or obtain funds through arrangements that would be less attractive to us or which may require us to relinquish rights to certain or potential markets, either of which could have a material adverse effect on our business, financial condition and results of operations.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates given a change in conditions or assumptions that have been consistently applied.
The Company’s significant accounting policies are described in note 1 of our financial statements of our Form 10-K for the year ended December 31, 2010.
Recent Accounting Pronouncements
The Company does not believe that any recently issued accounting pronouncements will have a material affect on its financial statements.
NA
The Company maintains “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, Chief Financial Officer, and Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011 and concluded that our disclosure controls and procedures were effective as of September 30, 2011.
Changes in Internal Controls over Financial Reporting
During the quarter ended September 30, 2011, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d–15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. Other Information
None
There have been no material changes from the risk factors as previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2010.
During the nine-months ended September 30, 2011, the Company approved the grant of an aggregate of 110,000 shares of its common stock to its three directors (25,000 each) and an aggregate of 35,000 shares to its two non-director consultants. The shares are in the process of being issues at market value ($0.10) at the approval date. The shares are restricted as to transfer and are being issued under an exemption provided by Section 4(2) of the Securities Act of 1933.
None
None
None
(a) Exhibits filed herewith, Item Number - Description:
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Item No.
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Description
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31.1
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Chief Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a).
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31.2
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Chief Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a).
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32.1
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Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350.
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32.2
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Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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(b) None
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Invisa has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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INVISA, INC.
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Date: November 14, 2011
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By:
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/s/ Edmund C. King
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Edmund C. King
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Title: Chief Executive Officer
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Date: November 14, 2011
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By:
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/s/ Edmund C. King
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Edmund C. King
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Title: Chief Financial Officer
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