Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

 

Commission file number:  000-50081

 

INVISA, INC.

(Name of registrant as specified in its charter)

  

Nevada		65-1005398
(State or Other Jurisdiction of Organization)		(IRS Employer Identification Number)

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 þ  No ¨

 

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 þ  No ¨

 

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):

 

	Large accelerated filer    ¨	Accelerated filer    ¨
	Non-accelerated filer    ¨	Smaller reporting company    þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ¨ No þ

 

State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date:  October 15, 2014; 14,524,398

 

---

 

INVISA, INC.

 

Form 10-Q

Table of Contents

 

			Page
PART I.  FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements		3
	Condensed Balance Sheets		3
	Condensed Statements of Operations		4
	Condensed Statements of Cash Flows		5
	Notes to Condensed Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		9
Item 4.	Controls and Procedures		10
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings		11
Item 1A.	Risk Factors		11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		11
Item 3.	Defaults Upon Senior Securities		11
Item 4.	Mine Safety Disclosures		11
Item 5.	Other Information		11
Item 6.	Exhibits		11
Signatures			12

 

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements

 

 INVISA, INC.

 

CONDENSED BALANCE SHEETS

 

		December 31, 2013				September 30, 2014
						(Unaudited)
Assets
Current Assets:
Cash		$	1,253			$	473
Accounts receivable			2,948				332
Inventories			12,125				9,520
Prepaids and other assets			3,532				21,188
Total Current Assets			19,858				31,513
Total Assets		$	19,858			$	31,513
Liabilities and Stockholders’ Deficit
Current Liabilities:
Accounts payable, trade		$	16,806			$	15,548
Accrued Interest			—				84,231
Due to officer			20,260				20,260
Total Current Liabilities			37,066				120,039
Long-Term Debt			1,224,060				1,374,690
Total Liabilities			1,261,126				1,494,729
Stockholders’ Deficit:
Convertible Preferred Stock, 5,000,000 shares authorized ($100 par value):
Series A, 9,715 shares issued and outstanding			798,500				798,500
Series B, 2,702 shares issued and outstanding			270,160				270,160
Series C, 16,124 shares issued and outstanding			1,600,467				1,600,467
Common Stock, 95,000,000 shares authorized, $.001 par value, 14,214,398 and 14,524,398 shares issued and outstanding, respectively			14,214				14,524
Additional paid-in capital			32,679,717				32,706,407
Accumulated deficit			(36,604,326	)			(36,853,274	)
Total Stockholders’ Deficit			(1,241,268	)			(1,463,216	)
Total Liabilities and Stockholders’ Deficit		$	19,858			$	31,513

 

See notes to condensed financial statements.

 

 

INVISA, INC.

 

CONDENSED STATEMENTS OF OPERATIONS 

(Unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2013				2014				2013				2014
Net Sales		$	8,962			$	6,410			$	19,020			$	32,126
Costs and other expenses:
Cost of goods sold			4,168				2,640				7,101				21,824
Selling, general and administrative expenses			42,438				44,840				168,743				175,019
Loss from operations			(37,644	)			(41,070)				(156,824	)			(164,717	)
Other income (expense):
Interest (expense) and other, net			(26,464	)			(29,482	)			(80,047	)			(84,231	)
Gain on debt extinguishment			1,437				—				45,044				—
Loss before income taxes			(62,671	)			(70,552	)			(191,827	)			(248,948	)
Income taxes			—				—				—				—
Net Loss		$	(62,671	)		$	(70,552	)		$	(191,827	)		$	(248,948	)
Net Loss per share applicable to common stockholders:
Basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.02	)
Weighted average common stock shares outstanding:
Basic and diluted			14,214,398				14,524,398				14,214,398				14,524,398

  

See notes to condensed financial statements.

 

 

INVISA, INC.

 

CONDENSED STATEMENTS OF CASH FLOWS 

(Unaudited)

 

		Nine Months Ended September 30,
		2013				2014
Net cash (used in) operating activities		$	(92,769	)		$	(151,410	)
Net cash (used in) investing activities			—				—
Cash flows from financing activities:
Proceeds from long-term debt and line of credit			92,380				150,630
Net cash provided by financing activities			92,380				150,630
Net increase (decrease) in cash			(389	)			(780	)
Cash at beginning of period			1,015				1,253
Cash at end of period		$	626			$	473

  

See notes to condensed financial statements.

 

 

INVISA, INC

 

Notes to Condensed Financial Statements

June 30, 2014

(Unaudited)

 

 

Note A – Basis of Presentation

 

The accompanying unaudited condensed 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 S-X. The accompanying condensed 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, 2013. When used in these notes, the terms “Invisa”, “Company”, “we,” “us” or “our” mean Invisa, Inc. In the opinion of management, all adjustments (including normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

 

The Company 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 – Liquidity

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the nine months ended September 30, 2014, the Company incurred a net loss of $(248,948), and as of such date has a significant Stockholders’ Deficit. We are focusing our efforts on increasing our sales of products and reducing operating costs, where possible. Additionally, we seek to expand our business opportunity through strategic relationships and transactions such as acquisitions or mergers. On March 14, 2014, the Company entered into a non-binding Letter of Intent to acquire two operating companies engaged in the manufacture and sale of coated fabrics. While no assurance can be given that such acquisitions will be consummated, we believe our current funding ability as discussed under Long-Term Debt below will be sufficient to finance our operations through, at a minimum, June 30, 2015. Should we require additional funding over and above such borrowing capability, 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 or assets, either of which could have a material adverse effect on our business, financial condition and/or results of operations.

 

Note C – Due to Officer

 

The balance of the $20,260, due to officer, is non-interest bearing, unsecured and due on demand.

 

Note D – Long-Term Debt

 

The Company has a credit facility with an entity controlled by its principal stockholder under which, at September 30, 2014, it has borrowed a total of $1,374,690 evidenced by senior secured notes of $1,224,060 and borrowings of $150,630 under a secured line of credit. On March 7, 2014, the maturity date of the credit facility was extended from March 31, 2015 to April 15, 2018; accordingly, the indebtedness has been reflected as non-current in the accompanying condensed balance sheets.

 

The Company’s secured line of credit was expanded from $200,000 to $500,000 on March 7, 2014.

 

 

The senior secured notes and line of credit incur interest at 10% per annum and are secured by all of the Company’s assets and an aggregate of 3,848,485 shares of common stock to be issued and delivered to the senior secured lender in the event of default. At September 30, 2014, these obligations are not in default and such shares are not included in the calculation of outstanding shares.

 

Note E – Stockholders’ Deficit

 

No stock options were granted during the nine months ended September 30, 2014. As of September 30, 2014, no stock options were outstanding.

 

During the nine months ended September 30, 2014, an officer contributed services with a fair value of $27,000 to the capital of the Company.

 

During the nine months ended September 30, 2014, 310,000 shares of common stock were issued to an aggregate of four directors and officers and a consultant for services rendered in 2013 and 2012. The Company charged the fair value of these shares to operations in 2013 and 2012. However, the par value of these shares was recorded at the time of issuance of these shares in the first quarter of 2014.

 

On March 7, 2014, the Company filed with the Nevada Secretary of State, an amendment to the Designation of Rights for its authorized preferred stock to provide the following voting rights on all matters to be voted on by the Company's stockholders: Series A Preferred Stock - 3,000 votes per share; Series B Preferred Stock - 2,500 votes per share and Series C Preferred Stock - 100 votes per share.

 

On April 29, 2014, the Company filed under the laws of the State of Nevada an Amended and Restated Designation of Preferences and Rights for its authorized Series A, B and C Convertible Preferred Stock. The filings were intended to delete provisions no longer applicable and in addition: (i) clarified that the holder of each share of Series A, B and C Convertible Preferred Stock has the right to convert into common stock at a fixed conversion price of $0.60 per share resulting in the number of shares of common stock to be issued upon conversion equaling 166.66 shares of common stock for each share of preferred stock (i.e., the Face Value divided by sixty cents ($0.60) per share), (ii) provided that the Company does not have a right to redeem or force conversion of shares of Series A, B or C Convertible Preferred Stock, (iii) eliminated the prohibition on conversion which would cause the holder to exceed 9.9% ownership, (iv) provided that the liquidation preference of shares of Series A, B and C Convertible Preferred Stock are equal among the holders of Series A, B and C, and (b) and senior to the liquidation preference of common stock of the Company, (v) clarified that the liquidation preference of each Series of preferred stock is in an amount equal to the face value of that Series of preferred stock and that distribution equal to the face value constitutes payment in full to the holders of preferred stock and (vi) clarified that a merger (except into a subsidiary), sale of all or substantially all of the assets of the Company, reorganization or other transaction in which control of the Company is transferred may be deemed by the holder to be a liquidation, dissolution or winding up for purposes of the liquidation preference.

 

Note F – Recent Accounting Pronouncements

 

The Company does not believe that any recently issued accounting pronouncements will have a material effect on its financial statements.

 

Note G – Inventory

 

Inventory is stated at the lower of cost or market. Cost is determined using an averaging method, which approximates the first in – first out method. Inventory consists principally of finished goods and raw materials.

 

Note H – Earnings (Loss) per Common Share

 

Basic and diluted earnings (loss) per share are computed based on the weighted average number of shares of common stock outstanding during the period. Common stock equivalents, if any, are not considered in the calculation of diluted earnings (loss) per share when their effects would not be material or would be anti-dilutive.

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed 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 seek 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 revenue from product sales is derived from our SmartGate safety sensors and related antennas.

 

We financed our operations in 2013 and in 2014 primarily through long-term debt financing as discussed under “Liquidity and Capital Resources.” We are focusing our efforts on increasing our sales of products and reducing operating costs, where possible. Additionally, we seek to expand our business opportunity through strategic relationships and transactions such as acquisitions or mergers. On March 14, 2014, the Company entered into a non-binding Letter of Intent to acquire two operating companies engaged in the manufacture and sale of coated fabrics. This acquisition, which was the subject of a Form 8-K filed on March 14, 2014, has not closed and remains pending subject to material conditions precedent.

 

Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2014

 

Net Sales – During the nine months ended September 30, 2013 and 2014, product sales totaled $19,020 and $32,126 respectively. We had a gross profit of $11,541 for the nine months ended September 30, 2013 and gross profit of $10,302 for the nine months ended September 30, 2014. Gross margin, during the nine months ended September 30, was 63 percent during 2013 and 32 percent during 2014.

 

Selling, General and Administrative Expenses - During the nine months ended September 30, 2013 and 2014, selling, general and administrative expenses totaled $168,743 and $175,019, respectively.

 

Interest Expense and Other, Net - During the nine months ended September 30, 2013 and 2014, interest expense totaled $80,047 and $84,231. The interest expense during both 2013 and 2014 relates primarily to financing costs and interest due to our senior secured lender.

 

Net Income (Loss) - Net loss increased from $(191,827) in 2013 to a net loss of $(248,948) in 2014. This increase in net loss resulted principally from gain on debt extinguishment not applicable in 2014.

 

Quarter Ended September 30, 2013 Compared to the Quarter Ended September 30, 2014

 

Net Sales – During the quarters ended September 30, 2013 and 2014, product sales totaled $8,962 and $6,410 respectively. Cost of sales totaled $4,168 or 53% in 2013 compared to $2,640 or 20% in 2014.

 

Selling, General and Administrative Expenses - During the third quarter of 2013 and 2014, selling, general and administrative expenses totaled $42,438 and $44,840, respectively.

 

 

Interest Expense and Other, Net - During the third quarter of 2013 and 2014, interest expense totaled $26,464, and $29,482, respectively. The interest expense during both 2013 and 2014 relates primarily to financing costs and interest due to our senior lender under lines of credit.

 

Net Income (Loss) - Net loss increased from $(62,671) in 2013 to a net loss of $(70,552) in 2014.

 

Liquidity and Capital Resources

 

At September 30, 2014, we had cash totaling $473.

 

The Company has a credit facility with its senior secured lender under which at September 30, 2014 it had borrowed $1,374,690 evidenced by senior secured notes and a line of credit. On March 7, 2014, the Company extended the maturity date of the credit facility and the senior secured notes from March 31, 2015 to April 15, 2018 and expanded the Company’s borrowing capability under the line of credit included in such facility from $200,000 to $500,000. At September 30, 2014, the Company had $349,370 available for additional borrowing under its line of credit.

 

The senior secured notes, credit facility and line of credit incur interest at 10% per annum and are secured by all of the Company’s assets and an aggregate of 3,848,485 shares of common stock to be issued and delivered to the senior secured lender in the event of default. At September 30, 2014, these obligations are not in default and such shares are not included in the calculation of outstanding shares. We believe that the current funding and sales revenue available to us will be sufficient to finance our operations, at a minimum, until June 30, 2015. 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 or assets, either of which could have a material adverse effect on our business, financial condition and/or results of operations.

 

On April 29, 2014, the Company filed under the laws of the State of Nevada an Amended and Restated Designation of Preferences and Rights for its authorized Series A, B and C Convertible Preferred Stock. The filings were intended to delete provisions no longer applicable and in addition: (i) clarified that the holder of each share of Series A, B and C Convertible Preferred Stock has the right to convert into common stock at a fixed conversion price of $0.60 per share resulting in the number of shares of common stock to be issued upon conversion equaling 166.66 shares of common stock for each share of preferred stock (i.e., the Face Value divided by sixty cents ($0.60) per share), (ii) provided that the Company does not have a right to redeem or force conversion of shares of Series A, B or C Convertible Preferred Stock, (iii) eliminated the prohibition on conversion which would cause the holder to exceed 9.9% ownership, (iv) provided that the liquidation preference of shares of Series A, B and C Convertible Preferred Stock are equal among the holders of Series A, B and C, and (b) and senior to the liquidation preference of common stock of the Company, (v) clarified that the liquidation preference of each Series of preferred stock is in an amount equal to the face value of that Series of preferred stock and that distribution equal to the face value constitutes payment in full to the holders of preferred stock and (vi) clarified that a merger (except into a subsidiary), sale of all or substantially all of the assets of the Company, reorganization or other transaction in which control of the Company is transferred may be deemed by the holder to be a liquidation, dissolution or winding up for purposes of the liquidation preference.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

None.

 

 

Item 4.

Controls and Procedures

 

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, 2014 and concluded that our disclosure controls and procedures were effective as of September 30, 2014.

 

Changes in Internal Controls over Financial Reporting

 

During the quarter ended September 30, 2014, 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

 

Item 1.

Legal Proceedings

 

None.

 

Item 1A.

Risk Factors

 

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, 2013.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

During the nine months ended September 30, 2014, a total of 310,000 shares of common stock were issued to an aggregate of four directors and officers and a consultant for services rendered in 2013 and 2012. The Company charged the fair value of these shares to operations in 2013 and 2012. However, the par value of these shares was recorded at the time of issuance of these shares in the first quarter of 2014.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

None.

 

Item 5.

Other Information

 

None.

 

Item 6.

Exhibits

 

(a)	Exhibits filed herewith.

 

Exhibit No.		Description
31.1 *		Chief Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a)
31.2 *		Chief Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a)
32.1 *		Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350
32.2 *		Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350
101.INS * +		XBRL Instance Document
101.CAL * +		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF * +		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB * +		XBRL Taxonomy Extension Label Linkbase Document
101.PRE * +		XBRL Taxonomy Extension Presentation Linkbase Document
101.SCH * +		XBRL Taxonomy Extension Schema Document

_______________

*	Filed herewith.

+	In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 

 

Signatures

 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Invisa, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	INVISA, INC.
Dated:   October 15, 2014	By:	/s/  Edmund C. King
		Edmund C. King Chief Executive Officer

 

Dated:   October 15, 2014	By:	/s/  Edmund C. King
		Edmund C. King Chief Financial Officer