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, 2012
¨		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:   November 2, 2012: 14,214,398

Transitional Small Business Disclosure Format (check one):   Yes ¨ No þ

 

---

 

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 Plan of Operations		8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		12
Item 4.	Controls and Procedures		12
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings		13
Item 1A.	Risk Factors		13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		13
Item 3.	Defaults Upon Senior Securities		13
Item 4.	Mine Safety Disclosures		13
Item 5.	Other Information		13
Item 6.	Exhibits		13
Signatures			14

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements

 

 INVISA, INC.

 

CONDENSED BALANCE SHEETS 

 

		December 31, 2011				September 30, 2012
						(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	589			$	722
Accounts receivable			5,038				5,001
Inventories			13,569				28,304
Prepaids and other assets			3,707				6,356
Total current assets			22,903				40,383
Total assets		$	22,903			$	40,383
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable, trade		$	99,458			$	91,103
Accrued Interest			—				46,586
Due to stockholders and officers			20,260				20,260
Total current liabilities			119,718				157,949
Long-Term Debt			750,232				894,284
Total liabilities			869,950				1,052,233
Stockholders’ Deficit:
Convertible Preferred Stock, 5,000,000 shares authorized ($100 par value):
Series A, 9,715 shares issued and outstanding			798,500				798,500
Series B, 9,000 shares issued and outstanding			270,160				270,160
Series C, 6,628 shares issued and outstanding			1,600,467				1,600,467
Common Stock, 95,000,000 shares authorized ($.001 par value), 13,959,398 and 14,214,398, respectively, shares issued and outstanding			13,959				14,214
Additional paid-in capital			32,458,972				32,510,717
Accumulated Deficit			(35,989,105	)			(36,205,908	)
Total stockholders’ deficit			(847,047	)			(1,011,850	)
Total liabilities and stockholders’ deficit		$	22,903			$	40,383

 

See notes to condensed financial statements.

INVISA, INC.

 

CONDENSED STATEMENTS OF OPERATIONS 

(Unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2011				2012				2011				2012
Net Sales		$	46,879			$	7,017			$	78,221			$	21,470
Costs and other expenses:
Cost of goods			15,258				3,715				31,584				8,228
Selling, general and administrative expenses			53,528				51,733				199,933				192,406
Loss from operations			(21,907	)			(48,431	)			(153,296	)			(179,164	)
Other income (expense):
Interest (expense), net			(18,110	)			5,808				(54,719	)			(46,576	)
Gain on debt extinguishment			—				8,937				2,405				8,937
Loss before income taxes			(40,017	)			(33,686	)			(205,610	)			(216,803	)
Income taxes			—				—				—				—
Net Loss		$	(40,017	)		$	(33,686	)		$	(205,610	)		$	(216,803	)
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			13,959,616				14,214,398				13,923,352				14,214,398

 

See notes to condensed financial statements.

INVISA, INC.

 

CONDENSED STATEMENTS OF CASH FLOWS 

(Unaudited)

 

		Nine Months Ended September 30,
		2011				2012
Net cash (used in) operating activities		$	(111,941	)		$	(143,919	)
Net cash (used in) investing activities			—				—
Cash flows from financing activities:
Proceeds from Long-Term Debt			116,100				144,052
Net cash provided by financing activities			116,100				144,052
Net increase in cash			4,159				133
Cash at beginning of period			3,605				589
Cash at end of period		$	7,764			$	722

 

See notes to condensed financial statements.

 

INVISA, INC.

 

Notes to Condensed Financial Statements

September 30, 2012

(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, 2011 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, 2011. 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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

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, 2012, the Company has had a net loss of $(216,803). See Note D – Long-Term Debt to the accompanying condensed financial statements for substantial restructuring of the Company’s debt, including extension of the Company’s debt payment dates.

 

Note C – Due to Stockholders and Officers

 

Due to Stockholders and Officers at December 31, 2011 and September 30, 2012 is as follows:

 

		December 31,				September 30,
		2011				2012
Edmund C. King		$	20,260			$	20,260

 

 Note D - Long-Term Debt 

The Company’s credit facilities with its Senior Lender were revised on December 31, 2011 to an aggregate of $753,319 and in January 2012 further revised to $778,319.  The Notes under this these facilities 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 25,413,333 shares of the Company’s common stock which are held in reserve by the Company. Because the credit facilities are not in default the shares are not treated as issued and outstanding. The Notes are due on March 31, 2014.

 

In addition, on December 31, 2011, the Company established a new Revolving Line of Credit totaling $200,000 with its Senior Lender to finance operations of the Company. This new line bears interest at 10% per annum and is due on March 31, 2014. The line has terms and provisions similar to the notes described above. The line is also secured by a security interest in 5,333,333 shares in the Company’s common stock. As of September 30, 2012, $84,035 of the $200,000 line is available to the Company.

 

The total outstanding under the Notes and Line of credit at September 30, 2012, was $894,284 and interest accrued on these debts was $46,586.

 

Note E – Stockholders’ Deficit 

During the nine months ended September 30, 2012, 155,000 shares of Common stock were issued pursuant to grants made in 2011 and recorded in that year.  In addition, 100,000 shares of Common stock were authorized and issued to an officer as compensation. All of these shares were valued at the time of grant at fair market value.

 

As of September 30, 2012, no stock options were outstanding, granted or exercised.

 

During the nine months ended September 30, 2012, an officer contributed services with a fair value of $27,000 to the capital of the Company.

 

Note F - Recent Accounting Pronouncements

 

The Company does not believe that any recently issued accounting pronouncements will have a material affect 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 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.

 

 

Item 2.

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

 

The following discussion and analysis of our financial condition and plan 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 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 2011 and 2012 through revenues derived from the sale of our SmartGate® brand safety sensors and short-term and long-term debt financing. We are focusing our efforts on increasing our sales of our products and reducing operating costs, where possible. In December 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 31, 2014, and put in place a line of credit which we believe is sufficient to finance our operations through December 31, 2012.

 

Quarter Ended September 30, 2011 Compared to the Quarter Ended September 30, 2012

 

Net Sales – During the quarters ended September 30, 2011 and 2012, product sales totaled $46,879 and $7,017 respectively. We had a gross profit of $31,621 for the quarter ended September 30, 2011 and gross profit of $3,302 for the quarter ended September 30, 2012. Gross margin was 67% during the 3rd quarter of 2011 and 47% during the same period in 2012. The 2012 sales were hindered by a product modification production delay, whereby any potential sales will not be recognized until the fourth quarter of 2012.

 

Selling, General and Administrative Expenses - During the third quarter of 2011 and 2012 selling, general and administrative expenses totaled $53,528 and $51,733, respectively.

 

Interest Expense, Net - During third quarter of 2011 and 2012 interest expense totaled $18,110 and ($5,809), respectively. The interest expense during both 2011 and 2012 relates primarily to financing costs and interest due our Senior Lender under lines of credit. The amount calculated for the third quarter 2012 includes a calculation difference in the second quarter of 2012 that was revised in the third quarter.

 

Net Income (Loss) - Net loss decreased from $(40,017) in the third quarter of 2011 to a net loss of $(33,686) in same period in 2012. This decrease in net loss resulted principally from decreased selling general and administrative expenses, an interest accrual difference and a gain on debt extinguishment of $8,937.

 

Nine Months Ended September 30, 2011 and 2012

 

Net Sales and Cost of Sales - During the nine months ended September 30, 2011 and 2012; net sales totaled $78,221 and $21,470. 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. The 2012 sales were hindered by a product modification production delay, whereby any potential sales will not be recognized until the fourth quarter of 2012. Cost of sales totaled $31,584 and $8,228. Gross Margin was 60% and 62% during the nine months ending September 30, 2011 and 2012.

 

 

Selling, General and Administrative Expenses - During the nine months ended September 30, 2011 and 2012, selling, general and administrative expenses totaled $199,933 and $192,406, a decrease of $7,527.

 

Interest Income Expense, Net - During the nine months ended September 30, 2011 and 2012, net interest expense totaled $54,719 and $46,576. The interest expense during both 2011 and 2012 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 $(205,610) in 2011 to a loss of $(216,803) in 2012. This increase resulted principally from decreased sales in 2012.

 

Plan of Development and Operations

 

We obtained funding of $144,052, in the form of debt financing through the third quarter of 2012 which together with our cash from sales supported our operations. We have extended the maturity of our debt to March 31, 2014, and put in place a line of credit which we believe is sufficient to finance our operations through December 31, 2012 (See Note D- Long-Term Debt to the accompanying condensed 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, 2012, we had cash and cash equivalents totaling $722.

 

As of September 30, 2012,, the Company has borrowed $894,284 (including $115,965 of our Line of Credit) due and owing its Senior Lender. The financing arrangements are set forth in a series of Notes having similar terms and maturity dates of March 31, 2014, specifically (i) $100,000 issued in 2007, (ii) $100,000 in 2008, (iii) three notes aggregating $328,319 in 2010 and (iv) $250,000 in 2011.  In addition, the Company has a line of credit in the amount of $200,000. Each note and the line 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 30,746,666 shares of its common stock as additional security for the notes and the line. These shares are being held in reserve as additional collateral against such notes and line. Upon full repayment of the notes, said shares will be no longer held in reserve. The shares held in reserve are not deemed outstanding as the notes are not in default.

 

While we are confident that the current funding and sales revenue available to us will be sufficient to finance our operations through December 31, 2012, 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.

 

The Company had negative working capital at September 30, 2012, totaling $117,566 including $722 in cash. To finance planned operations through at least the next 12 months, we will rely upon our sales revenues and the $200,000 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, 2012. 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, 2012, 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.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

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, 2012 and concluded that our disclosure controls and procedures were effective as of September 30, 2012.

 

Changes in Internal Controls over Financial Reporting

 

During the quarter ended September 30, 2012, 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, 2011.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

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.SCH		XBRL Taxonomy Extension Schema 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

 

(b)

None.

 

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:   November 2, 2012	By:	/s/  Edmund C. King
		Edmund C. King Chief Executive Officer

 

Dated:   November 2, 2012	By:	/s/  Edmund C. King
		Edmund C. King Chief Financial Officer