Notes
to Condensed Financial Statements
June
30, 2013
(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, 2012 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, 2012. 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 six-months ended June 30, 2013 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2013.
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 six months
ending June 30, 2013, the Company has had a net loss of $(129,156). See Note D – Long-Term Debt 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, 2012 and June 30, 2013 is as follows:
Note D – Long-Term Debt
The
Company has six credit facilities with its Senior Lender totaling $1,056,511 under which $987,951 has been borrowed at June 30,
2013. The Senior Lender has also established a revolving line of credit to finance operations of the Company totaling $200,000
of which $68,560 is outstanding at June 30, 2013, and $131,440 is available to the Company. The terms of the credit facilities
include due dates of June 30, 2015, with interest accruing at ten percent per annum and all of the Company’s assets being
pledged as security. In addition, the credit facilities are secured by 31,413,333 shares of the Company’s common stock which
is held in escrow.
At June
30, 2013, $53,583 in interest has been accrued on the credit facilities.
Note E – Stockholders’
Deficit
As of
June 30, 2013, no stock options were outstanding, granted or exercised.
During
the six months ended June 30, 2013, an officer contributed services with a fair value of $18,000 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 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 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.
Note I – Gain on the Derecognition of Debt
During
the period ended June 30, 2013, the Company wrote off $43,607 in debt as it determined that the period of enforceability of the
debt had expired pursuant to the Florida statute of limitations.
Item
2.
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Management’s Discussion and Analysis
of Financial Condition and Plan of Operations
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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 2012 and
2013 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 2012,
the Company’s Senior Lender agreed to extend the maturity date of the Senior Secured Promissory Notes and the related accrued
interest until June 30, 2015, and put in place a line of credit which we believe is sufficient to finance our operations through
December 31, 2013.
Six Months Ended June 30, 2012 Compared to the Six Months
Ended June 30, 2013
Net Sales and
Cost of Sales
- During the six months ended June 30, 2012 and 2013; net sales totaled
$14,453 and $10,058 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. Cost of sales totaled
$4,513 and $2,933, respectively, or 31% and 29% of related sales.
Selling,
General and Administrative Expenses
- During the six months ended June
30, 2012 and 2013, selling, general and administrative expenses totaled $140,673 and $126,305. The decrease in these expenses
is attributable to a reduction in certain expenses related to being a public company not incurred in 2012.
Interest
Income (Expense) and other, Net
- During the six months ended June 30, 2012 and 2013,
net interest (expense) income totaled $(52,384) and $(53,583) and in 2013, the Company realized a $43,607 gain on derecognition
of debt. The interest expense during both 2012 and 2013 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 decreased from $(183,117) in 2012 to a loss of $(129,156) in 2013. This decrease in net loss resulted
principally from decreased selling, general and administrative expenses and the gain from derecognition of debt.
Quarter Ended June 30, 2012 Compared to the Quarter Ended
June 30, 2013
Net Sales
– During the quarter
ended June 30, 2012 and 2013, product sales totaled $8,139 and $4,115 respectively. Cost of sales totaled $1,467 or 18% in 2012
compared to 957 or 23% in 2013.
Selling, General and Administrative
Expenses
- During the second quarter of 2012 and 2013 selling, general and administrative expenses totaled $51,232 and $41,206,
respectively. The decrease in these expenses is attributable to a reduction in certain expenses related to being a public company
not incurred in 2013.
Interest (Expense) and other, Net
- During second quarter of 2012 and 2013 interest (expense) and other totaled $(25,000), and $(27,350), respectively. The interest
expense during both 2012 and 2013 relates primarily to financing costs and interest due our senior lender under lines of credit.
Net Income (Loss)
- Net loss decreased
from $(69,560) in 2012 to a net loss of $(65,385) in 2013. This decrease in net loss resulted principally from decreased selling,
general and administrative expenses.
Plan of Development and Operations
We obtained funding of $86,232 during
the six months in 2012 and $68,560 in the same period in 2013, which together with our cash from sales supported our operations.
We have extended the maturity of our debt to June 30, 2015, and put in place a line of credit which we believe is sufficient to
finance our operations through December 31, 2013 (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 June 30, 2013, we had a cash and cash
equivalents totaling $1,620.
The Company has six credit facilities
with its Senior Lender totaling $1,056,511 under which $987,951 has been borrowed at June 30, 2013. The Senior Lender has also
established a revolving line of credit to finance operations of the Company totaling $200,000 of which $68,560 is outstanding at
June 30, 2013, and $131,440 is available to the Company. The terms of the credit facilities include due dates of June 30, 2015,
with interest accruing at ten percent per annum and all of the Company’s assets being pledged as security. In addition, the
credit facilities are secured by 31,413,333 shares of the Company’s common stock which is held in escrow.
Additionally, the Company has pledged
an aggregate of 25,413,333 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 be 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, 2013, 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
4.
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Controls and Procedures
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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 June 30, 2013 and concluded that our disclosure controls and procedures were effective as of June 30, 2013.
Changes in Internal Controls over Financial Reporting
During the quarter ended June 30, 2013,
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.