<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997 or
[ ] 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: 0-28236
INVISION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 94-3123544
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
3420 E. THIRD AVENUE, FOSTER CITY, CALIFORNIA 94404
(Address of principal executive offices, including zip code)
(650) 578-1930
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
On June 30, 1997, there were 11,141,421 shares of the Registrant's Common Stock
outstanding.
1
<PAGE>
INVISION TECHNOLOGIES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
1. Condensed Consolidated Financial Statements (unaudited)
a. Condensed Consolidated Balance Sheets - June 30, 1997 and
December 31, 1996.......................................................... 3
b. Condensed Consolidated Statements of Operations - Three months and six
months ended June 30, 1997 and 1996........................................ 4
c. Condensed Consolidated Statements of Cash Flows - Six months
ended June 30, 1997 and 1996............................................... 5
d. Notes to Condensed Consolidated Financial Statements....................... 6 - 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 8 - 13
</TABLE>
2
<PAGE>
INVISION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
---- ----
Assets
Current assets:
Cash and short-term investments $ 21,836 $ 2,363
Short-term restricted cash 112 --
Accounts receivable 7,237 5,987
Inventories 8,324 4,810
Prepaid expenses 1,755 292
-------- --------
Total current assets 39,264 13,452
Long-term restricted cash 800 --
Property and equipment 4,087 1,804
Other assets 1,232 --
-------- --------
$ 45,383 $ 15,256
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 5,207 $ 2,541
Accrued expenses 2,657 1,020
Short-term debt 2,200 --
Deferred revenue 2,407 2,443
Current maturities of obligations under capital
leases 32 68
-------- --------
Total current liabilities 12,503 6,072
-------- --------
Long-term obligations under capital leases 154 110
-------- --------
Stockholders' equity:
Common stock, $0.001 par value, 20,000 shares
authorized; 11,141and 9,160 shares issued and
outstanding 11 9
Additional paid-in capital 50,176 28,919
Deferred stock compensation expense (178) (355)
Accumulated deficit (17,283) (19,499)
-------- --------
Total stockholders' equity 32,726 9,074
-------- --------
$ 45,383 $ 15,256
-------- --------
-------- --------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
INVISION TECHNOLOGIES, INC
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 13,408 $ 3,555 $ 22,785 $ 7,477
Cost of revenues 6,693 2,188 11,401 4,641
--------- -------- --------- --------
Gross profit 6,715 1,367 11,384 2,836
--------- -------- --------- --------
Operating expenses:
Research and development 2,241 481 3,574 1,066
Sales and marketing 1,459 638 2,692 1,235
General and administrative 1,220 674 2,563 1,146
--------- -------- --------- --------
Total operating expenses 4,920 1,793 8,829 3,447
--------- -------- --------- --------
Income (loss) from operations 1,795 (426) 2,555 (611)
Interest expense (41) (455) (51) (1,495)
Other income, net 163 51 186 61
--------- -------- --------- --------
Income (loss) before provision for income
taxes 1,917 (830) 2,690 (2,045)
Provision for income taxes 343 - 474 -
Net income (loss) $ 1,574 $ (830) $ 2,216 $ (2,045)
--------- -------- --------- --------
--------- -------- --------- --------
Net income (loss) per share $ 0.14 $ (0.11) $ 0.21 $ (0.27)
--------- -------- --------- --------
--------- -------- --------- --------
Weighted average shares outstanding (1) 11,188 7,816 10,730 7,499
</TABLE>
(1) Shares outstanding reflect the 2-for-1 stock split in the form of a stock
dividend effective as of February 7, 1997
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
INVISION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) 2,216 (2,045)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 382 164
Amortization of bridge loan warrant --- 1,330
Stock compensation expense 177 188
Changes in assets and liabilities:
Restricted cash (912) ---
Accounts receivable (1,250) (1,343)
Inventories (3,514) (27)
Prepaid expenses (1,463) (113)
Other assets (1,232) ---
Accounts payable 2,666 (1,202)
Accrued liabilities 1,637 97
Deferred revenues (36) (1,756)
-------- --------
Net cash used in operating activities (1,329) (4,707)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (2,665) (314)
Purchase of investments (17,737) ---
-------- --------
Net cash provided used in investing activities (20,402) (314)
-------- --------
Cash flows from financing activities:
Proceeds from short-term debt 2,200 1,036
Repayments of short-term debt --- (4,036)
Proceeds from capital lease financing 44 ---
Repayments of capital lease financing (36) ---
Proceeds from issuance of common stock, net 21,259 9,543
-------- --------
Net cash provided by financing activities 23,467 6,543
-------- --------
Net increase in cash for the period 1,736 1,522
Cash at beginning of period 2,363 1,927
-------- --------
CASH AT END OF PERIOD $ 4,099 $ 3,449
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 50 $ 164
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the accompanying unaudited condensed financial statements reflect all
adjustments (consisting only of normal recurring adjustments) considered
necessary for fair presentation. These financial statements should be read
in conjunction with the audited consolidated financial statements of the
Company as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996, including notes thereto, included in the
Company's Annual Report on Form 10-K (Commission File No. 0-28236), as
amended.
Operating results for the three month and the six month periods ended
June 30, 1997 may not necessarily be indicative of the results that may be
expected for the year ended December 31, 1997 or any other future period.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of common stock and common equivalent shares, when dilutive, from stock
options and warrants (using the treasury stock method). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common stock
and common equivalent shares issued by the Company during the 12-month period
prior to the Company's initial public offering in April 1996, consisting of
convertible preferred stock (using the if-converted method), and stock
options and warrants (using the treasury stock method) have been included in
the calculation as if they were outstanding for all periods prior to and
including June 30, 1996, even though their effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued the
Statement of Financial Accounting Standards No.128, "Earnings per Share."
This Statement is effective for the Company's fiscal year ending December 31,
1997. The Statement redefines earnings per share under generally accepted
accounting principles. Under the new standard, primary earnings per share is
replaced by basic earnings per share and fully diluted earnings per share is
replaced by diluted earnings per share. If the Company had adopted this
Statement for the three month and six month periods ended June 30, 1997 and
1996, the Company's income (loss) per share would not have been materially
different from income (loss) per share as disclosed.
3. INVENTORIES
The components of inventory consist of the following (in thousands):
JUNE 30, DECEMBER 31,
1997 1996
---- ----
Raw material and purchased components $4,789 $3,003
Work-in-process 3,461 1,331
Finished goods 74 476
-- ---
8,324 $4,810
----- ------
----- ------
6
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
4. FOLLOW-ON EQUITY OFFERING
On May 14, 1997, the Company sold in a public equity offering 1,875,000
shares of its common stock at $12.00 per share. The Company received net
proceeds of $20,706,000. On June 12, 1997, the Company's managing
underwriter, Robertson, Stephens & Co., under the terms of the over-allotment
option provided in the equity offering, sold an additional 42,742 shares of
the Company's common stock at $12.00 per share from which the Company
received net proceeds of $483,000. The Company intends to use the net
proceeds from the offering to purchase capital equipment and undertake
facility improvements, to fund research and development, for working capital,
for other general corporate purposes, and to pursue possible acquisitions.
7
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR
IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF
THE COMPANY'S SINGLE PRODUCT, FLUCTUATIONS IN THE COMPANY'S QUARTERLY AND
ANNUAL OPERATING RESULTS, THE LOSS OF ORDERS OF THE COMPANY'S PRODUCT,
INCLUDING THE LOSS OF THE COMPANY'S MOST RECENT ORDER FROM THE FAA, LOSS OF
ANY OF THE COMPANY'S SOLE SOURCE SUPPLIERS, INTENSE COMPETITION, RELIANCE ON
LARGE ORDERS, CONCENTRATION OF THE COMPANY'S CUSTOMERS, RISKS RELATED TO THE
LENGTHY SALES CYCLES FOR THE CTX 5000, BUDGETING LIMITATIONS OF THE COMPANY'S
CUSTOMERS AND PROSPECTIVE CUSTOMERS, AND THE RISK RELATED TO THE COMPANY'S
MANUFACTURING EXPERIENCE, AS WELL AS SUCH OTHER RISKS AS ARE DESCRIBED UNDER
"BUSINESS RISKS" AND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1996.
OVERVIEW
InVision Technologies, Inc. designs, manufactures and markets an
explosive detection system based on advanced CT technology. The Company was
formed in September 1990 to design and develop the CTX 5000 and remained in
the development stage through December 1994. In March 1994, the Company
received its first commercial order for a CTX 5000 system from the Brussels
International Airport in Belgium and since such time has received orders for
a total of 112 systems of which a total of 50 had been shipped as of June 30,
1997. For the six months ended June 30, 1997 and the fiscal year which ended
December 31, 1996, the Company had revenues of $22.8 million and $15.8
million, respectively, and by June 30, 1997 had orders in backlog of $62.1
million.
The Company considers research and development to be a vital part of its
operating discipline and continues to dedicate substantial resources for
research to enhance the performance, functionality and reliability of its CTX
5000 hardware and software. At June 30, 1997, the Company had 41 full-time
employees engaged in research and development activities while also using the
services of 11 specialized contract employees and consultants in this area.
Beginning in 1991, total research and development expenditures by the Company
have been partially offset by amounts reimbursed by the FAA under development
contracts and grants. The Company believes that investment in research and
development in absolute dollars will increase substantially to meet its
future needs regardless of the level of funding received from the FAA. During
the six months which ended June 30, 1997 and the fiscal year which ended
December 31, 1996, the Company spent $3.9 million and $4.3 million,
respectively, on research and development activities, of which $339,000 in
the first six months of 1997 and $1.5 million in 1996 were funded by the FAA
under development contracts and grants. To the extent that FAA contract and
grant receipts decline in the future, research and development expenditures
borne by the Company would increase, and the Company expects that its results
of operations would be adversely impacted.
In any given fiscal year, the Company's revenues have principally
consisted, and the Company believes will continue to consist, of orders of
multiple units from a limited number of customers. During the first six
months of 1997, approximately $19.4 million, or 85.3%, of the Company's
revenues, were generated from sales to the Company's four largest customers.
During the fiscal year ended December 31, 1996, revenues from the Company's
six largest customers were approximately $14.0 million, or 88.4%, of the
Company's revenues.
The Company markets its products both directly through internal sales
personnel and indirectly through authorized agents, distributors and systems
integrators. In the United States, the Company markets its CTX 5000 primarily
through direct sales personnel. Internationally, the Company utilizes both a
direct sales force and authorized agents to sell its products. During the six
months ended June 30, 1997 and the years ended December 31, 1996 and 1995,
international sales represented 62.3%, 76.2% and 89.2%, respectively, of the
Company's revenues.
8
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The sales cycle of the CTX 5000 is often lengthy due to the protracted
approval process that typically accompanies large capital expenditures and
the time required to manufacture the CTX 5000 and install and assimilate the
CTX 5000. Typically, six to twelve months may elapse between a new customer's
initial evaluation of the Company's system and the execution of a contract.
Another three months to a year may elapse prior to shipment of the CTX 5000
as the customer site is prepared and the CTX 5000 is manufactured. During
this period the Company expends substantial funds and management resources
but recognizes no associated revenue.
The Company recognizes revenue on shipment unless extended acceptance
criteria exist, in which case revenue is recognized upon completion of such
acceptance criteria. The Company typically requires significant customer
deposits and progress payments in advance of shipment on customer purchase
orders. Provision for estimated installation, training and warranty costs is
recorded at the time revenue is recognized. Systems typically carry a
one-year warranty.
RESULTS OF OPERATIONS
The following table sets forth certain income and expenditure items from
the Company's condensed consolidated statements of operations expressed as a
percentage of revenues for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenues 49.9 61.5 50.0 62.1
-------- -------- -------- --------
Gross profit 50.1 38.5 50.0 37.9
-------- -------- -------- --------
Operating expenses:
Research and development 16.7 13.5 15.7 14.3
Sales and marketing 10.9 17.9 11.8 16.5
General and administrative 9.1 19.0 11.3 15.3
-------- -------- -------- --------
Total operating expenses 36.7 50.4 38.8 46.1
-------- -------- -------- --------
Income (loss) from operations 13.4 (11.9) 11.2 (8.2)
Interest expense (0.3) (12.8) (0.2) (20.0)
Other income, net 1.2 1.4 0.8 0.8
-------- -------- -------- --------
Income (loss) before taxes 14.3 (23.3) 11.8 (27.4)
Provision for income taxes 2.6 0.0 2.1 0.0
-------- -------- -------- --------
Net income (loss) 11.7 % (23.3)% 9.7 % (27.4)%
-------- -------- -------- --------
-------- -------- -------- --------
9
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
REVENUES. The Company's revenues are comprised of system revenues,
which include sales of the CTX 5000, accessories, installation and
configuration, and maintenance related to product support.
The quarter ended June 30, 1997 was the Company's second profitable
quarter since the inception of the Company. Revenues increased by 272% to
$13.4 million in the second quarter of 1997 from $3.6 million in the second
quarter of 1996. Net revenues for the first six months ended June 30, 1997
grew 205% to $22.8 million from $7.5 million in the same period last year.
This increase was primarily the result of the growth in unit shipments
generated from initial deliveries on the 54 unit order by the FAA, and
continuing demand from international markets.
GROSS PROFIT. Cost of revenues primarily consists of purchased
materials procured for use in the assembly of the Company's products, as well
as manufacturing labor, overhead and warranty costs. In any given period the
Company's gross profit may be affected by several factors, including product
configuration, location of the installation, and complexity of integration
into various airport environments.
Gross profit increased by 378.6% to $6.7 million in the second quarter of
1997 from $1.4 million in the second quarter of 1996. Gross profit increased
by 302% to $11.4 million in the first half of 1997 from $2.8 million in the
first half of 1996. Gross margins were 50.0% in the second quarter of 1997
and 38.5% in the second quarter of 1996. This increase in gross margins is
largely the result of improved manufacturing efficiencies and lower overhead
cost per unit resulting from increased production volume.
RESEARCH AND DEVELOPMENT. Research and development expenditures consist
primarily of compensation paid to personnel engaged in research and
development activities, amounts paid for outside services, and costs of
materials utilized in the development of hardware products, including
prototype units. All software and hardware development costs are expensed as
incurred. Beginning in 1991, total research and development expenditures by
the Company have been partially offset by amounts reimbursed by the FAA under
development contracts and grants. The Company believes that research and
development expenditures in absolute dollars will increase substantially in
the future regardless of the level of funding received from the FAA.
Total research and development expenditures increased by 357.4% to $2.2
million in the second quarter of 1997 from $481,000 in the second quarter of
1996. Total research and development expenditures for the six months ended
June 30, 1997 increased by 95.0% to $3.9 million from $2.0 million in the
first half of 1996. Of these amounts, $339,000 and $894,000, respectively,
were funded by research and development contracts and grants from the FAA in
the first six months of 1997 and 1996. As a percentage of revenues, total net
research and development expenditures increased to 16.4% in the second
quarter of 1997 from 13.5% in the second quarter of 1996 and for the first
six months of 1997 research and development expenditures increased to 15.8%
from 14.3% in the first six months of 1996. The growth in total research and
development expenditures is primarily the result of personnel additions and
increased spending on engineering materials and services.
SALES AND MARKETING. Sales and marketing expenditures consist primarily
of compensation paid to direct and indirect sales and marketing personnel,
payments to consultants, travel related to the sales process, and other
selling and distribution costs.
Sales and marketing expenditures increased by 128.7% to $1.5 million in
the second quarter of 1997 from $638,000 in the second quarter of 1996. Sales
and marketing expenditures for the first half of 1997 increased 118% to $2.7
million from $1.2 million in the same period last year. As a percentage of
revenues, sales and marketing expenditures declined to 10.9% in the second
quarter of 1997 from 17.9% in the second quarter of 1996 and to 11.8% for the
first six months of 1997 from 16.5% for the same period last year. The
10
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
increased level of expenditures in the 1997 periods reflects higher
commissions and other direct selling expenses resulting from the increase in
revenues, as well as increases in staffing.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation paid to administrative personnel, including
directors, payments to consultants, professional service fees, and travel and
other general expenses.
General and administrative expenses increased by 81% to $1.2 million in
the second quarter of 1997 from $674,000 in the second quarter of 1996. As a
percentage of revenues, general and administrative expenses decreased to 0.1%
in the second quarter of 1997 from 19.0% in the second quarter of 1996.
General and administrative expenses for the first six months of 1997
increased 123.6% to $2.6 million from $1.1 million in the corresponding
period of 1996. The increase in general and administrative expenses in
absolute dollars is primarily the result of personnel additions and increased
professional and consulting costs incurred to prepare for planned growth,
increased insurance costs, and increased costs of operations associated with
being a publicly traded company.
INTEREST EXPENSE. Interest expense decreased to $41,000 in the second
quarter of 1997 from $455,000 in the second quarter of 1996. For the first
six months, interest expense decreased to $51,000 from $1.5 million in the
corresponding period of 1996. Interest expense in the first half of 1996
reflects the effect of a non-cash charge of $1.3 million resulting from the
amortization of a bridge loan warrant discount arising in December 1995.
INCOME TAXES. The provision for income taxes was $343,000 for the
second quarter of 1997 and $474,000 for the first six months of 1997
representing an effective tax rate of 17.0%. No provision for income taxes
was recorded in the first six months of 1996. The Company's effective tax
rate of 17.0% for the first half of 1997 is lower than the U.S. federal
statutory rate of 34.0% as a result of utilization of net operating loss and
other credit carry-forwards. At December 31, 1996 the Company had federal net
operating loss carry-forwards of approximately $11.0 million available to
reduce future federal taxable income. The Company's net operating loss
carry-forwards expire from 2005 to 2011. As a result of changes in ownership
that occurred in the 1995 financings, future utilization of certain of the
Company's carry-forwards are limited to not more than approximately $500,000
per year.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through private sales of $16.5 million of Preferred and Common Stock (of
which $5.6 million represents indebtedness converted to equity), the sale of
$9.5 million of Common Stock in the Company's Initial Public Offering in
April 1996 and $21.2 million in a second public offering in May 1997. At June
30, 1997, the Company had $21.8 million in cash and short-term investments
and $2.2 million in short-term borrowings.
In February 1997, the Company entered into two one-year revolving line
of credit agreements with Silicon Valley Bank. The first agreement provides
for maximum borrowings generally in an amount up to the lower of 80% of
domestic eligible accounts receivable or $4.5 million. Borrowings under this
agreement generally bear interest at the bank's prime rate plus 0.50% per
annum (9.25% at June 30, 1997). The second agreement is partially guaranteed
by the Export-Import Bank of the United States and provides for maximum
borrowings generally in an amount up to the lower of (i) the sum of 90% of
eligible export accounts receivable plus 70% of eligible raw materials and
work-in-process inventory designated for export customers, (ii) $4.5 million
less outstanding letters of credit or (iii) $3.0 million. Borrowings under
this agreement generally bear interest at the bank's prime rate plus 0.25%
per annum (9.00% at June 30, 1997). Borrowings under both agreements are
secured by all of the Company's assets. The agreements require that the
Company maintain certain financial ratios and levels of tangible net worth
and profitability and also prohibit the Company from paying cash dividends.
11
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Proceeds of loans under the first line of credit may be used for general
corporate purposes, and proceeds of loans under the second line of credit
must be used to finance goods intended for export.
Cash used in operating activities was $1.3 million in the first six
months of 1997 and $4.7 million in first six months of 1996. Net cash used in
operating activities in the first half of 1997 was principally due to net
income of $2.2 million, a $2.7 million increase in accounts payable and
accrued expenses and a $2.2 million increase in short-term borrowings, which
were partially offset by a $912,000 increase in restricted cash, a $3.5
million increase in inventories and a $1.3 million increase in accounts
receivable and a $1.5 million increase in prepaid expenses. Net cash used in
operations for the first half of 1996 was primarily due to the net loss of
$2.0 million, a $1.3 million increase in accounts receivable, a $1.2 million
decrease in accounts payable and accrued liabilities and a $1.8 million
decrease in deferred revenues which were partially offset by a non-cash
charge for the amortization of the warrant discount of $1.3 million.
Net cash used in investing activities was $20.4 million in the first
half of 1997 and $314,000 in the first half of 1996, in each case due
primarily to the purchase of property and equipment. The Company anticipates
spending approximately $2.0 million for facility improvements and
approximately $1.5 million for purchases of capital equipment in the second
and third quarters of 1997 in connection with a move of the Company's
principal executive offices and manufacturing facility. The Company has no
other significant capital spending or purchase commitments other than normal
purchase commitments and commitments under leases.
Net cash provided by financing activities was $23.5 million in the first
half of 1997 and $6.5 million in the first half of 1996. The increase in the
first six months of 1997 was primarily due to $21.1 million in net proceeds
from issuance of common stock in its May 1997 Public Offering.
On May 14, 1997, the Company sold in a public equity offering of
1,875,000 shares of its common stock at $12.00 per share. The Company
received net proceeds of $20,706,000. On June 12, 1997, the Company's
managing underwriter, Robertson, Stephens & Co., under the terms of the
over-allotment option provided in the equity offering, sold an additional
42,742 shares of the Company's common stock, at $12.00 per share. The Company
received net proceeds of $483,000.
The Company believes that existing cash, cash equivalents and short-term
investments of $21.8 million as of June 30, 1997 and available borrowings
under the Company's line of credit agreements will be sufficient to finance
its working capital and capital expenditure requirements for at least the
next 12 months.
BUSINESS RISKS
The Company's quarterly revenues have fluctuated significantly in the
past and are expected to fluctuate significantly in the future. These
fluctuations are the result of a variety of factors, including the Company's
delivery cycle, variations in product configuration, timing of orders, and
suitability of client sites. The Company's cost of revenues fluctuates from
quarter to quarter consistent with fluctuations in such revenues. In
addition, the Company's gross margins may be affected by, among other
factors, the configuration of systems sold, the mix between system and add-on
sales, and the breakdown between domestic and international sales.
The first two quarters of 1997 were the Company's profitable quarters since
inception. There can be no assurance that the Company will continue to be
profitable on a quarterly basis or will become profitable on annual basis.
The Company's past operating results have been, and its future operating
results will be, subject to fluctuations resulting from a number of factors,
including the timing and announcement of orders, delays in shipments caused
by customer readiness or integration issues, the timing of new or enhanced
12
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
product offerings by the Company or it's competitors, the mix between sales
to domestic and international customers, market acceptance of any new or
enhanced version of the Company's products, availability of key components,
the availability of manufacturing capacity, the Company's ability to rapidly
increase production, and fluctuations in demand driven by general conditions
impacting the aviation industry beyond the control of the Company. The
Company's revenues in any period are generally derived from a limited number
of customers. The Company may also choose to reduce prices or increase
spending in response to competition or to pursue new market opportunities,
all of which may adversely affect the Company's business, financial condition
and results of operations.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1994, the
Registrant has duly caused this amendment no. 1 to report to be signed on its
behalf by the undersigned thereunto duly authorized.
INVISION TECHNOLOGIES, INC.
REGISTRANT
Date: September 10, 1997 /s/ Dr. Sergio Magistri
-----------------------------
Dr. Sergio Magistri
President and
Chief Executive Officer
Date: September 10, 1997 /s/ Curtis P. DiSibio
-----------------------------
Curtis P. DiSibio
Chief Financial Officer
14
