<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 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)
DELAWARE 94-3123544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7151 GATEWAY BOULEVARD, NEWARK, CA 94560
(Address of principal executive offices, including zip code)
(510) 739-2400
(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 September 30, 1997, there were 11,882,000 shares of the Registrant's
Common Stock outstanding.
1
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INVISION TECHNOLOGIES, INC.
FORM 10-Q
INDEX
PART I: FINANCIAL INFORMATION
ITEM PAGE
- ---- ----
1. Condensed Consolidated Financial Statements (unaudited)
a. Condensed Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996............................................... 3
b. Condensed Consolidated Statements of Operations - Three months
and nine months ended September 30, 1997 and 1996............... 4
c. Condensed Consolidated Statements of Cash Flows - Nine months
ended September 30, 1997 and 1996............................... 5
d. Notes to Condensed Consolidated Financial Statements............ 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 8
PART II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K..................................... 14
Signature Page..................................................... 16
Exhibits........................................................... 17
2
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INVISION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,742 $ 2,471
Restricted cash 112 --
Short-term investments 3,990 --
Accounts receivable 15,149 6,982
Inventories 11,023 4,899
Prepaid expenses 1,119 344
-------- --------
Total current assets 46,135 14,696
Long-term restricted cash 800 --
Property and equipment 5,254 2,144
Other assets 363 109
-------- --------
$ 52,552 $ 16,949
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,652 $ 3,061
Accrued liabilities 3,873 1,182
Short-term debt 2,600 898
Deferred revenue 4,823 2,675
Current maturities of obligations under capital
leases 154 114
-------- --------
Total current liabilities 17,102 7,930
-------- --------
Long-term obligations under capital leases,
less current portion 313 144
-------- --------
Stockholders' equity:
Common stock, $0.001 par value, 20,000 shares
authorized; 11,882 and 9,160 shares issued and
outstanding 12 10
Additional paid-in capital 56,172 33,487
Deferred stock compensation expense (322) (384)
Accumulated deficit (20,725) (24,238)
-------- --------
Total stockholders' equity 35,137 8,875
-------- --------
$ 52,552 $ 16,949
-------- --------
-------- --------
The accompanying notes are integral part of these condensed consolidated
financial statements.
3
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INVISION TECHNOLOGIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 15,458 $ 3,959 $ 38,243 $ 11,446
Cost of revenues 7,731 2,232 19,132 6,873
--------- -------- --------- ---------
Gross profit 7,727 1,727 19,111 4,573
--------- -------- --------- ---------
Operating expenses:
Research and development 1,762 156 5,189 1,889
Sales and marketing 1,399 1,104 4,242 2,662
General and administrative 1,457 953 4,486 2,720
Acquisition Costs 685 - 685 -
--------- -------- --------- ---------
Total operating expenses 5,303 2,213 14,602 7,271
--------- -------- --------- ---------
Income (loss) from operations 2,424 (486) 4,509 (2,698)
Interest expense (58) (7) (346) (1,550)
Other income (expense), net (132) 76 70 120
--------- -------- --------- ---------
Income (loss) before provision for income taxes 2,234 (417) 4,233 (4,128)
Provision for income taxes 246 -- 720 --
--------- -------- --------- ---------
Net income (loss) $ 1,988 $ (417) $ 3,513 $ (4,128)
--------- -------- --------- ---------
--------- -------- --------- ---------
Net income (loss) per share $ 0.15 $ (0.05) $ 0.29 $ (0.50)
--------- -------- --------- ---------
--------- -------- --------- ---------
Weighted average shares outstanding (1) 12,853 9,112 11,943 8,281
</TABLE>
(1) Shares outstanding are adjusted for all periods to give effect to the
2-for-1 stock split in the form of a stock dividend effective as of February
7, 1997. Shares outstanding also reflect increases due to the follow-on
offering completed in May 1997, and the acquisition of Quantum Magnetics in
September 1997.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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INVISION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
Net cash used in operating activities $ (2,220) $ (5,374)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (4,928) (586)
Long-term restricted cash (800) --
Purchase of investments (3,990) --
-------- --------
Net cash used in investing activities (9,718) (586)
-------- --------
Cash flows from financing activities:
Proceeds from debt financing 4,287 1,000
Repayments of debt (2,376) (4,069)
Proceeds from issuance of common stock, net 22,298 11,971
-------- --------
Net cash provided by financing activities 24,209 8,902
-------- --------
Net increase in cash for the period 12,271 2,942
Cash at beginning of period 2,471 3,715
-------- --------
CASH AT END OF PERIOD $ 14,742 $ 6,657
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Acquisition of equipment under capital lease $ 9 $ 59
Issuance of common stock as compensation $ 240 $ 87
Warrants issued in connection with debt
financings $ 56 $ 647
Purchase of in process research and
development and property equipment in
exchange for notes payable $ 330 $ --
Sale of equipment in exchange for non
receivable $ 100 $ --
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 consolidated 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
consolidated 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 InVision Technologies Inc. and its
subsidiaries (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, and in conjunction with the audited consolidated financial
statements of Quantum Magnetics, Inc. ("Quantum Magnetics") as of September
30, 1996 and 1995 and for the two years then ended, including notes thereto,
both included in the Company's registration statement on form S-4
(registration no. 333-35341) as amended.
Operating results for the three month and the nine month periods ended
September 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.
All financial data has been restated on a combined basis with Quantum
Magnetics to reflect the acquisition of Quantum as a pooling of interests.
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 September 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 nine month periods ended September 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):
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
Raw material and purchased components $ 7,389 $3,003
Work-in-process 3,634 1,419
Finished goods -- 476
------- ------
$11,023 $4,899
------- ------
------- ------
6
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
4. BUSINESS COMBINATION
On September 30, 1997, the Company acquired Quantum Magnetics, a
developer of explosive systems based upon quadruple resonance. Under the
terms of the merger, 777,000 shares of common stock and common stock options
have been issued to Quantum Magnetics shareholders in exchange of all the
capital stock and common stock options of Quantum Magnetics outstanding prior
to the merger. The transaction has been accounted for as a pooling of
interests in the quarter ended September 30, 1997; therefore, all prior
periods have been restated.
Prior to the merger, Quantum used a September 30 fiscal year end.
Restated financial statements of the Company combine results of Quantum as if
it had used a December 31 year end. No adjustments have been made to conform
accounting policies of the entities. There were no significant inter-company
transactions requiring elimination in any period presented. Non-recurring
expenses associated with the merger, comprised primarily of outside
accounting and legal fees, amounted to approximately $700,000 and have been
included in Acquisition Costs in the statement of operations.
In July 1997, the Company sold a portion of a prior investment in
Quantum for net cash proceeds of $312,000, resulting in a loss on sale of
$402,000 which has been included in Other Income (expense) category in the
statement of operations. The sale reduced the Company's ownership interest
in Quantum in order to comply with pooling-of-interests accounting rules.
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 WORDS "ANTICIPATE," "BELIEVE,"
"ESTIMATE" AND "EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY
OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
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, DIFFICULTIES WHICH MAY BE ENCOUNTERED IN CONNECTION
WITH THE INTEGRATION OF QUANTUM INTO THE OPERATIONS OF THE COMPANY AND/OR
INTEGRATION OF QUANTUM'S TECHNOLOGY INTO THE TECHNOLOGY OF THE COMPANY, 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, AS AMENDED.
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 66 had been shipped as of
September 30, 1997.
On September 30, 1997, the Company acquired Quantum Magnetics, Inc., a
privately-held developer of explosives detection equipment based on quadrupole
resonance technology. The transaction has been accounted for a pooling of
interests in the quarter ended September 30, 1997; therefore, all prior
periods have been restated to include Quantum Magnetics' results. Quantum
Magnetics is currently a development stage company with products in the
prototype stage and a recent order from the FAA to supply two QSCAN-500
advanced technology systems with an option for three more units. Quantum is
also a leading supplier of research and development services in the area of
magnetic sensing and detection technologies to a number of government
agencies.
For the nine months ended September 30, 1997 and the fiscal year which
ended December 31, 1996, the Company had revenues of $38.2 million and $15.8
million, respectively, and by September 30, 1997 had a backlog of
approximately $47 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 September 30, 1997, the Company had 89
full-time employees (including Quantum employees) engaged in research and
development activities while also using the services of 18 specialized
contract employees and consultants in this area. Total research and
development expenditures by the Company are partially offset by amounts
reimbursed by the FAA and other government and private agencies 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 nine months which ended September 30, 1997 and 1996, the
Company spent $9.6 million and $5.2 million, respectively, on research and
development activities, of which $4.5 million in the first nine months of
1997 and $3.4 million in 1996 were funded by the FAA and other government and
private agencies under development contracts and grants. To the extent that
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 nine
months of 1997, approximately $32.8 million, or 85.8%, of the Company's
revenues, were generated from sales to the Company's five 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
nine months ended September 30, 1997 and the years ended December 31, 1996
and 1995, international sales represented 48.2%, 76.2% and 89.2%,
respectively, of the Company's revenues.
8
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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 statement of operations expressed as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0
Cost of revenues 50.0 56.4 50.0 60.0
------- ------- ------- -------
Gross profit 50.0 43.6 50.0 40.0
------- ------- ------- -------
Operating expenses:
Research and development 11.4 3.9 13.6 16.5
Sales and marketing 9.1 27.9 11.1 23.3
General and administrative 9.4 24.1 11.7 23.8
Acquisition Costs 4.4 -- 1.8 --
------- ------- ------- -------
Total operating expenses 34.3 55.9 38.2 63.6
------- ------- ------- -------
Income (loss) from operations 15.7 (12.3) 11.8 (23.6)
Interest expense (0.4) (0.2) (0.9) (13.5)
Other income, net (0.9) 1.9 0.2 1.0
------- ------- ------- -------
Income (loss) before provision for income taxes 14.4 (10.6) 11.1 (36.1)
Provision for income taxes 1.6 -- 1.9 --
------- ------- ------- -------
Net income (loss) 12.8% (10.6)% 9.2% (36.1)%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
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 September 30, 1997 was the Company's third profitable
quarter since the inception of the Company. Revenues increased by 288% to
$15.5 million in the third quarter of 1997 from $4.0 million in the third
quarter of 1996. Revenues for the first nine months ended September 30, 1997
grew 235% to $38.2 million from $11.4 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 shipments 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 353% to $7.7 million in the third quarter of
1997 from $1.7 million in the third quarter of 1996. Gross profit increased
by 315% to $19.1 million in the first nine months of 1997 from $4.6 million
in the first nine months of 1996. Gross margins were 50.0% in the third
quarter of 1997 and 43.6% in the third 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 and
other government and private agencies under development contracts and grants.
These services are provided on both a cost and cost plus basis. 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 108% to $3.8
million in the third quarter of 1997 from $1.9 million in the third quarter
of 1996. Total research and development expenditures for the nine months
ended September 30, 1997 increased by 84% to $9.6 million from $5.2 million
in the first nine months of 1996. Of these amounts, $2.1 million and $1.8
million, respectively, were funded by research and development contracts and
grants from the FAA and other governmental and private entities for the third
quarters of 1997 and 1996, and $4.5 million and $3.4 milion for the first
nine months of 1997 and 1996 respectively. As a percentage of revenues, net
research and development expenditures increased to 11.4% in the third quarter
of 1997 from 3.9% in the third quarter of 1996 and for the first nine months
of 1997 research and development expenditures decreased to 13.6% of revenues
from 16.5% in the first nine months of 1996. The growth in 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 27% to $1.4 million in the
third quarter of 1997 from $1.1 million in the third quarter of 1996. Sales
and marketing expenditures for the first nine months of 1997 increased 56% to
$4.2 million from $2.7 million in the same period last year. As a percentage
of revenues, sales and marketing expenditures declined to 9.1% in the third
quarter of 1997 from 27.9% in the third quarter of 1996 and to 11.1% for the
10
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
first nine months of 1997 from 23.3% for the same period last year. The
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 125% to $2.1 million in
the third quarter of 1997 from $953,000 in the third quarter of 1996. As a
percentage of revenues, general and administrative expenses decreased to
13.8% in the third quarter of 1997 from 24.1% in the third quarter of 1996.
General and administrative expenses for the first nine months of 1997
increased 90% to $5.2 million from $2.7 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, and a one-time cost related to Quantum
Magnetics, Inc. acquisition. The acquisition costs were approximately
$700,000 or 4.4% of the total revenues.
INTEREST EXPENSE. Interest expense increased to $58,000 in the third
quarter of 1997 from $7,000 in the third quarter of 1996. For the first nine
months, interest expense decreased to $346,000 from $1.6 million in the
corresponding period of 1996. Interest expense in the first nine months 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 $246,000 for the third
quarter of 1997 and $720,000 for the first nine months of 1997 representing
an effective tax rate of 17.0%. No provision for income taxes was recorded in
the first nine months of 1996. The Company's effective tax rate of 17.0% for
the first nine 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 $15.0 million available to reduce future
federal taxable income. The Company's net operating loss carry-forwards
expire from 2005 to 2011. The tax benefit of the net operating loss and
credit carryforwards may be limited due to the impact of the Tax Reform Act
of 1986. Events which may cause the tax benefit to be limited include, but
are not limited to, a cumulative stock ownership change of more than 50%, as
defined, over a three-year period and the timing of utilization of various
tax benefits carried forward.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through private sales of $21.7 million of Preferred and Common Stock (of
which $6.7 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 ("May
1997 Public Offering"), and $2.6 million of short-term borrowings. At
September 30, 1997, the Company had $18.7 million in cash, cash equivalents
and short-term investments compared to $2.4 million in cash, cash equivalents
and short-term investments at December 31, 1996.
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.
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 $2.2 million in the first nine
months of 1997 and $5.4 million in first nine months of 1996. Reduction in
cash used in operating activities in the first nine months of 1997 was
primarily due to net income of $3.5 million versus a net loss of $4.1 million
in first nine months of 1996 and increases in accounts receivable, inventory,
accounts payable and accrued liabilities over the same period prior year.
11
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Net cash used in investing activities was $9.7 million in the first nine
months of 1997 and $586,000 in the first nine months of 1996, primarily due
to the purchase of property and equipment and short-term investments. The
Company has no significant capital spending or purchase commitments other
than normal purchase commitments and commitments under leases. The Company
has approximately $4.0 million in short-term investments.
Net cash provided by financing activities was $24.2 million in the first
nine months of 1997 and $8.9 million in the first nine months of 1996. The
increase in the first nine months of 1997 was primarily due to $21.2 million
in net proceeds from issuance of common stock in the Company's May 1997
Public Offering.
The Company believes that existing cash and cash equivalents of $14.7
million as of September 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 three quarters of 1997 were the Company's only 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 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.
In addition, as a result of the consummation of the acquisition of
Quantum Magnetics, Inc. in the third quarter of 1997, the Company's operating
expenses may potentially increase. There can be no assurance that the
integration of the business can be successfully completed in a timely
fashion, or at all, or that the revenues from the acquired business will be
sufficient to support the costs associated with the business, without
adversely affecting the Company's operating margins. Any failure to
successfully complete the integration in a timely fashion or to generate
sufficient revenues from the acquired business could have a material adverse
effect on the Company's business and results of operations.
12
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company regularly evaluates acquisition opportunities and is likely
to make acquisitions in the future. Future acquisitions by the Company could
result in potentially dilutive issuances of equity securities, the incurrence
of debt and contingent liabilities and amortization expenses related to
goodwill and other intangible assets, which could materially adversely affect
the Company's results of operations. The Company's management has had
limited experience in assimilating acquired organizations. No assurance can
be given as to the ability of the Company to integrate successfully any
operations, personnel or products that have been acquired or that might be
acquired in the future, and the failure of the Company to do so could have a
material adverse effect on the Company's results of operations.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
2.1* Agreement and Plan of Merger and Reorganization dated as of
September 3, 1997, among InVision Technologies, Inc., a Delaware
corporation, QP Acquisition Corp., a California corporation, and
Quantum Magnetics, Inc., a California corporation, (the
"Registration Agreement").
2.2** Form of Agreement of Merger between Quantum Magnetics, Inc. and
QP Acquisition Corp.
2.3** Form of Escrow Agreement between the Registrant, Quantum
Magnetics, Inc., Randall R. Lunn and the Escrow Agent.
11.1 Statement regarding calculation of net income (loss) per share.
27 Financial Data Schedule.
* Previously filed with InVision's Current Report on Form 8-K
(File No. 0-28236) dated September 3, 1997 and filed September
10, 1997.
** Previously filed with InVision's Registration Statement on Form
S-4 (Registration No. 333-35341) filed September 10, 1997.
14
<PAGE>
PART II. OTHER INFORMATION
(CONTINUED)
(b) REPORTS ON FORM 8-K
The Company filed two Reports on Form 8-K related to events which took
place during the quarter ended September 30, 1997. The first was filed on
September 10, 1997 and reported the execution of a definitive agreement to
acquire Quantum Magnetics, Inc. on September 3, 1997. The second was filed
on October 7, 1997 and reported the closing of the Quantum acquisition on
September 30, 1997. This latter Report contained financial statements of the
acquired business and pro forma financial information of the combined
entities as required by Item 7(a) and (b) of Form 8-K .
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1994, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INVISION TECHNOLOGIES, INC.
REGISTRANT
Date: November 14, 1997 /S/ Sergio Magistri
-----------------------
Dr. Sergio Magistri
President and
Chief Executive Officer and
Duly Authorized Officer
Date: November 14, 1997 /S/ Curtis P. DiSibio
---------------------
Curtis P. DiSibio
Chief Financial Officer and
Duly Authorized Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1* Agreement and Plan of Merger and Reorganization dated as of
September 3, 1997, among InVision Technologies, Inc., a Delaware
corporation, QP Acquisition Corp., a California corporation, and
Quantum Magnetics, Inc., a California corporation.
2.2** Form of Agreement of Merger between Quantum Magnetics, Inc. and
QP Acquisition Corp.
2.3** Form of Escrow Agreement between the Registrant, Quantum
Magnetics, Inc., Randall R. Lunn and the Escrow Agent.
11.1 Statement regarding calculation of net income (loss) per share.
27 Financial Data Schedule.
* Previously filed with InVision's Current Report on Form 8-K
(File No. 0-28236) dated September 3, 1997 and filed September
10, 1997.
** Previously filed with InVision's Registration Statement on Form
S-4 (Registration No. 333-35341) filed September 10, 1997.
<PAGE>
EXHIBIT 11.1
INVISION TECHNOLOGIES, INC.
STATEMENT REGARDING CALCULATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 1,988 $ (417) $ 3,513 $(4,128)
-------- ------- ------- -------
-------- ------- ------- -------
Shares used in per share calculations:
Common Stock 11,882 9,112 10,890 4,762
Common Stock issuable upon exercise of options
and warrants 971 -- 1,053 805
Convertible Preferred Stock -- -- -- 2,714
-------- ------- ------- -------
Shares used in per share calculations 12,853 9,112 11,943 8,281
-------- ------- ------- -------
-------- ------- ------- -------
Net income (loss) per share $ 0.15 $ (0.05) $ 0.29 $ (0.50)
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS, CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,742
<SECURITIES> 3,990
<RECEIVABLES> 15,149
<ALLOWANCES> 0
<INVENTORY> 11,023
<CURRENT-ASSETS> 46,135
<PP&E> 5,254
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,552
<CURRENT-LIABILITIES> 17,102
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 35,125
<TOTAL-LIABILITY-AND-EQUITY> 52,552
<SALES> 38,243
<TOTAL-REVENUES> 38,243
<CGS> 19,132
<TOTAL-COSTS> 19,132
<OTHER-EXPENSES> 14,602
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 346
<INCOME-PRETAX> 4,233
<INCOME-TAX> 720
<INCOME-CONTINUING> 3,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,513
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
