<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 MARCH 31, 1998 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 Identification No.)
incorporation or organization)
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 March 31, 1998, there were 12,059,000 shares of the Registrant's Common Stock
outstanding.
1
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INVISION TECHNOLOGIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
PART I: FINANCIAL INFORMATION
<S> <C>
1. Condensed Consolidated Financial Statements (unaudited)
a. Condensed Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . 3
b. Condensed Consolidated Statements of Income - Three months ended
March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . 4
c. Condensed Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . 5
d. Notes to Condensed Consolidated Financial Statements . . . . . . 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 14
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE>
INVISION TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $16,038 $14,111
Restricted cash 302 1,556
Short-term investments 2,051 5,079
Accounts receivable 17,867 16,847
Inventories 11,121 10,781
Prepaid expenses 1,342 897
-------- -------
Total current assets 48,721 49,271
Long-term restricted cash 800 800
Property and equipment, net 7,353 7,180
-------- -------
$56,874 $57,251
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,433 $5,097
Accrued liabilities 3,778 4,032
Short-term debt 2,200 4,168
Deferred revenue 2,520 3,376
Current maturities of long-term
obligations 425 426
-------- -------
Total current liabilities 14,356 17,099
-------- -------
Long-term obligations under capital leases,
less current portion 1,191 1,336
-------- -------
Stockholders' equity:
Common stock, $0.001 par value, 20,000
shares authorized; 12,059 and 11,906 shares
issued and outstanding 12 12
Additional paid-in capital 56,836 56,602
Deferred stock compensation expense (182) (199)
Accumulated deficit (15,339) (17,599)
-------- -------
Total stockholders' equity 41,327 38,816
-------- -------
$56,874 $57,251
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
INVISION TECHNOLOGIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1998 1997
---- ----
<S> <C> <C>
Revenues $15,880 $9,377
Cost of revenues 8,174 4,708
------- ------
Gross profit 7,706 4,669
------- ------
Operating expenses:
Research and development 1,687 1,079
Sales and marketing 1,662 1,332
General and administrative 1,809 1,515
------- ------
Total operating expenses 5,158 3,926
------- ------
Income from operations 2,548 743
Interest expense (58) (27)
Interest and other income, net 234 22
------- ------
Income before provision for income taxes 2,724 738
Provision for income taxes 464 125
------- ------
Net income $ 2,260 $ 613
------- -------
------- -------
Net income per share:
Basic $ 0.19 $ 0.06
------- -------
------- -------
Diluted $ 0.18 $ 0.06
------- -------
------- -------
Weighted average shares outstanding:
Basic 12,022 9,890
Diluted 12,905 11,014
</TABLE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 46 $ 136
-------- -------
Cash flows from investing activities:
Acquisition of property and equipment (521) (265)
Sale of short-term investments, net 3,028 --
Release of restricted cash 1,254 --
-------- -------
Net cash provided by (used in)
investing activities 3,761 (265)
-------- -------
Cash flows from financing activities:
Proceeds from debt financing -- 9
Repayments of debt (2,114) (49)
Proceeds from issuance of common stock, net 234 40
-------- -------
Net cash provided by (used in) financing
activities (1,880) 98
-------- -------
Net increase (decrease) in cash and cash equivalents
for the period 1,927 (31)
Cash and cash equivalents at beginning of period 14,111 2,471
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,038 $ 2,440
-------- -------
-------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 58 $ 2
Taxes paid 622 --
</TABLE>
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, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997, including notes
thereto, included in the Company's Annual Report on Form 10-K (Commission
File No. 0-20815).
Operating results for the three month period ended March 31, 1998 may not
necessarily be indicative of the results that may be expected for the year ended
December 31, 1998 or any other future period.
2. NET INCOME PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("FAS 128"), "Earnings Per Share." All historical earnings per
share information has been restated as required by FAS 128.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average common shares outstanding for the period.
Diluted earnings per share reflects the weighted-average common shares
outstanding plus the potential effect of dilutive securities or contracts which
are convertible to common shares such as options, warrants, convertible debt and
preferred stock.
The following is a reconciliation between the components of the
basic and diluted net income per share calculations for the periods presented
below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
March 31, 1998 March 31, 1997
---------------------- -----------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic income per share:
Income available to
Common Stockholders..... $2,260 12,022 $ 0.19 $ 613 9,890 $ 0.06
Effect of dilutive
securities:
Options................... 883 1,124
-------------- ---------------
Diluted net income per
share:
Income available to
common stockholders plus
assumed conversions......... $2,260 12,905 $ 0.18 $ 613 11,014 $ 0.06
----------------------- ---------------
----------------------- ---------------
</TABLE>
3. INVENTORIES
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Raw material and purchased components $6,532 $6,817
Work-in-process 3,939 3,290
Finished goods 650 674
---------- ------------
$11,121 $10,781
---------- ------------
---------- ------------
</TABLE>
6
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. WHEN USED IN THIS DISCUSSION, 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 CURRENT
PRODUCTS AND NEW PRODUCTS IN DEVELOPMENT, FLUCTUATIONS IN THE COMPANY'S
QUARTERLY AND ANNUAL OPERATING RESULTS, THE LOSS OF ORDERS OF THE COMPANY'S
PRODUCTS, INCLUDING THE LOSS OF THE COMPANY'S ORDER FROM THE FAA OR THE FAILURE
TO OBTAIN ADDITIONAL ORDERS, 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 COMPANY'S PRODUCTS,
BUDGETING LIMITATIONS OF THE COMPANY'S CUSTOMERS AND PROSPECTIVE CUSTOMERS, 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, 1997.
OVERVIEW
InVision Technologies, Inc. ("InVision," or together with its subsidiaries,
the "Company") designs, manufactures and markets explosive detection systems
based on advanced CT technology. InVision was formed in September 1990 to design
and develop the CTX 5000 and remained in the development stage through
December 1994. In March 1994, InVision 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 120 systems of which a total of 100
had been shipped as of March 31, 1998. Today the Company markets its more
advanced CTX 5000 and CTX 5500 explosive detection systems (the "CTX 5000
Series") and has other products under development.
On September 30, 1997, InVision acquired Quantum Magnetics, Inc.,
("Quantum") a privately held developer of explosive detection equipment based on
quadrupole resonance technology. 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 to include Quantum's results. Quantum 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 three months ended March 31, 1998 and the fiscal year ended
December 31, 1997, the Company had revenues of $15.9 million and $56.4 million,
respectively, and as of March 31, 1998 had a backlog of approximately $21
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
explosive detection systems based on "CT" or CAT Scan technology. At March 31,
1998, the Company had 107 full-time 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 three months ended
March 31, 1998 and 1997, the Company spent $4.3 million and $2.6 million,
respectively, on research and development activities. Of these amounts, $2.6
million in the first three months of 1998 and $1.5 million in 1997 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.
7
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 three months
of 1998, approximately $10.8 million, or 68%, of the Company's revenues, were
generated from sales to the Company's largest customer. During the fiscal year
ended December 31, 1997, revenues from the Company's largest customer were
approximately $32.1 million, or 57%, 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 Series
primarily through direct sales personnel. Internationally, the Company utilizes
both a direct sales force and authorized agents to sell its products. During the
three months ended March 31, 1998 and the year ended December 31, 1997,
international sales represented 31% and 46%, respectively, of the Company's
revenues.
The sales cycle of the CTX 5000 Series is often lengthy due to the
protracted approval process that typically accompanies large capital
expenditures and the time required to manufacture the CTX 5000 Series and
install and assimilate the CTX 5000 Series. 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 Series as the customer site is prepared and the CTX
5000 Series 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.
8
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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
MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Revenues 100.0 % 100.0
Cost of revenues 51.5 50.2
------ ------
Gross profit 48.5 49.8
------ ------
Operating expenses:
Research and development 10.6 11.5
Sales and marketing 10.5 14.2
General and administrative 11.4 16.2
------ -----
Total operating expenses 32.5 41.9
------ -----
Income from operations 16.0 7.9
Interest expense (0.4) (0.3)
Interest and other income, net 1.5 0.2
------ -----
Income before provision for income taxes 17.2 7.9
Provision for income taxes 2.9 1.3
------ -----
Net income 14.2 % 6.5 %
------ -----
------ -----
</TABLE>
REVENUES. The Company's revenues are comprised of system revenues, which
include sales of the CTX 5000 Series, accessories, installation and
configuration, and maintenance related to product support.
Revenues increased by 69% to $15.9 million in the first quarter of 1998
from $9.4 million in the first quarter of 1997. 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.
The quarter ended March 31, 1997 was the Company's first profitable quarter
since the inception of the Company.
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.
9
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 65% to
$4.3 million in the first quarter of 1998 from $2.6 million in the first quarter
of 1997. Of these amounts, $2.6 million and $1.5 million, respectively, were
funded by research and development contracts and grants from the FAA and other
governmental and private entities for the first quarters of 1998 and 1997,
respectively. As a percentage of revenues, net research and development
expenditures decreased to 10.6% in the first quarter of 1998 from 11.5% in the
first quarter of 1997. 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 24.8% to $1.7 million in the
first quarter of 1998 from $1.3 million in the first quarter of 1997. As a
percentage of revenues, sales and marketing expenditures declined to 10.5% in
the first quarter of 1998 from 14.2% in the first quarter of 1997. The increased
level of expenditures in the first quarter of 1998 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 19.4% to $1.8 million in
the first quarter of 1998 from $1.5 million in the first quarter of 1997. As a
percentage of revenues, general and administrative expenses decreased to 11.4%
in the first quarter of 1998 from 16.2% in the first quarter of 1997. The
increase in general and administrative expenses in absolute dollars is primarily
the result of personnel additions and increased professional and consulting
costs associated with the Company's growth, increased insurance costs, and
increased costs of operations associated with being a publicly traded company.
INTEREST EXPENSE. Interest expense increased to $58,000 in the first
quarter of 1998 from $27,000 in the first quarter of 1997. The increase in
interest expense is primarily the result of additional long-term financing of
capital equipment in connection with the October, 1997 move by the Company into
new facilities.
INTEREST AND OTHER INCOME, NET. The Company recognized net interest and
other income of $234,000 in the first quarter of 1998 compared to $22,000 in
the first quarter of 1997. The 1998 amount consists primarily of $233,000 in
interest income for the quarter and results from the significantly higher cash
and short-term investment balances in the first quarter of 1998 as compared to
the 1997 quarter.
PROVISION FOR INCOME TAXES. The provision for income taxes was $464,000
for the first quarter of 1998 and $125,000 for the first quarter of 1997,
representing an effective tax rate of 17.0% for each period. The Company's
effective tax rate of 17.0% 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, 1997 the Company had federal net operating
loss carry-forwards of approximately $13.7 million available to reduce future
federal taxable income and $2.0 million available to reduce
10
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
State 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 $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 ("May
1997 public offering"), and short-term borrowings under a working capital
line of credit. At March 31, 1998, the Company had $18.1 million in cash,
cash equivalents and short-term investments, compared to $19.2 million in
cash, cash equivalents and short-term investments at December 31, 1997.
In April 1998, the Company renewed its two one-year revolving line of
credit agreements with Silicon Valley Bank. The first agreement provides for
maximum borrowings in an amount up to the lower of 80% of domestic eligible
accounts receivable or $4.5 million. Borrowings under this agreement bear
interest at the bank's prime rate (8.50% at March 31, 1998). The second
agreement is partially guaranteed by the Export-Import Bank of the United
States and provides for maximum borrowings in an amount up to the lower of
the sum of 90% of eligible export accounts receivable plus 70% of eligible
raw materials and work-in-process inventory designated for export customers
or $4.5 million. Borrowings under this agreement bear interest at the bank's
prime rate (8.50% at March 31, 1998). Borrowings under both agreements are
secured by all of the Company's assets other than its intellectual property.
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 both lines of credit may
be used for general corporate purposes.
Cash provided by operating activities was $46,000 in the first quarter
of 1998 compared to $136,000 of cash generated by operating activities in the
first quarter of 1997. Cash provided by operating activities in the first
quarter of 1998 primarily resulted from net income of $2.3 million offset by
increases in accounts receivable and inventory, and a decrease in deferred
revenues.
Net cash generated from investing activities was $3.8 million in the
first quarter of 1998 compared to $265,000 of cash used in the quarter of
1997, primarily due to the sale of short-term investments, release of
restricted cash and the purchase of capital equipment. The Company has no
significant capital spending or purchase commitments other than normal
purchase commitments and commitments under leases. The Company had
approximately $2.1 million in short-term investments at March 31, 1998.
Net cash used in financing activities was $1.9 million in the first
quarter of 1998 compared to cash provided by financing activities of $98,000
in the first quarter of 1997. The decrease in the first quarter of 1998 was
primarily due to repayment of debt offset by purchases under the employee
stock purchase plan and exercises of incentive stock options.
The Company believes that existing cash and cash equivalents of $16.0
million as of March 31, 1998, short-term investments of $2.1 million, 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.
11
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 quarter ended March 31, 1997 was the Company's first profitable
quarter since inception. Although the Company has reported a profit in each
subsequent quarter, there can be no assurance that the Company will continue
to be profitable on a quarterly basis or 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 its 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 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.
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.
Substantially all of InVision's customers and a high percentage of
Quantum's research and development customers to date have been public
agencies or quasi-public agencies. In contracting with public agencies, the
Company is subject to public agency contract requirements which vary from
jurisdiction to jurisdiction and are subject to budgetary processes and
expenditure constraints. Budgetary allocations for explosive detection
systems are dependent, in part, upon governmental policies which fluctuate
from time to time in response to political and other factors, including the
public's perception of the threat of commercial airline bombings. Many
domestic and foreign government agencies have experienced budget deficits
that have led to decreased capital expenditures in certain areas. The
Company's results of operations may be subject to substantial
period-to-period fluctuations as a result of these and other factors
affecting capital spending. A reduction of funding for explosive detection
technology deployment could materially and adversely affect the Company's
business, financial condition or results of operations. Future sales to
public agencies will depend, in part, on the Company's ability to meet public
agency contract requirements, certain of which may be onerous or even
impossible for the Company to satisfy. In addition,
12
<PAGE>
public agency contracts are frequently awarded only after formal competitive
bidding processes, which have been and may continue to be protracted, and
typically contain provisions that permit cancellation in the event that funds
are unavailable to the public agency. There can be no assurance that the
Company will be awarded any of the contracts for which its products are bid
or, if awarded, that substantial delays or cancellations of purchases will
not result from protests initiated by losing bidders.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INVISION TECHNOLOGIES, INC.
Date: May 14, 1998 /s/ Sergio Magistri
-------------------
Dr. Sergio Magistri
President and
Chief Executive Officer and
Duly Authorized Officer
Date: May 14, 1998 /s/ Curtis P. DiSibio
---------------------
Curtis P. DiSibio
Chief Financial Officer and
Duly Authorized Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS, STATEMENT OF INCOME AND STATEMENTS OF
CASH FLOW INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 16038
<SECURITIES> 2051
<RECEIVABLES> 17867
<ALLOWANCES> 0
<INVENTORY> 11121
<CURRENT-ASSETS> 48721
<PP&E> 10592
<DEPRECIATION> 3239
<TOTAL-ASSETS> 56874
<CURRENT-LIABILITIES> 14356
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 41315
<TOTAL-LIABILITY-AND-EQUITY> 56874
<SALES> 15880
<TOTAL-REVENUES> 15880
<CGS> 8174
<TOTAL-COSTS> 5158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 2724
<INCOME-TAX> 464
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2260
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.18)
</TABLE>
