<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 APRIL 2, 2000 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
(State or other jurisdiction of incorporation or organization)
94-3123544
(I.R.S. Employer 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 April 2, 2000, there were 12,264,636 shares of the Registrant's Common Stock
outstanding.
1
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INVISION TECHNOLOGIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
PART I: FINANCIAL INFORMATION
1. Consolidated Financial Statements (unaudited)
a. Consolidated Balance Sheets - April 2, 2000 and December 31, 1999......................................... 3
b. Consolidated Statements of Operations - Three months ended April 2, 2000 and March 31, 1999 .............. 4
c. Condensed consolidated Statements of Cash Flows - Three months ended April 2, 2000
and March 31, 1999.................................................................................. 5
d. Notes to Consolidated Financial Statements ............................................................... 6
2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 9
3. Quantitative and Qualitative Disclosures about Market Risk................................................... 15
PART II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K............................................................................. 16
Signature Page ................................................................................................. 17
</TABLE>
2
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INVISION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited)
April 2, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,193 $ 18,282
Short-term investments 1,000 5,887
Accounts receivable, net 19,255 10,633
Inventories 20,016 17,460
Other current assets 3,921 2,972
--------- ---------
Total current assets 58,385 55,234
Property and equipment, net 6,732 6,796
Intangible assets, net 4,039 --
Other assets 960 957
--------- ---------
Total assets $ 70,116 $ 62,987
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,610 $ 5,128
Accrued liabilities 8,252 5,566
Deferred revenue 5,128 3,194
Current maturities of long-term obligations 419 433
--------- ---------
Total current liabilities 20,409 14,321
--------- ---------
Long-term obligations 2,789 1,181
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $0.001 par value, 20,000,000 shares
authorized; 12,265,000 and 12,190,000 shares issued
and outstanding 12 12
Additional paid-in capital 57,987 57,910
Deferred stock compensation expense (47) (63)
Accumulated deficit (9,835) (9,175)
Treasury stock, at cost (201,000 shares) (1,199) (1,199)
--------- ---------
Total liabilities and stockholders' equity $ 70,116 $ 62,987
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
April 2, March 31,
2000 1999
---------- ---------
<S> <C> <C>
Revenues:
Product and service revenue $ 16,514 $ 15,515
Government contract revenue 2,165 2,324
--------- ---------
Total revenues 18,679 17,839
--------- ---------
Cost of revenues:
Product and service costs 11,349 8,524
Government contract costs 1,571 1,645
--------- ---------
Total cost of revenues 12,920 10,169
--------- ---------
Gross profit 5,759 7,670
--------- ---------
Operating expenses:
Research and development 2,382 2,328
Selling, general and administrative 4,372 3,297
--------- ---------
Total operating expenses 6,754 5,625
--------- ---------
Income (loss) from operations (995) 2,045
Interest expense (49) (72)
Interest and other income, net 384 161
--------- ---------
Income (loss) before provision for income taxes (660) 2,134
Provision for income taxes -- 320
--------- ---------
Net income (loss) $ (660) $ 1,814
========= =========
Net income (loss) per share:
Basic $ (0.05) $ 0.15
========= =========
Diluted $ (0.05) $ 0.15
========= =========
Weighted average shares outstanding:
Basic 12,208 12,057
Diluted 12,208 12,739
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
April 2, March 31,
2000 1999
---------- ---------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (7,027) $ 7,012
---------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (409) (694)
Proceeds from (purchases of) short-term investments, net 4,887 997
Purchase of Inovec, net of cash acquired (1,527) --
----------- ---------
Net cash provided by investing activities 2,951 303
----------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments of short-term debt -- (2,858)
Repayments of long-term debt (90) (276)
Proceeds from issuance of common stock 77 130
---------- ---------
Net cash used in financing activities (13) (3,004)
---------- ---------
Net change in cash and cash equivalents for the period (4,089) 4,311
Cash and cash equivalents at beginning of period 18,282 10,462
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,193 $ 14,773
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 30 $ 48
Income taxes paid $ 164 $ 250
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles 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 consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) considered necessary for a 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, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999, including the 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 April 2, 2000 may not necessarily be indicative of
the results that may be expected for the year ended December 31, 2000 or any
other future period.
In 2000, the Company changed its fiscal reporting periods to thirteen week
quarters, with each quarter ending on the Sunday closest to a calendar quarter
end. The fiscal year end remains December 31. In prior years, the quarters ended
on a calendar quarter end date. The first quarter of 2000 and 1999 consisted of
93 and 90 days, respectively, and the effect of these three additional days in
2000 on revenues and net loss was not deemed to be significant.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
SEGMENT INFORMATION
Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information," requires
disclosures of segment information under a "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS 131
did not affect results of operations or financial position. Prior year's segment
information has been presented to reflect the Company's organizational structure
in 2000.
NET INCOME PER SHARE
Basic earnings per share is computed by dividing income available to common
stockholders 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 (using the treasury stock method).
6
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INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
APRIL 2, 2000 MARCH 31, 1999
------------------------- -------------------------
PER PER
INCOME SHARE SHARE
(LOSS) SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic net income (loss) per share:
Income (loss available to
common stockholders $ (660) 12,208 $ (0.05) $ 1,814 12,057 $ 0.15
Effect of dilutive securities:
Options -- -- -- -- 682 (0.01)
------ ------- ------- ------- ------ -------
Diluted net income (loss) per share:
Income (loss) available to
common stockholders plus
assumed conversions $ (660) 12,208 $ (0.05) $ 1,814 12,739 $ 0.14
====== ======= ======= ======= ====== =======
</TABLE>
The computation of diluted net income per share for the three months ended
April 2, 2000 does not include shares issuable upon exercise of options in the
amount of 1,249,136 because the Company's net loss per share would have
decreased.
2. INVENTORIES
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 2, DEC. 31,
2000 1999
--------- ---------
<S> <C> <C>
Inventories:
Raw material and purchased components $ 12,190 $ 10,325
Work-in-process 7,249 6,819
Finished goods 577 316
-------- --------
Total $ 20,016 $ 17,460
======== ========
</TABLE>
3. ACQUISITION OF INOVEC, INC.
Effective January 1, 2000, the Company acquired Inovec, Inc. ("Inovec"), a
manufacturer of advanced optimization equipment for increasing the yield of the
forest products industry, for $2.4 million in cash and $2.8 million in stock
payable over the next two years. In addition, the purchase agreement provides
that Inovec shareholders will be paid up to an additional $1.4 million in cash
and stock over the next two years based on the achievement of certain
performance milestones. The acquisition was accounted for using the purchase
method of accounting effective January 1, 2000. The excess purchase price over
the fair market value of the underlying net assets of $4.1 million was allocated
to goodwill and other intangible assets and property based upon preliminary
estimates of fair values. The Company does not believe that the final purchase
price allocation will differ significantly from the preliminary purchase price
allocation recorded at January 1, 2000. An estimated amortization expense of
$103,000 was recorded during the first quarter of 2000.
7
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. SEGMENT INFORMATION
Under the provisions of SFAS 131, the Company is reporting segment
information in the same format reviewed by the Company's management in 2000. The
Company has three reportable segments based on types of technology and
applications. The "InVision" segment is comprised of those business units that
deal with the development, manufacturing, marketing and support of explosive
detection systems based on advanced computed tomography ("CT") technology. The
"Quantum" segment is comprised of the business unit that deals with the
development of technology for inspection, detection and analysis of explosives
and other materials based on quadrupole resonance technology and passive
magnetic sensing. The "WoodVision" segment is comprised of the business unit
that deals with the development of technology to optimize the value and yield of
harvested timber based on different types of technologies, primarily CT
technology. Prior year's segment information has been presented to reflect the
above structure of the Company's organization.
Financial information by business segment is as follows (in thousands):
<TABLE>
<CAPTION>
INVISION QUANTUM WOODVISION TOTAL
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
FIRST QUARTER 2000
Revenues:
Product and service revenues $ 13,822 $ - $ 2,692 $ 16,514
Government contract revenues - 2,165 - 2,165
---------------- ---------------- ---------------- ---------------
Total revenues $ 13,822 $ 2,165 $ 2,692 $ 18,679
Net income (loss) $ (217) $ (177) $ (266) $ (660)
Total assets $ 56,258 $ 4,493 $ 9,365 $ 70,116
FIRST QUARTER 1999
Revenues:
Product and service revenues $ 15,515 $ - $ - $ 15,515
Government contract revenues - 2,324 - 2,324
---------------- ---------------- ---------------- ---------------
Total revenues $ 15,515 $ 2,324 $ - $ 17,839
Net income (loss) $ 1,975 $ (161) $ - $ 1,814
Total assets $ 57,664 $ 4,619 $ - $ 62,283
</TABLE>
8
<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 MAIN
PRODUCT, INCLUDING THE LOSS OF THE COMPANY'S ORDERS FROM THE FAA OR THE FAILURE
TO OBTAIN ADDITIONAL ORDERS, LOSS OF ANY OF THE COMPANY'S SOLE SOURCE SUPPLIERS,
INTENSE COMPETITION INCLUDING COMPETITION FROM A NEW SUPPLIER OF A CERTIFIED
PRODUCT THAT HAS NOW BEGUN ACCEPTING ORDERS, 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, RISKS INHERENT TO THE DEVELOPMENT AND
PRODUCTION OF NEW PRODUCTS AND NEW APPLICATIONS, CERTIFICATION OF CERTAIN OF
THESE PRODUCTS, RISK OF CERTIFICATION OF COMPETITORS' PRODUCTS, AND FLUCTUATIONS
IN THE AMOUNT OF GOVERNMENT FUNDING OF THE COMPANY'S RESEARCH AND DEVELOPMENT
ACTIVITIES, AS WELL AS THOSE DISCUSSED IN "ITEM 1. BUSINESS" AND MORE
PARTICULARLY IN THE "BUSINESS RISKS" SECTION THEREOF IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999.
OVERVIEW
InVision Technologies, Inc. ("InVision," or together with its subsidiaries,
the "Company") develops, manufactures, markets and supports systems based on
advanced computed tomography ("CT") technology for explosive detection systems
("EDS") for civil aviation security, for log scanning for the wood products
industry and for drug detection applications. InVision was formed in September
1990 to design and develop an EDS based on CT technology and exited the
development stage in 1995 upon the first commercial sale of its product, the CTX
5000 system. Today the Company markets its more advanced CTX 5500 system, its
next generation CTX 9000 system, and its smaller and lighter CTX 2500 system. In
addition to these products, the Company has other products in development. In
1999, the CTX 9000 and CTX 2500 systems successfully completed FAA
certification. The Company sold its first CTX 9000 system in the third quarter
of 1999 and received an order for its first CTX 2500 system in March 2000. Since
its first CTX sale in 1995 through April 2, 2000, the Company has received
orders for a total of 208 CTX systems, of which a total of 197 have been
shipped. For the three month periods ended April 2, 2000 and March 31, 1999, the
Company had CTX product and service revenues of $13.8 million and $15.5 million,
respectively, and as of April 2, 2000 the Company had in backlog CTX equipment
orders and service agreements of approximately $21.6 million. In March 2000, the
Company signed three contracts with the FAA for multiple CTX systems totaling
approximately $14 million. These contracts have a potential value in excess of
$180 million over the next three years for additional CTX systems, accessories
and service. Additionally, in April 2000, the Company received an order valued
at approximately $1.5 million from an international customer for a CTX system,
upgrades and accessories.
InVision's wholly-owned subsidiary, Quantum Magnetics, Inc. ("Quantum"),
develops and commercializes patented and proprietary technology for inspection,
detection and analysis of explosives and other materials based on quadrupole
resonance ("QR") technology, a form of magnetic resonance, and passive magnetic
sensing. Its products, most of which are in the prototype stage, include
advanced detection systems for such markets as carry-on luggage screening, drug
detection, postal inspection, and detection of concealed weapons and landmines.
Quantum is also a leading supplier of research and development services in the
area of QR technology and passive magnetic sensing to a number of government
agencies. In the third quarter of 1999, Quantum sold a QScan 160 EDS to the
United States Navy for mail and other parcel screening applications at an
international location. In 1997, Quantum began the development of a
sophisticated prototype system, which combines QR explosives detection with
metal detection, and is thus capable of detecting both plastic-cased and
metal-cased landmines. In 1999, the unique capabilities of this landmine
detection system were successfully demonstrated in a series of Department of
Defense-sponsored, blind field tests, including the detection of TNT at Fort
Leonard Wood, Missouri in the fourth quarter of 1999. Revenues and cost of
revenues related to Quantum's government contracts were previously reported as a
reduction to research and development expense. Prior year amounts have been
reclassified to reflect the gross revenues and cost of revenues associated with
Quantum's contracts to conform to the 2000 presentation. For the three month
periods ended April 2, 2000 and March 31, 1999, the Company had government
contract revenues related to Quantum of $2.2 million and $2.3 million,
respectively, and as of April 2, 2000, the Company had in backlog Quantum
government contracts of $6.1 million. Additionally, in April 2000, Quantum
received a $13.4 million contract from the U.S. Army to develop a vehicle-based
landmine detection system.
In February 2000, the Company created WoodVision, a new division formed to
develop a new application for its CT technology to optimize the value and yield
of harvested timber. Additionally, in February 2000, the Company acquired
Inovec, Inc. ("Inovec"), a manufacturer of advanced optimization equipment based
on laser and optical scanning technology for increasing the yield of the forest
products industry for $5.2 million in cash and stock payable over the next two
years. In
9
<PAGE>
addition, the purchase agreement provides that Inovec shareholders will be paid
up to an additional $1.4 million in cash and stock over the next two years based
on the achievement of certain performance milestones. The acquisition was
accounted for using the purchase method of accounting effective January 1, 2000.
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
systems as well as the development of new hardware. At April 2, 2000, the
Company had 119 full-time employees engaged in research and development
activities while also using the services of 12 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 agencies and private entities under research and development
contracts and grants. During the three month periods ended April 2, 2000 and
March 31, 1999, the Company spent $2.7 million and $2.9 million, respectively,
on research and development activities. Of these amounts, $0.3 million and $0.6
million, respectively, were funded under research and development contracts and
grants. To the extent that research and development contracts and grants
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. As of April 2, 2000, the Company had in
backlog research and development contracts and grants of $0.5 million.
The Company's product and service revenues have principally consisted,
and the Company believes will continue to consist, of orders of multiple
units from a limited number of customers. For the three month periods ended
April 2, 2000 and March 31, 1999, $5.6 million and $12.6 million,
respectively, were generated from sales to the Company's largest customer,
the U.S. government, representing 33.7% and 81.2% of the Company's product
and service revenues, respectively. For the year ended December 31, 1999,
product and service revenues from the Company's largest customer, the U.S.
government, were approximately $37.1 million, or 77.8% of the Company's
product and service revenues.
The Company's government contract revenue has historically been derived
from funding provided by various U.S. government agencies. For the three month
periods ended April 2, 2000 and March 31, 1999, $0.7 million and $1.5 million of
the Company's government contract revenues were associated with funding from the
Defense Advanced Research Projects Agency ("DARPA"), primarily for landmine
detection, representing 31.5% and 64.4% of the Company's government contract
revenues, respectively. Additionally, in the first quarter of 2000 and 1999,
$0.7 million and $0.3 million related to funding from the FAA for EDS research
and development, representing 30.3% and 14.4% of the Company's government
contract revenues, respectively.
The Company markets its products and services both directly through
internal sales personnel and indirectly through authorized agents, distributors
and systems integrators. In the United States, the Company markets its products
and services primarily through direct sales personnel. Internationally, the
Company utilizes both a direct sales force and authorized agents to sell its
products. For the three months ended April 2, 2000 and March 31, 1999 and the
year ended December 31, 1999, international sales represented 35.2%, 17.5% and
18.0%, respectively, of the Company's product and service revenues.
The sales cycle of the Company's CTX product line is often lengthy due to
the protracted approval process that typically accompanies large capital
expenditures and the time required to manufacture, install and integrate the
product. Typically, six to twelve months may elapse between a new customer's
initial evaluation of the Company's product line and the execution of a
contract. Another three months to a year may elapse prior to shipment of the
product as the customer site is prepared and the system is manufactured. During
this period the Company expends substantial funds and management resources but
recognizes no associated revenue.
The Company recognizes product revenue upon shipment unless extended
acceptance criteria exist, in which case revenue is recognized upon achievement
of such acceptance criteria. The Company typically requires customer deposits in
advance of shipment on customer purchase orders. Provision for estimated
installation, training and warranty costs is recorded at the time revenue is
recognized and adjusted periodically based on historical and anticipated
experience. Systems typically carry a one-year warranty.
The Company's government contract revenue is substantially derived from
Quantum activities performed under U.S. government contracts. These contracts
are typically in the form of cost-plus-fixed-fee ("CPFF") or firm-fixed-price
("FFP") awards. The Company recognizes revenue on these contracts using the
percentage-of-completion method based on costs incurred to date as a percentage
of total estimated costs at completion.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data expressed as a
percentage of total revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
APRIL 2, MARCH 31,
2000 1999
----------- ----------
<S> <C> <C>
Revenues:
Product and service revenue 88.4% 87.0%
Government contract revenue 11.6 13.0
----------- ----------
Total revenue 100.0 100.0
----------- ----------
Cost of revenues:
Product and service costs 60.8 47.8
Government contract costs 8.4 9.2
----------- ----------
Total cost of revenues 69.2 57.0
----------- ----------
Gross profit 30.8 43.0
----------- ----------
Operating expenses:
Research and development 12.8 13.1
Selling, general and administrative 23.4 18.5
----------- ----------
Total operating expenses 36.2 31.6
----------- ----------
Income (loss) from operations (5.4) 11.4
Interest expense (0.3) (0.4)
Interest and other income, net 2.1 0.9
----------- ----------
Income (loss) before provision for
income taxes (3.6) 11.9
Provision for income taxes -- 1.8
----------- ----------
Net income (loss) (3.6)% 10.1%
=========== ==========
</TABLE>
CURRENT QUARTER COMPARED TO PRIOR YEAR'S QUARTER
REVENUES. The Company's revenues are comprised of product and service
revenues, which include sales of the CTX systems, accessories, installation and
configuration, and maintenance related to product support, and sales of control
and automation systems for material processing equipment, primarily in the wood
products industry, accessories, installation and maintenance related to product
support; and government contract revenues, which include revenues primarily from
research and development contracts utilizing QR and passive magnetic
technologies with government agencies and private entities. Product and service
revenues were $16.5 million for the first quarter of 2000, an increase of 6.4%
from the $15.5 million in the first quarter of 1999. This increase was primarily
attributable to product and service revenue from the Company's newly acquired
subsidiary, Inovec, in the amount of $2.7 million and also due to increased
service contract revenue for new support and maintenance agreements for CTX
systems whose warranty periods expired during the past twelve months. These
increases are partially offset by fewer CTX system sales and fewer accessories
and upgrades sold in the first quarter of 2000 compared to the first quarter of
1999. The Company typically ships against a backlog of orders for its products.
As of April 2, 2000, the Company had in backlog equipment orders and service
agreements of $25.3 million.
Government contract revenues were $2.2 million in the first quarter of
2000, a decrease of 6.8% from the $2.3 million in the first quarter of 1999.
This decrease was primarily attributable to a decline in subcontract support in
the first quarter of 2000 compared to the same period a year ago, partially
offset by additional internal activities related to the landmine technologies.
As of April 2, 2000, the Company had in backlog government contract revenue of
approximately $6.1 million.
11
<PAGE>
GROSS PROFIT. Cost of product and service revenues primarily consists of
purchased materials procured for use in the assembly of the Company's products,
as well as manufacturing labor and overhead, warranty costs and costs associated
with service agreements. In any given period the Company's gross profit for
products and services may be affected by several factors, including revenue mix,
product configuration, location of the installation and complexity of
integration into various airport environments. Gross profit for product and
services was $5.2 million in the first quarter of 2000, a decrease of 26.1% from
the $7.0 million in the first quarter of 1999. Gross margins were 31.3% and
45.1%, respectively. The decrease in gross margins was primarily due to lower
margins on the sale of CTX 9000 systems in the first quarter of 2000, primarily
due to competitive pricing factors with an international customer, higher per
unit costs related to the start-up of the initial production process, and higher
manufacturing overhead costs per unit resulting from the manufacture of fewer
units in the quarter compared to the same period a year ago. These decreases are
partially offset by gross profit generated from Inovec's sales in the first
quarter of 2000.
Cost of government contract revenues primarily consists of direct labor,
purchased materials, subcontract labor and the applicable overhead required to
support government funded activities. Gross profit for government contracts was
$0.6 million in the first quarter of 2000 compared to $0.7 million in the first
quarter of 1999. Gross margins were 27.4% and 29.2%, respectively. The decrease
in gross margins is primarily due to the decline in subcontract support, which
typically carry higher margins, and also due to lower margins on a
firm-fixed-price contract in the first quarter of 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses 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. Research and
development expenditures by the Company are partially offset by amounts
reimbursed by the FAA and other government agencies and private entities under
research and development contracts and grants. These services are provided on a
cost basis.
Net research and development expenses were $2.4 million in the first
quarter of 2000 compared to $2.3 million in the same quarter in 1999. Gross
research and development expenses were $2.7 million in the first quarter of
2000, a decrease of 7.0% from the $2.9 million in the first quarter of 1999. Of
these amounts, $0.3 million and $0.6 million, respectively, were funded by
research and development contracts and grants from the FAA and other government
agencies and private entities. To the extent that research and development
contracts and grants 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. The Company capitalizes
internally generated software costs in accordance with Statement of Financial
Accounting Standards No. 86 ("SFAS 86"), "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Under SFAS 86, software
production costs for computer software that is to be used as an integral part of
the product or process are to be capitalized once technological feasibility has
been established for the software and all research and development activities
for the other components of the product or process have been completed. In the
first quarter of 2000, the Company recorded amortization expense of $50,000
using the straight-line method over the forecasted units of production. No
amortization expense was recorded in the same period a year ago. Software
development costs qualifying for capitalization were insignificant in the first
quarter of 2000 and 1999. As a percentage of revenues, net research and
development expenses were 12.8% and 13.1% in the first quarter of 2000 and 1999,
respectively. The decrease in gross research and development expenses is
primarily the result of completion of two significant development projects in
early 1999, specifically the development of the CTX 9000 and Qscan 160. These
decreases are partially offset by additional expense incurred for the
development of new prototypes in the first quarter of 2000 and also due to
research and development expenses incurred by Inovec.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of compensation paid to direct and indirect sales and
marketing personnel, administrative personnel, including directors, consultant
fees, professional service fees, insurance, travel, selling and distribution
costs, and other general expenses.
Selling, general and administrative expenses were $4.4 million in the first
quarter of 2000, an increase of 32.6% from the $3.3 million in the first quarter
of 1999. As a percentage of total revenues, selling, general and administrative
expenses were 23.4% and 18.5% in the first three months of 2000 and 1999,
respectively. The increase in selling, general and administrative expenses was
primarily the result of start-up operating costs of WoodVision and selling,
general and administrative expenses of Inovec in the first quarter of 2000. The
increase is also due to an increase in commission expense due to commissions
paid to an outside sales agent for international sales.
INTEREST EXPENSE. Interest expense decreased to $49,000 in the first
quarter of 2000 from $72,000 in the first quarter of 1999. Interest expense in
the first quarter of 2000 and 1999 resulted primarily from debt financing
associated with the Company's working capital lines of credit, equipment term
loans and capital leases.
INTEREST AND OTHER INCOME, NET. Interest and other income, net, increased
to $384,000 in the first quarter of 2000 from
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$161,000 in the first quarter of 1999. The 2000 amount consists primarily of
interest income for the quarter on cash equivalents and short-term investments
of $406,000, partially offset by other expense (net) of $22,000. The 1999 amount
consists primarily of interest income for the quarter on cash equivalents and
short-term investments of $197,000, partially offset by other expense (net) of
$36,000. The 2000 amount results from the higher cash equivalent and short-term
investment balances in the first quarter of 2000 as compared to the 1999
quarter.
PROVISION FOR INCOME TAXES. No tax provision or benefit was recorded for
the first quarter of 2000 due to the net loss incurred in the period. The
Company's effective tax rate for the first quarter of 1999 was 15%, which was
lower than statutory tax rates primarily due to the utilization of net operating
loss carryforwards. At December 31, 1999, the Company had federal net operating
loss carryforwards of approximately $5 million available to reduce future
federal taxable income. The Company's net operating loss carryforwards expire
from 2007 to 2011.
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, the sale
of $21.2 million in the Company's follow-on offering in May 1997 and short-term
borrowings under working capital lines of credit. At April 2, 2000, the Company
had $15.2 million in cash, cash equivalents and short-term investments, compared
to $24.2 million at December 31, 1999. Working capital was $38.0 million at
April 2, 2000 compared to $40.9 million at December 31, 1999.
Net cash used in operating activities was $7.0 million in the three month
period ended April 2, 2000, compared to $7.0 million provided by operating
activities in the same period of 1999. Cash used in operating activities in the
first quarter of 2000 primarily resulted from a net loss of $0.7 million, a $7.1
million increase in accounts receivable, a $1.5 million increase in inventories,
and a $0.8 million increase in other assets, partially offset by a $2.1 million
increase in accounts payable and accrued liabilities and the $0.9 million
noncash effect of depreciation and amortization. Cash provided by operating
activities in the first quarter of 1999 primarily resulted from net income of
$1.8 million, the $0.6 million non cash effect from depreciation and
amortization, a $4.1 million decrease in accounts receivable, a $1.1 million
decrease in other current assets and a $0.9 million increase in accounts payable
and accrued liabilities, partially offset by a $1.0 million decrease in deferred
revenues and a $0.6 million increase in inventories.
Net cash provided by investing activities was $3.0 million in the three
month period ended April 2, 2000, compared to $303,000 in the three month period
ended March 31, 1999. Net cash provided by investing activities in the first
quarter of 2000 primarily resulted from $4.9 million on sales of short-term
investments, partially offset by the cash payment of $1.5 million for the
purchase of Inovec, net of cash acquired, and $0.4 million in acquisitions of
capital equipment. Net cash provided by investing activities in the first
quarter of 1999 primarily resulted from $1.0 million in proceeds on sales of
short-term investments (net of purchases), partially offset by $0.7 million in
acquisitions of capital equipment. The Company has no significant capital
spending or purchase commitments other than normal purchase commitments and
commitments under leases.
Net cash used in financing activities was $13,000 in the three month period
ended April 2, 2000, compared to $3.0 million in the three month period ended
March 31, 1999. Net cash used in financing activities in the first quarter of
2000 was primarily due to $90,000 in repayments of debt financing, partially
offset by $77,000 in proceeds from sales under the employee stock purchase plan
and exercises of incentive stock options. Net cash used in financing activities
in the first quarter of 1999 was primarily due to $3.1 million in repayments of
debt financing (principally, short-term borrowings under the lines of credit),
partially offset by $130,000 in proceeds from sales under the employee stock
purchase plan and exercises of incentive stock options.
In May 1999, the Company renewed its two one-year revolving line of credit
agreements with Silicon Valley Bank. The first agreement provides for maximum
borrowings of $5.0 million. 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, net of advance payments and deposits, or $2.5
million. Borrowings under both agreements bear interest at the bank's prime rate
(9.0% at April 2, 2000) and 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. At April 2, 2000, the
Company was in default with the profitability covenant set forth in the loan
agreement. In May 2000, the Company received a waiver of the default under the
loan agreement from the bank for the period ended April 2, 2000. Proceeds of
loans under both lines of credit may be used for general corporate purposes. At
April 2, 2000, the Company had outstanding guarantees to customers through
issuance of letters of credit secured by the lines of credit totaling $2.3
million, an outstanding commercial letter of credit secured by the lines of
credit in the amount
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of $450,000 and foreign exchange contracts for which a 10% reserve of $0.2
million is secured by the lines of credit. There were no outstanding borrowings
under the lines of credit at April 2, 2000. In May 2000, the bank extended the
terms of the agreement for ninety days to expire in July 2000, at which time the
Company expects to renew the revolving line of credit agreements for another
twelve-month period.
In May 1999, the Company renewed its committed equipment line of credit
agreement with Silicon Valley Bank that converts into a term loan after
drawdown. The agreement provides for borrowings up to $0.5 million.
Borrowings under this agreement bear interest at the bank's prime rate (9.0%
at April 2, 2000) plus 0.25% or the bank's prime rate plus 0.25% during the
draw period and a fixed rate equal to 3.5% above the yield of a 36 month
Treasury Note (6.47% at April 2, 2000) during the amortization period.
Borrowings are secured by the assets purchased or financed. At April 2, 2000,
the Company had an outstanding $0.4 million term loan due June 2003 and a
$0.4 million term loan due November 2001 from drawdowns under a prior year
line of credit. The term loans bear interest of 8.99% and 9.03%,
respectively. The Company had remaining borrowing capacity of $0.5 million
under the current year line of credit as of April 2, 2000. In May 2000, the
bank extended the terms of the agreement for ninety days to expire in July
2000, at which time the Company expects to renew the equipment line of credit
agreement for another twelve-month period.
The Company believes that existing cash, cash equivalents and short-term
investments together with available borrowings under its lines of credits and
funds expected to be generated from operations will be sufficient to finance its
working capital and capital expenditure requirements for at least the next 12
months.
YEAR 2000 COMPLIANCE
The Year 2000 issue arose as a result of computer programs being written
using two digits rather than four to define the applicable year. During 1999 the
Company evaluated the products it sells and its internal computerized systems,
taking corrective action, as appropriate, to avoid potential Year 2000 problems
and to make all of its products and internal computerized systems determined to
be mission critical Year 2000 compliant. The Company knows of no instances in
which its products or its internal computerized systems failed to operate as
specified due to date formatting issues associated with calculating, comparing,
and sequencing from, into, and between the twentieth and twenty-first centuries,
and the years 1998, 1999, 2000, and leap year calculations. Additionally, the
Company identified those third party suppliers whose products or services are
mission critical and developed contingency plans. The Company knows of no
instances in which its third party suppliers have experienced Year 2000
problems.
BUSINESS RISKS
HISTORY OF LOSSES; NO ASSURANCE OF CONTINUED PROFITABILITY. The Company
commenced operations in September 1990, remained in the development stage
through 1994 and received its first revenues from product sales in the first
quarter of 1995. The Company experienced net losses for each year from inception
through December 31, 1996. The year ended December 31, 1997 was the Company's
first year of profitability. As of April 2, 2000, the Company had an accumulated
deficit of approximately $9.8 million. Although the Company has been profitable
on an annual basis the past three years, profitability in 1999 was below that of
the prior two years, the Company has experienced a net loss in each of the prior
three quarters and there can be no assurance that the Company will maintain
annual profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
FLUCTUATIONS IN OPERATING RESULTS. 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 size of orders
from, and shipments to, major customers; budgeting and purchasing cycles of its
customers; delays in product shipments caused by custom requirements of
customers or ability of the customer to accept shipment; the timing of
enhancements to the CTX Series by InVision or introduction of new products by it
or its competitors and the market acceptance thereof; changes in pricing
policies by InVision, its competitors or suppliers, including decreases in
average selling prices of the CTX Series in response to competitive pressures;
the proportion of revenues derived from competitive bid processes; the mix
between sales to domestic and international customers and the mix between sales
of various CTX products; the availability and cost of key components; and
fluctuations in general economic conditions. InVision also may choose to
increase spending which is not reimbursed by government or other third party
contracts in response to competition or as it pursues new market opportunities
in the areas of WoodVision, landmine detection and others, all of which may have
a material adverse effect on InVision's business, financial condition or results
of operations. InVision's systems revenues in any period are derived from sales
of multiple CTX Series systems to a limited number of customers and are
recognized upon shipment which, in view of the high sales price of units in the
CTX Series, causes minor variations in the number of orders, or the timing of
shipments, to substantially affect the Company's quarterly revenues. Because a
significant portion of the Company's quarterly operating expenses are, and will
continue to be, relatively fixed in nature, such revenue fluctuations will cause
the Company's quarterly and annual operating results to vary substantially.
Accordingly, the Company believes that period-to-period comparisons of its
results of operations are not meaningful and cannot be relied upon as indicators
of future performance. Because of all of the foregoing factors, the
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Company's operating results have from time to time in the past been and may
again in the future be below the expectations of public market analysts and
investors. This failure to meet market expectations has in the past and may
again in the future result in a decline in the trading price of the Common
Stock.
DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATIONS; LENGTHY SALES CYCLE.
In any given fiscal year, the Company's product and service revenues have
principally consisted, and the Company believes will continue to consist, of
orders of multiple units from a limited number of customers. While the number of
individual customers may vary from period to period, the Company is nevertheless
dependent upon these multiple orders for a substantial portion of its revenues.
There can be no assurance that the Company will obtain such multiple orders on a
consistent basis. To date, all orders from United States customers have been
entirely funded by the FAA, and the Company's largest sales contract to date,
for 105 CTX Series systems, all of which have been shipped, was with the FAA.
Although the FAA has signed three new contracts with the Company to purchase up
to 60 of each of the Company's CTX 9000, CTX 5500 and CTX 2500 systems, there
can be no assurance that the FAA will obtain funding to purchase or will
purchase more than the four CTX 9000 systems, eight CTX 5500 systems and two CTX
2500 systems for which the Company has received orders to date. The Company's
inability to obtain sufficient multiple orders or the failure of the FAA to
continue such purchases or funding would have a material adverse effect on the
Company's business, financial condition or results of operations. Moreover, the
timing and shipment of such orders could cause the operating results in any
quarter to differ from the projections of securities analysts, which could
adversely affect the trading price of the Common Stock.
PUBLIC AGENCY CONTRACT AND BUDGET CONSIDERATIONS. Substantially all of
InVision's EDS 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
which 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, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. The Company's exposure to market risk for changes in
interest rates relates primarily to the increase or decrease in the amount of
interest income the Company can earn on its investment portfolio and on the
increase or decrease in the amount of interest expense the Company must pay with
respect to its various outstanding debt instruments with interest rates which
are tied to market rates. The Company does not use derivative financial
instruments in its investment portfolio. The Company ensures the safety and
preservation of its invested principal funds by limiting default risks, market
risk and reinvestment risk. The Company mitigates default risk by investing in
high-credit quality securities.
FOREIGN EXCHANGE RISK AND IMPACT OF INFLATION. The Company's international
system sales and maintenance contracts are generally denominated in U.S.
dollars. In instances where there are significant international system sales
contracts denominated in a foreign currency, the Company will enter into forward
exchange contracts to mitigate foreign exchange risk. In the first quarter of
2000, the Company entered into forward exchange contracts of approximately $2.5
million to hedge against foreign exchange risk for a contract with an
international customer. The Company did not hedge any foreign exchange risk in
1999. Purchases of raw materials and other inventory components are primarily
denominated in U.S dollars, however, when purchased in foreign currencies, are
generally made on an as needed basis. The Company generally does not have
material advance purchase commitments in foreign currencies.
Certain costs of providing warranty and maintenance services for systems
sold to foreign countries are denominated in local currencies. To the extent
exchange rates fluctuate, it could become more expensive to provide these
services. To date, these costs have not been significant, however, the Company
expects they will increase as the Company's installed base increases.
The impact of inflation has not been material on the Company's operations
or liquidity to date.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.37 Registrant's 2000 Non-Officer Equity Incentive Plan, adopted
February 14, 2000
27 Financial Data Schedule.
(b) The Registrant filed the following Reports on Form 8-K during the
quarter ended April 2, 2000:
(1) Current Report on Form 8-K dated February 23, 2000 (Item 5. Other
Events - Acquisition of Inovec, Inc.)
(2) Current Report on Form 8-K dated April 24, 2000 (Item 4. Changes
in Registrant's Certifying Accountant)
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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.
<TABLE>
<S> <C>
Date: May 16, 2000 /s/ SERGIO MAGISTRI
-------------------
Dr. Sergio Magistri
President and Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
Date: May 16, 2000 /s/ ALFRED V. LARRENAGA
-----------------------
Alfred V. Larrenaga
Senior Vice President and Chief Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
</TABLE>
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EXHIBIT 10.37
INVISION TECHNOLOGIES
2000 NON-OFFICER EQUITY INCENTIVE PLAN
ADOPTED BY BOARD ON FEBRUARY 14, 2000
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees of and Consultants to the Company, and its Affiliates, may be given
an opportunity to benefit from increases in value of the stock of the Company
through the granting of (i) Nonstatutory Stock Options, (ii) stock bonuses,
and (iii) rights to purchase restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services
of persons (other than Directors and Employees serving as Officers of the
Company or its Affiliates) who are now Employees of or Consultants to the
Company or its Affiliates, to secure and retain the services of new Employees
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Nonstatutory Stock Options granted pursuant to
Section 6 hereof, or (ii) stock bonuses or rights to purchase restricted
stock granted pursuant to Section 7 hereof.
2. DEFINITIONS.
(a) "AFFILIATE" shall have the meaning given that term in Rule 405
of Regulation C promulgated under the Securities Act.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means InVision Technologies, Inc., a Delaware
corporation.
(f) "CONSULTANT" means any natural person (or other person covered
under Form S-8 promulgated under the Securities Act), including an advisor,
engaged by the Company or an Affiliate of the Company to render consulting
services and who is compensated for such services, provided that the term
"Consultant" shall not include those persons who render services as a
Director.
<PAGE>
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the individual's relationship with the Company or an Affiliate, whether as an
Employee, Director or Consultant, is not interrupted or terminated. For
example, a change in status without interruption from an Employee of the
Company to a Consultant of an Affiliate or a Director will not constitute an
interruption of Continuous Status as an Employee, Director or Consultant. The
Board or the chief executive officer of the Company, in that party's sole
discretion, may determine whether Continuous Status as an Employee, Director
or Consultant shall be considered interrupted in the case of any leave of
absence approved by that party, including sick leave, military leave or any
other personal leave.
(h) "DIRECTOR" means a member of the Board.
(i) "DISABILITY" means permanent and total disability as defined in
Section 22(e)(3) of the Code.
(j) "EMPLOYEE" means any common law employee of the Company or any
Affiliate of the Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute status as an
Employee.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company, determined as follows:
(i) If the common stock is listed on any established stock
exchange or traded on the National Market System of the Nasdaq or the Nasdaq
SmallCap Market, the Fair Market Value of a share of common stock shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market
with the greatest volume of trading in the Company's common stock) on the
last market trading day prior to the day of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an incentive stock option pursuant to Section 422 of the Code and
the regulations promulgated thereunder.
(n) "OFFICER" means a person who is an officer of the Company within
the meaning of Rule 4460(i)(1)(a) of the Rules of the National Association of
Securities Dealers, Inc.
(o) "OPTION" means a stock option granted pursuant to the Plan.
(p) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
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(q) "OPTIONEE" means an Employee, Director or Consultant who holds
an outstanding Option or, if applicable, such other person who holds an
outstanding Option.
(r) "PLAN" means this 2000 Non-Officer Equity Incentive Plan.
(s) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus and any right to purchase restricted stock.
(t) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each
Stock Award shall be granted; whether a Stock Award will be a Nonstatutory
Stock Option, a stock bonus, a right to purchase restricted stock, or a
combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person
shall be permitted to receive stock pursuant to a Stock Award; and the number
of shares with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations
for its administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests
of the Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of one or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board (and references in this Plan to the Board shall
thereafter be to the Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest
in the Board the administration of the Plan.
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4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, the number of shares of stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate four hundred
thousand (400,000) shares of the Company's common stock. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not acquired under such
Stock Award shall revert to and again become available for issuance under the
Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
Stock Awards may be granted only to Employees or Consultants who are
not (i) Officers (including without limitation vice presidents of the
Company), (ii) Directors, or (iii) then subject to Section 16 of the Exchange
Act. Notwithstanding the foregoing, an Officer may be granted a Stock Award
if the grant of such Stock Award is an essential inducement to such Officer
entering into an employment agreement with the Company or an Affiliate.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Nonstatutory Stock Option
shall be not less than eighty-five percent (85%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii)
at the discretion of the Board or the Committee, at the time of the grant of
the Option, (a) by delivery to the Company of other common stock of the
Company, (b) according to a deferred payment arrangement, except that payment
of the common stock's "par value" (as defined in the Delaware General
Corporation Law) shall not be made by deferred payment or other arrangement
(which may include, without limiting the generality of the foregoing, the use
of other common stock of the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant to subsection 6(d), or
(c) in any other form of legal consideration that may be acceptable to the
Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as
4
<PAGE>
interest, under any applicable provisions of the Code, of any amounts other
than amounts stated to be interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by
will or by the laws of descent and distribution (and shall be exercisable
during the lifetime of the person to whom the Option is granted only by such
person) unless the applicable Option Agreement expressly provides for other
permitted types of transfer. Notwithstanding the foregoing, the person to
whom the Option is granted may, by delivering written notice to the Company,
in a form satisfactory to the Company, designate a third party who, in the
event of the death of the Optionee, shall thereafter be entitled to exercise
the Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may,
but need not, be equal). The Option Agreement may provide that from time to
time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to
that period, and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which the Option became
vested but was not fully exercised. The Option may be subject to such other
terms and conditions on the time or times when it may be exercised (which may
be based on performance or other criteria) as the Board may deem appropriate.
The vesting provisions of individual Options may vary. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event an Optionee's Continuous Status as an Employee, Director or Consultant
terminates (other than upon the Optionee's death or disability), the Optionee
may exercise his or her Option (to the extent that the Optionee was entitled
to exercise it as of the date of termination, unless the Option Agreement
expressly provides that the Option may become exercisable for additional
shares after the date of termination) but only within such period of time
ending on the earlier of (i) the date three (3) months following the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in
the Option Agreement. If, after termination, the Optionee does not exercise
his or her Option within the time specified in the Option Agreement, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status
as an Employee, Director or Consultant (other than upon the Optionee's death
or disability) would result in liability under Section 16(b) of the Exchange
Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the Option Agreement, or (ii) the tenth
(10th) day after the last date on which such exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an Optionee's
Option Agreement may also provide that if the exercise of the Option
following the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (other than upon the Optionee's death or disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of
5
<PAGE>
the Option set forth in the first paragraph of this subsection 6(f), or (ii)
the expiration of a period of three (3) months after the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such
registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination, unless the Option Agreement expressly provides that the Option
may become exercisable for additional shares after the date of termination),
but only within such period of time ending on the earlier of (i) the date six
(6) months following such termination (or such longer or shorter period
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option as of the date of death) by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest
or inheritance, but only within the period ending on the earlier of (i) the
date twelve (12) months following the date of death (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of such Option as set forth in the Option Agreement. If, at the time
of death, the Optionee was not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after death, the
Option is not exercised within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value
on the date such award is made. Notwithstanding the foregoing, the Board or
the Committee may determine that eligible participants in the Plan may be
awarded
6
<PAGE>
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution, unless the applicable Stock Award Agreement
expressly provides for other types of transfer.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
a stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to
a deferred payment or other arrangement, except that payment of the common
stock's "par value" (as defined in the Delaware General Corporation Law)
shall not be made by deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the stock is sold; or
(iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event the Continuous Status as an Employee, Director or Consultant of a
person holding a Stock Award terminates, the Company may repurchase or
otherwise reacquire, subject to the limitations described in subsection 7(d),
any or all of the shares of stock held by that person which have not vested
as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required
to issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register
under the Securities Act of 1933, as amended (the "Securities Act") either
the Plan, any Stock Award or any stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Stock Awards unless and
until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
7
<PAGE>
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or
any part thereof will vest pursuant to subsection 6(e) or 7(d),
notwithstanding the provisions in the Stock Award stating the time at which
it may first be exercised or the time during which it will vest.
(b) Neither an Employee or Consultant, nor any person to whom a
Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or
any Affiliate (or to continue acting as a Consultant) or shall affect the
right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause, or to terminate the relationship of any
Consultant in accordance with the terms of that Consultant's agreement with
the Company or Affiliate to which such Consultant is providing services.
(d) SECURITIES LAW COMPLIANCE. The Company may require any person to
whom a Stock Award is granted, or any person to whom a Stock Award is
transferred pursuant to subsection 6(d) or 7(b), as a condition of exercising
or acquiring stock under any Stock Award, (1) to give written assurances
satisfactory to the Company as to such person's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced
in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits
and risks of exercising the Stock Award; and (2) to give written assurances
satisfactory to the Company stating that such person is acquiring the stock
subject to the Stock Award for such person's own account and not with any
present intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered
under a then currently effective registration statement under the Securities
Act, or (ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may
require the holder of the Stock Award to provide such other representations,
written assurances or information which the Company shall determine is
necessary, desirable or appropriate to comply with applicable securities and
other laws as a condition of granting a Stock Award to such person or
permitting the holder of the Stock Award to exercise the Stock Award. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including,
but not limited to, legends restricting the transfer of the stock.
8
<PAGE>
(e) WITHHOLDING. To the extent provided by the terms of a Stock
Award Agreement, the person to whom a Stock Award is granted may satisfy any
federal, state or local tax withholding obligation relating to the exercise
or acquisition of stock under a Stock Award by any of the following means or
by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise or acquisition of
stock under the Stock Award; or (3) delivering to the Company owned and
unencumbered shares of the common stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company), the Plan will be appropriately adjusted in
the class(es) and the maximum number of shares subject to the Plan pursuant
to subsection 4(a), and the outstanding Stock Awards will be appropriately
adjusted in the class(es) and number of shares and price per share of stock
subject to such outstanding Stock Awards. Such adjustments shall be made by
the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation; or (2) a reverse merger in which
the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute
similar Stock Awards for those outstanding under the Plan, or (ii) such Stock
Awards shall continue in full force and effect. In the event any surviving
corporation and its Affiliates refuse to assume or continue such Stock
Awards, or to substitute similar Stock Awards for those outstanding under the
Plan, then, with respect to Stock Awards held by persons then performing
services as Employees, Directors or Consultants, such Stock Awards shall
become fully vested as of the business day first preceding the date of the
transaction and all outstanding Stock Awards shall terminate if not exercised
prior to such event. In the event of a dissolution, liquidation or sale of
all or substantially all of the assets of the Company all outstanding Stock
Awards shall terminate at that time.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
(b) The Board, in its sole discretion, may submit the Plan and/or
any amendment to the Plan for stockholder approval.
9
<PAGE>
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide those
eligible with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. No
Stock Awards may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the written consent of the person to whom the Stock Award
was granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on adoption by the Board.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF INCOME AND STATEMENTS OF CASH FLOW
INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
APRIL 2, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
<CASH> 14,193
<SECURITIES> 1,000
<RECEIVABLES> 19,535
<ALLOWANCES> 280
<INVENTORY> 20,016
<CURRENT-ASSETS> 58,385
<PP&E> 15,246
<DEPRECIATION> 8,514
<TOTAL-ASSETS> 70,116
<CURRENT-LIABILITIES> 20,409
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 46,906
<TOTAL-LIABILITY-AND-EQUITY> 70,116
<SALES> 18,679
<TOTAL-REVENUES> 18,679
<CGS> 12,920
<TOTAL-COSTS> 6,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> (660)
<INCOME-TAX> 0
<INCOME-CONTINUING> (660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (660)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
