UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-28946
Vivid Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3054475
(State of incorporation) (I.R.S. Employer Identification No.)
10E Commerce Way, Woburn, Massachusetts 01801
(Address of principal executive offices) (Zip Code)
(617) 938-7800
(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 ___
As of August 1, 1997, 9,424,034 shares of the registrant's
Common Stock, $.01 par value, were issued and outstanding.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Balance Sheets
June 30, 1997 and September 30, 1996 3
Consolidated Statements of Operations
Three and Nine Months Ended June 30, 1997
and 1996 4
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1997
and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 14
SIGNATURES 16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, September 30,
1997 1996
CURRENT ASSETS:
Cash and cash equivalents $11,279,129 $1,661,724
Short-term investments 6,403,812 --
Accounts receivable 7,642,041 3,720,478
Inventories 6,145,567 4,741,658
Deferred tax asset 261,000 181,000
Other current assets 675,889 444,902
Total current assets 32,407,438 10,749,762
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 1,995,879 1,681,659
Furniture and fixtures 80,907 58,855
Leasehold improvements 165,300 143,776
Equipment under capital leases 198,580 198,580
2,440,666 2,082,870
Less- Accumulated depreciation
and amortization 1,414,825 1,097,717
1,025,841 985,153
Other assets, net 156,838 228,077
$33,590,117 $11,962,992
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, September 30,
1997 1996
CURRENT LIABILITIES:
Obligation under capital leases $ 4,990 $ 36,888
Accounts payable 821,869 1,493,874
Accrued expenses 2,321,583 3,432,914
Currently redeemable series A
preferred stock -- 2,343,750
Currently redeemable series C
preferred stock -- 3,436,900
Customer deposits 1,426,466 1,042,085
Total current liabilities 4,574,908 11,786,411
STOCKHOLDERS' EQUITY:
Convertible preferred stock,
$.01 par value--
Series B--
Authorized--no shares and
250,000 shares, respectively
Issued and outstanding--no
shares and 250,000 shares,
respectively -- 2,500
Series D--
Authorized--no shares and
254,585 shares, respectively
Issued and outstanding--no
shares and 254,585 shares,
respectively -- 2,546
Common stock, $.01 par value-
Authorized - 30,000,000 shares
Issued and outstanding -
9,369,234 and 1,740,520
shares, respectively 93,692 17,405
Capital in excess of par value 25,527,635 594,279
Retained earnings (deficit) 3,393,882 (440,149)
Total stockholders' equity 29,015,209 176,581
$33,590,117 $11,962,992
The accompanying notes are an integral part of these
consolidated financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues $8,306,256 $3,920,865 $21,929,929 $10,162,868
Cost of revenues 3,417,378 1,704,304 9,104,635 4,361,717
Gross margin 4,888,878 2,216,561 12,825,294 5,801,151
Operating expenses:
Research and development 1,095,357 924,444 3,249,070 2,511,814
Selling and marketing 1,029,750 433,777 2,565,097 987,120
General and administrative 840,706 364,895 2,055,781 1,070,397
Litigation expenses 77,000 60,805 347,000 182,818
Total operating
expenses 3,042,813 1,783,921 8,216,948 4,752,149
Income from operations 1,846,065 432,640 4,608,346 1,049,002
Interest income (expense), net 255,004 (22,450) 573,298 2,076
Other income, net 95,590 -- 95,590 --
Income before provision for
income taxes 2,196,659 410,190 5,277,234 1,051,078
Provision for income taxes 475,000 -- 1,443,203 --
Net income $1,721,659 $ 410,190 $ 3,834,031 $ 1,051,078
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .17 $ .05 $ .40 $ .14
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 10,327,483 8,202,284 9,679,708 7,583,654
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,834,031 $ 1,051,078
Adjustments to reconcile net income
to net cash used in operating
activities-
Depreciation and amortization 321,818 135,296
Changes in assets and liabilities-
Accounts receivable (3,921,563) (2,900,750)
Inventories (1,403,909) (1,053,400)
Deferred tax asset (80,000) --
Other current assets (230,987) (85,841)
Accounts payable (672,005) 626,588
Accrued expenses (1,111,331) (161,393)
Customer deposits 384,381 --
Net cash used in operating
activities (2,879,565) (2,388,422)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment, net (357,796) (342,185)
Purchases of short-term investments (6,403,812) --
Change in other assets 66,529 (66,404)
Net cash used in investing
activities (6,695,079) (408,589)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock 24,887,512 --
Proceeds from exercise of stock
purchase warrants 32,960 --
Proceeds from exercise of stock options 84,125 3,145
Redemption of series A and series C
preferred stock (5,780,650) --
Borrowings on line of credit -- 1,000,000
Payments on capital lease obligations (31,898) (124,945)
Net cash provided by financing
activities 19,192,049 878,200
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,617,405 (1,918,811)
CASH AND CASH EQUIVALENTS, beginning
of period 1,661,724 2,561,912
CASH AND CASH EQUIVALENTS, end
of period $11,279,129 $ 643,101
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ 1,942 $ 15,418
Income tax $ 1,045,000 $ 224,000
Supplemental disclosure on non-cash
investing and financing activities
Assets acquired under capital
leases $ -- $ 190,679
Conversion of Series B and
Series D preferred stock $ 5,046 $ --
Cashless exercise of stock
purchase warrants $ 545 $ --
The accompanying notes are an integral part of these
consolidated financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements of Vivid
Technologies, Inc. (the Company) presented herein have been
prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. These statements
should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended September 30,
1996, included in the Company's Form S-1 Registration Statement
(File No: 333-14311) as filed with the Securities and Exchange
Commission.
The consolidated balance sheet as of June 30, 1997, the
consolidated statements of operations for the three months and
nine months ended June 30, 1997 and 1996, and the consolidated
statements of cash flows for the nine months ended June 30,
1997 and 1996, are unaudited but, in the opinion of management,
include all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of results for
these interim periods.
The results of operations for the nine months ended June
30, 1997 are not necessarily indicative of the results to be
expected for the entire fiscal year ending September 30, 1997.
(2) Cash and Cash Equivalents
The Company considers all highly liquid securities with
original maturities of three months or less to be cash
equivalents.
The Company accounts for investments in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. Under SFAS No. 115, investments for which the
Company has the positive intent and ability to hold to maturity
are reported at amortized cost, which approximates fair market
value, and are classified as held-to-maturity, and accordingly
the Company does not record gains or losses based on market
fluctuations. At September 30, 1996 the Company had no held-to-
maturity investments. At June 30, 1997 these investments
consisted of a certificate of deposit. Investments purchased
to be held for indefinite periods of time, and not intended to
be held until maturity, are classified as available-for-sale.
At September 30, 1996 and June 30, 1997, these investments
consist of a pooled fund, managed by a bank, which invests
primarily in United States Government fixed-income securities.
At June 30, 1997 these investments also included amounts
invested in United States Government Securities and corporate bonds.
These investments are included in cash equivalents and reported
at cost, which approximates fair market value. Short term
investments have maturities of greater than three months and
less than one year consist of securities issued by the U.S.
Government and its agencies and corporate bonds.
(3) Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market and consist of the following:
June 30, September 30,
1997 1996
Raw materials $3,086,085 $3,336,696
Work-in-process 1,538,810 858,983
Finished goods 1,520,672 545,979
$6,145,567 $4,741,658
Finished goods consist of material, labor and
manufacturing overhead.
(4) Significant Customer and Concentration of Credit Risk
In the nine months ended June 30, 1997 and 1996, the
Company had one customer who comprised 47% and 74% of revenues,
respectively. This customer had amounts due to the Company of
approximately $1,422,000 (subsequent to June 30, 1997 the
Company received payment of $1,350,000 against this balance)
and $3,505,000 at June 30, 1997 and September 30, 1996,
respectively. The Company had one other significant customer for
the nine months ended June 30, 1997 comprising 34% of revenues.
This customer had amounts due to the Company of approximately
$2,400,000 of which $2,200,000 was subsequently received as payment.
(5) Patent Litigation
In October 1994, EG&G Astrophysics Research Corporation
("EG&G") filed a patent infringement claim against the Company
in the United States District Court for the District of
Massachusetts, alleging that certain of the Company's products
infringed a patent held by EG&G. In December 1994, the Company
filed an answer denying any infringement and counterclaims
seeking to invalidate the EG&G patent and alleging that EG&G
infringed three patents owned or licensed by the Company. On
November 6, 1996, the Company and EG&G entered into a
Settlement Agreement relating to this litigation.
In May 1996, in response to allegations made by American
Science & Engineering ("AS&E") to third parties that the
Company was infringing AS&E's patents, the Company filed an
action in the United States District Court for the District of
Massachusetts seeking a declaratory judgment that the Company
is not infringing AS&E's patents. In August 1996, AS&E filed
an answer and counterclaim alleging that the Company is
infringing one or more of eight AS&E patents. In October 1996,
the court dismissed AS&E's infringement counterclaim, but
allowed AS&E to raise more specific infringement counterclaims
upon asserting factual support for such claims. In December
1996, AS&E filed a motion for leave to file an amended
counterclaim asserting that the Company was violating one AS&E
patent. In February 1997, the court dismissed AS&E's motion,
but again allowed AS&E to raise more specific infringement
counterclaims upon AS&E's asserting factual support for such
claims. In February 1997, AS&E filed a further memorandum in
support of its motion for leave to file an amended
counterclaim. In April 1997, the Court denied AS&E's motion
and dismissed its counterclaim without granting leave to file
an amended counterclaim.
(6) Initial Public Offering
A registration statement relating to the Company's initial
public offering of common stock was declared effective on
December 10, 1996. In connection with this offering, 2,300,000
shares of common stock were sold to the public (including
300,000 shares sold pursuant to an over-allotment option
exercised by the underwriters in January 1997). All shares
were sold by the Company at a price of $12.00 per share which
resulted in net proceeds (after deducting issuance costs
including underwriters commission) of approximately
$24,900,000. In December 1996, the Company used $5.8 million
of the net proceeds to redeem all of its outstanding shares of
non-convertible mandatorily redeemable Series A preferred stock
and Series C preferred stock. In connection with the Company's
initial public offering, all of its Series B preferred stock
and Series D preferred stock was converted into an aggregate of
5,045,850 shares of common stock.
(7) Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
123 "Accounting for Stock-Based Compensation," which becomes
effective for fiscal years beginning after December 15, 1995.
SFAS No. 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. However,
entities are allowed to elect whether to measure compensation
expense for stock-based compensation under SFAS No. 123 or
Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has elected to
remain with the accounting under APB No. 25 and will make the
required pro forma disclosures of net income and earnings per
share as if the provisions of SFAS No. 123 had been applied in
its September 30, 1997 financial statements. The potential
impact of adopting this standard on the Company's pro forma
disclosures of net income and earnings per share has not been
quantified at this time.
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 "Earnings Per Share" which establishes new
standards for calculating and presenting earnings per share.
The standard is effective for financial statements for periods
ending after December 15, 1997, with earlier application not
permitted. The Company will adopt this new standard in its
1998 financial statements, which will require the reporting of
diluted earnings per share and basic earnings per share.
Basic and diluted earnings per share using this standard
would have been $0.18 and $0.17, respectively, for the three
months ended June 30, 1997, and $0.24 and $0.05, respectively,
for the three months ended June 30, 1996. Basic and diluted
earnings per share using this standard would have been $0.45
and $0.40, respectively, for the nine months ended June 30,
1997, and $0.63 and $0.14, respectively, for the nine months
ended June 30, 1996. For the periods prior to the Company's
initial public offering on December 10, 1996, the Series B and
Series D convertible preferred stock are included in diluted
earnings per share. For the periods subsequent to the
Company's initial public offering the Series B and Series D
convertible preferred stock are included in both basic and
diluted earnings per share.
(8) Stockholders' Equity
During the first nine months of fiscal 1997, the Company
granted options to purchase 304,050 shares of common stock at
exercise prices ranging from $9.50 to $16.25 per share which
vest over a period of five years.
The authorized capital stock of the Company consists of
30,000,000 shares of common stock, $.01 par value, and 1,000,000
shares of preferred stock, $.01 par value.
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
The Company's results of operations have and may continue
to be subject to significant quarterly fluctuation due to
several factors, including the overall demand for explosives
detection systems, market acceptance of the Company's products,
timing of the announcement, introduction and delivery of new
products and product enhancements by the Company and its
competitors, variations in component costs, timing of customer
orders, adjustments of delivery schedules to accommodate
customers programs, the availability of components from
suppliers, the timing and level of expenditures in anticipation
of future sales, and pricing and other competitive conditions.
Customers may also cancel or reschedule shipments and
production difficulties could delay shipments. Relatively few
system sales to relatively few customers comprise a significant
portion of the Company's revenues in each quarter. Therefore,
small variations in the number of systems sold could have a
significant effect on the Company's results of operations.
Results of Operations
Revenues. Revenues for the third quarter of fiscal 1997
increased 112% to $8,306,256 from $3,920,865 for the third
quarter of fiscal 1996. Revenues for the current nine month
period increased 116% to $21,929,929 from $10,162,868 for the
first nine months of fiscal 1996. This increase in revenues
was the result of an increase in product sales which was
partially offset by a decrease in FAA development grants. The
increase in product sales was primarily attributable to the
total number of product shipments to Europe as well as the
commencement of shipments to Chek Lap Kok Airport in Hong Kong
and shipments to Kuala Lumpur International Airport in
Malaysia, partially offset by slightly lower average selling
prices of the Company's products.
During the third quarter of fiscal 1997, the Company
received a $3.5 million research grant from the Federal
Aviation Administration (FAA), including $1.6 million contingent on
final approval of the fiscal 1998 federal budget. The grant will
provide funding for the development of a cost-effective, high
speed explosives detection system, based upon the Company's current
proprietary technology, that will meet FAA certification requirements.
The grant is subject to termination by the government at any time.
Subsequent to June 30, 1997 the FAA placed an order for
the Company's automated dual energy X-ray explosives detection
systems. The initial purchase is for eight of the Company's
systems representing a total of $4.0 million with an option to
acquire 12 additional systems which would bring the total
maximum contract value to approximately $10.7 million. The
systems are scheduled to be shipped in fiscal 1998 and deployed
at several of the nation's largest and busiest airports. The
purchase of the systems was a result of the White House
Commission on Aviation Safety and Security's recommendation and
the subsequent congressional directive contained in the Federal
Aviation Reauthorization Act of 1996 to deploy a variety of
commercially available explosives detection devices to
significantly enhance aviation security.
Also during the third quarter of fiscal 1997, the Company
received its first order for the Model APS-Advanced Passenger
Screening System. The APS system was purchased by the Public
Intelligence Department in Riyadh, Saudi Arabia for the protection
of VIP's. The system can also be used to screen carry-on baggage
at airports as well as protection at government facilities.
In the nine months ended June 30, 1997 and 1996, sales to
one customer accounted for approximately 47% and 74% of revenues,
respectively. This customer is scheduled to complete the
deployment of checked baggage explosives detection systems by
the end of 1997. As a result, the Company expects that its
revenues from this customer will decrease and will become
increasingly dependent upon sales of upgrades, replacement
equipment and services. In the first nine months of fiscal
1997, the Company received major orders to purchase an
aggregate of approximately 65 automated explosives detection
systems, including orders from Kuala Lumpur International
Airport and Chek Lap Kok Airport in Hong Kong, and a repeat
order from France (Service Technique des Bases Aeriennes). The
Company has shipped all 26 of the systems included in the Kuala
Lumpur order and commenced shipments to Hong Kong during the
quarter. The remainder of the Hong Kong systems are scheduled
to be delivered over the next two fiscal quarters.
In the first nine months of fiscal 1997, 100% of product
revenues were generated internationally, approximately 60% in
Europe, and 40% in Asia. In the first nine months of fiscal
1996, 100% of product revenues were generated in Europe.
Gross Margin. Gross margin increased as a percentage of
sales to 59% in the current quarter from 57% in the third
quarter of fiscal 1996. For the first nine months of fiscal
1997, gross margin increased as a percentage of sales to 58%
from 57% for the first nine months of fiscal 1996. The
increase in gross margin in fiscal 1997 was primarily
attributable to the decrease, commencing in the second quarter,
in royalties due to Hologic, Inc. for the exclusive license of
certain patents and technology from 5% to 3%, and decreased
costs attributable to improved manufacturing efficiencies
recognized in the current quarter. These decreases were
partially offset by lower average selling prices and, for the nine
month period, a reduction in revenues and related margins associated
with the Company's FAA grant.
Research and Development Expenses. Research and
development expenses increased 19% to $1,095,357 (13% of
revenues) in the current quarter from $924,444 (24% of
revenues) in the third quarter of fiscal 1996. For the current
nine month period, research and development expenses increased
29% to $3,249,070 (15% of revenues) from $2,511,814 (25% of
revenues) for the first nine months of fiscal 1996. The
increase in research and development expenses in fiscal 1997
was primarily due to the addition of engineering personnel and
outside consultants working on the development of new products
and enhancements to existing products, including enhancements
to the APS system for carry-on baggage and the VIS-M (Matrix
configuration). As a percentage of revenues, research and
development expenses declined in the current year, reflecting
increased revenues in the first nine months of fiscal 1997.
Selling and Marketing Expenses. Selling and marketing
expenses increased 137% to $1,029,750 (12% of revenues) in the
current quarter from $433,777 (11% of revenues) in the third
quarter of fiscal 1996. For the current nine month period,
selling and marketing expenses increased 160% to $2,565,097
(12% of revenues) from $987,120 (10% of revenues) for the first
nine months of fiscal 1996. The increase in selling and
marketing expenses in fiscal 1997 was primarily due to
additional sales and support personnel, including expansion of
operations in Europe and establishing operations and support
staff in the Asia/Pacific region in the current quarter, the
payment of commissions on sales in the Asia/Pacific region, and
to a lesser extent an increase in advertising, consulting,
trade shows and related travel costs. The Company anticipates
that it will continue to expand its selling and marketing
efforts for the remainder of fiscal 1997 and into fiscal 1998 to
keep up with anticipated growth.
General and Administrative Expenses. General and
administrative expenses increased 130% to $840,706 (10% of
revenues) in the current quarter from $364,895 (9% of
revenues) in the third quarter of fiscal 1996. For the current
nine month period, general and administrative expenses
increased 92% to $2,055,781 (9% of revenues) from $1,070,397
(11% of revenues) for the first nine months of fiscal 1996.
The increase in general and administrative expenses in fiscal
1997 was primarily attributable to an increase in personnel and
related costs (including one-time charges due to relocation
fees) as well as, for the nine month period, additional overhead
costs related to the Company's move to a new facility in
March 1996, to support its increased sales. The Company anticipates
that its general and administrative costs will continue to
increase for the remainder of fiscal 1997 and into fiscal 1998 to
keep up with anticipated growth.
Litigation Expenses. The Company incurred $77,000 and
$60,805 of litigation expenses in the third quarter of fiscal
1997 and 1996, respectively, primarily in connection with the
Company's patent litigation. Litigation expense for the first
nine months of fiscal 1997 and 1996 was $347,000 and $182,818,
respectively. On November 6, 1996, the Company entered into an
agreement with EG&G to settle EG&G's patent infringement claim
against the Company. The litigation expenses in fiscal 1997
also include expenses incurred in connection with the Company's
litigation with AS&E. In October 1996, the court dismissed
AS&E's infringement counterclaims, but allowed AS&E to raise
more specific counterclaims upon AS&E asserting factual support
for such claims. In December 1996, AS&E filed a motion for
leave to file an amended counterclaim asserting that the
Company is violating one AS&E patent. The court subsequently
dismissed AS&E's motion, but again allowed AS&E to raise more
specific infringement counterclaims upon AS&E's asserting
factual support for such claims. In February 1997, AS&E filed
a further memorandum in support of its motion for leave to file
an amended counterclaim. In April 1997, the Court denied
AS&E's motion and dismissed its counterclaim without granting
leave to file an amended counterclaim.
As a result of the Company's settlement with EG&G in
November, and the recent court rulings against AS&E, the
Company expects litigation expenses to decline for the
remainder of fiscal 1997.
Interest Income. The Company recognized net interest
income of $255,004 in the current quarter compared to net
interest expense of $22,450 in the third quarter of fiscal
1996. Net interest income increased to $573,298 in the current
nine month period from $2,076 in the comparable period in
fiscal 1996. The increase in fiscal 1997 was primarily
attributable to higher average cash balances resulting from the
receipt of net proceeds from the Company's initial public
offering.
Provision for Income Taxes. The Company's effective tax
rate for the first nine months of fiscal 1997 was 27% compared
to no provision for income taxes in the corresponding period in
fiscal 1996. The provision for income taxes in fiscal 1996 was
a result of the Company's recognition of a deferred tax asset.
This reduction reflects management's determination, in
accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards ("SFAS") No. 109,
that it is more likely than not that this deferred tax asset
will be utilized. If the Company had not recognized this
deferred tax asset, the Company's effective tax rate in the
first nine months of fiscal 1996 would have been 17%. The
Company expects that its effective tax rate will be slightly
lower than the statutory tax rates primarily due to the use of
tax credits and the tax benefits associated with the Company's
foreign sales corporation.
Liquidity and Capital Resources
The Company has funded its operations and capital
expenditures primarily through internally generated cash flow,
proceeds from the sale of securities and the availability of a
working capital line of credit. At June 30, 1997, the Company
had working capital of $27.8 million including $11.3 million in
cash and cash equivalents, and $6.4 million in short-term
investments. The Company also renewed and amended its bank line of
credit increasing the borrowing limit from $3.0 million to
$5.0 million. The revised line of credit expires February 28, 1998.
At June 30, 1997, the Company had no amounts outstanding under
this line of credit.
During the first nine months of fiscal 1997, the Company's
net cash used in operating activities was approximately $2.9
million. During that period, net income adjusted for non-cash
expenses including depreciation and amortization totaling $4.2
million, and increased customer deposits of $384,000 were
offset by a $3.9 million increase in accounts receivable, a $1.4 million
increase in inventories, and a $1.1 million and $670,000 decrease
in accrued expenses and accounts payble, respectively. The increase in
accounts receivable in the third quarter of fiscal 1997 reflects the
Company's increased sales activities and slower than anticipated payments.
Subsequent to June 30, 1997, the Company received payments of
approximately $3.9 million against the outstanding receivable balance at
June 30, 1997. The increase in inventories in the third quarter of fiscal
1997 reflects the Company's increased sales activity including its
expansion into the Asia/Pacific region.
During the first nine months of fiscal 1997, the Company's net
cash used in investing activities was approximately $6.7 million,
primarily reflecting the purchase of approximately $6.4 million of
short-term investments. Cash used in investing activities also
included capital expenditures for the first nine months of
fiscal 1997 of $360,000. While the Company does not have any
significant commitments for capital expenditures, the Company
anticipates that it will continue to purchase equipment to support
its anticipated growth.
During the first nine months of fiscal 1997, net cash
provided by financing activities was $19.2 million primarily
attributable to the receipt of net proceeds of approximately
$24.9 million from the initial public offering of the Company's
common stock. The Company used approximately $5.8 million of
the net proceeds of the offering to redeem all of its outstanding
shares of mandatorily redeemable non-convertible preferred stock.
The Company does not currently have any significant
capital commitments and believes that existing sources of
liquidity, including the net proceeds of its initial public
offering, funds expected to be generated from operations and
its line of credit will provide adequate cash to fund the
Company's anticipated working capital and other cash needs
through at least the next twelve months. However, for a brief
discussion of the factors that could adversely affect the
Company's financial position and results of operations, see the
opening paragraph of Item 2 above.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
which becomes effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 establishes new financial
accounting and reporting standards for stock-based compensation
plans. However, entities are allowed to elect whether to
measure compensation expense for stock-based compensation under
SFAS No. 123 or Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." The Company
has elected to remain with the accounting under APB No. 25 and
will make the required pro forma disclosures of net income and
earnings per share as if the provisions of SFAS No. 123 had
been applied in its September 30, 1997 financial statements.
The potential impact of adopting this standard on the Company's
pro forma disclosures of net income and earnings per share has
not been quantified at this time.
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 "Earnings Per Share" which establishes new
standards for calculating and presenting earnings per share.
The standard is effective for financial statements for periods
ending after December 15, 1997, with earlier application not
permitted. The Company will adopt this new standard in its
1998 financial statements, which will require the reporting of
diluted earnings per share and basic earnings per share.
Basic and diluted earnings per share using this standard
would have been $0.18 and $0.17, respectively, for the three
months ended June 30, 1997, and $0.24 and $0.05, respectively,
for the three months ended June 30, 1996. Basic and diluted
earnings per share using this standard would have been $0.45
and $0.40, respectively, for the nine months ended June 30,
1997, and $0.63 and $0.14, respectively, for the nine months
ended June 30, 1996. For the periods prior to the Company's
initial public offering on December 10, 1996, the Series B and
Series D convertible preferred stock are included in diluted
earnings per share. For the periods subsequent to the
Company's initial public offering the Series B and Series D
convertible preferred stock are included in both basic and
diluted earnings per share.
PART II - OTHER INFORMATION
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
No material developments.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(11) Statement Re: Computation of Earnings Per Share.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
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.
Vivid Technologies, Inc.
(Registrant)
August 14, 1997 /s/ S. David Ellenbogen
Date S. David Ellenbogen
Chief Executive Officer
August 14, 1997 /s/ William J. Frain
Date William J. Frain
Chief Financial Officer and Treasurer
(Principal Financial and Chief
Accounting Officer)
Exhibit 11
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
PRIMARY:
Net income $ 1,721,659 $ 410,190 $3,834,031 $1,051,078
Weighted average common
stock outstanding 9,313,866 1,679,020 3,548,553 1,676,929
Conversion of Series B and
Series D convertible
preferred stock -- 5,045,850 5,045,850 5,045,850
Stock issued within
twelve months of initial
public offering -- 144,542 38,545 144,542
Common stock
equivalents 1,013,617 1,332,872 1,046,760 716,333
Primary weighted
average number of
common and common
equivalent shares
outstanding 10,327,483 8,202,284 9,679,708 7,583,654
Per share amount $ .17 $ .05 $ .40 $ .14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 11,279,129
<SECURITIES> 6,403,812
<RECEIVABLES> 7,642,041
<ALLOWANCES> 0
<INVENTORY> 6,145,567
<CURRENT-ASSETS> 32,407,438
<PP&E> 2,440,666
<DEPRECIATION> 1,414,825
<TOTAL-ASSETS> 33,590,117
<CURRENT-LIABILITIES> 4,574,908
<BONDS> 0
0
0
<COMMON> 93,692
<OTHER-SE> 28,921,517
<TOTAL-LIABILITY-AND-EQUITY> 33,590,117
<SALES> 21,929,929
<TOTAL-REVENUES> 21,929,929
<CGS> 9,104,635
<TOTAL-COSTS> 17,321,583
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,277,234
<INCOME-TAX> 1,443,203
<INCOME-CONTINUING> 3,834,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 3,834,031
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
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