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 March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-28946
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)
(781) 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 April 30, 1998, 9,818,762 shares of the registrant's
Common Stock, $.01 par value, were issued and outstanding.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and September 30, 1997 3
Consolidated Statements of Operations
Three and Six Months Ended March 31, 1998
and 1997 4
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1998
and 1997 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 12
SIGNATURES 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, September 30,
1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 8,920,792 $11,571,630
Short-term investments 14,256,777 6,432,405
Accounts receivable 5,252,993 9,493,519
Inventories 8,272,093 6,195,096
Deferred tax asset 606,790 606,790
Other current assets 1,390,963 742,729
Total current assets 38,700,408 35,042,169
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,006,408 2,166,867
Equipment under capital leases 198,580 198,580
Leasehold improvements 225,150 165,995
Furniture and fixtures 102,882 84,462
2,533,020 2,615,904
Less- Accumulated depreciation
and amortization 1,259,100 1,531,709
1,273,920 1,084,195
Long-term investments 1,006,340 1,218,856
Other assets, net 1,236,829 111,377
$42,217,497 $37,456,597
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
1998 1997
CURRENT LIABILITIES:
Accounts payable 2,333,633 1,571,197
Accrued expenses 2,097,789 2,418,431
Customer deposits 2,648,015 1,755,788
Total current liabilities 7,079,437 5,745,416
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 30,000,000 shares
Issued and outstanding -
9,805,702 and 9,496,684 shares,
respectively 98,057 94,967
Capital in excess of par value 26,387,849 26,190,785
Retained earnings 8,652,154 5,425,429
Total stockholders' equity 35,138,060 31,711,181
$42,217,497 $37,456,597
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 Six Months Ended
March 31, March 31,
1998 1997 1998 1997
Revenues $ 9,746,939 $ 7,758,137 $19,146,251 $13,623,673
Cost of revenues 4,031,177 3,159,728 7,887,821 5,687,257
Gross margin 5,715,762 4,598,409 11,258,430 7,936,416
Operating expenses:
Research and
development 1,416,935 1,178,777 2,807,431 2,153,713
Selling and marketing 1,058,351 928,842 2,354,173 1,535,347
General and
administrative 1,008,029 736,040 2,046,677 1,215,075
Litigation expenses 60,000 145,000 120,000 270,000
Total operating
expenses 3,543,315 2,988,659 7,328,281 5,174,135
Income from operations 2,172,447 1,609,750 3,930,149 2,762,281
Other income, net 284,443 250,823 676,299 318,294
Income before provision
for income taxes 2,456,890 1,860,573 4,606,448 3,080,575
Provision for income
taxes 737,067 552,401 1,379,723 968,203
Net income $ 1,719,823 $ 1,308,172 $ 3,226,725 $ 2,112,372
NET INCOME PER SHARE
Basic $ .18 $ .14 $ .34 $ .37
Diluted $ .17 $ .13 $ .31 $ .23
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic 9,647,410 9,201,213 9,578,329 5,711,747
Diluted 10,312,068 10,333,866 10,311,453 9,355,821
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,226,725 $2,112,372
Adjustments to reconcile net
income to net cash provided by
operating activities-
Depreciation and amortization 351,131 215,530
Changes in assets and liabilities-
Accounts receivable 4,240,526 158,140
Inventories (2,076,997) (1,480,276)
Deferred tax asset -- (80,000)
Other current assets (648,234) (338,515)
Accounts payable 762,436 217,011
Accrued expenses (320,642) (1,060,915)
Customer deposits 892,227 921,631
Net cash provided by
operating activities 6,427,172 664,978
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment, net (413,972) (270,017)
Purchases of investments (14,840,856) --
Maturity of investments 7,229,000 --
Decrease (increase) in other assets (1,252,336) 121,906
Net cash used in investing
activities (9,278,164) (148,111)
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 200,154 35,425
Redemption of series A and series C
preferred stock -- (5,780,650)
Payments on capital lease obligations -- (31,972)
Net cash provided by financing
activities 200,154 19,143,275
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,650,838) 19,660,142
CASH AND CASH EQUIVALENTS,
beginning of period 11,571,630 1,661,724
CASH AND CASH EQUIVALENTS,
end of period $ 8,920,792 $21,321,866
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Income tax $ 1,179,184 $ 570,000
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,
1997, included in the Company's Form 10-K as filed with the
Securities and Exchange Commission.
The consolidated balance sheet as of March 31, 1998, the
consolidated statements of operations for the three months and
six months ended March 31, 1998 and 1997, and the consolidated
statements of cash flows for the six months ended March 31,
1998 and 1997, 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 six months ended March
31, 1998 are not necessarily indicative of the results to be
expected for the entire fiscal year ending September 30, 1998.
(2) Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market and consist of the following:
March 31, September 30,
1998 1997
Raw materials $4,374,024 $3,175,211
Work-in-process 2,274,046 1,743,746
Finished goods 1,624,023 1,276,139
$8,272,093 $6,195,096
Finished goods consist of material, labor and
manufacturing overhead.
(3) Significant Customer and Concentration of Credit Risk
In the six months ended March 31, 1998, the Company had
two customers who comprised 39% and 24% of revenues,
respectively. These customers had amounts due to the Company
of approximately $1.5 million and $554,000, respectively, at
March 31, 1998. Through May 12, 1998, the Company received
payments of $1.1 million against these receivable balances. In
the six months ended March 31, 1997, the Company had one
customer who comprised 58% of revenues.
The Company may be affected, for the foreseeable future,
by the unstable economy caused by the currency volatility in
the Asia Pacific region. As a result, there are uncertainties
that may affect future operations, including the recoverability
of receivables. It is not possible to determine the future
effect a continuation of the economic crisis may have on the
Company's liquidity and earnings. Related effects will be
reported in the financial statements as they become known and
estimable. As of March 31, 1998, the Company had approximately
$1.1 million of receivables denominated in foreign currencies.
There are no outstanding forward foreign exchange contracts.
(4) Earnings Per Share
Effective December 31, 1997, the Company adopted SFAS No.
128 "Earnings Per Share" which establishes new standards for
calculating and presenting earnings per share. The Company has
applied the provisions of SFAS 128 and Staff Accounting
Bulletin (SAB) 98 retroactively to all periods presented. Anti-
dilutive weighted shares of approximately 245,000 and 244,000
for the three and six months ended March 31, 1998,
respectively, have been excluded from the weighted average
number of common and dilutive potential common shares
outstanding. There were no anti-dilutive shares for the three
and six months ended March 31, 1997. The following is an
illustration of the reconciliation of the numerators and
denominators of the basic and diluted EPS computations for "Net
Income."
Three Months Ended
March 31, March 31,
1998 1997
Net Income $1,719,823 $1,308,172
Basic weighted average shares outstanding 9,647,410 9,201,213
Weighted average common equivalent shares 664,658 1,132,653
Diluted weighted average shares outstanding 10,312,068 10,333,866
Basic earnings per share $.18 $.14
Diluted earnings per share $.17 $.13
Six Months Ended
March 31, March 31,
1998 1997
Net Income $3,226,725 $2,112,372
Basic weighted average shares outstanding 9,578,329 5,711,747
Weighted average common equivalent shares 733,124 3,644,074
Diluted weighted average shares outstanding 10,311,453 9,355,821
Basic earnings per share $.34 $.37
Diluted earnings per share $.31 $.23
(5) Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim
basis. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. SFAS No.
130 is effective for fiscal years beginning after December 15,
1997. The Company's total comprehensive income for the three
and six month periods ended March 31, 1998 and 1997 was the
same as reported net income for those periods.
In July 1997, the FASB issued SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." SFAS
No. 131 requires certain financial and supplementary
information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997.
Unless impracticable, companies would be required to restate
prior period information upon adoption.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides
guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. The Company
does not believe that the impact of SOP 98-5 will have a
material impact on its financial statements.
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, known and unknown, 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, economic
conditions in the Company's targeted markets, 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. Reference is made to the
"Risk Factors" section of the Company's report on Form 10-K for
the year ended September 30, 1997 for additional discussion of
factors which may affect the Company's results of operations.
Results of Operations
Revenues. Revenues for the second quarter of fiscal 1998
increased 26% to $9,746,939 from $7,758,137 for the second
quarter of fiscal 1997. Revenues for the current six month
period increased 41% to $19,146,251 from $13,623,673 for the
first six months of fiscal 1997. This increase in revenues was
the result of an increase in product sales and the recognition
of approximately $1.2 million in revenues from an FAA
development grant for the first six months of fiscal 1998. The
increase in product sales was primarily attributable to the
total number of product shipments to Europe, the United States,
and the completion of shipments to the new Hong Kong airport.
During the first six months of fiscal 1998, the Company
completed shipments to Kuala Lumpur International Airport,
Malaysia and Chek Lap Kok Airport in Hong Kong, for a total of
29 and 23 systems, respectively. These systems will play a
major role in the 100% screening process when the airports open
this summer. During this period the Company also shipped
systems to BAA, plc, British Airways, France, the FAA, and JFK
Terminal One. The shipments to JFK were the first shipments by
the Company to an airport in the United States. The
installation at JFK will be the first terminal in the United
States to automatically inspect 100% of passenger baggage for
explosives. The terminal is scheduled to open in May 1998.
In addition to the checked baggage systems shipped, the Company
delivered two units of the new Model APS for hand baggage
screening to the U.S. Government for building protection. In
addition to the shipments in the first six months of fiscal
1998, the Company has received orders from airports in
Liverpool (UK), Belfast, Northern Ireland, and Billund,
Denmark.
In the first six months of fiscal 1998, 90% of product
revenues were generated internationally, approximately 60% in
Europe, and 30% in Asia. In the second quarter of fiscal 1998,
approximately 65% of product revenues were generated
internationally, approximately 50% in Europe and 15% in Asia.
In the first six months of fiscal 1997, 100% of product
revenues were generated internationally, approximately 70% in
Europe, and 30% in Asia.
Gross Margin. Gross margin, as a percentage of sales,
was 59% for the three months ended March 31, 1998 and 1997.
For the first six months of fiscal 1998, gross margin increased
as a percentage of sales to 59% from 58% for the first six
months of fiscal 1997. The slight increase in gross margin in
fiscal 1998 was primarily attributable to the decrease,
commencing in the second quarter of fiscal 1997, 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, offset by a lower average selling price
due to product mix.
Research and Development Expenses. Research and
development expenses increased 20% to $1,416,935 (15% of
revenues) in the current quarter from $1,178,777 (15% of
revenues) in the second quarter of fiscal 1997. For the
current six month period, research and development expenses
increased 30% to $2,807,431 (15% of revenues) from $2,153,713
(16% of revenues) for the first six months of fiscal 1997. The
increase in research and development expenses in fiscal 1998
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 the next
generation system and enhancements to the APS system for carry-
on baggage.
Selling and Marketing Expenses. Selling and marketing
expenses increased 14% to $1,058,351 (11% of revenues) in the
current quarter from $928,842 (12% of revenues) in the second
quarter of fiscal 1997. For the current six month period,
selling and marketing expenses increased 53% to $2,354,173 (12%
of revenues) from $1,535,347 (11% of revenues) for the first
six months of fiscal 1997. The increase in selling and
marketing expenses in fiscal 1998 was primarily due to
additional sales and support personnel, including expansion of
operations in Europe and the Asia/Pacific region, the payment
of commissions on sales in the Asia/Pacific region, and an
increase in public relations and consulting, trade shows and
related travel costs. The Company anticipates that it will
continue to expand its selling and marketing efforts in the
remainder of fiscal 1998
General and Administrative Expenses. General and
administrative expenses increased 37% to $1,008,029 (10% of
revenues) in the current quarter from $736,040 (10% of
revenues) in the second quarter of fiscal 1997. For the
current six month period, general and administrative expenses
increased 68% to $2,046,677 (11% of revenues) from $1,215,075
(9% of revenues) for the first six months of fiscal 1997. The
increase in general and administrative expenses in fiscal 1998
was primarily attributable to an increase in personnel and
related costs, including key management positions filled at the
end of the second quarter of fiscal 1997, and an increase in
license fees and patent amortization costs. The Company
anticipates that it will continue to increase its general and
administrative costs in the remainder of fiscal 1998.
Litigation Expenses. The Company incurred $60,000 and
$145,000 of litigation expenses in the second quarter of
fiscal 1998 and 1997, respectively, primarily in connection
with the Company's patent litigation. Litigation expense for
the first six months of fiscal 1998 and 1997 was $120,000 and
$270,000, 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 1998 includes expenses incurred in
connection with the Company's litigation with AS&E. In January
1998, in a final judgement in favor of the Company, the Court
dismissed all of AS&E's claims and declared that the Company
does not infringe on any of AS&E's patents. In April 1998,
AS&E filed a motion to appeal this decision.
Other Income. The Company recognized net other income of
$284,443 in the current quarter compared to $250,823 in the
second quarter of fiscal 1997. Net other income increased to
$676,299 in the current six month period from $318,294 in the
comparable period in fiscal 1997. The increase in fiscal 1998
was primarily attributable to an increase in interest income
attributable to higher average cash balances available for
investments. The increase in other income was slightly offset
by an increase in hedge costs associated with the Company's
forward foreign exchange contract and transaction losses.
Provision for Income Taxes. The Company's effective tax
rate for the first six months of fiscal 1998 was 30% compared
to 31% in the corresponding period in fiscal 1997. The Company
expects that its effective tax rate will be slightly lower than
the statutory tax rates primarily due to the use of research
and development tax credits and the tax benefits associated
with the Company's foreign sales and securities corporations.
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 March 31, 1998, the Company
had working capital of $31.6 million including $23.2 million in
cash and cash equivalents and short-term investments. In
addition, the Company had approximately $1.0 million in long-
term investments, with average maturities of 15 months. The
Company also has a $5.0 million bank line of credit that
officially expired on February 28, 1998. The Company's bank
line of credit bears interest at the bank's prime rate (8.5% as
of March 31, 1998). The line of credit is secured by
substantially all of the Company's assets and contains certain
financial and other covenants. At March 31, 1998, the Company
had no amounts outstanding under this line of credit. The
Company is currently negotiating a renewal of the line of
credit on an unsecured basis.
During the first six months of fiscal 1998, the Company's
net cash provided by operating activities was approximately
$6.4 million. During that period, net income adjusted for non-
cash expenses including depreciation and amortization totaling
$3.6 million, a decrease of $4.2 million in accounts
receivable, and an increase in accounts payable of $762,000 and
customer deposits of $892,000 were partially offset by a
$321,000 decrease of accrued expenses and a $648,000 increase
in other current assets and a $2.1 million increase in
inventories. The increase in inventories in the second quarter
of fiscal 1998 reflects increased inventories associated with
the commercial introduction of the new APS system and increased
sales activity.
The Company's capital expenditures for the first six
months of fiscal 1998 were approximately $414,000. While the
Company does not have any significant commitments for capital
expenditures for the remainder of fiscal 1998, the Company
anticipates that it will continue to purchase equipment to
support its anticipated growth and explore acquisition
opportunities.
During the first six months of fiscal 1998, net cash used
in investing activities was approximately $9.3 million. Net
cash used in investing activities was primarily attributable to
the net increase of $7.6 million in investments and an increase
of $1.2 million in other assets related to the licensing of
technology.
During the first six months of fiscal 1998, net cash
provided by financing activities was approximately $200,000.
Net cash provided by financing activities was attributable to
the receipt of net proceeds from the exercise of stock options.
The Company has examined issues related to the Year 2000
and believes that it will not have a material impact on its
business, operations or its financial condition.
The Company believes that existing sources of liquidity,
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.
The Company may be affected, for the foreseeable future,
by the unstable economy caused by the currency volatility in
the Asia Pacific region. As a result, there are uncertainties
that may affect future operations, including the recoverability
of receivables. It is not possible to determine the future
effect a continuation of the economic crisis may have on the
Company's liquidity and earnings.
PART II - OTHER INFORMATION
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
Patent Litigation. In May 1996, the Company
commenced an action in the United States District Court for the
District of Massachusetts against AS&E seeking a declaration
that the Company does not infringe AS&E patents related to back
scattered X-rays. This followed AS&E's allegations of
infringement to third parties. In January 1998, in a final
judgment in favor of the Company, the Court dismissed all of
AS&E's claims and declared that the Company does not infringe
on any of AS&E's patents. In April 1998, AS&E filed a motion
in the Court of Appeals for the Federal Circuit to appeal this
decision.
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:
(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)
May 15, 1998 /s/ S. David Ellenbogen
Date S. David Ellenbogen
Chief Executive Officer
May 15, 1998 /s/ William J. Frain
Date William J. Frain
Chief Financial Officer and Treasurer
(Principal Financial and Chief Accounting
Officer)
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 8,920,792
<SECURITIES> 14,256,777
<RECEIVABLES> 5,252,993
<ALLOWANCES> 0
<INVENTORY> 8,272,093
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<PP&E> 2,533,020
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