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 December 31, 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)
(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 January 31, 1998, 9,543,334 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
December 31, 1997 and September 30, 1997 3
Consolidated Statements of Operations
Three Months Ended December 31, 1997
and 1996 4
Consolidated Statements of Cash Flows
Three Months Ended December 31, 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 12
SIGNATURES 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
December 31, September 30,
1997 1997
CURRENT ASSETS:
Cash and cash equivalents $15,503,670 $11,571,630
Short-term investments 7,155,261 6,432,405
Accounts receivable 5,304,672 9,493,519
Inventories 7,305,708 6,195,096
Deferred tax asset 606,790 606,790
Other current assets 1,396,125 742,729
Total current assets 37,272,226 35,042,169
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 1,825,545 2,166,867
Equipment under capital leases 198,580 198,580
Leasehold improvements 182,737 165,995
Furniture and fixtures 99,916 84,462
2,306,778 2,615,904
Less- Accumulated depreciation
and amortization 1,143,776 1,531,709
1,163,002 1,084,195
Long-term investments 562,876 1,218,856
Other assets, net 1,299,936 111,377
$40,298,040 $37,456,597
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
1997 1997
CURRENT LIABILITIES:
Accounts payable $ 2,336,434 $ 1,571,197
Accrued expenses 2,574,310 2,418,431
Customer deposits 2,145,588 1,755,788
Total current liabilities 7,056,332 5,745,416
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized - 1,000,000 shares
Issued and outstanding - None -- --
Common stock, $.01 par value-
Authorized - 30,000,000 shares
Issued and outstanding -
9,522,834 and 9,496,684
shares, respectively 95,228 94,967
Capital in excess of par value 26,214,149 26,190,785
Retained earnings 6,932,331 5,425,429
Total stockholders' equity 33,241,708 31,711,181
$40,298,040 $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
December 31,
1997 1996
Revenues $9,399,312 $5,865,536
Cost of revenues 3,856,644 2,527,529
Gross margin 5,542,668 3,338,007
Operating expenses:
Research and development 1,390,496 974,936
Selling and marketing 1,295,822 606,505
General and administrative 1,038,648 479,035
Litigation expenses 60,000 125,000
Total operating expenses 3,784,966 2,185,476
Income from operations 1,757,702 1,152,531
Other income, net 391,856 67,471
Income before provision for
income taxes 2,149,558 1,220,002
Provision for income taxes 642,656 415,802
Net income $ 1,506,902 $ 804,200
NET INCOME PER SHARE:
Basic $ .16 $ .23
Fully Diluted $ .15 $ .10
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Basic 9,509,248 3,435,364
Fully Diluted 10,310,839 8,377,776
The accompanying notes are an integral part of these
consolidated financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,506,902 $804,200
Adjustments to reconcile net
income to net cash used in
operating activities-
Depreciation and amortization 172,365 110,154
Changes in assets and liabilities-
Accounts receivable 4,188,847 (706,680)
Inventories (1,110,612) (1,220,295)
Other current assets (653,396) (226,512)
Accounts payable 765,861 752,738
Accrued expenses 155,879 (662,599)
Customer deposits 389,800 404,284
Net cash provided by (used in)
operating activities 5,415,646 (744,710)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment, net (187,730) (83,431)
Purchases of investments (2,946,876) --
Maturity of investments 2,880,000 --
Decrease (increase) in other
assets (1,252,001) 124,558
Net cash provided by (used
in) investing activities (1,506,607) 41,127
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial
public offering -- 21,554,088
Proceeds from exercise of
stock options 23,625 26,650
Redemption of series A and
series C preferred stock -- (5,780,650)
Payments on capital lease obligations (624) (29,255)
Net cash provided by
financing activities 23,001 15,770,833
NET INCREASE IN CASH AND
CASH EQUIVALENTS 3,932,040 15,067,250
CASH AND CASH EQUIVALENTS,
beginning of period 11,571,630 1,661,724
CASH AND CASH EQUIVALENTS,
end of period $15,503,670 $16,728,974
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Income tax $ 86,500 $ 415,802
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 December 31, 1997,
the consolidated statements of operations for the three months
ended December 31, 1997 and 1996, and the consolidated
statements of cash flows for the three months ended December
31, 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 three months ended
December 31, 1997 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:
December 31, September 30,
1997 1997
Raw materials $4,303,703 $3,175,211
Work-in-process 1,765,398 1,743,746
Finished goods 1,236,607 1,276,139
$7,305,708 $6,195,096
Finished goods consist of material, labor and
manufacturing overhead.
(3) Significant Customer and Concentration of Credit Risk
In the three months ended December 31, 1997, the Company
had three customers who comprised 35%, 28% and 13% of revenues,
respectively. These customers had amounts due to the Company
of approximately $1,691,000, $94,000 and $2,146,000 at December
31, 1997. Through February 13, 1998, the Company received
payments of $1,200,000 against these receivable balances. In
the three months ended December 31, 1996, the Company had one
customer who comprised 64% of revenues.
As of December 31, 1997, the Company had approximately
$3,840,000 of receivables denominated in foreign currencies.
The Company has entered into a forward foreign exchange
contract to hedge approximately $1.7 million of receivables
denominated in Hong Kong dollars which mature through February
28, 1998. The unrealized gain (loss) was not material as of
December 31, 1997.
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.
(4) Earnings Per Share
In February 1997, the Financial Accounting Standards Board
(FASB) 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. These financial statements
have been prepared and presented based on the new standard.
Prior period amounts have been restated to conform to the
current year presentation. 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
December 31, December 31,
1997 1996
Net Income $1,506,902 $804,200
Basic weighted average shares outstanding 9,509,248 3,435,364
Weighted average common equivalent shares 801,591 4,942,412
Diluted weighted average shares outstanding 10,310,839 8,377,776
Basic earnings per share $.16 $.23
Diluted earnings per share $.15 $.10
Options to purchase 230,000 shares of common stock at
prices ranging from $15.88-$16.75 per share were outstanding
during the period ended December 31, 1997 but were not included
in the computation of diluted EPS because the exercise price
was greater than the average market price of the common shares.
(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.
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.
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 first quarter of fiscal 1998
increased 60% to $9,399,312 from $5,865,536 for the first
quarter of fiscal 1997. This increase in revenues was the
result of an increase in product sales and the recognition of
$609,000 in revenue from an FAA development grant partially
offset by slightly lower average selling prices. The increase
in product sales was primarily attributable to the total number
of product shipments to Europe and Asia. The Company also had
an increase in parts and service revenue.
During the first three months of fiscal 1998, the Company
completed shipments to Kuala Lumpur International Airport, for
a total of 29 systems for 100% screening when the airport opens
this summer. The Company also shipped systems to BAA, British
Airways, France and the French territories and Hong Kong. In
November 1997, the Company received an order from the new
Terminal One at JFK International Airport for thirteen systems
to enable the terminal to perform 100% screening of checked and
carry-on baggage. An order was also received from an U.S.
Government Agency for the purchase of six of the Company's
Advanced Package Screener (APS), for security at a number of
high profile buildings.
In the first three months of fiscal 1998, 100% of product
revenues were generated internationally, approximately 55% in
Europe, and 45% in Asia. In the first three months of fiscal
1997, 100% of product revenues were generated internationally,
approximately 70% in Europe, and 30% in Asia
During the three months ended December 31, 1997, the
Company had a customer who comprised 35% of reveneues. This
customer is nearing completion of deployment of checked baggage
explosives detection systems at their airport. As a result,
the Company expects that its revenues from this customer will
decrease and will become increasingly dependent upon sales or
upgrades, replacement equipment and services. The inability of
the Company to obtain orders from customers other than this
would have a material adverse effect on the Company's business
and financial condition.
Gross Margin. Gross margin increased as a percentage of
sales to 59% in the current quarter from 57% in the first
quarter of fiscal 1997. The 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. Continued manufacturing efficiencies and cost
reductions were partially offset by slightly lower average
selling prices.
Research and Development Expenses. Research and
development expenses increased 43% to $1,390,496 (15% of
revenues) in the current quarter from $974,936 (17% of
revenues) in the first quarter of fiscal 1997. The increase in
research and development expenses was primarily due to the
addition of engineering personnel and outside consultants
working on the development of a next generation system and the
development of new products and enhancements to existing
products, including enhancements to the APS system for
screening parcels and carry-on baggage.
Selling and Marketing Expenses. Selling and marketing
expenses increased 114% to $1,295,822 (14% of revenues) in the
current quarter from $606,505 (10% of revenues) in the first
quarter of fiscal 1997. The increase in selling and marketing
expenses 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 second quarter of fiscal 1997, 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 expenses. The Company anticipates
that it will continue to expand its selling and marketing
efforts for the remainder of fiscal 1998.
General and Administrative Expenses. General and
administrative expenses increased 117% to $1,038,648 (11% of
revenues) in the current quarter from $479,035 (8% of revenues)
in the first quarter of fiscal 1997. The increase in general
and administrative expenses was primarily attributable to an
overall increase in personnel and related costs including key
management positions filled in the second quarter of fiscal
1997. Also, during the current quarter the Company had a one-
time compensation-related charge of approximately $200,000.
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
$125,000 of litigation expenses in the first quarter of fiscal
1998 and 1997, respectively, primarily in connection with the
Company's patent litigation. 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 January
1998, the Court issued a final judgment in favor of the
Company.
Other Income. The Company recognized net interest income
of $252,000 in the current quarter compared to $67,000 in the
first quarter of fiscal 1997. The increase was primarily
attributable to higher average cash balances available for
investment during the current quarter. Additionally, the
Company recognized a gain of approximately $139,900 on foreign
currency transactions for the three months ended December 31,
1997.
Provision for Income Taxes. The Company's effective tax
rate for the first three months of fiscal 1998 was 30%. The
Company expects that its effective tax rate will continue to 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
corporation.
Liquidity and Capital Resources
The Company has funded its operations and capital
expenditures primarily through internally generated cash flows,
proceeds from the sale of securities and the availability of a
working capital line of credit. At December 31, 1997, the
Company had working capital of $30.2 million including $22.7
million in cash and cash equivalents and short-term
investments. In addition, the Company had approximately
$560,000 in long-term investments, with average maturities of
15 months. The Company also has a $5.0 million bank line of
credit which expires February 28, 1998. The Company is
currently in negotiations with the bank to renew the credit
facility. The Company's bank line of credit bears interest at
the bank's prime rate (8.5% as of December 31, 1997). The line
of credit is secured by substantially all of the Company's
assets and contains certain financial and other covenants. At
December 31, 1997, the Company had no amounts outstanding under
this line of credit.
During the first three months of fiscal 1998, the
Company's net cash provided by operating activities was
approximately $5.4 million. During that period, net income
adjusted for non-cash expenses including depreciation and
amortization totaling $1.7 million, a decrease of $4.2 million
in accounts receivable, and increases of $766,000 in accounts
payable and $390,000 in customer deposits were partially offset
by a $1.1 million increase of inventories and $653,000 increase
in other current assets. The decrease in accounts receivable
in the first quarter of fiscal 1998 reflects approximately $7.0
million in payments from Hong Kong Airport Authority during the
quarter. The increase in inventories was due to the purchase
of raw materials in anticipation of increased sales.
The Company's capital expenditures for the first three
months of fiscal 1998 were approximately $188,000. 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.
During the first three months of fiscal 1998, net cash
used in investing activities was approximately $1.5 million.
Net cash used in investing activities in the first three months
of fiscal 1998 was primarily attributable to the license of
certain technology in other assets.
During the first three months of fiscal 1998, net cash
provided by financing activities was $23,000. Net cash
provided by financing activities in the first three months of
fiscal 1997 was primarily 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 nor its financial condition.
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.
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 factors that could adversely affect the Company's
financial position and results of operations, see the opening
paragraph of Item 2 above.
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. No discovery has been taken to
date. Following a court decision in July 1997 construing the
claims of the AS&E patent, which decision the Company considers
favorable, in September 1997 the Company filed a motion for
summary judgment of non-infringement. AS&E has not yet filed
its papers in opposition to the Company's motion but is seeking
discovery. If granted, the Company's motion will resolve all
issues remaining in the case in favor of the Company. Earlier,
in April 1997, the Court dismissed AS&E's proposed counterclaim
seeking to allege patent infringement, so that the only
remaining issue in the case is the Company's request for
declaration of non-infringement of two claims of a single AS&E
patent. 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.
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)
Date: February 13, 1998 /s/ S. David Ellenbogen
S. David Ellenbogen
Chief Executive Officer
Date: February 13, 1998 /s/ William J. Frain
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
December 31,
1997 1996
Net income $1,506,902 $ 804,200
Weighted average common
stock outstanding 9,509,248 2,222,281
Conversion of Series B and
Series D convertible
preferred stock -- 1,096,924
Stock issued within twelve months
of initial public offering -- 116,159
Basic weighted average shares
outstanding 9,509,248 3,435,364
Common stock equivalents 801,591 4,942,412
Diluted weighted average number of
shares outstanding 10,310,839 8,377,776
Per share amount (Basic) $ .16 $ .23
Per share amount (Diluted) $ .15 $ .10
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<PERIOD-END> DEC-31-1997
<CASH> 15,503,670
<SECURITIES> 7,155,261
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